The ‘Fiduciary Rule’ that Wasn’t

  After years of anticipation — and months of litigation — the Department of Labor’s latest attempt to expand the definition of fiduciary investment advice is now dead.

That said, and with apologies to Mark Twain, reports of the “death” of the fiduciary rule are somewhat exaggerated. The 2024 version — the so-called Retirement Security Rule — was vacated, which, in legal terms, means we treat it as if it never existed.

But ERISA’s fiduciary framework remains very much alive.

Indeed, for advisors already serving as fiduciaries for retirement plans under the Employee Retirement Income Security Act of 1974, the practical impact of the recent court ruling is minimal. Advisors serving as 3(21) fiduciaries or 3(38) investment managers were — and remain — subject to ERISA’s duties of prudence and loyalty. 

Many advisory firms, frankly, had already adopted procedures and business models that would likely have satisfied even the Obama-era fiduciary rule.

Where the rule would have mattered was around the edges of the retirement advice marketplace, particularly in the increasingly scrutinized area of rollover recommendations.  That’s where the Labor Department — across three administrations — tried, unsuccessfully, to extend its oversight. 

And however well-intentioned those efforts were in terms of protecting rollover decisions, they always struck this writer as something of a stretch.

The Rollover Question

Under the longstanding framework — rooted in a 1975 regulation — an advisor becomes an ERISA fiduciary only if the advice satisfies a five-part test, including that it be provided on a “regular basis.”  As a result, a one-time recommendation to roll assets from a plan to an IRA would likely fall outside that definition.

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The now-abandoned rule sought to change that dynamic by broadening the circumstances under which advice would trigger fiduciary status — basically laying the foundation for a rule that said a single advice recommendation that was the basis for an ongoing relationship could qualify.  With the rule’s demise, that expansion isn’t happening — at least for now. 

So, it’s not as though there is no fiduciary rule — but to fall under its auspices, advice will need to meet the five-part test — as it has for the past 50 years.

A Familiar Regulatory Patchwork

The result is that the retirement advice marketplace continues to operate under a patchwork of standards.

Advice to a plan sponsor about investment options or plan design typically falls squarely under ERISA fiduciary obligations. But recommendations made to participants — particularly those involving distributions or rollovers — may instead fall under securities regulations such as Regulation Best Interest (a.k.a. Reg BI). 

In practice, the same advisor may operate under different regulatory regimes depending on the conversation.  For sponsors and participants, the distinction is rarely obvious.  And therein lies the danger.

Participants — and often plan sponsors — tend to assume the advisor across the table is already acting in their best interests. 

And this is as good a time as any to remind those you serve about the difference(s).

The Industry Has Already Moved

Even so, the demise of the 2024 rule doesn’t necessarily signal a return to the past[i].

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Over the past decade — beginning with the now-vacated Department of Labor Fiduciary Rule — many firms have shifted toward advisory models that emphasize fiduciary relationships, level fees, and reduced conflicts of interest.

In other words, while the regulatory framework remains largely unchanged, many advisors' business practices have already evolved.  And while some corners of the industry (looking at you, insurance) have resisted that shift, retirement-plan advisors largely haven’t.

Not the End of the Story

If the past decade has shown anything, it’s that the debate over fiduciary advice isn’t a single rulemaking — it’s a regulatory cycle.

For now, the practical reality is simple: advisors who were ERISA fiduciaries before remain ERISA fiduciaries today, and those who weren’t haven’t suddenly been “transformed”. 

But there remain rules — and standards — in place and active despite the recent ruling.

The larger question — whether rollover advice should carry fiduciary responsibility — will likely be settled only in the next regulatory round. Or maybe even by Congress.

-          Nevin E. Adams, JD

[i] Indeed, in addition to the five-part test, PTE 2020-02 remains in effect.

Lawyers, Funds and Money

  I recently stumbled across a report that claimed a “Massive Gap Between Participant and Attorney Recoveries in ERISA Lawsuits.”

That wasn’t exactly news to me, though it was a handy quantification[i] of a subset of ERISA settlements to make the case that the per-participant recoveries in ERISA litigation pale in comparison to the 25%–33% “pay day” that the plaintiffs’ bar gets in cases where there is a settlement.

The report — by Davis & Harman — focused on 27 settlements in 2025 involving (only) underperformance and excessive fee cases. In producing their conclusion, they employed some math that was arguably a bit “squishy”[ii] — and the results are all over the board — but you didn’t need to rely on that to see — and appreciate — the huge gap between what wound up in the lawyers’ pockets versus participants.

The rationale is, of course, that class action suits can be expensive to mount and pursue. The attorneys take on these cases, investing their time, energy, and money for years (and in some cases, decades) with no offsetting compensation. And, of course, there was no tally for all the cases filed that wound up with no recovery to counterbalance that expense.

But — let’s face it — when there is a “payday” for plaintiffs’ attorneys, it nearly always dwarfs whatever recovery they win for individual participants, if only because the recovery (net of attorneys’ fees, their expenses, the compensation to named plaintiffs, and the expense of administering the recovery) gets spread among thousands, and sometimes tens of thousands, of participants[iii] (we’re nearly always talking about large plans, after all). 

Moreover, there are plenty of signs that certain firms are simply “in it” for the quick settlement “funded” by insurance money (the exhaustion of which likely incentivizes many a settlement). Little wonder that some of these firms begin their career with a personal injury focus.

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There’s an argument to be made (and, trust me, the plaintiffs’ bar makes it) that litigation — or perhaps more precisely fear of future/potential litigation — has led to any number of long-term positive outcomes for the system overall. We’re talking about lower fund expenses, special (less expensive) retirement share classes, widespread availability of collective investment trusts, a reduction in revenue-sharing practices, greater reliance on passive/index fund options, etc. And there’s merit in those outcomes, though I’d be hard-pressed to “credit” that as a goal or objective of the firms that brought litigation.

However, there is something to be said for the renewed “outside” perspective that litigation has brought to retirement plan design and administration; would the move toward less expensive fund options have occurred as rapidly as it did without all those excessive fee suits? Would we be questioning the efficacy of managed accounts? The unbridled use of participant data? Would we, even today, be reminding folks to look to their plan documents to make sure it aligns with their forfeiture reallocation procedures?

But then, there are also any number of (at least potentially) positive changes (retirement income, alternative investments, managed accounts, target-date funds as a default, and at one time even automatic enrollment) that have been held in abeyance for fear of being sued. And let’s face it — the pace of litigation has led to significantly higher insurance premiums for every retirement plan. That’s a price we all pay.[iv]

In fairness, the vast majority of retirement plans will never be confronted with a class action lawsuit — they are, quite simply, too small to attract the attention of even the greediest plaintiffs’ attorneys.

Frankly, I’ve always considered the fear of litigation to be a poor motivator of good behaviors, though there are lessons to be learned.

Litigation may grab headlines and enrich attorneys, but it’s not a retirement strategy. The real work — and the real value — comes from plan fiduciaries who understand their role, document their decisions, and act solely in participants’ best interests.

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That’s where — and how — participant outcomes are actually improved.

Not because of litigation — but in spite of it.

• Nevin E. Adams, JD

 

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[i] See Davis & Harman Survey Highlights Massive Gap Between Participant and Attorney Recoveries in ERISA Lawsuits – Davis & Harman LLP.

[ii] They compared the median of the average per-participant award to the average plaintiff’s attorney’s fees…focused only on excessive fee and underperformance suits settled in 2025.

[iii] The participant-plaintiffs named in the suits fare better, of course, with “awards” routinely coming in between $5,000 and $10,000 each, though their investment of time and reputation surely counts for something.

[iv] Settlement amounts, though not insignificant, can be just the tip of the iceberg when it comes to tallying up the cost of litigation. Rarely acknowledged is the cost in time and outside counsel required to defend against litigation, much less the enormous cost of discovery, depositions, etc., before you even get to trial. 

A PEP-spective on Fiduciary Reviews

  Some months back, the Labor Department published an intriguing three-part “proposed rule” that, to my eye, offered helpful fiduciary tips that go well beyond pooled employer plans (PEPs).

The title alone — “Pooled Employer Plans: Big Plans for Small Businesses” — told you all you needed to know about the motives behind the publication. And, true to form, both the data provided on the current state of pooled employer plan adoption and the focus of the request for information (RFI) included were very much in the spirit of removing barriers to PEP adoption, if not outright promotion of the same.

But what I viewed as the third part of the publication (though it’s labeled V. Fiduciary Tips for Small Employers Selecting a PEP) was, to my eye, the most intriguing aspect, in no small part because it served as a valuable reminder that there ARE fiduciary considerations in making that choice — something that purveyors of that option have been known to gloss over.

As I was recently scanning these — it occurred to me that these admonitions could — and should — be broadly applied to pretty much any new plan option — and not just for small employers.

To that end, consider the following as a fill-in-the-blank template, replacing the word PEP with, say — alternative investments, cryptocurrency, retirement income, or a managed account. Consider:

The Considerations

1. Consider what ________ [i] has to offer you and your employees.

The PEP-focused explanation emphasizes an opportunity to leverage economies of scale, as well as to free up time for plan fiduciaries to run their business “…while simultaneously providing your employees with an opportunity to save and achieve retirement security.”  While that buries the lead a bit, it’s a reminder that your actions need to be prudent and in the best interests of plan participants and beneficiaries” — but mostly a reminder to consider the benefits and costs of the service(s) under consideration.

• Make sure you understand the type of ____________ under consideration.

The PEP-focused explanation notes that, while this option has certain things in common, they aren’t all the same, and don’t operate in the same way — that plan fiduciaries should consider the needs and best fit, and the importance of considering several before making a choice. The same thing is true with pretty much every option that might be under consideration, as the labels retirement income, alternative investments, and managed accounts are widely applied to very different products and operational considerations.

• Make sure you consider the experience and qualifications of the _______.

While the pooled plan provider (PPP) is mentioned here, every service offering is delivered by a provider of some type, and as this tip reminds, “understanding the experience and qualifications” of this entity “…is one of the most important — if not the single most important — aspects….” That means you need to ask and understand “questions relating to the quality of their services, customer satisfaction, prior litigation or government enforcement matters…” as well as “the number of employers and participants in the plan and the amount of its assets….” Basically, you want to make sure that the entity is capable — and has a track record — to fulfill the promises that have been made, and the needs of your plan.

• Make sure you ask questions about ________ fees.

This one really doesn’t need any more explanation, other than a reminder not only to find out what the fees are and who pays them, but also who is getting paid, notably any third parties — or third parties that might be providing compensation to the provider you’ve hired.

• Make sure you understand the investment options.

Of course, for some of the possibilities noted above, this (alternative investments, crypto) is the investment option under consideration and definitely should be understood. Ditto retirement income, which comes in many shapes and sizes (and was recently included in the executive order regarding alternative investments).

• Ask questions about your exposure to fiduciary liability for investments.
• Ask questions about your exposure to fiduciary liability should you join _____.
• Don't forget to monitor ________ on an ongoing basis.

One of the interesting call outs in the PEP document was that “under federal law, employers joining a PEP are legally responsible as fiduciaries for the proper selection of investment options for their employees unless the pooled plan provider hires an investment professional to act as a fiduciary with respect to investment selection.”  Interesting in that, again, some of the purveyors of those options have tended to gloss over/downplay this aspect.

That said it’s good to remember that, barring some kind of special provision, you are personally liable for the prudent selection and ongoing monitoring of all plan investments and services. All of which are embodied in the three tips listed above.

• Make sure you fully inquire about the implications of exiting _____.

I’ve heard it said that it’s a lot easier to get INTO a PEP than to get out of it (though that may just be a nasty rumor, and is doubtless a function of the PEP you have gotten into) — but the same could apply to any number of the other services outlined above, notably retirement income and alternative investments.

The tip here notes that it’s good to ask about any timing or penalty-imposed restrictions from a PEP, but similar impediments might, of course, be found with retirement income or different types of alternative investments. The bottom line here is that while you may not need to exercise an “exit” strategy, you need to know what the implications for the plan and participants would be if it came to that.

In Sum

So there in a nutshell you have it. For any/every product service being considered, make sure you know what benefits/costs it brings to the plan/participants, the capabilities/sustainability of the entity providing it, the fees (and who’s getting them), the process/costs for exiting — and that you have an ongoing personal liability/responsibility for monitoring the services, once engaged.

• Nevin E. Adams, JD

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[i] Just fill in the blank with the applicable service/product under consideration: managed account, retirement income, alternative investments, crypto, etc.