A U.S. judge has halted the implementation of a new Department of Labor rule aimed at expanding the definition of fiduciaries for retirement advisers. Judge Jeremy Kernodle, based in Tyler, Texas, ruled on Thursday that the rule was arbitrary and did not align with existing retirement plan laws.
The rule, introduced in April and known as the “Retirement Security Rule,” sought to classify more advisers as fiduciaries. This would have meant that they would be legally obligated to act in the best interest of their clients, rather than their own financial gain. The rule faced opposition from insurance groups who argued it conflicted with the Employee Retirement Income Security Act (ERISA).
Judge Kernodle agreed with these groups, stating that they were likely to win their case. As a result, he blocked the rule from taking effect on September 23, pending the outcome of the lawsuit.
The Department of Labor had argued that the rule was necessary to protect retirement investors by ensuring that advice given is in their best interest. The rule aimed to address a gap in fiduciary standards that did not cover certain types of financial advice, such as recommendations for fixed index annuities.
The White House had estimated that the rule could save retirees around $5 billion annually by reducing the costs associated with these investments. However, business groups have been challenging regulatory measures in court, with a recent Supreme Court decision supporting their position on regulatory power.
The Labor Department’s previous attempt to expand fiduciary rules in 2016 was also blocked, and Judge Kernodle noted that this latest version faces similar issues.
