Retirement savers need to be aware of the potential changes to the 401(k) rollover advice rule.

• In April, the Department of Labor introduced a "fiduciary" rule that regulates advice given to retirement investors, including those in 401(k) plans and individual retirement accounts.
• The DOL was sued by insurance groups, and two federal courts in Texas postponed the rule's implementation date, suggesting that the regulation might be illegal.
• The Labor Department is working to address perceived conflicts of interest in financial professionals' investment advice, including brokers and insurance agents.

The new Labor Department rule that increases the legal standard for retirement savings investment advice may be challenged in court, according to legal experts.

The "fiduciary rule," issued in April, aims to address conflicts of interest in recommendations given by brokers, insurance agents, financial advisors, and others to investors in 401(k) plans and individual retirement accounts.

The agency's top concern is the advice given to roll money from a 401(k) to an IRA, a common practice around retirement age, attorneys stated.

59% of Americans incorrectly believe the US is in a recession. Trump's proposed Social Security tax cuts could jeopardize benefits. 72% of Americans are concerned that Social Security will deplete its funds.

In 2020, approximately 5.7 million individuals contributed money to IRAs, according to the most recent IRS data. According to a White House Council of Economic Advisers analysis, Americans collectively rolled $779 billion into IRAs in 2022.

'Almost a certainty' courts will overturn

The fate of the fiduciary rule remains uncertain due to recent court decisions, according to attorneys.

In July, two federal district courts in Texas issued separate rulings and put a "stay" on the regulation nationwide.

The rule's start date of Sept. 23 has been indefinitely delayed by the courts as they conduct a more detailed review of the lawsuits filed by insurance industry groups.

Fred Reish, a retirement law expert and partner at Faegre Drinker Biddle & Reath, stated that it is almost certain that both courts will overturn the DOL regulation.

One of the courts hinted at that outcome.

The order by the U.S. District Court for the Northern District of Texas in the lawsuit American Council of Life Insurers v. United States Department of Labor stated that the Rule is likely unlawful for a wide range of investment professionals in the industry, not just the plaintiffs.

The case of Federation of Americans for Consumer Choice v. Department of Labor involves a challenge to a regulation that requires employers to provide certain information to their employees.

The Labor Department spokesperson stated that a "level playing field" will be created for all trusted investment professionals.

The spokesperson stated that the insurance industry can still provide guidance to investors and sell annuities, but only without providing advice that is unethical, biased, or misleading.

The Department of Justice was contacted by the agency regarding an appeal, but it did not respond to a request for comment.

Current retirement rollover advice rules stay in effect

Attorneys stated that the current status quo continues to remain in effect.

The Labor Department stated during the rulemaking process that current rules allow brokers to provide investment advice that benefits them financially but may not be in the best interest of savers. Insurance products, particularly annuities, are a major concern, attorneys pointed out.

The Biden administration's broader crackdown on "junk fees" includes the fiduciary rule.

Meanwhile, industry groups say the court decisions are justified.

The effective date's stay offers consumers relief from the severe consequences of this rule, as the court examines the significant legal issues we have raised about its legality, according to a joint statement from ACLI, the National Association of Insurance and Financial Advisors, NAIFA-Texas, NAIFA-Dallas, NAIFA-Fort Worth, NAIFA-POET, Finseca, Insured Retirement Institute, and the National Association for Fixed Annuities.

The legal issue mirrors a comparable Labor Department regulation from the Obama era.

In 2018, the Fifth Circuit Court of Appeals abolished the fiduciary rule, and the Trump administration did not file an appeal to the Supreme Court.

Reish stated that the new fiduciary rules are not the same as those in the 2018 decision, and there may be a different outcome as a result.

He stated that November's presidential election is uncertain.

If the Democrats lose control of the White House, they may not pursue the case all the way to the Supreme Court, Reish explained.

The litigation may takes years to resolve, attorneys said.

Gina Alsdorf and Stephen Kraus, attorneys at Carlton Fields, wrote that we are not close to resolving the difficulties with the 2024 fiduciary rule.