For the last several years there has been a great deal of uncertainty surrounding one relatively small corner of the Employee Retirement Income Security Act of 1974 (ERISA) law regulation rulebook.

To put it simply, the question is whether or not investment advisors are allowed to earn additional compensation through fees that result when someone they're advising transfers assets from an employee retirement plan or pension to an individual retirement account or IRA.

Of course, as with most things in the federal regulatory world, a simple answer is rarely a complete answer, and there is much dispute and uncertainty surrounding what qualifies as an investment advisor and what triggers a fiduciary responsibility in these instances.

With the new Biden administration, there is a focus on reviewing the recent amendments to a Department of Labor rule that requires ERISA plan fiduciaries put financial considerations above all other considerations when making investment decisions.

What is the Employee Retirement Income Security Act of 1974 (ERISA)?

ERISA was passed in 1974 to create legal standards that would be applied to employee pension funds in the US. The following year, the Department of Labor established a 5-part test as the measure for determining exactly when a fiduciary relationship was established between an 'investment advisor' and a client.

If a fiduciary relationship was determined to be in place, that relationship would therefore prohibit additional compensation from going to the advisor as a result of certain types of investment advice, such as the rolling over a pension plan into an IRA.

For the next 40 years, that 5-part test would govern this corner of ERISA regulation and enforcement.

In April of 2016, however, the Obama administration created new guidelines that broadened the definition of investment advisor (and therefore the application of fiduciary responsibility) to include individuals and entities that had previously been allowed to collect the fees in question under the old 5-part test standard.

While the Obama-era rules were effective at highlighting and preventing conflicts of interest in investment advisors, because these rules were adopted in the final year of Obama's presidency, they were not sufficiently tested in court until after President Obama’s term had concluded.

In fact, President Trump had been in office for more than a year already when the Fifth Circuit Court of Appeals struck down these Obama regulations for being in conflict with the original language of the ERISA legislation itself, thus making the rules invalid.

With the Obama administration out of office and unable to defend or replace their policy, that task was left to the Trump administration, which essentially reinstated the old 5-part test. Because the Trump administration waited until the summer of 2020 to propose this revision, however, and because the final version of this revision wasn't published until December of 2020, these rules have yet to take effect and are not scheduled to become actionable regulatory policy until February 16th, 2021.

In sum, once again, regulatory revisions made at the end of a presidential term appear primed for revision again.

What Happens Next with ERISA?

Last week, White House Chief of Staff Ronald Klein sent a memo to advise executive departments and agencies on how to handle the transition of power from the previous administration to the current one.

Included within that memo was the recommendation for newly published rules that have yet to take effect (like the ERISA regulations in question) to be delayed another 60 days before taking effect in addition to opening up a 30-day comment period for stakeholders and interested parties to voice their opinions on the proposed regulation.

Assuming that the Department of Labor complies with Klein's recommendation, which is very likely given its source, that would push the date on which the Trump administration revisions could go into effect to mid-April at the earliest.

Between now and then however, there will likely be a Senate confirmation hearing for President Biden's nominee for Secretary of Labor, which was announced last week to be Boston Mayor Marty Walsh, whose strong ties to labor could be an indication that employee benefits rules like this may be an area of interest for the incoming cabinet member.

Even more telling will be whomever is tapped to head the Department of Labor's Employee Benefits Security Administration. Whomever that may be is also very likely to be starting their new job before mid-April and may significantly impact what happens to these regulations going forward.

While we have no clear answers as to what exactly is going to happen in this space in coming months, it does appear that yet another policy change is a very strong possibility. What is certain, however, is that more clarity on these rules will be coming soon, at least in the short term. And for the first time in long time, the administration adopting the new rules (whatever they may be) will likely be in place to administer and execute those regulations for years to come, as well as to defend them in court and/or amend them if necessary.