The United States Department of Labor (the “DOL”) last week withdrew a proposed regulation that would have expanded the definition of “fiduciary” under ERISA in the context of retirement plans. (See our recent post that announced that withdrawal.) The regulation project was based on a belief that the old regulations defining the term, which originally were issued in 1975, were inadequate in today’s marketplace (a contention that seemingly drew little opposition in the abstract). The proposed regulations would have expanded greatly the types of services and the circumstances under which an entity would be deemed an ERISA fiduciary. However, proving the old adage that the devil always is in the details, the proposed regulations issued by the DOL were met with loud and ever mounting opposition. Cries for a regulatory “do-over” even reached the halls of Congress, where members from both political parties (perhaps thrilled to be dealing with something other than federal deficits) contacted DOL officials seeking changes. In the face of this mounting opposition and, if one believes the rumors, a push from sources within the White House, the DOL withdrew the proposed regulations.

While it may be tempting for those who have opposed the breadth of the proposed regulations to be satisfied with their success (much like we Washington Redskins fans get giddy with pre-season wins only to be reduced later to despair in the harsh reality of the regular NFL season) this battle is not over and is not yet won. In speeches and public statements since the proposed regulations were withdrawn last week, high ranking representatives of the DOL have stated a new version of the proposed regulations will be issued by early next year. While they have signaled both publicly and privately an intent to listen to the concerns of stakeholders, those representatives so far are claiming that they are not backing down on some of the major tenets of the original proposed regulations (some of which did not arouse significant opposition in any case). As an implicit acknowledgement that it has heard some of the criticism hurled in its direction, the DOL further has stated that the changes to the previous version of the proposed regulations will attempt to clarify that fiduciary advice is limited to individualized advice directed to specific parties and will deal with concerns about the regulation’s application to routine appraisals (such as in the ESOP market) and arm’s-length commercial transactions (including swap transactions). The new proposed regulations are expected to highlight the availability of exemptions for certain existing practices of brokers and advisors and for the receipt of commissions by brokers.

With respect to one area of some controversy, DOL representatives have made it clear that IRA’s will be covered by the new proposed regulations (as was the case with the withdrawn regulations). Many have challenged the propriety of extending DOL jurisdiction to the IRA market. Opponents of the position of the DOL on IRA’s allege that the proposed regulations in effect have subjected IRA brokers to fiduciary duty for the first time. These opponents further claim the regulations would curtail commissions, increase compliance costs and even force some broker-dealers out of the market. The DOL has rejected these claims, and seems poised to try to deal with the concerns through the exemption process.

The new proposed regulations almost certainly will have detractors. However, if made less restrictive and less broad than the previous set, this version may prove harder to fight thus perhaps making the recent withdrawal a pyrrhic victory. There will be challenges as affected entities work to avoid the label of “fiduciary.” Perhaps the best way to sum this up is to reference a statement made by Michael Davis, Deputy Assistant Secretary of Labor at the Employee Benefits Security Administration (while speaking before the newly-renamed Plan Sponsor Council of America last week), who wryly noted that one thing was very clear to him: “I see a very short line of people in front of our building saying they want to be a fiduciary.” The inherent truth of this statement ensures further battles to come.