With the 2024 election rapidly approaching, the Biden administration is rushing to finalize federal agency rulemaking before mid-May, when such rules could potentially be nullified under the Congressional Review Act (CRA) if Republicans gain control of both chambers of Congress and the White House in the upcoming election. 

Agencies, such as the Department of Labor (DOL) and Federal Trade Commission (FTC), are moving at a quick pace, pushing out final rules before the CRA applies. 

On Tuesday, the DOL issued several final rules, one defining who an investment advice fiduciary is, and another altering overtime regulations under the Fair Labor Standards Act (FLSA). This was the same day that the FTC issued its ban on noncompete agreements.

DOL Defines 'Investment Advice Fiduciary'

In what has historically been referred to as the “fiduciary rule," the DOL announced a final rule that will subject the financial services industry to new requirements designed to protect retirement investors from receiving bad or self-interested investment advice. The new regulations, formally known as the "retirement security rule," will go into effect Sept. 23, 2024, and require investment advisers to follow impartial conduct standards and acknowledge their fiduciary status. 

The DOL's new rule widens the situations in which a financial services provider qualifies as an "investment advice fiduciary" for purposes of the Employee Retirement Income Security Act (ERISA) and therefore owes duties of prudence and loyalty to retirement investors. 

According to the final rule, a person is an investment advice fiduciary if they make a recommendation in one of these contexts: 

• The person either directly or indirectly, such as through or together with any affiliate, has discretionary authority or control, whether or not pursuant to an agreement, arrangement, or understanding, with respect to purchasing or selling securities or other investment property for the retirement investor. 

• The person either directly or indirectly, such as through or together with any affiliate, makes investment recommendations to investors on a regular basis as part of their business and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor's best interest. 

• The person making the recommendation represents or acknowledges that they are acting as a fiduciary when making investment recommendations.
  

In addition to defining what constitutes an investment advice fiduciary, the rule updated two prohibited transaction exemptions (PTEs) for financial advisors. PTE 84-24 has been amended to exclude sales and reasonable compensation received as a result of providing certain investment advice. Specifically, independent producers that sell a non-security annuity contract or other insurance product that does not meet the definition of “security" under federal securities laws may receive, directly or indirectly, reasonable compensation. 

PTE 2020-02 has been updated and expanded to cover more transactions and emphasizes core standards of conduct to allow advisors to receive compensation if they put clients' best interests first. 

According to the DOL, when taken together, these amended PTEs “ensure that when trusted advisers, including independent producers, recommend insurance products to retirement investors, they will adhere to fundamental standards of fiduciary conduct subject to supervision by a responsible financial institution." 

In addition to acknowledging their fiduciary status and disclosing material conflicts of interest to the retirement investor, the investment advisor must adhere to a series of “Impartial Conduct Standards" and adopt firm-level policies and procedures to ensure they are complying with such standards of conduct.

The DOL has noted that the update is necessary because the current definition of an investment advice fiduciary, adopted in 1975, was written when individual retirement accounts were less common and before 401(k) plans existed.

A similar effort by DOL to update the fiduciary standard was undertaken in 2016. Implementation of that final rule was delayed, challenged in the court of law, and eventually vacated in 2018 by the 5th U.S. Circuit Court of Appeals. Opponents of the current rule are considering a similar legal challenge. 

DOL Alters Overtime Regulations 

This week, the DOL also issued a final rule amending FLSA overtime regulations, predicting that more than 3.6 million workers will become eligible for time-and-a-half pay when working more than 40 hours in a week. 

To qualify for an exemption from overtime, the new rule requires an increase to the salary threshold for executive, administrative, and professional workers, and highly compensated employees (HCE). It includes two-tiered increases to the minimum salary threshold and the HCE threshold, as well as automatic updates to both thresholds. 

On July 1, 2024, the current minimum salary threshold of $35,568 will be increased to $43,888. On Jan. 1, 2025, it will increase to $58,656. DOL clarified that the first increase updates the minimum salary threshold using the DOL's current methodology, which was used in 2019 during overtime rulemaking to set the current standard. 

The second increase then implements the DOL's new preferred methodology, which sets the minimum salary threshold to the 35th percentile of weekly earnings of full-time salaried workers in the lowest wage census region. 

Similarly, on July 1, 2024, the current HCE threshold of $107,432 will be raised to $132,964, and again on Jan. 1, 2025, to $151,164. The first threshold is based on the current methodology, while the second threshold is set to the 85th percentile for full-time salaried workers nationally. 

The final rule also implements automatic updates to both the minimum salary threshold and the HCE threshold, both of which will be increased every three years.

In addition to the salary threshold, to be considered exempt from overtime pay, workers also must satisfy the applicable duties test. The rule does not modify the existing duties tests. 

Also, the rule does not change the way that bonuses and incentive pay are counted toward meeting the salary threshold and nondiscretionary bonuses and incentive payments, including commissions paid on an annual or more frequent basis, can still be used to satisfy up to 10% of the salary levels. 

Nathan Riedel is Big “I" senior vice president, federal government affairs.