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Most Likely & Immediate Trump Changes to Fiduciary & ERISA Plans
by Christopher Carosa, January 22, 2025
The new administration has begun. Professional 401k service providers are keen to learn about potential changes under Trump regarding ERISA retirement plans and fiduciary matters. Why the interest? The answers will help them gauge their preparedness for potential policy shifts and understand how they plan to adapt their services or advice to align with any new administrative directives or regulatory changes.
In reviewing various scenarios, there are three clear areas where changes will be most immediate. What are they, and what will they mean to the retirement industry?
#1 Bye, Bye, Fiduciary Rule (Again)
The potential for the Fiduciary Rule to be rolled back or modified affects how fiduciaries provide and are held accountable for advice on retirement investments. Given what we saw in Trump’s first term, there’s little doubt which direction we’re headed for here.
“The Retirement Security Rule has very little chance of surviving under the Trump Administration,” says Marcia Wagner, founder of The Wagner Law Group in Boston, Massachusetts. “Since the new Administration intends to limit regulatory guidance, the most likely scenario is a return to Prohibited Transaction Class Exemption 2020-02.”
As long as the fiduciary ball remains in the Executive Branch’s court, it’s easy to predict what will happen. That doesn’t mean, however, that we won’t see some surprises coming from the Legislative Branch.
“The new administration could target the rules governing retirement accounts, such as the Fiduciary Rule, which requires financial advisors to prioritize their clients’ main interests,” says Myles McHale, instructor at the Cannon Financial Institute in Bonita Springs, Florida. “This has been the political football that has been punted back and forth since the Obama administration. Changes to these rules could and should impact the quality of financial advice retirees receive. We should note that there are at least five pending bills in Congress that will continue to modify the retirement landscape just as SECURE 1.0 and 2.0 did in the last five years.”
The expectation is that once the new cabinet is in place, actions will be merciful and quick.
“The Trump administration will most likely make significant changes or entirely eliminate the DOL’s Retirement Security Rule, favoring a return to a less restrictive regulatory environment,” says Richard Bavetz, investment advisor at Carington Financial in Westlake Village, California. “This change would reduce regulatory burdens on advisors, allowing them to prioritize the client’s interests and needs over satisfying the constant increase in new overlapping requirements. This will undoubtedly simplify compliance giving advisors more time to spend with clients, while regulators can rely on the existing rules as they were prior to the release of the new rule.”
#2 Redefining Investment Selection & Oversight
Given the history of the Trump administration’s stance on ESG factors, retirement plan fiduciaries seek clarity on whether those considerations might be curtailed or redefined in investment decisions for retirement plans.
“The Trump Administration disagrees with the Biden Administration’s ESG rule, although focusing solely on the language of the regulations, there is little difference between them,” says Wagner. “However, the recent District Court decision in the American Airlines case, if it stands, is likely to have a chilling effect upon any ESG investment strategy In the American Airlines case, the issue wasn’t even ESG-themed investments on the investment platform, but rather proxy voting by BlackRock in favor of ESG investments.”
This court ruling could have grave fiduciary implications on how plans select and monitor investments.
“The recent court ruling against American Airlines concluded that in at least that instance, ESG funds violated the fiduciary duty of loyalty to the participant,” says Bavetz. “This will surely provide an opportunity for the Trump administration to curtail the integration of ESG factors in ERISA-governed plans by emphasizing pecuniary factors—those directly tied to financial returns—above all else. Such a move also aligns with a deregulatory agenda, potentially limiting the inclusion of ESG options unless directly tied to financial performance. While some say this could hinder a fiduciaries’ ability to address investor demand for ESG investments, others see that performance shortfalls have lessened consumer demand for these funds overall, and they won’t be missed.”
There will be shifts in how fiduciaries are expected to act in terms of prudence, diversification, and the selection of investments, potentially aligning more with business-friendly policies.
“We are actually positively inclined by this shift,” says McHale. “More focus will be on executing your fiduciary duties as a plan sponsor or service provider as prudently and as transparently as possible. While this may mean more disclosure and dialogue, it hopefully will lead to the avoidance of conflicts of interest and prohibited transactions. Indirectly we also see the need for additional financial literacy training and eventually knowledge as the planned participant makes the right investment choice that will benefit she/he and or their families.”
This change could be good news for plan sponsors and their service providers, as well as retirement savers.
“Regulations around fiduciary responsibilities, including investment selection and oversight, may be relaxed to reduce compliance costs for plan sponsors,” says Bavetz. “The administration could de-emphasize strict prudence and diversification standards, providing fiduciaries greater flexibility in managing plans. If the administration were to maintain some oversight safeguarding the areas of underperformance and plan option fees, it could benefit both employers and participants alike.”
#3 A New Kind Of Enforcement
Given the above, what insights into the potential relaxation or tightening of ERISA enforcement, affecting transparency, accountability, and operational aspects of plan management might professional fiduciaries have?
“With respect to ERISA policies affecting fiduciary liability, an interesting item to follow is how the new administration will react to the recently issued reproposed regulations defining adequate consideration,” says Wagner. “The Trump Administration will presumably be required to issue some type of guidance on the subject, as mandated by the SECURE 2.0 Act of 2022, and the general approach taken under these reproposed regulations was consistent with the DOL’s long-held position, but the reproposed regulations may not be regarded as sufficiently business friendly to those involved in selling shares of common stock to, or purchasing shares of common stock, from an ESOP.”
Enforcement could be reframed from penalty-based actions to education-based incentives.
“ERISA enforcement under a Trump administration would likely become less stringent, reducing oversight of participant disclosures, fiduciary liability, and plan administration,” says Bavetz. “This could ease operational burdens for sponsors but risks lowering transparency and accountability. Participants might face limited access to critical information and fewer protections against fiduciary misconduct. The administration might train its focus on Financial Literacy Counseling to counterbalance that effect.”
Remember, though, as fast as Trump is moving on other issues, policies regarding retirement plans will take some time.
Christopher Carosa is an award-winning online news producer and journalist. A dynamic speaker, he’s the author of 401(k) Fiduciary Solutions, Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort, From Cradle to Retirement: The Child IRA, and several other books on innovative retirement solutions.