ERISA Investment Advice Fiduciary Status After the Department of Labor’s Reinstatement of the Five-Part Test, and What ERISA Fidelity Bond Underwriters Should Understand

On March 18 and March 20, 2026, the United States Department of Labor formally implemented the judicial vacatur of the 2024 Retirement Security Rule and restored the long-standing five-part test for determining when a person becomes an investment advice fiduciary under ERISA. In the same action, the Department republished the original text of Prohibited Transaction Exemption 2020 02 and withdrew the 2020 preamble interpretations that had expanded the practical reach of fiduciary status, especially in the context of rollover recommendations and ongoing advisory relationships. The immediate legal result is that the marketplace has returned, at least for now, to the narrower fiduciary framework that governed for decades, while the Department’s regulatory agenda indicates that additional rulemaking may still be forthcoming later in 2026 (U.S. Department of Labor 2026a; U.S. Department of Labor 2026b; Office of Information and Regulatory Affairs 2025).

For ERISA fidelity bond underwriters, this development does not eliminate exposure analysis. Rather, it changes the way exposure should be identified. The restored rule means that fiduciary status based on investment advice once again depends upon the classic five-part formulation. A person must render advice as to the value of securities or other property, or make recommendations about investing in, purchasing, or selling them, and must do so on a regular basis, pursuant to a mutual agreement, arrangement, or understanding, that the advice will serve as a primary basis for investment decisions, and that the advice will be individualized to the needs of the plan. Unless all relevant elements are satisfied, the advisor may fall outside investment advice fiduciary status for ERISA purposes (29 C.F.R. § 2510.3 21; U.S. Department of Labor 2026b).

That narrower framework matters to ERISA fidelity underwriting because the statutory bond required by ERISA section 412 is not a general malpractice or fiduciary breach instrument. The ERISA bond protects the plan against loss caused by fraud or dishonesty by persons who handle plan funds or other property. The Department’s own guidance makes clear that the purpose of the bond is to protect the plan from theft, embezzlement, forgery, misappropriation, wrongful abstraction, wrongful conversion, willful misapplication, and related dishonest acts. It also makes clear that fiduciary liability insurance is different in function and does not satisfy the bonding requirement (U.S. Department of Labor 2008; U.S. Department of Labor n.d.).

Accordingly, the reinstatement of the five-part test should not be read by underwriters as reducing the need for careful handling analysis. An ERISA bond responds to plan asset handling risk, not merely to formal fiduciary title. The plan administrator, trustees, internal accounting personnel, third-party administrators, payroll processors, custodial interfaces, and in some cases, service provider personnel may all present bond-relevant exposure if they handle funds or other property of the plan. The Department has expressly explained that natural persons performing handling functions on behalf of an entity may require coverage even where the entity itself is the service provider of record (U.S. Department of Labor 2008). Therefore, an ERISA bond underwriter should continue to focus on operational access, movement authority, cash control, custody pathways, reconciliation authority, and cybersecurity-enabled diversion opportunities, regardless of whether a particular advisor is now less likely to be classified as an investment advice fiduciary.

Reinstatement of the five-part test still affects underwriting in at least four practical ways.

First, it narrows the universe of actors who may be treated as fiduciaries by reason of one-time or episodic recommendations, especially rollover recommendations. Under the Department’s now withdrawn 2020 interpretive approach, rollover advice could more readily be characterized as the beginning of an ongoing advice relationship. The 2026 notice explicitly states that the Department has withdrawn the entire 2020 preamble because it was no longer reliable after the litigation and because portions of that interpretive approach had already been vacated by court order (U.S. Department of Labor 2026b). For underwriting, that means a reduced tendency to assume fiduciary status from isolated sales conduct alone.

Second, underwriters should separate fraud and dishonesty exposure from fiduciary standard of care exposure. An ERISA bond is still necessary because persons handling plan property can commit dishonest acts, whether or not they satisfy the five-part fiduciary advice test. A payroll insider can divert contributions. A service provider employee can misappropriate plan funds. A trustee can embezzle. None of those risks depends on the restored investment advice test. Thus, the ERISA bond remains a core compliance and loss transfer instrument even if the advice fiduciary net is temporarily narrower.

Third, submission review should now place greater emphasis on the applicant’s functional map of handling activities. The strongest ERISA bond underwriting practice is to ask who can initiate, approve, reconcile, redirect, or conceal movements of plan assets. That inquiry should include contribution processing, distributions, rollover transmissions, wire instructions, address changes, banking changes, vendor master file changes, and participant data access. A compliant ERISA bond must name the plan as insured, cover fraud or dishonesty, and avoid deductibles or similar risk-shifting features within the required amount. The required amount generally is at least ten percent of funds handled, subject to the statutory minimum and maximum rules, including the higher ceiling for plans holding employer securities (U.S. Department of Labor 2008; U.S. Department of Labor n.d.).

Fourth, the present legal environment increases the importance of advising clients not to confuse the ERISA bond with fiduciary liability insurance. The narrower fiduciary definition may make some sponsors, advisors, and intermediaries believe that liability exposure has receded. That is too simplistic. Even where a person is not an investment advice fiduciary under the restored five-part test, litigation over prudence, loyalty, monitoring, disclosure, fees, cybersecurity governance, and prohibited transactions can still arise for other fiduciaries and institutional actors. The ERISA bond covers dishonesty loss to the plan. Fiduciary liability coverage addresses a different category of exposure, namely, alleged breaches of fiduciary duty and related defense costs, subject to policy terms. For that reason, parties affected by this regulatory reset should not only maintain a compliant ERISA bond, but should also evaluate whether they carry proper fiduciary liability coverage in amounts consistent with their role, plan size, and governance structure (U.S. Department of Labor 2008; U.S. Department of Labor n.d.).

From a portfolio management standpoint, the prudent underwriting conclusion is not that the restored five-part test lowers risk across the board. Instead, it reallocates attention. An ERISA bond underwriter should treat the rule change as legally significant but operationally incomplete. The classification of an advisor may be narrower today, yet the plan’s exposure to dishonest handling remains unchanged. At the same time, the possibility of future Department action remains real because the administration has already listed investment advice fiduciary regulation on its agenda. Underwriters, therefore, should write and renew with present law in mind, but they should avoid underwriting assumptions that depend on long term regulatory stability (Office of Information and Regulatory Affairs 2025).

The Department of Labor’s March 2026 action restored the historic five-part test and removed the broader interpretive gloss that had unsettled the retirement marketplace. For ERISA fidelity bond underwriting, the principal lesson is discipline in distinguishing legal fiduciary classification from bond-relevant handling exposure. The ERISA bond remains mandatory. The ERISA bond remains focused on fraud and dishonesty. The ERISA bond is not replaced by fiduciary liability insurance. Yet the prudent risk management recommendation is that every plan and service ecosystem materially affected by this change should maintain both a compliant ERISA bond and properly structured fiduciary liability coverage. That dual approach best reflects ERISA’s own architecture, which separates dishonesty protection from fiduciary breach protection, and it remains the soundest underwriting perspective in a shifting regulatory environment (U.S. Department of Labor 2008; U.S. Department of Labor 2026a; U.S. Department of Labor 2026b).

~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe, AINS, AIS, CPLP

Bibliography

  • Office of Information and Regulatory Affairs. 2025. “Investment Advice Fiduciary Under ERISA.” Unified Agenda, RIN 1210 AC36.
  • U.S. Department of Labor. 2008. “Field Assistance Bulletin No. 2008 04.”
  • U.S. Department of Labor. n.d. “Protect Your Employee Benefit Plan with an ERISA Fidelity Bond.”
  • U.S. Department of Labor. 2026a. “U.S. Department of Labor Restores Long Standing Investment Advice Rule After Pair of Court Decisions Vacate 2024 Retirement Security Rule.” March 18, 2026.
  • U.S. Department of Labor. 2026b. “Retirement Security Rule: Definition of an Investment Advice Fiduciary: Notice of Court Vacatur.” Federal Register, March 20, 2026.
  • U.S. Department of Labor. 2020. “Prohibited Transaction Exemption 2020 02, Improving Investment Advice for Workers and Retirees.” Federal Register, December 18, 2020.
  • Code of Federal Regulations. 29 C.F.R. § 2510.3 21. “Definition of Fiduciary.”