The Department of Labor’s new fiduciary rule, which was set to go into effect September 23, is now on hold, as a Texas federal judge has granted a request by an insurance industry trade association to temporarily block the rule that classifies more retirement advice providers as fiduciaries, in Federation of Americans for Consumer Choice, et al. v. U.S. Department of Labor, et al.
The Federation of Americans for Consumer Choice (FACC), a trade organization whose members are independent marketing associations, insurance agents and agencies that market fixed annuities, filed a lawsuit against the DOL on May 2. FACC is likely to succeed on the merits of their claims because the new fiduciary rule conflicts with the Employee Retirement Income Security Act by redefining “investment advice fiduciary” to include non-trust-and-confidence relationships, said Judge Jeremy Kernodle of the US District Court for the Eastern District of Texas, as he issued a preliminary injunction of the DOL’s new rule.
FACC’s lawsuit alleges the DOL’s new definition of investment advice fiduciary is virtually indistinguishable from its 2016 Fiduciary Rule, which was struck down in 2018, and therefore, “seeks to grant the motion to stay the Rule’s effective date and to issue a preliminary injunction,” according to the suit.
However, in court on June 14, the DOL filed a brief that argued that the new rule is compliant with existing law and is substantially different from a 2016 regulation that was vacated by the 5th Circuit Court of Appeals. The new rule focuses on the relationship between the adviser and the investor and how the adviser presents themselves, rather than “every financial professional in every transaction will be deemed a fiduciary,” according to the DOL. Furthermore, the new rule is lawful, consistent with case law and will protect investors, argued the DOL.
At the hearing on Thursday, Judge Kernodle sided with the plaintiffs, agreeing that the Retirement Security Rule does cover the same ground as the proposal struck down in 2018. He said the scope of the new rule is national and not limited to “the parties before the court.”
“Plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in onetime recommendations to roll over assets from an ERISA plan to an IRA,” Kernodle wrote.
As a result of the findings, Kernodle granted the injunction and stayed the effective date of the fiduciary rule until further order of the court.
While this case is pending, others in the insurance industry have been fighting the Retirement Security Rule. The American Council of Life Insurers, the National Association of Insurance and Financial Advisors, the Insured Retirement Institute and the National Association for Fixed Annuities and others filed a lawsuit May 24. They are seeking to overturn the fiduciary rule finalized last month because it “undermines the expertise of state authorities who are responsible for overseeing annuities.”
“The DOL’s biggest failing is its inability to learn from past mistakes,” the statement said. “Despite sound evidence of its harmful effects, strong objections from Members of Congress and opposition voiced in thousands of consumer comments, the DOL chose to advance a repackaged version of its ill-advised 2016 regulation.”