May 22, 2024

FACC injunction request: Freeze DOL fiduciary rule until lawsuit is heard

An industry trade group formally requested a preliminary injunction from a Texas federal court Tuesday to freeze the Department of Labor’s Retirement Security Rule.

The Federation of Americans for Consumer Choice filed a lawsuit May 2 in the Eastern District of Texas to stop the Department of Labor fiduciary proposal from taking effect.

The Retirement Security Rule was published April 25 in the Federal Register. It extends a fiduciary standard of care to most annuity transactions, with the initial requirements taking effect Sept. 23.

Industry opponents say the initial rule mandates are substantial and the rule will reduce access to financial advice and products for many Americans. Legal experts say an injunction is difficult to get, but if granted, it would stop the rule from taking effect until the full lawsuit is heard.

FACC is joined by several independent insurance agents in the lawsuit. The Eastern District of Texas court is within the Court of Appeals for the Fifth Circuit, known for its conservative opinions, including a 2018 decision to vacate the previous fiduciary rule put forth by the Obama administration.

“Propelled by its conviction that existing law does not adequately protect retirement investors, the DOL has defied Congress and the Fifth Circuit by adopting new rules virtually indistinguishable from a predecessor 2016 regulation that was emphatically struck down by the Fifth Circuit,” the new injunction petition states.

Lawsuit: DOL has no authority

The FACC lawsuit repeats a previously successful argument from DOL foes: that the department exceeds its authority granted by Congress and runs afoul of precedent set by the Fifth Circuit.

“The 2024 Fiduciary Rule is inconsistent with the intent of Congress as expressed in ERISA, and the DOL has exceeded its authority and acted arbitrarily and capriciously in promulgating both the 2024 Fiduciary Rule and amended [Prohibited Transaction Exemption] 84-24,” the lawsuit reads.

“Plaintiffs have therefore brought this action requesting that the Court vacate the 2024 Fiduciary Rule and amended PTE 84-24 in their entirety, and to preliminarily and permanently enjoin the DOL from enforcing either of them.”

Acting Labor Secretary Julie Su defended her department’s work in finalizing the RSR before members of the House Committee on Education & the Workforce during a recent hearing.

Su told lawmakers this retirement security rule is “different” and addresses the reasons the last rule did not hold up in court.

“We are very confident that the rule is not only within our authority but [takes] into account existing case law,” Su said.

The new RSR is the latest of DOL’s ongoing attempts to bring all retirement plans and individual retirement accounts under Employee Retirement Income Security Act law. The 1974 law only permits “reasonable compensation” to service providers, including advisors.

While the rule takes effect on Sept. 23, a one-year grace period will follow before full compliance is required, DOL officials said.

The exception is the “Impartial Conduct Standards” established by the DOL in a 2020 rule update. They include: give advice that is in the best interest of the participant, the agent receive no more than reasonable compensation, and make no materially misleading statements. The ICS requirements take effect in September, Labor officials said.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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