July 29, 2024

Second stay granted to defendants suing the DOL over its fiduciary rule

A second federal judge granted a stay of the effective date Friday halting the Department of Labor’s Retirement Security Rule until the full case can be heard.

The decision from the Northern District of Texas was expected after an Eastern District court granted a similar stay Thursday. The rulings mean the DOL’s latest attempt to extend fiduciary duty to insurance agents will not take effect Sept. 23 as originally scheduled.

Unlike the Eastern District decision, Northern District Judge Reed O’Connor gave a detailed legal explanation for his decision.

“Under the Rule, the DOL expands [the Employee Retirement Income Security Act of 1974]’s fiduciary standard in a way not limited to ‘those already recognized as fiduciary under the common law’ and instead grants DOL discretion to recognize a fiduciary relationship where the common law would not,” O’Connor writes.

“At one point, the DOL even goes so far as to assert the common law is the ‘wrong reference point,'” the judge added. “The Fifth Circuit already rejected those claims, and DOL’s efforts to revisit them are without merit.”

O’Connor denied a preliminary injunction “after determining that a stay of the effective date will provide Plaintiffs will complete relief.”

“We are grateful to the court for its decision to issue a stay halting … the DOL’s latest attempt to vastly expand its statutory authority by imposing fiduciary status on almost every financial professional who sells retirement products,” reads a statement from the plaintiffs in the Northern District case.

“If allowed to take effect, this rule would deprive millions of consumers access to much needed retirement financial guidance and protected lifetime income products, replicating the considerable harm suffered under a similar 2016 DOL regulation vacated by a federal court in 2018.”

Plaintiffs in the Northern District case are: The American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), NAIFA-Texas, NAIFA-Dallas, NAIFA-Fort Worth, NAIFA-POET, Finseca, Insured Retirement Institute (IRI), and National Association for Fixed Annuities (NAFA).

DOL still believes

A DOL spokesperson said Friday that regulators continue to believe in the strategy.

“When investors get advice from a trusted financial professional about their retirement savings, they expect that advice to be in the customer’s best interest, not the financial professional’s,” the spokesperson said in a statement. “This rule makes that a reality. The Department continues to believe that this rule is essential to ensuring that retirement investors are protected.”

The two cases against the RSR are: The Federation of Americans for Consumer Choice filed its lawsuit May 2 in the Eastern District, which was heard by Judge Jeremy Kernodle. The group of trade associations followed with it lawsuit in the Northern District.

Plaintiffs in both cases argue that any DOL fiduciary rule must abide by precedent set by a 2018 ruling from the Court of Appeals for the Fifth Circuit tossing out a 2016 fiduciary rule.

With that decision, a three-judge panel ruled that the 2016 rule strayed too far from the common-law definition of the term fiduciary, which hinges on the existence of a relationship of “trust and confidence” with the client. Agents who merely sell products to their clients do not have this relationship, the court concluded.

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