A second insurance industry lawsuit has been filed in an attempt to block the Department of Labor's fiduciary rule.
The latest legal challenge was launched last week by nine annuity and insurance trade groups that argue the rule "suffers from the same key legal defects" as a DOL rule that was struck down by a federal court in 2018. The rule extends fiduciary requirements on rollover account advice to broker-dealers and insurance agents, who previously have been exempt.
Like the first lawsuit against the rule filed earlier this month by insurance industry group Federation of Americans for Consumer Choice, this latest suit claims the DOL is overstepping the authority granted to it by Congress.
The lawsuit is asking the U.S. District Court for the Northern District of Texas to stay the rule during deliberations and for the court to vacate the rule because it “suffers from the same key legal defects” the DOL’s similar 2016 rule, which the panel’s court of appeals vacated in 2018.
The plaintiffs in the suit are the American Council of Life Insurers, National Association of Insurance and Financial Advisors (Naifa), Naifa-Texas, Naifa-Dallas, Naifa-Fort Worth, Naifa-POET, Finseca, Insured Retirement Institute and National Association for Fixed Annuities—all. Members of the trade groups sell annuities to rollover retirement account holders and thereby risk being blanketed by the DOL’s fiduciary requirements if they offer advice for compensation when the new rule goes into effect on September 23.
The rule “exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process," the groups say in the lawsuit. "It is arbitrary and capricious in multiple respects. And it violates the U.S. Constitution by heaping new and significant fiduciary burdens on garden-variety sales conversations, violating the First Amendment rights of Plaintiffs’ members to communicate truthful information to consumers about annuities and other retirement products and the rights of those consumers to receive such truthful information beneficial to their retirement futures.”
Before it was struck down by the Fifth Circuit, the DOL’s 2016 regulation resulted in more than 10 million U.S. workers’ accounts with $900 billion in savings losing access to professional financial guidance, the plaintiffs argued in a joint statement.
The new rule “will be a catastrophe for retirement savers. By imposing on sales recommendations substantial burdens deemed counterproductive by other regulators, and by redefining essentially all commercial relationships in the retirement savings marketplace as fiduciary, the Rule will drastically and unreasonably raise the costs of assisting consumers; it will deprive many consumers of access to beneficial products (such as annuities); and it will impair consumer access to truthful information about retirement products,” the trade groups said.
They also argued that the DOL’s biggest failing “is its inability to learn from past mistakes. 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. Before it was struck down by the Fifth Circuit, the 2016 regulation resulted in more than 10 million American workers’ accounts with $900 billion in savings losing access to professional financial guidance.”
Timothy Hauser, deputy assistant secretary of the DOL’s Employee Benefits Security Administration, has argued that the new rule is different than the vacated 2016 rule last week during an American Bar Assocation webinar.
In light of the 2018 Fifth Circuit decision that overturned the Obama-era rule, Hauser claimed the DOL “exercised great care to fall within the court's decision and to honor its reasoning, and I’m comfortable with where we are.”
For instance, unlike the 2016 rule that blanketed all recommendations, the new rule only covers paid advice and recommendations in situations where the professional holds him- or herself out as “providing individualized advice, based on the best interests of the retirement investor,” Hauser said.
The Federation of Americans for Consumer Choice lawsuit is being handled by the same U.S. District Court in Texas and has been joined by five insurance agents and firms on the challenge.