AARP, 3 states vie to defend fiduciary rule in 5th Circuit
In a press call, AARP reps noted the 'clear' circuit split over the fiduciary rule.
AARP and three states have filed separate motions asking to defend the Labor Department’s fiduciary rule in the 5th Circuit Court of Appeals.
Last month, the 5th Circuit vacated the rule in a 2-to-1 decision, with the court’s chief judge dissenting.
The Labor Department has until the end of April to request an en banc rehearing of the case before the full panel of judges in the 5th Circuit.
But the Trump administration has yet to signal interest in defending a controversial rule promulgated under the Obama administration. The fiduciary rule, which places substantial new disclosure and warranty requirements on broker-dealers and other providers of investment services to qualified retirement plans, fundamentally goes against the Trump administration’s de-regulatory agenda, say industry watchers.
AARP has “direct and vital” interests in defending the rule, it said in its motion to intervene.
“The government’s apparent refusal to defend its rule leaves millions of AARP members without adequate protection for conflicted retirement advice, leading to substantial and measureable financial harm,” according to court documents.
“AARP is not giving up on our fight to make sure that hard-earned retirement savings have strong protections from conflicts and hidden fees,” said Nancy LeaMond, AARP’s Chief Advocacy and Engagement Officer, in a statement.
“The recent court decision allows some financial advisors to provide guidance based on what’s best for their pocketbooks, not the consumers’.”
The attorney generals for California, Oregon, and New York have filed a separate motion to intervene, also requesting an en banc rehearing of the decision to vacate the fiduciary rule.
“The States have a vital interest in seeking rehearing en banc in this case,” wrote the states in their filing. “California and New York alone will lose more than $52 million in tax revenue from retirement investment income over the next 10 years if the panel’s decision remains in place. And their residents stand to lose billions of dollars in retirement investment gains.”
Neither motions address the substance of the decision to vacate the fiduciary rule, but rather argue AARP and the states’ standing to intervene. AARP’s filing notes the dissent in the 5th decision, and that the 10th Circuit Court of Appeals upheld the fiduciary rule, albeit on more narrow grounds.
In a press call, AARP representatives noted the “clear” circuit split over the fiduciary rule, which they said bodes well for their request.
“We are hoping that between our petition and states’ petition that there will be a good chance of granting en banc review,” said Ms. LeaMond during the call.
Rare reviews
Courts rarely grant en banc re-hearings, said Kevin Walsh, an attorney with The Groom Law Group.
In order to prove their standing to replace the Labor Department to defend the fiduciary rule, AARP and the states will have to show they have sufficient interest in the outcome of the case, and that Labor Department has done an insufficient job defending the interests of AARP members and state residents.
“The tougher argument will be the latter,” said Walsh. That the Labor Department vigorously defended its rule at the District Court and Appellate Court levels could ultimately be the determining factor in not granting an en banc review. There are 15 sitting judges on the 5th Circuit Court of Appeal, 10 of whom are Republican appointees.
“Intervention is always an uphill fight,” said Walsh. “But it is an open question.”
If the 5th Circuit refuses AARP’s and the states’ petitions, the court could still decide to rehear the case, and appoint and amicus to defend the rule, said representatives from AARP. That would be a more esoteric approach.
AARP and the states also have the option of petitioning the Supreme Court to review the case.
AARP said it has yet to make a decision on that option.