New DOL fiduciary rule hit with 1st lawsuit by insurance industry group
The Federation of Americans for Consumer Choice’s lawsuit states that the Department of Labor’s new “rushed” fiduciary rule is similar to a proposal struck down by the federal appeals court a decade ago.
In a lawsuit filed in the U.S. District Court for the Eastern District of Texas, plaintiffs said the department exceeded its authority in crafting the rule and asked the court to vacate the rule under the Administrative Procedures Act on the grounds it is contrary to law as well as arbitrary and capricious. The lawsuit calls the rule an “assault on insurance agents selling annuities,” and said it reflects deep-rooted misunderstandings and bias on the part of the DOL against annuities and the insurance sales channel through which they are sold.
Plaintiffs include the Federation of Americans for Consumer Choice Inc., a trade organization whose members are independent marketing organizations, insurance agents and agencies that market fixed insurance products including annuities.
The lawsuit says DOL’s new definition of investment advice fiduciary is virtually indistinguishable from its 2016 Fiduciary Rule, which was struck down by the Fifth Circuit Court of Appeals in 2018, while radically revising PTE 84-24, which previously allowed insurance agents who served as investment advice fiduciaries to receive commissions and compensation for the sale of annuities to ERISA plans and IRAs subject to certain disclosure requirements.
The 2016 Fiduciary Rule replaced the longstanding five-part test for defining investment advice fiduciaries set forth by the DOL in 1975. In vacating the 2016 rule, the court held that the five-part test captured the essence of a fiduciary relationship as it was known in common law.
“The 2024 Fiduciary Rule and PTE amendments are just the latest salvos by the DOL in its almost 15-year quest to re-define what it means to be an ERISA fiduciary in contravention of the will of Congress,” the lawsuit said. “This new rule is designed to ensure that every investment recommendation made by a stockbroker or insurance agent that is accepted by a retirement investor will be considered a fiduciary transaction.”
Such financial professionals are already subject to their own set of regulatory requirements promulgated by the Securities and Exchange Commission, the lawsuit noted.
Related: The new DOL fiduciary rule: How it could change your company’s 401(k) plan
“The 2024 Fiduciary Rule … will now transform those brokers and agents into fiduciaries whenever they deal with a Title I or II investor,” according to the lawsuit. “This completely defies the legal standards articulated by the Fifth Circuit by instead setting the bar on who is a fiduciary so low that it would be satisfied in any transaction in which an investor accepts a salesperson’s recommendation of a particular investment.”
The lawsuit also took aim at the department’s quick timeline in moving the rule from proposal at the end of October to a final rule in less than six months. “The DOL has rushed this latest rule package through at extraordinary speed and without any substantial consideration of the consequences or the effect it will have on the insurance industry in particular,” the lawsuit said.