DOL attempts to un-freeze its new fiduciary rule, filing 2 appeals in federal courts
The DOL’s new Retirement Security Rule, which had been set to become effective Sept. 23, will remain on hold as appeals will be heard by the 5th Circuit, which blocked the previous Obama-era fiduciary rule.
The DOL Retirement Security Rule, which extends a fiduciary standard of responsiblity to most annuity transactions, was published in the Federal Register on April 25. However, two lawsuits immediately followed, making a similar argument: The new rule must abide by the precedent set by a 2018 ruling from the Fifth Circuit.
The DOL’s one-page appeals, which did not provide its full argument against the plaintiffs in the two lawsuits, follows two federal courts issued stays in late July in an effort to delay implementation of the new fiduciary rule, which has been beset by lawsuits and Congressional efforts. The new rule, which is the DOL’s latest attempt to extend fiduciary responsibilities to annuity sales, has hit legal roadblocks from the get-go filed by industry firms and member trade groups.
In the first stay, granted on July 26, a Texas federal judge for the Eastern District of Texas granted a request by the Federation of Americans for Consumer Choice, an insurance industry trade association, to temporarily block the rule that classifies more retirement advice providers as fiduciaries.
The FACC, whose members are independent marketing associations, insurance agents and agencies that market fixed annuities, filed a lawsuit against the DOL on May 2. The suit alleges the DOL’s new definition of investment advice fiduciary is virtually indistinguishable from its 2016 Fiduciary Rule, which was struck down in 2018, and therefore, “seeks to grant the motion to stay the Rule’s effective date and to issue a preliminary injunction,” according to the suit.
The second stay was granted the following day by the Federal District Court for the Northern District of Texas, which blocked the fiduciary rule from moving forward until it rules on a lawsuit filed by the American Council of Life Insurers and eight other insurance organizations. This lawsuit alleges the new DOL fiduciary rule “undermines the expertise of state authorities who are responsible for overseeing annuities,” alleges the lawsuit.
This lawsuit, whose plaintiffs include the National Association of Insurance and Financial Advisors, the Insured Retirement Institute and the National Association for Fixed Annuities, was filed after careful deliberation on what is in the best interest of retirement savers, according to plaintiffs. The 2024 version of the fiduciary rule suffers the same legal defects as the department’s 2016 fiduciary rule because it exceeds the department’s authority, is arbitrary and capricious, and is unconstitutional, alleges the suit.
In July, the House Education and the Workforce Committee voted to advance a resolution to overturn the DOL’s new fiduciary rule.
Related: With DOL’s new fiduciary rule on hold, what are plan sponsors’ compliance considerations?
The DOL’s appeal will be heard by the Court of Appeals for the Fifth Circuit, which blocked the previous Obama-era fiduciary rule.
In the meantime, “plan sponsors and employers have few compliance items to implement under the 2024 fiduciary rulemaking and were already in a position of waiting to see how service providers modified disclosures, service scope, and pricing,” said Allie Itami, and employee benefits partner at Lathrop GPM, who focuses on fiduciary compliance under ERISA and advocates for employer and service provider clients before the DOL on regulatory matters. “With the stays, they will wait longer to see if or how the services change.”