Nine life insurance trade groups filed a joint lawsuit against the U.S. Department of Labor to overturn its fiduciary rule, which they contend would reduce consumers’ access to retirement investment advice.
The suit was filed by: the American Council of Life Insurers; the National Association of Insurance and Financial Advisors, as well as its chapters in Texas, Dallas, Fort Worth and NAIFA-POET; Finseca; Insured Retirement Institute; and the National Association for Fixed Annuities, according to a joint statement issued by the group.
An earlier 2016 attempt by the federal government sought to change how retirement investors conduct business, while ensuring transactions are in the client’s best interest. That effort was withdrawn amid legal and political opposition that included the ACLI.
“Our filing makes a convincing case that the DOL’s fiduciary-only regulation suffers from the same legal defects as the DOL’s failed 2016 rule,” the joint statement said. “It exceeds the DOL’s authority under federal law, is arbitrary and capricious, and is unconstitutional. Moreover, it ignores recently enhanced federal and state standards for financial professionals who work with retirement savers.”
The U.S. Labor Department finalized a rule amending the definition of fiduciary that has been opposed by the annuities industry, and set a Sept. 23 date for it to take effect.
The rule expands the prior standard to cover new types of non-securities such as fixed-indexed annuities sales under the Employee Retirement Income Security Act and Internal Revenue Service guidelines in a bid to end “junk fees” and advice deemed a conflict of interest.
Federal officials contend the rule is designed to protect retirement savers by balancing the need for advisers to be paid fairly with preventing advice providers from putting their own financial interests above client needs. The DOL cited recent research by the Council of Economic Advisers that found conflicted advice in the fixed-indexed annuity sector alone could cost savers up to $5 billion annually.
The suit, filed in U.S. District Court for the Northern District of Texas, argues the DOL sought a “radical intervention” in the retirement savings market that didn’t seek input from other regulatory bodies. It will “drastically and unreasonably” raise the cost of assisting customers and deprive many of access to and information about products such as annuities.
“Put simply, the department’s current rule suffers from the same key legal defects as the 2016 rule,” the suit said. “It exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process. It is arbitrary and capricious in multiple respects: It fails to establish its necessity (particularly in light of existing regulations), arbitrarily targets annuities while ignoring their benefits, includes cost-benefit analysis that does not reflect reasoned decision making, and fails to adequately address significant concerns.”
In 2018, A Louisiana federal court vacated the U.S. Labor Department’s fiduciary rule, declaring the rule to be arbitrary, capricious and exceeding the agency’s authority.