Compliance

Inside View of DOL Fiduciary Rule Arguments Before 5th Circuit

Oral arguments in the consolidated case against the DOL and its fiduciary rule reforms were heard Monday morning by the 5th Circuit Court of Appeals; ERISA attorney Erin Sweeney offers her take.

By John Manganaro editors@strategic-i.com | July 31, 2017

Lawyers for the Department of Labor (DOL) faced tough questions from one judge on the 5th U.S. Circuit Court of Appeals, which on Monday heard oral arguments in the consolidated lawsuit filed to block the DOL’s fiduciary rule expansion by investment and insurance trade groups, among others, including the U.S. Chamber of Commerce.

According to Erin Sweeney, previously a senior benefit law specialist at the DOL and currently a member in the Employee Benefits Policy practice of Miller & Chevalier, who attended the arguments and afterwards shared her analysis with PLANADVISER, the DOL had a tough day in court. In particular, one judge on the three-judge panel that has been assigned to the case seemed to have little sympathy for the basic strokes of the DOL’s arguments.

“Judge [Edith] Jones spent a very significant portion of the time of the hearing asking for more or less basic information about whether a sale of a product taken in itself could ever constitute investment advice,” Sweeney explained. Judge Jones did probably 95% of the questioning of the DOL attorneys, and she really took them to task. “It left those of us in the room wondering what the opinions of the other two judges might be. The other two judges were more or less silent.”

Sweeney noted that Judge Jones asked a number of questions about prohibited transaction exemptions that already existed prior to the ongoing fiduciary standard expansion—about how these exemptions speak of the difference between sales interactions and investment advice.

“DOL frankly was caught flat-footed on many of her questions,” she added. “The judge kept going to sections in the Internal Revenue Code and kept pounding on idea that the department has not addressed this overlap in how some of its previous exemptions may impact advice under the new fiduciary rule. I view this as a red herring to some extent but, clearly, the judge is thinking about it … The end result is that the DOL did not get to talk about its broad authority granted by Congress because it was instead forced to address this very specific matter. It was almost off-topic questioning, from the DOL’s perspective.”

Sweeney said the Chamber of Commerce and other appellants had an easier time staying on message, successfully making their arguments that DOL should not have authority over individual retirement accounts, that a sale of a product cannot constitute fiduciary advice, that DOL is limiting their 1st Amendment rights, etc.  

“My take is that, by and large the Chamber and other appellants got to make their arguments, while the DOL was bogged down by the somewhat off-topic questioning from Judge Jones,” Sweeney said. “The DOL attempted to answer her question by pointing to Chevron deference, but the judge did not seem to see that connection.”

In the end, Sweeney said the hearing today does not give much indication about which way the 5th Circuit could come down. However she said she expects the decision to come down sooner rather than later, given that the court understands there are pressing deadlines coming in 2018 for providers to comply with the expanded fiduciary rule.