Compliance

A Second DOL Fiduciary Rule Court Challenge Emerges

The National Association for Fixed Annuities filed a complaint in district court to “challenge and vacate the Department of Labor’s final fiduciary regulations.”

By John Manganaro editors@strategic-i.com | June 03, 2016
Page 1 of 3

A second federal lawsuit has been filed just a few days after a coalition of financial trade groups entered their own complaint seeking to halt the DOL fiduciary rule—both asking the courts to strike down the Labor Department's new regulations that will require most brokers and investment consultants to act as fiduciaries.

The second complaint was filed in the U.S. District Court for the District of Columbia by the National Association for Fixed Annuities (NAFA), asking the court for “declaratory, injunctive, and other appropriate relief.” Whereas the suit filed June 1 seeks relief under the Administrative Procedure Act (APA) and the First Amendment to the U.S. Constitution, this one also suggests the Department of Labor (DOL) is violating the Regulatory Flexibility Act (RFA) with its sweeping advice regulation.

“Specifically, in promulgating the Rule and the Exemptions, the Department exceeded the authority granted to it by Congress under ERISA, the Code, and Reorganization Plan No. 4 of 1978,” the suit contends. “In addition, the Rule and the Exemptions are arbitrary and capricious, not in accordance with law, impermissibly vague, and otherwise promulgated in violation of federal law.”

The text of the complaint shows NAFA member firms are clearly worried about potential unintended consequences of the DOL rulemaking, and while they have not traditionally considered themselves as trusted fiduciary advisers for their clients, they feel the new rulemaking will treat them that way: “NAFA’s members have been adversely affected by the Department’s actions in that the Rule and Exemptions will, in many cases, threaten the very existence of their business, result in immediate and unrecoverable losses of market share, and result in unrecoverable economic losses for which no adequate relief can later be granted.”

As such, the complaint argues for injunctive relief that would effectively halt the rulemaking in its tracks until the court rendered a decision—an outcome that has already been deemed unlikely by many Employee Retirement Income Security Act (ERISA) industry experts.

NEXT: Annuities and the new fiduciary rule