Attorneys General, Other Third-Parties Move to Revive DOL Fiduciary Rule in 5th Circuit

Anticipating the DOL will not itself ask the 5th U.S. Circuit Court of Appeals to reconsider a crucial mid-March panel ruling that vacated the Obama-era fiduciary rule expansion, attorneys general and retiree advocacy organizations are speaking out, asking the full appellate court to reassess its decision.

The Attorneys General of New York, Oregon, and California have filed a motion to intervene in Chamber of Commerce of the USA, et al. v. U.S. Department of Labor.

This is the case that resulted in the mid-March ruling from the 5th U.S. Circuit Court of Appeals to vacate the Department of Labor (DOL) fiduciary rule expansion that had been finalized in April 2016, before receiving an enforcement delay and being placed under review by the Trump administration.

Technically speaking, the attorneys general have filed two motions. In addition to filing a motion to intervene, the Attorneys General have concurrently filed a petition for rehearing “en banc” with the 5th Circuit. This petition will allow them to ask the full 17-judge court to rehear the matter and overturn the original decision made by the three-judge panel.

In announcing the move, they attorneys general pointed out that, to date, three federal district courts and the 10th U.S. Circuit Court of Appeals have upheld the fiduciary rule process. But on March 15, 2018, a three-judge panel of the 5th Circuit issued a contested decision overturning the rulemaking on various grounds, with the chief judge of the 5th Circuit dissenting.

In the motion to intervene and petition for rehearing en banc, the Attorneys General assert that the decision from the 5th Circuit Court of Appeals “will deprive millions of Americans of basic safeguards as they seek financial advice about their retirement investments; will cost millions in lost taxes over the next ten years and will cost hardworking Americans who are saving for retirement tens of billions of dollars; wrongly held that the Department of Labor lacked authority to require financial advisers to holders of Individual Retirement Accounts (IRA) to act in their clients’ best interests; and conflicts with the decisions of three other courts, including the 10th Circuit, that have upheld the fiduciary rule.”

The motions from the attorneys general come shortly before the deadline for the Department of Labor to file such actions on its own. Numerous sources have told PLANADVISER that previous administrations, both Democrat and Republican, would almost certainly have filed these motions on their own—simply to defend the power of the DOL and other federal agencies to make and enforce new rules. But the Trump administration seems entirely disinterested in protecting the traditional rulemaking capabilities of government agencies, sources say, leading to the current actions by third parties.

Another third party to speak out on this matter has been AARP. Like the attorneys general, this week AARP asked the appeals court to reconsider its “surprise decision to reject a previously-approved investment rule that would protect the retirement savings of millions of Americans.”

“Anticipating that the U.S. Department of Labor itself might not request a rehearing, AARP now has filed a motion asking the full 5th Circuit for permission to intervene in the case and, in addition, to reconsider the adverse decision made by the smaller three judge panel,” says Nancy LeaMond, AARP’s chief advocacy and engagement officer. “AARP is not giving up on our fight to make sure that hard-earned retirement savings have strong protections from conflicts and hidden fees. Many financial advisers already give advice with the public’s best interests in mind. But the recent court decision allows some financial advisers to provide guidance based on what’s best for their pocketbooks, not the consumers’.”

In its filings, AARP writes that “the 5th Circuit decision creates an irreconcilable intra-circuit split (within the Circuit itself) and conflicts with Supreme Court precedent.” In addition, the filing argues the panel’s decision “presents an exceptionally important issue because it robs workers, retirees, and their families of crucial protections for their retirement investments.” Thus a full 17-judge panel review is in order, AARP says.

“AARP members, many financial institutions, and the general public have backed the conflicted advice rule and its protections,” LeaMond adds. “In a 2013 AARP survey of more than 1,400 adults with money in either a 401(k) or 403(b) plan, more than nine in 10 said they favored requiring retirement advice to be in their best interest. At the same time, fewer than four in 10 indicated that they would trust advice from an adviser who is not required by law to provide that advice in the best interest of the investor.”

Also important to note, both groups of petitioners express some skepticism that the U.S. Securities and Exchange Commission (SEC), which is currently considering its own regulations related to investment conflicts of interest, can pick up the regulatory slack created by the 5th Circuit ruling and its rebuke of DOL policing powers.