The latest legal challenge to the Department of Labor’s (DOL) new fiduciary rule comes from two national life insurance industry advocacy groups, who say they are reluctantly, but necessarily, attempting to halt the rulemaking.
Previous suits have been filed by the fixed-annuities industry and a wider coalition of financial services providers and other interests, including U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable. Similar to those challengers, the American Council of Life Insurers (ACLI) and the National Association of Insurance and Financial Advisors (NAIFA) say their “commitment to present and future retirees requires them to challenge the U.S. Department of Labor’s fiduciary regulation in court.”
“ACLI and NAIFA do so reluctantly,” suggests ACLI President & CEO Dirk Kempthorne and NAIFA CEO Kevin Mayeux. “But it has become clear that the rule will harm the very people it is meant to help. It will harm retirement savers who now, more than ever, need access to the guaranteed lifetime income products—personal pensions—offered by ACLI and NAIFA members.”
The complaint was filed U.S. District Court for the Northern District of Texas—the same venue as the suit filed by the U.S. Chamber, FSI, and company. The text of the complaint suggests the DOL regulation “will impact Americans’ access to accurate and valuable information from financial professionals about their 401(k)s, individual retirement accounts (IRAs) and other retirement plans, including information about guaranteed lifetime income products such as annuities.”
Those who have followed the rulemaking in recent years will see some familiar arguments in the text of the complaint. According to ACLI and NAIFA members, annuities are the only products in the private marketplace that guarantee lifetime income, and thus the DOL should be cautious before enshrining a rule that could potentially make it harder to access said products.
“After a regulator in the United Kingdom tried a similar approach in 2012, the UK Treasury Department and Financial Conduct Authority in March 2016 issued a report … that said a gap exists for people on lower incomes or with lower levels of assets who cannot afford to pay the fee for advice or find it harder to access,” the suit argues. “In addition to affecting retirement planning products and the importance of saving for the long-term, the regulation will impact the availability of lifetime income products in the marketplace.”
NEXT: Constitutional violations?
The implication of the suit is that the DOL lacks the authority from Congress to push the industry so forcefully to change so fundamentally so quickly. The groups further suggest the rulemaking could be outright unconstitutional.
“The rule directly regulates commercial speech by imposing fiduciary obligations on recommendations about retirement products,” plaintiffs suggest. “The Department's rule will classify virtually all commercial interactions between those selling life insurance products and retirement investors as ‘fiduciary’ advice, despite the fact those relationships have never before been deemed fiduciary and do not bear the hallmarks of fiduciary status.”
The groups also claim the enforcement of the DOL’s envisioned fiduciary paradigm will not be in taking with the spirit of the Employee Retirement Income Security Act (ERISA) and other relevant retirement and tax law.
“With no authority from Congress, and inconsistent with clear congressional intent, the Department of Labor created a private right-of-action for plaintiffs' lawyers and state courts to enforce its complex and vague standards,” the complaint argues. “Congress alone has the responsibility to ensure evenhanded, consistent, and predictable enforcement of the law. This approach places life insurance companies and financial professionals under a perpetual threat of litigation that will increase the cost and affect the availability of retirement products for low- and middle-income Americans.”
Finally, the suit argues the DOL “unreasonably and arbitrarily dismissed the existing and effective regulatory structure enforced by the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and state insurance regulators.”
The full complaint is available online here.