Thrivent Financial for Lutherans has filed a lawsuit against Secretary of Labor Thomas E. Perez and the Department of Labor (DOL) challenging the “best interest contract” (BIC) prohibited transaction exemption in the DOL’s regulations establishing a new definition of investment advice fiduciary under the Employee Retirement Income Security Act (ERISA).
According to the complaint, the lawsuit challenges only the Department of Labor’s (DOL) adoption of the BIC Exemption to the extent that it requires Thrivent to abandon its longstanding commitment to alternative dispute resolution. The lawsuit is not challenging the validity of the new rule, plaintiffs argue.
The complaint notes that Thrivent’s sales representatives market and sell numerous proprietary Thrivent insurance and investment products on a commission basis. They regularly offer proprietary investment products for IRAs and rollovers from ERISA plans. Under DOL’s conflict-of-interest rule, these sales representatives would be redefined as fiduciaries under ERISA and Thrivent’s longstanding practice of paying these representatives on a commission basis would—for the first time—be treated as a “prohibited transaction” under ERISA.
Thrivent points out that none of these transactions have ever previously been regulated by DOL, under ERISA or otherwise, and they have not been viewed as prohibited transactions. “If Thrivent were to continue to engage in such transactions, it would be subject to steep and serious penalties under federal law. As a result, without an exemption, the rule would almost completely eliminate Thrivent’s ability to offer financial products to its members in connection with their retirement planning through IRAs,” the complaint states.
However, the BIC Exemption would allow Thrivent to engage in transactions that would otherwise be prohibited. But, to avail itself of the BIC Exemption, Thrivent would be forced to agree contractually with its customers that they could pursue a breach of contract action against Thrivent and that they could participate in judicial class actions against Thrivent.NEXT: DOL has exceeded its authority
Thrivent explains that it has long been committed to resolving disputes with its members through private one-on-one mediation and arbitration, in keeping with its status as a membership-owned and member-governed fraternal benefit society authorized under Chapter 614 of the Wisconsin Statutes and exempt from taxation under Section 501(c)(8) of the Code. As a fraternal benefit society, the Internal Revenue Code and state law require that Thrivent Members share a common bond—the common bond among Thrivent’s members is their shared Christianity, Thrivent says.
For this reason, and for the best interests of Thrivent’s members, Thrivent’s Articles of Incorporation and Bylaws have required that disputes with members related to insurance products be resolved through a one-on-one alternative dispute resolution process that includes mediation and culminates in arbitration, if necessary. As a fraternal benefit society, state law requires that Thrivent’s Bylaws, including the arbitration requirement, are uniformly incorporated into insurance contracts with all of its members. Thrivent’s insurance contracts incorporating its alternative dispute resolution program have been approved for sale in all fifty states and the District of Columbia, and its dispute resolution program has been upheld and enforced by state and federal courts throughout the country.
The lawsuit alleges there is no provision in ERISA that indicates Congress’s intent to create a class action remedy that must be exclusively pursued in a judicial forum. “To the extent Congress has spoken to the issue, it has unequivocally stated in the Federal Arbitration Act (FAA) that private arbitration agreements must be honored as a preferred means of resolving disputes. As a result, in purporting to adopt the BIC Exemption, DOL has exceeded its authority under Section 702 of the Administrative Procedure Act (APA),” the complaint alleges.
Thrivent seeks an order from the court declaring unlawful, vacating, and enjoining implementation of the BIC Exemption’s requirement that best interest contracts include a provision permitting judicial class actions to resolve claims.