The first lawsuit has been filed against the Department of Labor’s new fiduciary rule, InvestmentNews reports.
The rule, which was finalized last week and takes effect on Sept. 23, updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. It will apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets. . These fiduciaries will have to adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests at the retirement savers’ expense
Last week a coalition of groups that includes the Federation of Americans for Consumer Choice filed a lawsuit in the Eastern District of Texas federal court to try and stop the DOL’s rule from taking effect. The FACC, which represents independent insurance professionals, asserts that the department exceeded its authority granted by Congress in approving the rule and goes against precedent set by the Court of Appeals for the Fifth Circuit, which vacated the previous fiduciary rule put forth by the Obama administration in 2018.
“The 2024 Fiduciary Rule is inconsistent with the intent of Congress as expressed in ERISA, and the DOL has exceeded its authority and acted arbitrarily and capriciously in promulgating both the 2024 Fiduciary Rule and amended [Prohibited Transaction Exemption] 84-24,” the lawsuit said.
The FACC was joined in the lawsuit by five insurance industry plaintiffs. It said the DOL rule would create onerous burdens for compliance and would adversely affect the insurance industry.
“The DOL’s assault on insurance agents selling annuities does not stop at unlawfully turning them into fiduciaries; instead, the DOL also tries to subject insurance agents and indeed the entire insurance industry to an onerous new regime that promises to upend longstanding business practices already subject to comprehensive state insurance regulation,” the complaint said.
Under the final rule and amended exemptions, financial institutions overseeing investment advice providers must have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.
The DOL said the rule is aimed at protecting retirement investors from improper investment recommendations and harmful conflicts of interest. They said it would reassure investors that their investment advice provider is working in their best interest and helping to make unbiased decisions.
The case is Fed’n of Americans for Consumer Choice Inc. v. DOL, E.D. Tex., No. 6:24-cv-00163, complaint filed 5/2/24.
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