Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

New lawsuit filed aimed at overturning Department of Labor fiduciary rule

On Behalf of | May 30, 2024 | Securities and Compliance

The United States Department of Labor is facing a new legal challenge regarding its recently adopted fiduciary rule, ThinkAdvisor reports.

A lawsuit attempting to overturn the regulations was filed in the U.S. District Court for the Northern District of Texas by a coalition of nine insurance trade organizations.  They claim the DOL exceeded its authority in adopting the new rule, which would expand the definition of fiduciary to cover financial professionals making one-time recommendations about issues such as rolling over a 401(k) plan and purchasing annuities. The groups say the rule was approved without meeting federal Administrative Procedure Act requirements, and without analyzing impact data in an adequate way to quantify the benefits.

The plaintiffs in the suit are the American Council of Life Insurers, National Association of Insurance and Financial Advisors (Naifa), Naifa-Texas, Naifa-Dallas, Naifa-Fort Worth, Naifa-POET, Finseca, Insured Retirement Institute and National Association for Fixed Annuities.

The rule, which 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

The lawsuit asserts that the rule “exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process. It is arbitrary and capricious in multiple respects. And it violates the U.S. Constitution by heaping new and significant fiduciary burdens on garden-variety sales conversations, violating the First Amendment rights of Plaintiffs’ members to communicate truthful information to consumers about annuities and other retirement products and the rights of those consumers to receive such truthful information beneficial to their retirement futures.”

The lawsuit is asking the federal court to stay the rule during deliberations and to vacate it because it allegedly suffers from the same key legal defects as the DOL’s similar 2016 rule, which the Court of Appeals for the Fifth Circuit vacated in 2018.

The action follows a separate lawsuit filed recently by a coalition of groups that includes the Federation of Americans for Consumer Choice.  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.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Should your firm be in need of experienced counsel in these areas, please contact us at (888) 655 6002 or through our online contact form.