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Sunday, January 26, 2020

U.S. DOL argues new fiduciary rule will have ‘enormous’ benefits for investors

By Jessica Karmasek | Aug 26, 2016


DALLAS (Legal Newsline) - The U.S. Department of Labor, in a lawsuit brought by a group of trade associations, counters that its controversial new fiduciary rule better aligns with other federal retirement laws and will have “enormous” benefits for investors.

The DOL released its final rule in April. The rule, sometimes referred to as the conflicts of interest rule, mandates financial professionals who service individual retirement accounts, including IRAs and 401(k) plans, to serve the “best interest” of the savers and disclose conflicts of interest.

Financial Services Roundtable, joined by Financial Services Institute, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, Texas Association of Business and the U.S. Chamber of Commerce filed a lawsuit in the U.S. District Court for the Northern District of Texas June 1.

The U.S. Chamber’s Institute for Legal Reform owns Legal Newsline.

In their lawsuit, the associations argue the rule will “undermine the interests of retirement savers.” They contend the rule and related prohibited transaction exemptions, or PTEs, overstep the DOL’s authority, create “unwarranted” burdens and liabilities, and are contrary to the law.

“In these cases, three sets of plaintiffs challenge the rulemaking, but the bases of their challenge are inapposite legal authority and mischaracterizations of the rulemaking,” attorneys for the DOL wrote in an Aug. 19 memorandum, filed in opposition to the plaintiffs’ motion for summary judgment.

The department admits the changes required under the rulemaking will “impose costs” on those providing investment advice.

“DOL determined, however, that those transitional costs will be significantly outweighed by enormous benefits to retirement investors,” it wrote.

The associations allege the department did not properly evaluate the costs and benefits of the final rule.

In particular, they claim the DOL failed to assess the impact of the rule on guaranteed lifetime income products -- including the value and availability of these products to consumers or the impact on the insurance companies that provide these products.

The DOL has estimated a 10-year compliance cost of as much as $31.5 billion.

“Where Congress delegated to DOL the authority to determine how best to protect Americans’ retirement security, and where DOL, consistent with that authority, conducted a thorough analysis and provided a reasoned explanation for its conclusions as to how best to do so, DOL’s determination is entitled to deference, and Defendants are entitled to summary judgment on all of Plaintiffs’ claims,” attorneys for the department wrote in its memorandum last week.

The DOL has filed a cross-motion seeking summary judgment in its favor.

The department argues that its new definition of a person who “renders investment advice” better aligns with the text and purposes of the Employee Retirement Income Security Act, also known as ERISA, in light of significant changes in retirement savings and the market for retirement investment advice since the department adopted the original definition of investment-advice fiduciary in 1975.

The DOL also argues that because Congress established a functional test for determining fiduciary status under ERISA, its authority to promulgate the fiduciary regulation is based on ERISA rather than the common law of trusts or securities laws.

Plaintiffs representing the insurance industry filed their own legal challenges to the rule days after the associations’ lawsuit: 1) National Association for Fixed Annuities, filed June 2 in the District of Columbia; 2) Market Synergy Group, filed June 8 in the District of Kansas; 3) American Council of Life Insurers, et al., filed June 8 in the Northern District of Texas; and 4) Indexed Annuity Leadership Council, also filed June 8 in the Northern District of Texas.

In recent months, other efforts to do away with the rule have fallen short.

In late June, the U.S. House of Representatives failed to override a presidential veto of H.J. Res. 88, a resolution that would have nullified the DOL’s final rule.

President Barack Obama vetoed H.J. Res. 88 on June 8, calling the rule “critical” to protecting Americans’ savings and retirement security.

“The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interests when giving retirement investment advice,” he said in a statement. “Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns -- costing America’s families an estimated $17 billion a year.

“The Department of Labor’s final rule will ensure that American workers and retirees receive retirement advice that is in their best interest, better enabling them to protect and grow their savings.”

The final rule will begin to take effect in part by April 2017, with full implementation set for January 2018.

From Legal Newsline: Reach Jessica Karmasek by email at

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Organizations in this Story

Lake Houston Area Chamber of CommerceU.S. Department of LaborU.S. Chamber of CommerceDallas Division of the Northern District of TexasTexas Association of BusinessFinancial Services Roundtable PAC