Christian financial services organization sues U.S. DOL over its fiduciary rule

By Jessica Karmasek | Oct 13, 2016

ST. PAUL, Minn. (Legal Newsline) - The U.S. Department of Labor’s controversial new fiduciary rule continues to be the target of legal action, with the most recent lawsuit filed against it coming from an organization that provides financial services to Christians.

Minneapolis-based Thrivent Financial for Lutherans filed its lawsuit against the DOL and DOL Secretary Thomas Perez in the U.S. District Court for the District of Minnesota last month, arguing the department has “exceeded its authority” under the Administrative Procedure Act.

“The New Rule would dramatically reshape the way life insurers and financial service providers like Thrivent can market and sell their financial products, including mutual funds and both variable and fixed annuities,” Thrivent, a Fortune 500 non-profit organization, wrote in its Sept. 29 complaint.

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.

“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 (Employee Retirement Income Security Act) plans,” Thrivent explained in its 29-page filing.

“Under DOL’s New Rule, these sales representatives would be redefined as fiduciaries under ERISA and the Code. 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. None of these transactions have ever previously been regulated by DOL, under ERISA or otherwise, and they certainly have not been viewed as ‘prohibited transactions.’”

If it were to continue to engage in such transactions, Thrivent argues it would be subject to “steep and serious” penalties under federal law.

“As a result, without an exemption, the New Rule would almost completely eliminate Thrivent’s ability to offer financial products to its Members in connection with their retirement planning through IRAs,” the organization wrote.

Even more so, Thrivent argues, the new rule would force it to agree contractually with customers that they could pursue a breach of contract action against Thrivent and could participate in judicial class actions against the organization.

“Thrivent has long been committed to resolving disputes with its Members through private one-on-one mediation and arbitration,” it explained. “This requirement is in keeping with Thrivent’s 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, Thrivent’s relationship with its Members differs significantly from the relationships that commercial stock and mutual life insurance companies have with their customers. Specifically, as a fraternal benefit society, the Code and state law require that Thrivent Members share a common bond. The common bond among Thrivent’s Members is their shared Christianity.”

Given the “unique relationship” between Thrivent and its members, the organization has long chosen to resolve what it describes as “rare” disputes in a way that “preserves and strengthens” its member relations.

“For more than 15 years, Thrivent’s Articles of Incorporation and Bylaws have therefore 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,” Thrivent explained, noting that its insurance contracts incorporating this alterative dispute resolution has been approved in all 50 states and the District of Columbia.

Not to mention, the program has been upheld and enforced by state and federal courts across the country, it noted.

“In order to take advantage of the BIC (Best Interest Contract) Exemption, however, Thrivent would be forced to abandon the dispute resolution procedures that best support Member relations and maintain its fraternal character,” the organization wrote.

“Doing so would undermine uniformity among its Members with respect to the rights and obligations set forth in Thrivent insurance products, and undermine Thrivent’s governance structure.”

Thrivent seeks an order from the federal court declaring unlawful, vacating and enjoining implementation of the BIC Exemption’s requirement that such contracts include a provision permitting judicial class actions to resolve claims.

It also seeks the costs of the lawsuit, including reasonable attorneys’ fees.

Thrivent is represented by Minneapolis law firm Greene Espel PLLP.

In June, a group of trade associations also filed a lawsuit against the fiduciary rule, arguing it will “undermine the interests of retirement savers.”

Days after, plaintiffs representing the insurance industry filed their own legal challenges.

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

Thrivent Financial U.S. Department of Labor U.S. District Court for the District of Minnesota

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