National Association of Fixed Annuities puts focus on 5th Circuit Appeals decision to kill regulation
The National Association of Fixed Annuities withdrew its lawsuit March 23 against the Labor Department's fiduciary rule that was pending in the District of Columbia Circuit Court of Appeals.
NAFA said the recent decision by the 5th U.S. Circuit Court of Appeals striking down the fiduciary rule in a lawsuit brought by several financial industry trade associations obviated the need for its suit.
"We are very pleased the 5th Circuit understood the harms the fiduciary rule created for middle American retirement savers," Chip Anderson, NAFA executive director, said in a statement. "This ruling vindicates both NAFA's and the 5th Circuit plaintiffs' chief concerns, and, as a result, we see no reason to continue to pursue our litigation in another federal circuit court."
The DOL agreed to the voluntary dismissal.
In its suit, NAFA claimed the DOL exceeded its authority in promulgating the rule, which requires brokers to act in the best interests of their clients in retirement accounts, and treated fixed annuities unfairly.
A U.S. District Court in Washington upheld the DOL rule in November 2016, and NAFA appealed to the D.C. Circuit. Those proceedings were halted until the 5th Circuit issued its decision.
By standing down, NAFA ensures the D.C. Circuit will not rule in favor of the District Court, creating a circuit split that might help push the fight over the DOL fiduciary rule to the Supreme Court.
The 10th Circuit Court of Appeals upheld the DOL fiduciary rule earlier this month, but the case was narrower than those in the other courts.
"Without a split, the options are narrowing for ways to save the rule," said George Michael Gerstein, counsel at Stradley Ronon Stevens & Young.
The Department of Justice on behalf of the DOL has until April 30 to request a rehearing of the 5th Circuit's 2-1 decision by the court's full complement of judges. The DOJ has until June 13 to appeal the decision to the Supreme Court.
The government has not indicated whether it will continue to defend the DOL rule.
The Labor Department had delayed full implementation of the regulation until July 2019, while it conducts a review mandated by President Donald Trump that could lead to major changes. Parts of the rule became applicable last year.
The Trump administration could see the 5th Circuit decision as a way to dispense with the rule. On the other hand, the agency might want to appeal the decision so that it can revise the regulation on its own terms. If the decision stands, it could affect the agency's ability to promulgate other rules.
"The 5th Circuit decision is a get-out-of-jail-free card for the political officials at DOL," said Kevin Walsh, an attorney at Groom Law Group. "It's a pretty straightforward political decision. From an institutional standpoint, it's a tougher decision."
The Securities and Exchange Commission is working on its own fiduciary rule for retail investment accounts. That proposal is expected to be released sometime during the second quarter.
The SEC and DOL have agreed to work together on an investment advice standard.
Supporters of the Labor Department's fiduciary rule say it mitigates broker conflicts of interest that result in the sale of high-fee products that erode retirement savings. Industry opponents assert it is too complex and costly and would significantly increase litigation risk for firms. They say they want the SEC to take the lead on the issue.
"DOL fiduciary rule lawsuit withdrawn by fixed annuities group in DC federal court" originally appeared on InvestmentNews, a sister publication of Pensions & Investments.