American Council of Life Insurers backs lawsuit challenging DOL advice exemption

The American Council of Life Insurers filed an amicus brief in U.S. District Court in support of a lawsuit seeking to overturn a Trump-era Department of Labor exemption that established a fiduciary duty for rollover recommendations.

The brief, filed Monday in District Court in Dallas, alleges the Labor Department is revamping its 2016 Obama-era fiduciary rule even though the rule was struck down in court.

The 2016 fiduciary rule broadened the definition of when a person or entity was taking on fiduciary responsibilities, replacing the five-part test that had been used to determine whether an investment professional or financial institution is a fiduciary.

In 2018, a three-judge panel at the 5th U.S. Circuit Court of Appeals in New Orleans vacated the fiduciary rule, in a 2-1 decision because it said the department had exceeded its legal authority.

ACLI was one of the lead plaintiffs in the 2018 case, it noted in its brief.

"If allowed to stand, DOL's new 'final interpretation' of its investment advice fiduciary regulations would achieve the same functional outcome sought by the 2016 fiduciary rule that the 5th Circuit rejected and invalidated," ACLI said.

The lawsuit, filed in February by Federation of Americans for Consumer Choice, which represents annuity and life insurance firms, along with several advisory firms and advisers for annuities, centers around a 2020 Labor Department prohibited-transaction exemption.

Under the Trump administration, the department reinstated the five-part test and in the preamble to the investment-advice exemption that took effect in February 2021 said the five-part test applies to rollover recommendations.

ACLI said in its brief that it has a "substantial interest in ensuring that consumer access to annuities and other retirement products through traditional insurance sales channels is not disrupted by DOL's efforts to undermine" the 2018 court decision.

A Labor Department spokesman did not immediately respond to a request for comment.

The Labor Department's Employee Benefits Security Administration is currently working on a rule-making initiative that will likely broaden who's considered a fiduciary under ERISA by amending the regulatory definition of the term fiduciary.

In its spring regulatory agenda, released in June, EBSA said the rule-making "would amend the regulatory definition of the term fiduciary … to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries." Moreover, it would "take into account practices of investment advisers, and the expectations of plan officials and participants, and (individual retirement account) owners who receive investment advice."

EBSA will also evaluate available prohibited transaction class exemptions and propose amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors, the agency said.