The first lawsuit challenging the Department of Labor’s new fiduciary investment advice rule was filed May 2 in federal court.
The Federation of Americans for Consumer Choice, which represents annuity and life insurance firms, and five insurance agents and firms collectively filed the lawsuit in U.S. District Court in Tyler, Texas, arguing that the new rule exceeds the Labor Department’s authority and is arbitrary and capricious, in violation of the Administrative Procedure Act.
As part of the lawsuit, the plaintiffs are seeking a preliminary injunction asking the court to stop the new rule from taking effect during the pendency of the case.
The department on April 23 finalized the Retirement Security Rule and related amended prohibited transaction exemptions.
Under the rule, the department established a new test where a person will be considered an investment advice fiduciary if they provide a recommendation to a retirement investor for a fee in one of two scenarios. The first is that they state they're a fiduciary under ERISA. The second is that they make professional investment recommendations to investors on a regular basis as part of their business, and the recommendation in question reflects professional judgement of an individual's circumstances that can then be relied upon as in the investor's best interest.
The changes make it so one-time advice, such as rollovers to individual retirement accounts or annuity purchases, must be in the investor’s best interest.
The plaintiffs in the lawsuit claim the new rule is sustainably similar to a 2016 rule that was struck down in 2018 by a three-judge panel at the 5th U.S. Circuit Court of Appeals in New Orleans.
“The interpretation of fiduciary provided in the 2024 Fiduciary Rule is fundamentally inconsistent with Congress’ intent as expressed in the text of ERISA and the Code, as well as the historical and common law understanding of the term,” the lawsuit states. “The 5th Circuit flatly rejected the DOL’s attempt to rewrite the meaning of fiduciary and usurpation of regulatory authority in Chamber of Commerce. The DOL has now thumbed its nose at the court in promulgating the 2024 Fiduciary Rule which is analytically indistinguishable from the 2016 Fiduciary Rule.”
A Labor Department spokesperson directed comment requests to the Department of Justice; the Justice Department did not immediately respond.
In issuing the rule, department officials said an update in the regulation was needed to better protect investors.
“Here's the bottom line: We’re putting this rule in place to ensure that America's workers can enjoy the retirement that they've earned, paycheck by paycheck, year after year,” said Lisa M. Gomez, who leads the Labor Department's Employee Benefits Security Administration as assistant secretary for employee benefits security, during an April 29 webinar. “And with this rule, they can rest assured that trusted financial professionals will be required to provide investment advice on their retirement savings that prioritizes what's best for them and their families.”
But now the courts will have a say.
