Fearing that the current administration will not defend the fiduciary rule, AARP on April 26 filed a motion to intervene, seeking an en banc review of a divided panel ruling by the U.S. Court of Appeals for the 5th Circuit.
The 5th Circuit on March 15 invalidated the rule, holding that the Department of Labor lacked authority to promulgate the rule, reasoning that the rule’s interpretation of investment advice fiduciary was overreaching and in conflict with ERISA. But with the DOL having until April 30 to appeal the court’s decision and no sign of any action, AARP decided to step in.
“Until now, AARP’s interests were aligned with those of the government, which had fully defended this and other challenges to the rule. But the government recently decided to veer off that path,” AARP says in its filing. “That change now requires AARP to intervene to protect its interests, and the interests of millions of its members.”
Citing 22 organizations as plaintiffs/appellants and numerous other parties of interest in the filing, AARP advances three main arguments that it satisfies the standards to intervene:
- Its motion is timely because it acted promptly “when it became aware that its interests would no longer be protected by the original parties.”
- It has “direct and vital interests” in the rule’s enforcement, interests that the disposition of this appeal — including its “precedential effect” — may “impair or impede.”
- “The existing parties do not adequately represent” AARP’s interests in light of the government’s new stance.
“The government’s apparent refusal to defend its rule leaves millions of AARP members without adequate protection from conflicted retirement advice, leading to substantial and measurable financial harm,” the organization states.
To support its argument that the DOL’s litigating position had changed, AARP points to a March 19 CNBC report that the agency “publicly stated” that, in light of the 5th Circuit’s divided decision and “pending further review,” it would “not be enforcing the 2016 Fiduciary Rule.” AARP also points to the National Association for Fixed Annuities withdrawing — with the DOL’s approval — its pending appeal in the D.C. Circuit of a district court’s decision upholding the rule, following the 5th Circuit ruling and the DOL’s confirmation that it would not enforce the rule.
AARP says that it moved as soon as its interests in relief from the panel’s decision invalidating the rule were undermined by the government’s statement that it would not enforce the rule at all. “In the wake of this Court’s divided panel opinion, the agency's decision to refuse enforcement of the rule, coupled with its approval of NAFA’s immediate effort to end the appeal in the D.C. Circuit, indicates that the agency intends to prolong a position of non-enforcement and abandon its defense altogether,” the filing states.
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Moreover, AARP argues that, in the absence of intervention, any additional substantive “briefing of issues” as well as the ability to continue to appeal the panel’s divided decision will be foreclosed. “As a consequence, AARP and its members will be deprived of the rule’s protections from misleading advice and conflicts of interest in the sale of services and products in the retirement-investment market, promulgated after extensive deliberation pursuant to a record more than sufficient to survive arbitrary and capricious review,” the filing contends.
AARP further contends that it has a “vital interest” in protecting its members from “conflicted retirement advice,” citing the Obama administration’s previous estimate of $17 billion in annual investor costs.
The organization argues that, without the rule, underperformance associated with conflicts of interest in the mutual funds segment alone could cost IRA investors between $95 billion and $189 billion over the next 10 years and between $202 billion and $404 billion over the next 20 years, with those most at risk being low-to-middle-income individuals and small investors.
In addition, the organization notes that it has been at the forefront of the policies embodied in the fiduciary rule and has been a direct participant in the rulemaking itself.
That AARP “has participated previously in this action as amicus curiae does not mean that its interest is protected now, as its ability to seek further review is conditioned on attaining party status.” As a result, the organization argues that, unless the court grants intervention in this proceeding, “no petition for rehearing can be filed in this Court, and there will be no opportunity for the Supreme Court to consider whether to grant certiorari.”
Similar to AARP, three states have now also entered the fiduciary rule litigation arena, claiming that they “can no longer rely on DOL to adequately represent their interests.”
The Labor Department has until April 30 to appeal the court’s decision. And, as was discussed at the recent NAPA 401(k) SUMMIT, there are a number of options that could yet play out.