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ACLI, NAIFA File Suit Against Fiduciary Rule

Another group of litigants has weighed in on the fiduciary regulation, claiming that it will injure American workers, is “contrary to law, arbitrary and capricious, and violates the First Amendment.”

This third lawsuit was brought by the American Council of Life Insurers, the National Association of Insurance and Financial Advisors (NAIFA) and six NAIFA chapters in Texas – and, like the first lawsuit brought against the Labor Department, was filed in the U.S. District Court for the Northern District of Texas. A second lawsuit was filed last week in the U.S. District Court for the District of Columbia by the National Association for Fixed Annuities.

Six counts are raised in the most recent lawsuit:

  • The fiduciary rule unlawfully and arbitrarily imposes fiduciary duties on commercial sales relationships and communications that are not fiduciary in nature.

  • The Best Interest Contract Exemption (BICE) is arbitrary, contrary to law and arbitrary and capricious.

  • The final fiduciary rule’s treatment of variable and fixed indexed annuities is arbitrary and capricious and contrary to law.

  • The DOL failed to provide notice and an opportunity to comment on its arbitrary decision to move fixed indexed annuities from PTE 84-24 into the BICE.

  • The DOL failed to provide notice and an opportunity to comment on its arbitrary decision to move the sale of group annuities from PTE 84-24 to the BICE.

  • The fiduciary rule violates the First Amendment as applied to truthful, non-misleading commercial speech about retirement products by non-fiduciary salespersons.

Arguments Made

The suit alleges that while Congress only gave the DOL the authority to regulate fiduciary advice, “the Department has defied that express limitation in an effort to regulate substantial segments of the retirement savings marketplace by classifying as ‘fiduciary’ advice virtually all commercial interactions between those selling life insurance products and retirement investors.” The suit goes on to point out that “by mandating that life insurance agents and broker-dealers engage with retirement investors only as ‘fiduciaries’ or not at all, the Rule will leave in the dark middle-class Americans who cannot afford, and who may not want, the more costly fiduciary relationships mandated by the Rule.”

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Moreover, the suit claims that while Congress chose to confer on the Internal Revenue Service the authority to enforce rules against certain prohibited transactions in the statute governing IRAs, and specifically elected not to authorize enforcement through a private right of action, the DOL has in the regulation created “precisely the private right of action and enforcement-by-class-action regime that Congress declined to adopt.”

As in other suits already filed, this one claims that the DOL failed to take into account the benefits of these products and advice, and the costs of depriving consumers of those offerings. Additionally, the suit claims the regulation “intentionally heaps significant burdens disproportionately on the offering of variable and fixed indexed annuities.”

The suit goes on to note that, “Although Congress authorized the Department to regulate ‘investment advice,’ it did not authorize the Department to favor and disfavor categories of retirement products, and take those choices away from American consumers.”

Plaintiffs challenged the decision to subject fixed indexed annuities to the Best Interest Contract (BIC) exemption “without providing the public sufficient notice and an opportunity to comment on that decision, thereby violating the APA’s foundational notice-and-comment requirement.”

The suit also described as “patently unreasonable” that the DOL made “confident predictions about the intended effects of the Rule on the retirement savings marketplace when the Department acknowledged just weeks before issuing the final Rule that it lacked any data-based understanding of how American consumers actually make retirement decisions.”

First Amendment Claims

As for the First Amendment claim, plaintiffs described the regulation as “presumptively unconstitutional because it restricts and burdens that commercial speech based on its content, and it restricts the ability of Plaintiffs to communicate truthful, commercial information to consumers based on the subject matter of those communications.”

Additionally, the plaintiffs state that, “The Department’s apparent belief that government-mandated silence is a preferable alternative to non-fiduciary sales conversations, and the Department’s position that no set of clear or simple disclosures could ever enable consumers to make informed choices about retirement products, countermand core First Amendment principles and precedent,” going on to claim that the regulation will “unconstitutionally deprive American consumers of vital access to truthful retirement information.”

As with the other lawsuits, plaintiffs are asking the court to “Declare the regulation “arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law,” to “declare the Rule unconstitutional as applied to the constitutionally protected commercial speech of Plaintiffs’ members, and enjoin Defendants from enforcing the Rule against Plaintiffs’ members engaged in constitutionally protected commercial speech.”