Nine life insurance trade groups have filed a joint lawsuit against the US Department of Labor to overturn its fiduciary rule, which they argue would limit consumers’ access to retirement investment advice.
The suit was filed by the American Council of Life Insurers, the National Association of Insurance and Financial Advisors, its chapters in Texas, Dallas, Fort Worth, and NAIFA-POET, Finseca, Insured Retirement Institute, and the National Association for Fixed Annuities, as per a report from AM Best.
An earlier 2016 federal attempt was aimed at changing how retirement investors conduct business while ensuring transactions were in the client’s best interest. That effort was withdrawn amid legal and political opposition, including from the ACLI.
“Our filing makes a convincing case that the DOL’s fiduciary-only regulation suffers from the same legal defects as the DOL’s failed 2016 rule,” the organizations said in a statement. “It exceeds the DOL’s authority under federal law, is arbitrary and capricious, and is unconstitutional. Moreover, it ignores recently enhanced federal and state standards for financial professionals who work with retirement savers.”
The US Labor Department finalized a rule amending the definition of fiduciary, opposed by the annuities industry, with a September 23 effective date. The rule expands the prior standard to include new types of non-securities, such as fixed-indexed annuities sales, under the Employee Retirement Income Security Act and Internal Revenue Service guidelines, aiming to end “junk fees” and advice deemed a conflict of interest.
Federal officials argue the rule is intended to protect retirement savers by balancing the need for advisers to be paid fairly while preventing them from prioritizing their financial interests over client needs. The DOL, meanwhile, cited research by the Council of Economic Advisers indicating that conflicted advice in the fixed-indexed annuity sector alone could cost savers up to $5 billion annually.
The lawsuit, filed in US District Court for the Northern District of Texas, claims the DOL sought a “radical intervention” in the retirement savings market without input from other regulatory bodies. It will “drastically and unreasonably” raise the cost of assisting customers and deprive many of access to and information about products such as annuities.
“Put simply, the department’s current rule suffers from the same key legal defects as the 2016 rule. It exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process. It is arbitrary and capricious in multiple respects: It fails to establish its necessity (particularly in light of existing regulations), arbitrarily targets annuities while ignoring their benefits, includes cost-benefit analysis that does not reflect reasoned decision making, and fails to adequately address significant concerns,” the suit stated.
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