Insurers Respond to DOL to Forward Fiduciary Rule Lawsuit

A group of insurers seeking to halt the Department of Labor’s Retirement Security Rule from taking effect has responded to a counter-filing by the regulator alleging that “changes” the department made from a 2016 fiduciary proposal are not enough to make the 2024 proposal viable.

The initial suit, filed in May by nine insurance trade groups in the U.S. District Court for the Northern District of Texas, argued that the new proposal regarding what it means to be a retirement plan investment fiduciary faced the same issues as a 2016 proposal struck down by the U.S. 5th Circuit Court of Appeals.

On June 28, the DOL responded in American Council of Life Insurers et al. v. U.S. Department of Labor defending the rule, which is scheduled to take effect on September 23. In that response, the regulator argued in part that this proposal differed from the 2016 rule and was consistent with the appeals court’s ruling in that case, noting that the DOL “has been careful to craft a definition that is consistent with both the statutory text and with the Fifth Circuit’s focus on relationships of trust and confidence.”

In a reply filed on July 12, the group of insurers and industry trade group Finseca argued that the differences were not enough to “save the rule’s sweeping redefinition of fiduciary status,” which names agents and brokers who sell retirement income annuities as fiduciaries, along with those who provide rollover recommendations or small retirement plan investment advisement. The insurance industry plaintiffs have asked the court to “enjoin the Rule and stay its effective date.”

In setting up their response, the insurance groups first argue that the definition of an investment advice fiduciary under ERISA is created by common law, not the “DOL’s regulatory preferences.”

“Like the 2016 rule, the Rule seeks to transform virtually all insurance agents and brokers who recommend retirement products in compliance with existing state and federal laws into fiduciaries without regard to whether those relationships actually are or would be ‘fiduciary’ at common law,” the plaintiffs wrote.

The DOL, in its rebuttal to the initial complaint, had made the case that the rule was, in fact, focused on those offering advice regarding ERISA plan assets and was separate from those making a “sales pitch” for products or services.

But the plaintiffs disagreed with the assessment, arguing that the DOL’s rule is too broad and would put sales into a fiduciary context. In the response, the plaintiffs first argued that the new rule sweeps up all agents and brokers operating under the Securities and Exchange Commission’s Regulation Best Interest, as well as those operating under state-specific annuity sales rules.

They argued that operating within this regulation, according to the 5th Circuit’s 2016 ruling, does not necessarily mean someone is acting in a fiduciary capacity.

In addition, the insurers argued that an agent selling a service can have a relationship of “trust and confidence” with a client under the law without creating a “fiduciary relationship with every salesperson.”

The insurers also made the case—as they have in prior responses—that the DOL is going beyond its statutory authority with the rule under the so-called major questions doctrine, which they say “applies whenever agencies claim the power to make ‘major policy decisions’ normally reserved for Congress.”

In its response to the initial complaint, the DOL had argued that the major questions doctrine was inapplicable because “Congress expressly granted” the DOL the “wide authority to grant exemptions and to interpret the term ‘fiduciary’ in ERISA.”

The lawsuit is one of two filed to challenge the Retirement Security Rule. The Federation of Americans for Consumer Choice, an insurance industry group, filed a suit in U.S. District Court for the Eastern District of Texas on May 2. That case is also still pending.