Capitol News

Art by Pawel MildnerAnticipated Lawsuit Against DOL Fiduciary Rule
Plaintiffs in a new federal lawsuit targeting the Department of Labor (DOL) are hoping to halt what they see as “overreaching federal regulations that will restrict hardworking Americans’ access to retirement advice and planning services.”

The suit was filed in the U.S. District Court for the Northern District of Texas by a small group of national financial and business trade organizations including the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Greater Irving – Las Colinas Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and the Texas Association of Business.

Their objective is to “challenge the Department of Labor’s fiduciary rule for brokers and registered investment advisers [RIAs] serving Americans with individual retirement accounts [IRAs] and 401(k) plans.” Those who have followed the fiduciary-rule debate as it has unfolded over the years will be familiar with the arguments presented against the DOL’s landmark regulations.

Technical Updates to Fiduciary Rule ‘BIC’
A big question coming out of the Department of Labor (DOL)’s publication of the final fiduciary rule earlier this year was how workable would the portion of the rulemaking be that is known as the best interest contract (BIC) exemption.

According to the DOL’s own explanation, the BIC exemption “allows certain persons that are fiduciaries under the Employee Retirement Income Security Act (ERISA) or the Internal Revenue Code (IRC), or both, by reason of providing investment advice, to receive compensation that may otherwise be prohibited.”

The DOL says the technical update also “confirms insurers’ broad eligibility to rely on the exemption, consistent with the exemption’s clearly intended scope and the analysis and data relied upon in the department’s final regulatory impact analysis.”

The DOL’s update further “adds an identifier, Prohibited Transaction Exemption 2016-01, to the heading of the best interest contract exemption.” The department expects this will help industry practitioners view and understand the final version of the BIC exemption that will begin taking effect in the next two years.

Disney Sued Over Undiversified Investment
A participant in the Disney Savings and Investment Plan has sued plan fiduciaries regarding the plan’s offering of the Sequoia Fund as an investment option.

According to the complaint, the Sequoia Fund is a high-cost mutual fund run by adviser firm Ruane, Cunniff & Goldbarb and its portfolio managers, Robert Goldfarb and David Poppe. The lawsuit claims that, in violation of plan investment policies, the fund managers concentrated the fund’s assets in a single stock, Valeant Pharmaceuticals Inc.

The complaint says, the plan provides that participants would have at least three investment funds from which to choose and that each investment fund would be diversified. In addition, it says Valeant had a “well-known reputation for misleading investors with faulty accounting and profit expectations and gouging consumers in the sale of pharmaceuticals.”

Fidelity Targeted in Fee Suit Over Advice
Fidelity Management Trust Co. and Fidelity Investments Institutional Operations Co. have been sued by participants of the Delta Family – Care Savings Plan regarding excessive fees charged for its advice offering as well as its self-directed brokerage account (SDBA) option.

In a statement to PLANADVISER, Fidelity said, “The allegations in this complaint are without merit, and we intend to defend against them vigorously.”

According to the complaint, Fidelity contracted with Financial Engines Advisors to provide investment advice services to individual participants in the plans administered by Fidelity.

The lawsuit alleges Financial Engines agreed to pay—and is paying—Fidelity a significant percentage of the fees it collects from 401(k) plan investors and that these fees are being paid as part of a so-called “pay-to-play” arrangement, or a kickback