Compliance

District Court Rejects Insurer Concerns with Fiduciary Reform

The text of the defeated complaint shows insurance providers are clearly worried about potential consequences of the DOL fiduciary rulemaking.

By John Manganaro editors@plansponsor.com | November 07, 2016
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The U.S. District Court for the District of Columbia has rejected a lawsuit filed by the National Association for Fixed Annuities (NAFA), which had asked the court for “declaratory, injunctive, and other appropriate relief” that would have halted the implementation of the Department of Labor’s (DOL) new fiduciary rule.

The suit sought relief under the Regulatory Flexibility Act (RFA), suggesting the DOL conflict of interest rule, with its sweeping advice reforms, moves far too quickly to install overly broad restrictions to currently accepted business practices. “Specifically, in promulgating the Rule and the Exemptions, the Department exceeded the authority granted to it by Congress under ERISA, the Code, and Reorganization Plan No. 4 of 1978,” the suit contended. “In addition, the Rule and the Exemptions are arbitrary and capricious, not in accordance with law, impermissibly vague, and otherwise promulgated in violation of federal law.”

The text of the defeated complaint shows NAFA member firms are clearly worried about potential consequences of the DOL rulemaking. While they have not traditionally considered themselves as trusted fiduciary advisers for their clients, instead serving more in a commission-based product broker/distributor role, they feel the new rulemaking will forcibly treat them as fiduciaries—thereby restricting their ability to recommend products that would increase their own compensation. Indeed, the majority of Employee Retirement Income Security Act (ERISA) compliance experts have opined that essentially anyone receiving any type of valuable compensation for any type of advice—even a one-time recommendation from an insurance broker—will be deemed a DOL fiduciary and thus be subject to compensation restrictions.

“NAFA’s members have been adversely affected by the Department’s actions in that the Rule and Exemptions will, in many cases, threaten the very existence of their business, result in immediate and unrecoverable losses of market share, and result in unrecoverable economic losses for which no adequate relief can later be granted,” the complaint argued, asking the court to halt the rulemaking prior to implementation next year. 

A variety of arguments were leveled in the NAFA complaint along these lines, but clearly they did not prevail, given that the D.C. District Court has flatly opposed NAFA’s dual requests for preliminary injunction and summary judgment. Instead, the court actually granted the DOL’s cross-motion for summary judgment, which argued naturally that all of the tenets of the rulemaking fit squarely within the DOL’s existing authority.

NEXT: Details from the text of the decision are telling  

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