In the first lawsuit challenging the Labor Department's new retirement advice rule, a trade group for independent agents and five other insurance industry plaintiffs seek to block the regulation.
The Federation of Americans for Consumer Choice — a nonprofit regulatory advocacy group for marketing organizations and agents that pushes for "fair and even-handed" regulation of fixed insurance — accused the agency of exceeding its authority by applying the fiduciary duty to rollovers and other advice about retirement products to 401(k) and 403(b) savers, according to the May 2 lawsuit in the Eastern District of Texas. The filing came a week after Labor's Labor's Employee Benefits Security Administration issued the final version of the rule.
Labor's changes to the Employee Retirement Income Security Act and amendments to the guidelines for prohibited transaction exemptions (PTEs) under the rule "are just the latest salvos by the DOL in its almost 15-year quest to redefine what it means to be an ERISA fiduciary in contravention of the will of Congress," the lawsuit said.
"It blatantly defies the prior ruling of the United States Court of Appeals for the Fifth Circuit striking down a rule package that was effectively indistinguishable from the 2024 Fiduciary Rule," it continued. "Accordingly, plaintiffs have brought this action to vacate the 2024 Fiduciary Rule and amendment to PTE-84-24 under the Administrative Procedures Act on the grounds that they are contrary to law. Plaintiffs also seek preliminary and permanent injunctive relief to prevent the DOL from attempting to enforce these unlawful rules and regulations."
Representatives for the Department of Labor referred an inquiry on the lawsuit's allegations to the Department of Justice, where public affairs staff declined to comment on pending litigation.
At a hearing earlier this week before the U.S. House Committee on Education & the Workforce, Acting Labor Secretary Julie Su fielded pushback from Republicans questioning how the rule issued by President Joe Biden's administration is different from the fiduciary rule from President Barack Obama's Labor Department that got struck down in court six years ago.
"We are very confident that the rule is not only within our authority but [takes] into account existing case law," Su said, according to a summary of the hearing by S&P Global Market Intelligence.
With most experts predicting that industry trade groups would try to get the rule vacated in court, the litigation represents the first filing in a legal fight that will likely draw additional lawsuits from opponents such as the Financial Services Institute, the Insured Retirement Institute, the National Association of Insurance and Financial Advisors or the Securities Industry and Financial Markets Association.
The group that filed this first lawsuit is "coordinating with the other trades" on the legal effort, the federation's CEO, Kim O'Brien, told industry news outlet Insurance Newsnet. Those objecting to the rule argue the new regulation is unnecessary in light of other existing guidelines and could block access to retirement advice among nest egg savers.
The Labor Department and supporters of the rule, including AARP, the CFP Board, the National Association of Personal Financial Advisors and the Consumer Federation of America, say the regulation would close loopholes and save investors billions of dollars a year.
Without an injunction placing the rule on hold as a result of this or any other filings, the rule will go into effect Sept. 23.
