A Texas federal court stayed the Labor Department's newest iteration of the fiduciary rulearguing that the rule “suffers from many of the same problems” as a previously watered-down version of a fiduciary standard for insurance professionals.
The Federation of Americans for Consumer Choice, an Austin, Texas-based lobbying group for independent insurance professionals, filed suit against the DOL in May; the group previously filed a lawsuit in the same court several years ago, seeking to overturn previous DOL fiduciary mandates issued by the Trump administration.
It is one of two ongoing lawsuits filed in Texas federal court that seeks to overturn the latest trust rule issued earlier this year by the Biden administration.
The plaintiffs in that case include the American Council of Life Insurers, several regional divisions of the National Association of Insurance and Financial Advisors, the Insured Retirement Institute, and Finseca, a trade group for financial services professionals.
In the FACC lawsuit, the group argued that the DOL wants to “fundamentally reshape” decades of established practices in the insurance industry (the DOL wants any financial professional who recommends a product to an investor when transferring assets from an employer-based plan to an IRA to be considered fiduciary).
President Joe Biden announced the latest version of the fiduciary rule last October in a broader effort to curb “junk tariffs” across multiple industries. The DOL released its final version in late April. It was supposed to come into effect in September. The stay puts it on hold indefinitely or until the DOL appeals.
The rule follows efforts by previous administrations, including an Obama-era fiduciary rule struck down by the Fifth Circuit Court of Appeals in Texas. The FACC argued in its call for a restraining order that the new rule mirrored the structure of the Obama-era version, and federal judges in the Eastern District of Texas agreed in the order granting the plaintiffs' motion to stay the rule.
“In summary, the Court finds that plaintiffs are likely to succeed on their claim that the 2024 Fiduciary Rule conflicts with the text of ERISA by redefining “investment advice fiduciary'' to include antitrust and fiduciary relationships “, the order says. . “The Court also finds that plaintiffs would suffer irreparable harm in the absence of relief — as defendants concede — and that the equities and public interest weigh in favor of a stay here.”
If the DOL appeals the decision, it will go to the Fifth Circuit, as the Obama-era rule did when it was released (the Trump administration, which challenged the rule, chose not to appeal the Fifth Circuit decision in 2018).
In a discussion earlier this week hosted by the Fiduciary Standards Institute held before the stay order was issued, Phyllis Borzi, an assistant secretary for employee benefits at the DOL during the Obama administration, said it was difficult to predict that what would eventually happen. , but believed the new rule was “tightly tailored, much better written and better focused” than the 2016 iteration.
Joseph Peiffer, president of the Public Investors Bar Association and founding partner of the law firm Peiffer Wolf Carr Kane Conway & Wise, agreed. He thought the rule was desperately needed, as he felt the insurance industry made the securities industry “look like a bunch of librarians” in terms of the frequency of misconduct.
“If this court challenge is successful, it really shouldn't be,” he said. “The DOL went back, sharpened their pencils, and looked at what the Fifth Circuit did the last time it overturned the rule, and really tailored the rule to survive a Fifth Circuit challenge.”
But Benjamin Schiffrin, director of securities policy for Better Markets, said the issue of “forum shopping” by plaintiffs remains a vexing problem for consumer advocates.
“An industry can simply go to specific courts, whether they're specific district courts in the Fifth Circuit or the Fifth Circuit itself, any time it doesn't like the rule and knows the Court won't agree with the rule because the Court has a certain ideological perspective”, he said.