Update June 23, 2016: Sen. Paul Ryan's push to override Obama veto failed along party lines by a 239-180 vote.
Update June 9, 2016: There were two more lawsuits filed against the DOL fiduciary rule yesterday, this one by the Indexed Annuity Leadership Council and another by a Kansas-based insurance agency, Market Synergy Group (see document at end of post). This puts the D.C. Circuit, the Fifth Circuit and the Tenth Circuit in play.
President Barack Obama vetoed today a Congressional
“The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interest when giving retirement investment advice. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns – costing America’s families an estimated $17 billion a year,” President Obama said in a statement along with his veto. As a fiduciary, those giving individualized retirement will be held to a higher standard than what most retirement advisers adhere to today—a lesser “suitability” standard that lets them recommend products that are suitable but not necessarily in their clients’ best interest.
The backers of H.R. 88 quickly fired back with warnings that the rule will hurt low- and middle-income families saving for retirement and create new hurdles for small businesses offering retirement plans. “President Obama is apparently willing to accept these painful consequences, but Republicans are not,” Rep. Phil Roe (R-TN) said in a statement denouncing the veto. The resolution had passed the Senate on May 24 by a vote of 56-41, after passing the House in April 234 to 183.
That leaves the lawsuits as the next hope for the rule’s naysayers. Eight industry and trade groups, including the U.S. Chamber of Commerce, the Insured Retirement institute, the Financial Services Institute, the Financial Services Roundtable, and the Securities Industry and Financial Markets Association, filed the first lawsuit against the DOL on June 1 in the northern district of Texas, claiming that the DOL didn’t have the authority to enact the new rules. “The Department has disregarded the regulatory framework established by Congress, exceeded its authority, and assumed for itself regulatory power that is vested in the SEC in ways that will harm retirement savers,” the lawsuit contends.
The National Association for Fixed Annuities filed another lawsuit against the DOL in the D.C. District Court challenging the rule on June 2. The NAFA complaint also alleges that the DOL exceeded its authority and specifically takes issue with the fact that the rule categorizes insurance agents as fiduciaries.
The American Council of Life Insurers, joined by the National Association of Insurance and Financial Advisors and others, filed their complaint in the northern district of Texas too. A joint statement from ACLI president & CEO Dirk Kempthorne and NAIFA ceo Kevin Mayeux says that they “do so reluctantly,” but contend that the rule is “neither reasonable nor balanced” and that it improperly classifies virtually all commercial interactions between those selling life insurance products and retirement investors as fiduciary advice.
Taking the fight to the courts isn’t without risk. In a litigation decision considerations memo the ACLI circulated to members, it noted that litigation is not consistent with the industry’s desire to be branded as trusted provider of retirement security products and services, it may make getting needed guidance from the DOL more difficult, and it may diminish legislative support on Capitol Hill.
By filing multiple lawsuits, the rule’s opponents can hope to get a spilt in lower court opinions that could move the issue up to the Supreme Court, says Erin Sweeney, an ERISA lawyer with Miller & Chevalier in Washington, D.C. She pointed out another strategic move: in the northern district of Texas, a judge surprisingly was willing to enjoin enforcement of a DOL regulation last year in State of Texas v. U.S. (ultimately the DOL prevailed in that case).
Nevertheless, there is an argument that the DOL can’t regulate something by exemptions that it can’t regulate upfront, Sweeney says. Part of the problem is the hodgepodge retirement savings system. The Internal Revenue Service has authority over Individual Retirement Accounts. The Securities & Exchange Commission has authority over financial advisors. The DOL has authority over qualified plans like 401(k)s.
The DOL says it has the authority to issues the new rules, and is ready to fight the opponents. Supporting the Administration: The Financial Planning Coalition – made up of the Certified Financial Planner Board of Standards, the Financial Planning Association, and the National Association of Personal Financial Advisors. The coalition commended Obama’s veto and spoke out against the lawsuits challenging the rule, noting that many industry players have already begun implementing the rule, recognizing that it’s “good for businesses and for consumers.”
