The Department of Labor (DOL) on Friday filed an appeal to reverse two federal court stays that halted its Retirement Security Rule, which was expected to take effect on Monday.
“Notice is hereby given that the Defendants in this action appeal to the United States Court of Appeals for the Fifth Circuit from this Court’s July 26, 2024 Order granting in part and denying in part Plaintiffs’ Motion for Preliminary Injunction and Stay of Effective Date…,” stated the Notice of Appeal submitted by the Department of Labor.
The appeal come after two federal courts issued stays in late July in an effort to delay the implementation of the fiduciary rule. The first stay, granted on July 26 by U.S. District Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas, was filed by the Federation of Americans for Consumer Choice along with several independent insurance agents.
In his ruling, Judge Kernodle said the Retirement Security Rule had incorporated several of the same issues that killed the 2016 rule several years ago. In that instance, the Fifth Circuit vacated the rule in 2018 because it “conflict[ed] with the plain text of [ERISA],” was “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition,” and unreasonably treated numerous financial services providers “in tandem with ERISA employer-sponsored plan fiduciaries,” Kernodle stated.
A second stay was granted the following day by the Federal District Court for the Northern District of Texas, who blocked the fiduciary rule from moving forward until it rules on a past lawsuit filed by the American Council of Life Insurers and eight other insurance organizations, including the National Association of Insurance and Financial Advisors (NAIFA), the Insured Retirement Institute (IRI), and the National Association for Fixed Annuities (NAFA). That suit, filed in May, accused the fiduciary rule of being “contrary to law,” “arbitrary and capricious,” and “ultimately unconstitutional,” and also likened it to the DOL’s 2016 fiduciary regulation, which was overturned in 2018 by a Fifth Circuit Court of Appeals Chamber of Commerce decision.
While the Department of Labor has filed its appeal, it has yet to provide its full argument against the plaintiffs. The agency has previously stated its determination to face challenges against the rule, but it’s unclear whether they will succeed or not, experts say. Additionally, multiple factors, including the outcome of the general election in November, could influence the rule’s success or demise.
“…My view is that the likelihood of success on appeal is slight,” shared Fred Reish, an ERISA attorney and partner at Faegre Drinker, in an August blog post, before suggesting that the DOL would fare better in proceeding to a hearing on the merits. “In that case, the next move would likely be competing motions for summary judgment. Since the courts have already indicated that the plaintiffs [primarily from the insurance industry] are likely to succeed in the desire to overturn the DOL rules, and since the judges believe that they are bound by the 5th Circuit Court of Appeals Chamber of Commerce decision in 2018 [which overturned the Obama era fiduciary rules], it seems almost certain that the judges will vacate the regulation and exemptions.”
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