The Federation of Americans for Consumer Choice (FACC) has filed a second lawsuit against the Department of Labor (DOL), in an effort to defer the Retirement Security Rule’s September implementation.
The FACC, along with other independent insurance agents, filed the preliminary injunction on Tuesday in the U.S. District Court for the Eastern District of Texas. The suit argues that if applied, the new fiduciary rule would cause “dire consequences for tens of thousands of independent insurance agents and their clientele if not stopped.” Therefore, its implementation should be delayed until the first lawsuit is settled, plaintiffs maintained.
“Accordingly, Plaintiffs brought this action to vacate the 2024 Fiduciary Rule and the accompanying PTE 84-24 amendments under the APA on grounds that they are contrary to law and arbitrary and capricious,” the suit reads. “Plaintiffs now seek a preliminary injunction to prevent the DOL from enforcing these unlawful regulations to protect Plaintiffs and all similarly situated persons in the insurance industry from immediate and irreparable harm.”
The insurance advocacy group filed its first lawsuit in early May, in which they accused the DOL of violating the Fifth Circuit Court of Appeal’s previous rule that vacated 2016 fiduciary legislation and of hastening the rule’s reviewal process.
The Fifth Circuit struck down the DOL’s fiduciary rule in 2018 in a 2-1 decision, as it said the federal agency had tried to “regulate a significant portion of the American economy” that included “hundreds of thousands of financial service providers and insurance companies.”
Now, FACC’s suit contends that the DOL is again attempting to regulate industries outside of retirement plan advisors through its latest rule and the PTE 84-24 amendment. “Whereas the core holding of the Fifth Circuit decision was that not all financial salespeople are fiduciaries under ERISA, the DOL’s new regulation now decrees that any insurance agent who merely complies with state insurance laws when dealing with an ERISA plan member or owner of an Individual Retirement Account [“IRA”] is a fiduciary,” the suit states.
Furthermore, the FACC argues against the new rule’s phase-in period. While the rule is set to begin on Sept. 23, 2024, certain supervisory conditions will not apply to fiduciaries until September 2025.
However, fiduciaries will still need to comply with other requirements this coming September, leaving them just a few months to prepare for the rulemaking, the FACC further argues in the suit. “During the phase-in period, the Agents must still comply with onerous requirements that include acknowledging to clients that they are fiduciaries. They must also satisfy the exemption’s ‘Impartial Conduct Standards,’ which includes compliance with a ‘Care Obligation’ and ‘Loyalty Obligation’ applicable to ERISA fiduciaries, and receive no more than ‘reasonable compensation.’ The Agents must immediately begin incurring the time and expense of preparing for the phase-in period requirements that takes effect in just four months,” the suit adds.
As a result, “preliminary injunctive relief is needed to avoid irreparable harm during the pendency of this lawsuit,” the suit concludes.
The DOL has previously said it would be ready to tackle any legal challenges against its fiduciary rule.
SEE ALSO:
- Fiduciary Rule Update: Hearings, Lawsuits and Compliance Prep
- DOL Fiduciary Rule Hit With First Lawsuit
- Broadridge 360: Challenges and Opportunities in the New Fiduciary Marketplace
- Fiduciary Rule Vacated by Fifth Circuit Federal Court
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
