DOL faces tough road in revising or repealing fiduciary rule

Any significant changes would likely spur a lawsuit, and the courts have been tougher on regulators when they reverse course on rules after a new president comes into office

Apr 13, 2017 @ 2:08 pm

By Mark Schoeff Jr.

+ Zoom

As the Department of Labor begins to review its fiduciary duty regulation, it faces a daunting road ahead to modify or repeal the measure.

If the agency makes changes — as the Feb. 3 directive from President Donald J. Trump seems to foreshadow — it could generate lawsuits from proponents. But the DOL will not get the same benefit of the doubt from the courts in that round of lawsuits that it has in current litigation brought by opponents of the rule.

The DOL has been undefeated so far in court defending the rule in part due to something known as Chevron deference. That principle arose out of a 1984 Supreme Court case, Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., in which the court ruled that the Environmental Protection Agency's interpretation of the Clean Air Act was "entitled to deference." Since then, courts have given agencies the leeway to enforce their own regulations if there's any ambiguity surrounding them.

But the courts have been tougher on regulators when they change their mind on rules after a new presidential administration comes into office.

At the beginning of President Ronald Reagan's administration, the National Highway Transportation Safety Administration tried to scrap a rule from the Jimmy Carter administration requiring passive restraints, such as automatic seat belts or airbags, in vehicles. In Motor Vehicle Manufacturers Association v. State Farm Insurance, the Supreme Court ruled that the action was "arbitrary and capricious." The court held that NHTSA failed to prove that taking the regulation off the books was necessary.

"An agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance," the court wrote in its opinion.

The next few months could be arduous for the Trump Labor Department.

"It is a difficult exercise to make a substantial change in a rule that an agency has adopted," said Robert Plaze, a partner at Proskauer Rose and a former Securities and Exchange Commission official.

Adding to the DOL burden is its accelerated time line. It says it will reassess in a few months a rule that took six years to finalize — and do so, for the time being, without leadership at the top. Mr. Trump's nominee for DOL secretary, Alexander Acosta, awaits a Senate confirmation vote.

"The deck is really stacked against the DOL," said Erin Sweeney, a member at Miller & Chevalier and a former DOL senior benefits law specialist. "You've got to get [a review] done quicker and to a higher standard and with gaps in leadership. It's a recipe for disaster for them."

Seeking to extend the delay would be a challenge because the DOL used the same cost study in the delay rule as it did in the final rule last year, according to Joshua Lichtenstein, an associate at Ropes & Gray.

In the rule seeking a 60-day delay, the DOL said pushing back the implementation date would cost investors $147 million over one year and $890 million over 10 years.

"It would be difficult to get another delay," Mr. Lichtenstein said. "A 180-day delay would have gotten into billions of dollars."

In the end, the rule may come out less scathed than anticipated — something advisory firms should keep in mind.

"Use this extra time to make sure you're ready to comply," Mr. Lichtenstein said.


What do you think?

View comments

Recommended for you

Featured video


The business case for hiring NextGen talent

Firms hiring nextgen talent have reaped the benefits from greater productivity to revenue growth. Clearly, there's a business case to be made for hiring millennials. Kate Healy of TD Ameritrade breaks it down.

Latest news & opinion

Vanguard winning at bond inflows, too

But iShares is strong competition.

Sen. Gary Peters brings broker background to work every day on Capitol Hill

Michigan Democrat resists ripping up DOL fiduciary rule but would be open to some changes.

DOL fiduciary rule causing DC-plan record keepers to change business with insurance agents

Principal has communicated that independent agents must change their business models to keep receiving compensation.

DOL fiduciary rule opponents want to push implementation back until 2019

ICI, Chamber of Commerce among groups asking for delay, while Democratic lawmakers call on DOL to keep to its earlier planned schedule of Jan. 1, 2018.

Take 5: Vanguard's new CIO Greg Davis talks bonds, stocks and costs

Having just stepped into the role, this veteran of the firm now oversees $3.8 trillion in assets in more than 300 mutual funds and exchange-traded funds.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print