5th Circuit denies AARP, states motion to defend DOL fiduciary rule

The Fifth Circuit Court of Appeals ruled Wednesday that AARP and three states cannot intervene in a lawsuit against the DOL fiduciary rule.

The large interest group representing older Americans as well as the attorneys general of California, New York and Oregon filed motions last week to enter the case as defendants. They also requested a rehearing by the full 17-judge circuit of a March 15 split decision that vacated the DOL regulation, which requires brokers to act in the best interests of their clients in retirement accounts.

The motions to intervene were denied by the same three-judge panel that made the March 15 decision.

The would-be defendants were attempting to rescue a regulation that now seems destined to die in court. The Department of Justice, on behalf of the DOL, failed to appeal the 5th Circuit decision by April 30, the deadline for such a motion.

The DOJ has until June 13 to petition the Supreme Court for a hearing. But most observers think such a move is unlikely, given the DOJ let the deadline to appeal pass without action and because the DOL is reviewing the rule under a mandate from President Donald J. Trump that could lead to major changes.

“AARP is disappointed in today’s court decision denying AARP the right to intervene in the 5th Circuit case to protect the retirement advice provided to our members and other Americans saving for retirement,” the organization, which has 38 million members, said in a statement. “AARP will continue its efforts to fight on behalf of consumers who want financial advice in their best interest. It is hard enough to save for retirement — we should do all we can to make sure retirement savers are getting the help they need.”

An AARP spokesman said the group is not currently planning to pursue further legal action on the DOL fiduciary rule.

Five of the industry plaintiffs — the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute and Securities Industry and Financial Markets Association — declared the DOL rule dead and turned their attention to the Securities and Exchange Commission, which proposed its own rule package on April 18.

“We are pleased the 5th Circuit denied the motions to intervene, and that the Department of Labor’s unlawful 2016 fiduciary rule is at an end,” the plaintiffs said in a statement. “The SEC, not the DOL, is the appropriate regulator in this area, and we look forward to working with the SEC on the current proposed rulemaking to establish a best-interest standard across all accounts, and not just retirement accounts.”

The March 15 decision to vacate the DOL rule was the first court victory for industry opponents of the rule, after a string of losses. They had argued the DOL did not have the authority to promulgate the regulation, and said it was too burdensome and would raise the cost of investment advice.

Proponents of the rule argued it mitigated broker conflicts that lead to sales of inappropriate, high-fee investment products that erode retirement savings.