A cavalry in the form of several state attorneys general and AARP, the massive interest group for retired Americans, is trying to come to the rescue of the Department of Labor's fiduciary rule, which is within days of dying in a federal court.
Top legal officials in California, New York and Oregon filed a petition in the 5th Circuit Court of Appeals on Thursday, asking for the court's permission to intervene as a defendant in a lawsuit against the DOL regulation, which was struck down in a March 15 split decision by a three-judge panel of the 5th Circuit. AARP separately filed papers in the 5th Circuit on Thursday, also asking the court to make it a defendant.
The Department of Justice, on behalf of the DOL, has until April 30 to appeal the decision — but it has not yet stated what it will do.
The state attorneys general also are asking for the full 5th Circuit to rehear the case. The same request was made by AARP.
It's likely the Trump administration — which has delayed full implementation of the DOL rule until July 2019, while it reviews the regulation in a study that could lead to major changes — will abandon the rule in court.
"We're hoping the court will recognize that every consumer in America, every saver planning for retirement in America really deserves to have a full-throttled defense of the fiduciary rule, and we don't believe that the Trump administration will do that," California attorney general Xavier Becerra told reporters on a conference call.
It wasn't immediately clear whether the last-minute effort will persuade the court to take another look.
"We're hoping that between AARP's petition and the states' petition, that there will be a good chance of [the court's] granting an en banc review," AARP attorney Mary Ellen Signorelle said on a separate call with reporters.
A DOJ spokeswoman declined to comment.
The financial industry opponents of the DOL rule who were plaintiffs in the 5th Circuit case — the U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Insured Retirement Institute, and Securities Industry and Financial Markets Association — will resist AARP and the states.
"The 5th Circuit got it right in its March 15 opinion striking the DOL fiduciary rule in toto," the plaintiffs said in a statement. "We will oppose any motion to intervene in this case at this late stage."
The 5th Circuit decision was the first victory for industry opponents of the rule, which had been upheld in several lawsuits in federal district courts across the country. Critics contend the DOL overstepped its authority in promulgating what they call a complex and costly regulation.
Proponents of the DOL rule, which requires brokers to act in the best interests of their clients in retirement accounts, said it protects investors from conflicted advice that erodes their savings at a time when more responsibility is being placed on individuals to build their own nest eggs.
"We think it's critical to the future of retirement savings and retirement income security, and that's why we're petitioning the court to intervene in this case," said AARP legislative policy director David Certner.
But FSI chief executive Dale Brown doubts the court will give AARP and the states standing.
"I'm told by our attorneys, who are experts in this area, that at this late date in the process, it's unlikely that the 5th Circuit will grant them the hearing they're asking for," Mr. Brown said during a panel at the Fi360 annual conference in San Diego on Wednesday.
The states and AARP face an uphill battle, said Duane Thompson, Fi360 senior policy analyst.
"At this point, we are looking at Custer's last stand," Mr. Thompson said. "The chances are likely that the Department of Labor will come out with a new rule, but in a way that it is toned down significantly in terms of fiduciary regulations compared to the previous rule."
The DOL measure's fate in court is being decided a week after the Securities and Exchange Commission released its own advice rule reform package.
The SEC proposal includes a best-interest regulation for brokers. But AARP said the SEC rule cannot take the place of the DOL regulation.
The SEC rule does not "cover all [investment] products that are important to retirement savers," Mr. Certner said. "What we need to delve into a little bit more clearly is how they're defining a best-interest standard."