In the latest legal action against a Labor Department rule to raise advice standards for retirement accounts, an organization that provides financial services to Christians says it would not be able to use its dispute resolution mechanism, which prohibits class actions, if it had to adhere to the DOL rule.
Thrivent Financial for Lutherans filed a claim against the DOL rule Thursday in federal court in Minnesota. It argues that the agency exceeded its authority by allowing advisory clients to file class-action lawsuits as part of its best-interest contract exemption, which advisers must sign if they want to receive compensation that varies for the financial products they sell.
The DOL rule does allow mandatory arbitration in individual cases but prohibits waivers on class-action suits. A
Financial Industry Regulatory Authority Inc. rule governing brokerage contracts works in a similar way.
The Thrivent suit was first
reported by Bloomberg BNA.
Thrivent is seeking a preliminary and permanent injunction against the class-action provision of the DOL contract, a legally binding document that requires advisers to act in the best interests of their clients.
Thrivent, which has 2.5 million members across the country, is a “fraternal benefit society” that sells proprietary investment products to its members, including insurance, annuities and mutual funds.
“We create financial strategies that help Christians be wise with their money and live generously,” Thrivent
states on its website.
In its suit, Thrivent said the DOL rule would “almost completely eliminate Thrivent's ability to offer financial products to its members.” The organization's independent-contractor financial advisers earn commissions, a type of payment that could continue for individual retirement accounts only if Thrivent adheres to the best-interest contract.
But because the contract permits class-action lawsuits, Thrivent argued that it could no longer use its member dispute resolution program (MDRP), which requires “private one-on-one mediation and arbitration.”
“The MRDP reflects Thrivent's Christian belief system and strives to preserve members' fraternal relationship … by avoiding adversarial litigation that could threaten to undermine the organization's core mission,” the Thrivent suit states.
An arbitration expert said the DOL can point to statutory authority to regulate retirement accounts, but may not be on the same solid ground when it comes to the arbitration provision.
“It's an open question whether they're going to prevail on the Federal Arbitration Act,” said George Friedman, a consultant and former head of Finra arbitration.
Thrivent said the DOL declined its request for an exemption to the best-contract requirement.
“Only when it became clear that Thrivent's efforts to obtain an [exemption] would not be successful did Thrivent decide to file this lawsuit in order to protect its chosen method of dispute resolution and its governance structure,” the suit states.
Unlike
the other five lawsuits filed against the DOL rule, the Thrivent action is not seeking to invalidate the entire regulation, which will be implemented beginning in April.
A federal court in Washington
could rule soon on a separate lawsuit that seeks a preliminary injunction against the regulation.
The Department of Justice declined to comment. The agency is defending the DOL rule.
