A key deadline has passed without the Labor Department acting to defend its fiduciary rule in court. But the measure isn't dead yet.
The Department of Justice, acting on behalf of the DOL, had until Monday to appeal a March 15 split decision in the 5th Circuit Court of Appeals to
strike down the regulation, which would require brokers to act in the best interests of their clients in retirement accounts.
The DOJ didn't move. A spokeswoman for the agency declined to comment Monday and was not immediately available for comment Tuesday.
The court ruling is scheduled to take effect May 7. But last week, AARP and the attorneys general of California, New York and Oregon petitioned the 5th Circuit for permission to
intervene as defendants, as well as for the entire 17-judge circuit to rehear the case.
AARP asked the court to delay the May 7 effective date for 14 days or longer while it decides on the motions.
According to a 5th Circuit staff member, there is no time line for when the court must decide on the AARP/states' motions to intervene; it is not locked into deciding by May 7. It could delay the effective date of the March 15 decision while it's deliberating the motions to intervene.
"The court has significant discretion over when the mandate issues," said Steve Hall, legal director and securities specialist at Better Markets, an investor advocacy organization.
But Kevin Walsh, an attorney at Groom Law Group, forecasts a swift conclusion in the 5th Circuit, which is
based in New Orleans.
"My prediction is that the 5th Circuit denies the motion to intervene and that the mandate issues on May 7," Mr. Walsh said. "The intervenors face an uphill battle."
The plaintiffs in the 5th Circuit case — financial industry opponents of the DOL rule, including the Securities Industry and Financial Markets Association and the Financial Services Institute — argued that the DOL had no authority to promulgate what they call a complex and costly rule.
They filed a
formal opposition on April 30 to the move by AARP and states.
"The improper, last-minute [AARP, state] motions do not come close to justifying their unprecedented bid to intervene for purposes of filing a motion for rehearing en banc, itself an exceptional motion which this court's rules firmly discourage — even when filed by a long-standing party to the proceedings," wrote Eugene Scalia, a partner at Gibson Dunn & Crutcher who represents the plaintiffs.
The challenge for AARP and the states is to convince the court that they have a right to intervene.
In its motion, AARP argued the DOL rule protects retirement savers from conflicted advice that erodes their nest eggs and that the 5th Circuit decision "jeopardizes those Americans' retirement security, [presenting] an issue of exceptional importance."
In additional to investor protection, the states asserted that demise of the DOL rule would cost them $52 million in tax revenue over the next 10 years due to less growth in retirement accounts.
"The intervenors have a very tough argument," said Bill Mandia, a partner at Stradley Ronon Stevens & Young. "I don't think either one has a legally protected interest."
Mr. Hall countered that AARP and the states are on solid ground.
"It is difficult to conceive of parties who would have a stronger standing argument than AARP and the state attorneys general who are seeking to protect millions of current and future retirees against adviser conflicts of interest that cost billions of dollars a year," he said.
The DOL has one more option if the 5th Circuit decision holds. They agency can file a petition by June 13 to have the Supreme Court hear the case.
Mr. Mandia doubts that will happen.
"Given they've been largely silent to this point, there's a good chance they're not going to take action," he said.
The DOL rule, which was
partially implemented last summer, is undergoing a review mandated by President Donald J. Trump that could lead to major changes.
Meanwhile, the Securities and Exchange Commission has proposed its own
advice standards rule that is currently open for public comment.
