A leading insurance trade group has filed a second lawsuit aimed at striking down a Labor Department rule to raise investment advice standards in retirement accounts.
The move Thursday by the National Association of Fixed Annuities comes one day after a group of financial and business trade groups
filed a similar lawsuit against the rule that will have a profound effect on the way many financial advisers deliver retirement advice when it is implemented on April 2017.
NAFA, a trade association representing insurance companies, independent marketing organizations and individual insurance agents, filed its
lawsuit in the U.S. District Court for the District of Columbia.
Aside from asking the court to vacate and set aside the fiduciary rule and its associated exemptions, NAFA is seeking a preliminary injunction, or a temporary halt that
could delay the implementation date.
Meeting the April 2017 deadline for initial implementation of the rule is "almost an impossibility for the industry," Chip Anderson, NAFA's executive director, said Friday
NAFA levies six counts against defendants and uses similar arguments to the initial suit, which was filed Wednesday by a party of nine plaintiffs in a Texas district court, to challenge the Labor Department's co-called “fiduciary” rule.
“The Department exceeded its statutory authority under ERISA and acted in an arbitrary and capricious manner in promulgating its new definitions of 'investment advice to a plan' and 'fiduciary,'” according to the complaint. The initial suit uses the same terminology — “arbitrary” and “capricious” — to attack the rule.
Despite the similarities in language, the two suits are not part of a coordinated effort to block the rule, Mr. Anderson said.
NAFA also attacks the DOL's extension of fiduciary obligations to individual retirement accounts, the private right of action created under the Best Interest Contract Exemption (BICE) portion of the rule, the “unduly” vagueness of the term “reasonable compensation” in the rule, the DOL's failure to consider the rule's impact on small businesses (
particularly independent marketing organizations and insurance agents), and
inclusion of fixed indexed annuities in the BICE.
Whereas the initial suit, filed Wednesday, listed nine plaintiffs, NAFA is the sole plaintiff in the most recent legal challenge to the DOL's fiduciary rule. And like the first suit, Secretary of Labor Thomas Perez and the DOL are the named defendants.
(Related read: The DOL Fiduciary rule from all angles)
In response to the first lawsuit, Mr. Perez said “industry groups and lobbyists are suing for the right to put their own financial self-interests ahead of the best interests of their customers,” according to a statement. A spokesman for the DOL said on Friday that the department had no immediate comment on the second lawsuit.
Proponents of the rule feel it's necessary to protect retirement savers from high-fee investment products that erode their nest eggs. Opponents believe the rule will lead to higher compliance costs and litigation risk, leading them to abandon some smaller retirement accounts.
Observers have said there will
likely be multiple legal challenges to the Labor Department's regulation, released in early April, with the most likely attackers being from the insurance lobby. The Insured Retirement Institute was a co-plaintiff in the first suit.
The name of the second suit is The National Association for Fixed Annuities v. Thomas E. Perez et al.
