The DOL’s fiduciary rule faces another legal challenge

A coalition of insurance trade associations has filed a lawsuit against the US Department of Labor (DOL), seeking to overturn a regulation they argue limits consumer choice in financial professionals and restricts access to retirement products that offer protected lifetime income.

The plaintiffs in the civil lawsuit include the American Council of Life Insurers, the National Association of Insurance and Financial Advisors, and the Insured Retirement Institute. They collectively criticized the DOL's fiduciary standard, which they say imposes undue restrictions on nearly all financial professionals who sell retirement products.

In their legal filing, the associations asserted that the DOL’s fiduciary-only regulation is fundamentally flawed and unconstitutional. They argued that it mirrors the DOL's 2016 rule, which was previously struck down by the Fifth Circuit Court of Appeals.

"The legal action we are taking today comes after careful deliberation on what is in the best interest of the retirement savers we serve," the coalition said in a joint statement.

The lawsuit contends that the regulation overreaches the DOL's authority, calling it “arbitrary” and “capricious” as it ignores federal and state standards already in place for financial professionals working with retirement savers. "

“Our filing makes a convincing case that the DOL’s fiduciary-only regulation suffers from the same legal defects as the DOL’s failed 2016 rule," the associations said, echoing an argument made in an earlier lawsuit against the new fiduciary rule advanced by another group.

Critics of the rule emphasize that it could have significant negative impacts on retirement savers. They cite the adverse effects of the 2016 regulation, which resulted in more than 10 million American workers' accounts with $900 billion in savings losing access to professional financial guidance.

"Despite claiming to help consumers, the rule, in fact, will be a catastrophe for retirement savers," the associations claimed in their filing.

"By imposing on sales recommendations substantial burdens deemed counterproductive by other regulators, and by redefining essentially all commercial relationships in the retirement savings marketplace as fiduciary, the rule will drastically and unreasonably raise the costs of assisting consumers," the filing read

The coalition further maintained that the new rule disregards the progress made by state policymakers in protecting consumers. Since 2020, 45 states have adopted the revised NAIC suitability in annuity transactions model, which aligns with the SEC’s Reg BI rule.

"The DOL’s fiduciary regulation upends this progress and undermines the expertise of state authorities who are responsible for overseeing annuities," the associations stated.

The lawsuit, filed in the United States District Court for the Northern District of Texas, under the jurisdiction of the Fifth Circuit Court of Appeals, contends that the regulation imposes significant fiduciary burdens on typical sales conversations.

It argues that the DOL rule violates the First Amendment rights of financial professionals and consumers alike by restricting each party’s ability to give or receive beneficial and truthful information about retirement products.

"Put simply, the department’s current rule suffers from the same key legal defects as the 2016 rule," the lawsuit argued. "It exceeds the agency’s statutory authority. It is the product of a rushed, outcome-oriented process. It is arbitrary and capricious in multiple respects."