DOL’s fiduciary rule faces first legal challenge

Several weeks after the DOL finalized its fiduciary rule, a contingent of critics have taken legal action in an attempt to get the rule quashed.

The action, filed in Texas federal court, was launched by a coalition that includes the Federation of Americans For Consumer Choice, an organization representing independent insurance professionals.

The rule, released in its final form by the DOL late last month, seeks to redefine what constitutes fiduciary advice under ERISA. As the agency explained, the rule aims to guard retirement investors against biased investment recommendations and conflicts of interest.

Acting Labor Secretary Julie Su, named as a co-defendant in the lawsuit, underscored the rule's intent to enhance protections for investors transferring assets from employer-based plans to IRAs.

While supporters of the rule praise its focus on protecting investors’ interests, detractors have fired back, saying the rule would effectively kneecap a large number of advisors’ ability to provide financial advice and make recommendations to Main Street investors.

“We continue to have significant concerns about the potential impact of the Department of Labor’s (DOL) final fiduciary rule on access and choice for American retirees to certain life insurance and annuity products,” the National Association of Insurance Commissioners said in the wake of the final rule’s publication.

“These products have been recognized by multiple Administrations of both political parties as an important option for retirees to manage their risk of outliving their savings,” NAIC said.

In the new Texas lawsuit, the plaintiffs contend that the new rule is a warmed-over rehash of an Obama-era fiduciary definition previously overturned by the Fifth Circuit in 2018. They argued that the rule unfairly broadens the fiduciary responsibilities of financial professionals, even for occasional advice given in routine transactions.

“[T]he 2024 Fiduciary Rule is inconsistent with the intent of Congress as expressed in ERISA, and the DOL has exceeded its authority and acted arbitrarily and capriciously in promulgating both the 2024 Fiduciary Rule and amended PTE 84-24,” the lawsuit said.

"The DOL refuses in this relentless policy-driven quest to be constrained by ERISA and clear-cut decisions by the courts," it said.

Pushing back against the perceived federal overreach, the Federation of Americans For Consumer Choice highlighted concerns that even single touchpoints of providing investment advice could now trigger fiduciary obligations.