As expected, and with the ink barely dry on the new Retirement Security regulation, the first lawsuit challenging the rule has been filed.
It seeks to vacate the 2024 Fiduciary Rule and amendment to PTE-84-24 under the Administrative Procedures Act (“APA”) on the grounds that they are “contrary to law and arbitrary and capricious.” It also seeks “preliminary and permanent injunctive relief to prevent the DOL from attempting to enforce these unlawful rules and regulations.”
The suit was filed by plaintiffs Federation of Americans for Consumer Choice, Inc. (“FACC”), as well as James Holloway, James Johnson, TX Titan Group, LLC, ProVision Brokerage, LLC, and V. Eric Couch against the United States Department of Labor (“DOL”) and Julie Su, in her official capacity as Acting Secretary of the United States Department of Labor.
It claims that the 2024 Fiduciary Rule and PTE amendments “are just the latest salvos by the DOL in its almost 15-year quest to re-define what it means to be an ERISA fiduciary in contravention of the will of Congress.”
The suit goes on to assert that the rule “…blatantly defies the prior ruling of the United States Court of Appeals for the Fifth Circuit striking down a rule package that was effectively indistinguishable from the 2024 Fiduciary Rule.”
Some History
Having staked out those claims, the 30-page suit (Federation of Americans for Consumer Choice Inc. v. DOL, E.D. Tex., No. 6:24-cv-00163, complaint filed 5/2/24) takes the court down memory lane going back to 2010, moving quickly to 2016 and the suit filed in the same court in which this suit was presented explaining that “The stated purpose of the 2016 Fiduciary Rule was ‘to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and individual retirement accounts (IRAs).’”
And, while the Labor Department has asserted the age of the so-called five-part test as a reason for an update, the plaintiffs here embrace the consistency of a rule that had been in place for “over four decades.”
That 2016 rule was, of course, eventually rejected by the court, and ultimately vacated by the Fifth Circuit Court of Appeals. That noted, the suit comments that, “Undeterred by the Fifth Circuit’s rebuke in Chamber of Commerce, in December 2020, the DOL tried to resurrect and repackage the substance of the vacated 2016 Fiduciary Rule with the adoption of a new PTE 2020-02,” which the suit notes “purported to leave the 1975 five-part test for investment advice fiduciaries unchanged.
However, the text of the revised PTE was accompanied by a 64-page preamble, much of which was devoted to a newly devised interpretation of who will be categorized as an investment advice fiduciary under the 1975 rule.” That “New Interpretation” as the suit labels it, “carried forward the core problem the Fifth Circuit identified in vacating the 2016 Fiduciary Rule: DOL’s impermissible effort to rewrite and expand the definition of a fiduciary under ERISA and the Code.”
You’ll remember that that “New Interpretation” was met with at least two APA[i] challenges (albeit with regard to two of the FAQs submitted to lend clarification on some key points[ii])—but the plaintiffs here focus on the outcomes; one vacated in part (that is, one of the challenged FAQs) by one court while the other case remains pending.
A ‘New’ Promulgation and Process
“Undaunted,” the suit continues, “the DOL has now gone even further and promulgated the 2024 Fiduciary Rule, which is virtually indistinguishable from the 2016 Fiduciary Rule the Fifth Circuit struck down, and has radically revised PTE 84-24, which previously allowed insurance agents who actually served as investment advice fiduciaries as defined by the five-part test to receive commissions and other compensation for the sale of annuities to ERISA plans and IRAs subject to certain disclosure requirements.”
Aside from the substance, the suit hastens to note that, “in its zeal to reach the desired result of turning every financial product salesperson who deals with a retirement investor into a fiduciary, the DOL has rushed this latest rule package through at extraordinary speed and without any substantial consideration of the consequences or the effect it will have on the insurance industry in particular.”
The suit proceeds to outline the timeline, the review period “which crossed over four federal holidays (Veterans Day, Thanksgiving, Christmas, and New Year’s),” and a “hastily held” public hearing in the midst of the 60-day comment period, “with the result that interested parties could not review and react to other parties’ comments.”
The suit further claims that the DOL “rebuffed multiple requests to allow more time for public comments, frankly acknowledging that its latest rulemaking “is not the first bite of this particular apple,” and there “really have been 15 years of work on this,” which they say led the Chair of the House Committee on Education and the Workforce to remark that the DOL’s actions appeared “to confirm that the public is being served a regurgitation of the same old rule.”
Ultimately, the suit asserts that the 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.”
Stay tuned.
NOTE: In litigation there are always (at least) two sides to every story. However factual it may turn out to be, the initial lawsuit in any action is only one side, and one generally crafted toward a particular result. In our coverage you'll see descriptions of events qualified with statements such as “the suit says,” or “the plaintiffs allege”—and qualifiers should serve as a reminder of that reality.
[ii] the Labor Department’s “new interpretation” of the so-called fiduciary rule (a.k.a. PTE 2020-02) has also been challenged in federal court in Florida—lost (at least with regard to one of the FAQs explaining the applicability of that prohibited transaction exemption (PTE) to rollovers)—declared its intention to appeal that loss—and then pulled back on that, with most industry watchers presuming DOL meant to address the issue with a new regulation.
