DOL's Perez Vows to Fight Mounting Fiduciary Lawsuits

The groups’ “actions undermine their argument that postponement is necessary,” Bullard said. “It seems they’re betting on the court from the country of Texas ruling for them strictly on political grounds.”

Bullard added that “the [fiduciary] issue is national; DOL is in D.C., the real plaintiffs are based in D.C.; the faux Texas plaintiffs have no special Texas interest.” Also, the parties to the suit are in Washington, as are the “people who made” the DOL rule. “This is just blatant forum shopping.”

Defining Fiduciary; Class-Action Lawsuits

Scalia, who co-chairs Gibson, Dunn & Crutcher’s Administrative Law and Regulatory Practice Group and is a member of its Labor and Employment Practice Group, said the lawsuit first challenges the “definition and meaning” of the word fiduciary.

“Fiduciary is a very familiar and important word in the legal lexicon,” Scalia said, “and DOL has given it a meaning that is unrecognizable. Our complaint begins with the overbroad definition of fiduciary.”

The suit also challenges DOL’s oversight of IRAs as well as the rule’s creation of a “private right of action” to bring class-action lawsuits under the Best Interest Contract Exemption, which Scalia called “one of the most troubling aspects” of BICE.

DOL’s rule, the complaint states, and its prohibited transaction exemptions “overstep the department’s authority, create unwarranted burdens and liabilities, undermine the interests of retirement savers, and are contrary to law.”

The suit also states that DOL’s fiduciary rule would “upend” the “well-developed regulatory framework” currently enforced by the SEC, state regulators and FINRA. It argues that DOL’s rule will have “harmful consequences for retirement savers, small businesses and tens of thousands of businesses — including many operating in North Texas and the Dallas-Fort Worth metroplex — that provide retirement advice, products and services.”

Market Synergy’s complaint challenges only the department’s conduct in adopting the revisions to prohibited transaction exemption (PTE) 84-24, “which contradicted the revisions announced in the department’s notice of proposed rulemaking.”

The complaint states that in promulgating the final revisions to PTE 84-24, which make the exemption available to “fixed rate annuities,” as defined by DOL, but not to one class of fixed annuities — specifically, “fixed indexed annuities” — the department “acted without providing adequate notice and an opportunity for comment.” The suit further claims DOL’s action reflected “arbitrary and capricious conduct in excess of its statutory authority and in clear violation of its obligations to make necessary findings under applicable law.”

Jim Poolman, IALC’s executive director, stated that while the group’s litigation doesn’t dispute that retirement advisors should act in the best interests of their clients, DOL’s rule “will harm millions of hard-working Americans who need the principal protection and lifetime guaranteed income that fixed indexed annuities offer.”

The final DOL regulation “unfairly targets certain types of fixed annuity products, making it harder for Americans to purchase fixed indexed annuities when it is in their best interest to do so,” he said, adding that “this legal challenge is necessary because the rule creates an unworkable standard for independent agents and insurance companies and goes far beyond DOL’s authority.”

Much Ado About Nothing?

Industry advocates of DOL’s rule believe the lawsuits will have little impact.

“It has been clear from the outset of this process that industry groups would challenge the DOL rule in court,” said CFA Director of Investor Protection Barbara Roper.

“After all, financial firms, such as those represented by these trade associations, are able to earn billions of dollars a year in excess profits under the current regulatory regime,” Roper said. That money “comes directly from the hard-earned retirement savings of American workers and retirees.”

Added Roper: “We believe the DOL rule is based on a sound legal foundation and their process set the standard for openness, thoroughness and attention to comments submitted. Contrary to the arguments being put forward, DOL has clear authority both to define fiduciary investment advice under ERISA and the tax code, and to set the conditions for any exemptions from the prohibited transaction rules.”