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October 11, 2016 at 09:07 AM
Thrivent Financial for Lutherans became the sixth plaintiff to lob a complaint against the Department of Labor’s fiduciary rule when the insurer filed a suit in late September challenging the class-action waiver requirement under the rule’s best interest contract exemption, or BICE.
Thrivent’s case, filed in U.S. District Court for the District of Minnesota, takes issue with DOL’s adoption of the BICE to the extent that it requires Thrivent to abandon its longstanding commitment to alternative dispute resolution, and that DOL’s rule would also require its sales reps to become fiduciaries.
BICE, the complaint states, would, by its terms and in its effect, require Thrivent “either to cease conducting certain business that is beneficial to its members or to abandon its longstanding commitment to resolving member disputes amicably and through private, one-on-one mediation and arbitration.”
Thrivent argues that it differs from other commercial stock and mutual life insurance companies in that it’s a membership-owned and member-governed fraternal benefit society.
For more than 15 years, the complaint states, “Thrivent’s Articles of Incorporation and Bylaws have therefore required that disputes with members related to insurance products be resolved through a one-on-one alternative dispute resolution process that includes mediation and culminates in arbitration, if necessary.”
To avail itself of the BICE, however, Thrivent “would be forced to agree contractually with its customers that they could pursue a breach of contract action against Thrivent and that they could participate in judicial class actions against Thrivent,” the complaint states.
Thrivent argues that no provision exists within the Employee Retirement Income Security Act that indicates Congress’ intent to create a class-action remedy that must be exclusively pursued in a judicial forum.
“To the extent Congress has spoken to the issue, it has unequivocally stated in the Federal Arbitration Act that private arbitration agreements must be honored as a preferred means of resolving disputes,” the complaint states.
“As a result, in purporting to adopt the BIC Exemption, DOL has exceeded its authority” under the Administrative Procedures Act.
Under DOL’s rule, Thrivent’s sales reps, who regularly offer proprietary investment products for IRAs and rollovers from ERISA plans, would be redefined as fiduciaries under ERISA and the tax code, the complaint states.
“Thrivent’s longstanding practice of paying these representatives on a commission basis would—for the first time—be treated as a ‘prohibited transaction’ under ERISA.”
Thrivent argued if it were to continue to engage in such transactions, “it would be subject to steep and serious penalties under federal law. As a result, without an exemption, the new rule would almost completely eliminate Thrivent’s ability to offer financial products to its members in connection with their retirement planning through IRAs.”
