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Retirement Planning > Retirement Investing

For DOL, Killing Fiduciary Rule Easier Said Than Done

By Nick Thornton

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Any effort to delay the June 9 implementation date of the Labor Department’s fiduciary rule will face significant procedural obstacles, and potential legal challenges, according to one administrative law expert.

“It’s not impossible to propose a new delay before the June 9 deadline, but there are substantial hurdles to doing so,” said Bethany Davis Noll, an attorney with the Institute for Policy Integrity at the New York University School of Law.

One hurdle is timing. The first 60-day delay of the rule took about five weeks from start to finish. A little more than three weeks remain before June 9.

Labor Secretary Alexander Acosta has made rolling back the fiduciary rule a top priority, according to a leaked communication between Acosta and Sen. Tim Scott, R-SC that was obtained by NAPA-net.org.

Scores of Republican lawmakers and financial services and insurance industry trade groups have called on Acosta to delay the June 9 implementation of the impartial conduct standards until the agency completes a new economic impact analysis of the rule.

In order to do that, Labor would have to issue a notice of a new proposed delay and request comments from stakeholders. A proposed delay would also have to include an updated cost benefit analysis, and give reasoned explanations for a change in the implementation date, including an explanation for disregarding the facts and circumstances that justified the first 60-day delay of the rule, Davis Noll explained.

“A new delay would essentially amount to an effective repeal and that is something that would have to be justified,” said Davis Noll. “Labor has a huge burden to overcome if they want to delay this.”

Some stakeholders have called on Labor to issue an indefinite delay of the entire rule. Courts would likely treat that as a repeal of the rule, and apply higher standards for Labor to justify the move.

“A delay by itself is a substantive change–if it is indefinite, it is even more important to open the proposed rule to notice and comment. The bar for justifying an indefinite delay is even higher,” said Davis Noll.

Labor’s litigation risk

Any attempt to issue a temporary or indefinite delay could expose what Davis Noll says are substantively weak aspects of the first 60-day delay.

That could give the upper hand to proponents of the rule, should they issue a legal challenge to a new delay.

“If they try to delay the rule again, the problems with the first delay will be amplified,” said Davis Noll. “It’s highly likely Labor will be subjecting itself to a risk of litigation, if it hasn’t already.”

Davis Noll, who previously served as assistant solicitor general for the state of New York, says the overall fiduciary rule was “impressive” and “really well done” in the context of administrative law.

But the rule delaying the first implementation date by 60 days is less sound, she thinks. In the proposal to delay the rule, Labor’s cost benefit analysis estimated retirement investors would lose $147 million to conflicted advice under a 60-day delay, while industry would save $42 million.

When the delay was finalized, Labor walked back those estimates, based on the premise that “many firms have already taken steps toward honoring fiduciary standards,” according to language in the delay rule.

“There was no explanation or details about how much that compliance will help ameliorate the $147 million in losses that the delay could cause,” said Davis Noll.

In effect, any new delay would be based on the conclusion that industry needs more time to comply with the impartial conduct standards. That would be a direct contradiction to language in the first delay, which said the Department “finds little basis for concluding that advisors need more time to give advice that is in the retirement investors’ best interest” beyond the June 9 deadline.

If a new delay is issued, and challenged by proponents of the rule, Davis Noll said it’s conceivable that a court could find fault in the reasoning behind the first delay, overrule it, and essentially apply the fiduciary rule to its original schedule.

In other words, the prospect of a new delay introduces “considerable risk” for opponents of the rule that want to see it done away with altogether, said Davis Noll.

APA chicanery at EPA, DOI

In other agencies, regulators have made the bold move of issuing indefinite delays of Obama-era regulations without adhering to rule making requirements under the Administrative Procedure Act.

Regulators at the Environmental Protection Agency and the Department of Interior have indefinitely delayed rules without issuing notice and taking comments.

Those actions are being challenged in California and the District of Columbia federal courts.

Regulators took similar tactics during the Reagan administration. The APA does have a “good cause” exception to notice and comment requirements, but on balance, courts have held that to be a very high bar to satisfy, allowing it in limited emergency situations that are outside of a regulatory agency’s control, explained Davis Noll. “Courts have said that the imminence of a deadline is not enough to satisfy the good cause exception.”

The lawsuits against the EPA and DOI indefinite delays should be “slam dunk” cases, said Davis Noll. “The law is settled. You cannot issue an indefinite delay without notice and comment.”

At Labor, regulators likely won’t have time to see how courts come down on the EPA and DOI rule delays. But those decisions could influence how courts would rule in a potential legal challenge to a delay of the fiduciary rule.

That fact that stakeholders challenged the Trump administration’s loose application of the APA is telling, said Davis Noll. “That should be a red flag for DOL.”

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