Trump Administration Rebuffs Challenge to Fiduciary Rule in Appeals Court

The U.S. Labor Department late Monday urged a federal appeals court to largely uphold Obama-era regulations that confronted and sought to curtail conflicts of interest in the retirement-investment market.

The government’s brief in the U.S. Court of Appeals for the Fifth Circuit, the first filing from Labor Secretary Alexander Acosta that addressed the so-called “fiduciary rule,” comes as federal officials move simultaneously to revise provisions of the regulations and perhaps further delay implementation past the Jan. 1, 2018 effective date.

Obama administration officials hailed the Labor Department’s fiduciary rule, which was six years in the making, as “a historic step to protect the savings of America’s workers.” The regulations broadened the scope of “fiduciary” responsibilities, putting a new emphasis on the best interest of retirement-advice clients over profits. President Donald Trump in February urged labor regulators to reassess the rule.

“The Presidential Memorandum, and DOL’s ongoing reexamination of the fiduciary rule, may result in a new assessment of the rule’s costs and benefits upon review of the updated record,” U.S. Justice Department lawyers wrote in their brief Monday on behalf of federal labor regulators.

The government’s brief said one provision in the fiduciary rule that restricts class-action waivers should be vacated. Financial advisers who wanted to qualify for a “best interest contract exemption”—essentially allowing certain compensation schemes to continue, with greater disclosures to the client—would have been blocked from prohibiting class actions.

The government called the condition “a discriminatory obstacle to arbitration that cannot be harmonized” with the Federal Arbitration Act.

“Severance of the condition would not impair the function of the exemption or of the fiduciary rule in general,” Justice Department lawyers wrote. “Thus, invalidation of this condition does not mandate invalidation of the remainder of the [best interest contract exemption], let alone the entire fiduciary rule.”

Acosta Seeks Comment on Revisions

Labor Secretary Alexander Acosta said in May that regulators were unable to stop the fiduciary rule from partially taking effect in June. “We have carefully considered the record in this case, and the requirements of the Administrative Procedure Act, and have found no principled legal basis to change the June 9 date while we seek public input,” Acosta wrote in a Wall Street Journal op-ed. “Respect for the rule of law leads us to the conclusion that this date cannot be postponed.”

Labor Department regulators last week began the formal administrative process of taking a new look at the retirement-savings rules. The U.S Securities and Exchange Commission said last month it would begin taking comment on its own fiduciary rule.