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Annuity Group Sues DOL Over Fiduciary Rule

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What You Need to Know

  • Kim O'Brien is the FACC CEO.
  • The list of plaintiffs also includes Texas-based agents and agencies.
  • The plaintiffs have filed the suit in the U.S. District Court for the Northern District of Texas, where a judge's ruling nearly killed the Affordable Care Act.

The Federation of Americans for Consumer Choice has gone to court to try to block a U.S. Labor Department revival of an Obama-era definition of the term “fiduciary.”

FACC contends that the department made the interpretation change in the preamble, or official introduction, to a “prohibited transaction exemption” revision, rather than in the actual text of the revised exemption.

The interpretation would force many insurance agents who sell annuities to retirement investors to identify themselves as fiduciaries, expose them to an unreasonable amount of liability risk, and limit their ability to use traditional commission-based compensation arrangements, according to the group.

The Dallas-based group made those arguments in a suit, Federation of Americans for Consumer Choice et al. v. the U.S. Department of Labor and Martin Walsh. (Case Number 3:22-cv-00243-k), filed Wednesday in the U.S. District Court for the Northern District of Texas.

Walsh is the Labor secretary.

One judge in U.S. District Court for the Northern District of Texas issued a ruling that nearly led to the U.S. Supreme Court throwing out the Affordable Care Act.

Another judge in that district sided with the Labor Department in a 2017 decision on the department’s Obama-era fiduciary rule interpretation. That decision ultimately helped annuity issuers and distributors opposed to the interpretation kill it. The plaintiffs filed an appeal with the 5th U.S. Court of Appeals. The administration of former President Donald Trump declined to defend the interpretation, and the 5th Circuit ended up tossing it out.

In addition to FACC, the list of plaintiffs in the case includes a number of individual insurance agents and agencies that support FACC, including John Lown, David Messing, Miles Financial Services, Jon Bellman, Golden Age Insurance Group, ProVision Brokerage and V. Eric Couch.

The CEO of FACC is Kim O’Brien, who has been involved in fiduciary rule battles for years.

“The final interpretation adopted by the Labor Department places an unfair regulatory burden upon independent insurance agents who serve Middle America,” O’Brien said in a comment included in the lawsuit filing announcement.

Since President Joe Biden has taken office, officials in the Labor Department have said that applying a fiduciary rule to sellers of annuities used in retirement arrangements is necessary to protect retirement savers from annuity sellers who may have undisclosed or poorly understand conflicts of interest.

FACC and opponents of the new interpretation argue that, because many low- and middle-income retirement savers are unable to pay cash fees out of pocket for retirement advice, restrictions on agents’ ability to receive commission payments may limit or eliminate financial professionals’ ability provide individualized services for those individuals.

Labor Department building in Washington. (Photo: Mike Scarcella/ALM)