Fixed indexed annuity supporters who subdued the SEC six years ago see definite parallels between that fight and the current legal faceoff pitting the industry against the Department of Labor.
For starters, Eugene Scalia, the lawyer representing the Chamber of Commerce-led DOL lawsuit, also led the SEC lawsuit. The two suits also focus on similar points. The suit against the DOL rule claims the department didn’t do complete economic analysis -- also a central argument against the SEC's Rule 151A, which sought to allow the agency's regulation of FIAs
In one of eight counts, plaintiffs argue that the DOL is flawed in its analysis of the rule’s benefits, saying that it would protect up to $4 billion annually in retirement savings and that it would outweigh any costs.
The analysis ignores and underestimates the costs of class-action lawsuits and lost access to retirement help, the plaintiffs say.
To Kim O’Brien, the early reads on this week’s lawsuit resemble a fight that came to a head in July 2010. That month, the District of Columbia U.S. Court of Appeals vacated Rule 151A.
“I see a lot of similarities," said O’Brien, vice chairwoman and CEO of the Americans for Annuity Protection.
Rule 151A was introduced by the SEC in June 2008 and adopted by the agency in December of that year. A month later, a coalition of insurance companies and marketing organizations filed suit against the SEC in American Equity Investment life Insurance Company, et al., v. Securities and Exchange Commission.
Seven months later, the U.S. Court of Appeals ruled that the SEC failed to rigorously analyze the impact of Rule 151A. The judge told SEC that they need to prove Rule 151A would improve competition, capital formation, and efficiency.
“We thought the odds were against us,” O’Brien recalled. “The securities people hated these indexed annuities. This was back in 2009 when they were even more vilified and hated than they are today.”
In the DOL's fiduciary rule, FIAs were placed under a more onerous exemption, the best interest contract exemption, with variable annuities, which are regulated as securities.
While the court victory against the SEC was welcomed by the insurance industry, it did not assure that the agency would let FIAs go. Opponents fought a two-pronged attack, securing a Congressional amendment to the Dodd-Frank Act to ensure that indexed annuities would continue to be regulated as fixed insurance products permanently.
Opponents of the DOL fiduciary rule are also seeking a legislative remedy, but prospects appear bleak in that arena. President Barack Obama has vowed to veto any bills that threaten the DOL rule.
“We’ve got a hard battle in front of us because this issue is pretty much split right down party lines,” O’Brien said.
While the fiduciary opponents may have a strong case, with the best legal minds available, O’Brien noted that courts are fickle. But there is a lot at stake in the bid for an injunction, she added.
“If they don’t get the injunction, then any decision they get in court is going to be moot, because the industry is going to be moving on and getting ready for life under the rule,” she said.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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