Editor's Note: Check our DOL Rule page for updates, as we will be breaking down the entire 74-page complaint and getting expert opinion.
Nine groups, led by the U.S. Chamber of Commerce filed an expected lawsuit Wednesday in a bid to stop the Department of Labor fiduciary rule.
The lawsuit was filed in U.S. District Court Northern District of Texas. The 74-page complaint is filed against Labor Secretary Thomas Perez and the DOL. Plaintiffs ask the court to immediate vacate and set aside the rule.
"An injunction would also serve the public interest by averting harm to the operation and viability of financial services companies that are an important part of the U.S. economy," the complaint reads.
Plaintiffs outline their general line of attack in the first paragraph, arguing that the department lacks the authority to publish the rule. The eight counts in the complaint are explained here.
"The Rule and PTEs overstep the Department’s authority, create unwarranted burdens and liabilities, undermine the interests of retirement savers, and are contrary to law," the complaint reads.
The complaint also points out that Congress authorized the SEC as "the primary federal regulator of the financial services industry." The SEC is working on its own fiduciary standard that is expected to be released within the next year.
Experts had predicted these legal arguments in recent months.
Plaintiffs hired the Washington, D.C. firm Gibson Dunn. Their legal team includes Eugene Scalia, Supreme Court Justice Antonin Scalia’s son. He has won several prominent financial law cases.
In his July 20 comment letter, Eugene Scalia argues that the DOL’s lawful role is to create rules that regulators enforce. They cannot create rules that form the basis of a private right of action. Only Congress can do that, Scalia wrote.
“To be sure, the Department has authority to interpret the definition of ‘fiduciary’ under ERISA and the Internal Revenue Code,” wrote Scalia, a partner with Gibson Dunn. “Its enforcement authority, however, is limited to ERISA.”
In a joint statement, the CEOs of the five national association co-plaintiffs noted the following:
“Our organizations have a long, well-documented record of support for the creation of a uniform best interest – or fiduciary – standard of customer care for financial professionals providing personalized investment advice to retail investors.
"The Department of Labor’s new, 1,023-page rule, however, creates sweeping changes to existing regulations that will make saving for retirement more difficult for the very same hardworking American families and individuals it claims to protect. It specifically hinders many of our member firms’ ability to continue providing the level of holistic financial advice and suitable investment options their clients are accustomed to."
The DOL proposed new fiduciary rules in April 2015, which cover advice provided regarding qualified retirement employer-sponsored plans and individual retirement accounts.
DOL officials and public interest groups say the rules, which impose a fiduciary standard of care on financial advisors dealing with retirement accounts, are necessary to protect retirement investors from high commissions.
Critics say the DOL is trying to force the industry to move from a commission- to a fee-based model. The rule allows for commissions via a prohibited transaction exemption, but industry officials said it isn’t realistic due to the burdensome regulations.
The DOL rule and supporting documentation can be found here. A DOL spokesman did not return a message for comment this morning.
The co-plaintiffs' statement added:
“Instead of helping savers plan for retirement, the new rule will unfortunately restrict their access to affordable retirement advice and limit their options for saving. The rule will shackle Main Street financial advisors with extensive new requirements and constant liability, forcing them to limit the options and guidance they provide to retirement savers.
“Advisors servicing small business plans will similarly be left with no choice but to limit or stop servicing the retirement plans offered by those job-creators, significantly reducing the retirement savings options available to their millions of employees. These consequences collectively reinforce that government officials failed to perform an adequate cost-benefit analysis during the rule’s development.
“Our organizations are now asking a court to review whether the Department of Labor overstepped its boundaries, creating a rule that will leave Americans with fewer retirement choices, higher costs and reduced access to professional financial advice. Further the ‘private right of action’ mechanism creates significant new legal risk for financial advisors, who will face the threat of class action lawyers challenging their every move.
“This lawsuit is necessary to prevent the Labor Department from exceeding the authority that was assigned to it by Congress. More importantly, it will protect retirement savers and our member firms, who are committed to their financial futures.”
The U.S. Chamber of Commerce, Financial Services Institute, Financial Services Roundtable, Greater Irving-Las Colinas’ Chamber of Commerce, Insured Retirement Institute, Lake Houston Area Chamber of Commerce, Lubbock Chamber of Commerce, Securities Industry and Financial Markets Association, and Texas Association of Business are the co-plaintiffs in the legal challenge.
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].
© Entire contents copyright 2016 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.