‘Complete Victory,’ Declares DOL Fiduciary Rule Suit Plaintiff
Plaintiffs in the court case that threw out the Department of Labor's fiduciary rule declared "complete victory" against the rule and said the way is now clear for the Securities and Exchange Commission to create a new standard that would apply across financial disciplines.
The DOL still has the option of appealing the Fifth Circuit decision to the Supreme Court, or asking the full Fifth Circuit judicial panel to review the case. But under President Donald J. Trump, the department has not proactively pursued the regulation, plaintiffs said during a conference call today.
The American Council of Life Insurers and the National Association of Insurance and Financial Advisors sued the DOL over its conflict of interest rule, developed under the Obama administration.
"We would expect that whatever the Department of Labor does going forward, they’re going to be very mindful of the Administrative Procedures Act," said Gary Hughes, ACLI executive vice president and chief operating officer. "I can assure you that Secretary (Alexander) Acosta is approaching this in a very thoughtful manner."
Judge Edith H. Jones wrote in the majority opinion that the DOL rule "fails the reasonableness test" of the APA by extending the department's ERISA authority to one-time IRA rollovers and similar transactions.
Hughes said during a Friday morning conference call with other plaintiffs that Acosta will direct the DOL to "do everything by the book" with its response.
Acosta is a Harvard Law School graduate, former clerk to Supreme Court Justice Samuel Alito and a former U.S. Attorney. While he expressed opposition to the fiduciary rule during his confirmation hearing, he quickly demonstrated that he will be guided by the law in directing the DOL to defend the rule in a Fifth Circuit brief filed in July.
That reliance on the rule of law may lead Acosta in a different direction this time. Likewise, the secretary seemed to favor having the SEC involved, said Dirk Kempthorne, ACLI president and CEO.
"When Secretary Acosta became the secretary of labor, and again, following all of the procedures, I think he was looking to have SEC begin to be involved in this issue," Kempthorne said.
The SEC has been working with the department on the fiduciary issue for months, Kempthorne added.
The SEC is expected to produce its rule by the second quarter of 2018, a timeline that could speed up in light of the Fifth Circuit decision Thursday.
'Complete Victory'
David Ogden, attorney for ACLI, called the Fifth Circuit decision "a complete victory" and "a sweeping ruling that the rule exceeded the department's authority."
In addition to the APA violation, the majority opinion affirmed that the role of fiduciary rulemaking lies with the SEC as well as the state insurance departments, said Ogden, of the Washington, D.C., firm of Wilmer Hale.
Likewise, the decision ruled that the private right of action created by the Best Interest Contract Exemption is "unlawful." The broad nature of the court's objections will give the DOL plenty to think about as it ponders a next step, Ogden said.
Regardless of whether the decision means the end of the DOL rule, ACLI is committed to a fair best-interest standard, Hughes said.
"Nothing about this decision is going to change that mandate from our board of directors," he said. "This is not a situation where ACLI is going to sit back and celebrate this ruling and go back to business as usual.”
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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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]. Follow him on Twitter @INNJohnH.
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