Court Tosses DOL Fiduciary Rule

By John Hilton

An appeals court threw out the Department of Labor’s fiduciary rule late Thursday afternoon in the first major victory for the rule’s opponents.

The Fifth Circuit Court of Appeals, based in New Orleans, is known for its narrow view of government powers of regulation. The three-judge panel lived up to its reputation in a 2-1 decision, with Chief Judge Carl E. Stewart dissenting.

Writing the majority opinion, Judge Edith H. Jones said the DOL rule "fails the reasonableness test" in extending its ERISA authority to one-time IRA rollovers and similar transactions.

"Through the BIC Exemption, the Rule undertakes to regulate these and myriad other transactions as if there were little difference between them and the activities of ERISA employer-sponsored plan fiduciaries," Jones wrote. "Moreover, that it took DOL forty years to 'discover' its novel interpretation further highlights the Rule’s unreasonableness."

She was joined in the majority by Judge Edith Brown Clement. The Fifth Circuit heard arguments on the DOL rule in July 2017 and plaintiffs were encouraged by the proceeding.

In his dissent, Stewart said, "This regulation 'was adopted prior to the existence of participant-directed 401(k) plans, the widespread use of IRAs, and the now commonplace rollover of plan assets' from Title I plans to IRAs.”

The industry plaintiffs were consolidated from three lawsuits that were filed in 2016 in U.S. District Court for the Northern District of Texas. While the plaintiffs lost the federal court decision, the Dallas court was chosen specifically because appeals would go to the Fifth Circuit.

The first phase of the fiduciary rule went into effect June 9. It requires advisors and agents to act as fiduciaries, make no misleading statements and accept only “reasonable” compensation.

The final implementation of the DOL rule was delayed from Jan. 1, 2018, to July 2019. In the interim, the Trump Labor Department is expected to weaken the more onerous parts of the rule. That work has just begun.

Some analysts expected the court to delay its ruling until the DOL finish amending the fiduciary rule.

The next level of appeal is the U.S. Supreme Court.

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].

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.