Fiduciary

DOL appeals Texas court decision freezing its new fiduciary rule

The government is appealing a stay of its Retirement Security Rule.

By John Hilton

Department of Justice attorneys filed appeals Friday in Texas federal courts, seeking to overturn a stay of its Retirement Security Rule.

The rule, which represents the Department of Labor's latest attempt to extend fiduciary duty to nearly all annuity sales, was to take effect today. Judge Jeremy D. Kernodle issued the stay on July 25 in a lawsuit brought by the Federation of Americans for Consumer Choice in the Eastern District of Texas.

Judge Reed O'Connor granted a second stay in a second lawsuit filed in the U.S. District for the Northern District of Texas.

Plaintiffs in the Northern District case are: The American Council of Life Insurers (ACLI), National Association of Insurance and Financial Advisors (NAIFA), NAIFA-Texas, NAIFA-Dallas, NAIFA-Fort Worth, NAIFA-POET, Finseca, Insured Retirement Institute (IRI), and National Association for Fixed Annuities (NAFA).

DOJ attorneys filed a one-page notice of appeal in both courts. The appeal will be heard by the Court of Appeals for the Fifth Circuit, which tossed out the previous fiduciary rule put forth by the Obama administration.

In the 2018 decision, the Fifth Circuit ruled that the 2016 rule strayed too far from the common-law definition of the term fiduciary, which hinges on the existence of a relationship of “trust and confidence” with the client. The court concluded that agents who merely sell products to their clients do not have this relationship.

The DOL Retirement Security Rule was published April 25 in the Federal Register.

After the stays were granted, a DOL spokesperson said regulators continue to believe in their strategy.

"When investors get advice from a trusted financial professional about their retirement savings, they expect that advice to be in the customer’s best interest, not the financial professional’s," the spokesperson said in a statement. "This rule makes that a reality. The Department continues to believe that this rule is essential to ensuring that retirement investors are 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.