How will SCOTUS Chevron ruling impact DOL’s fiduciary rule?

Saying the Framers of the U.S. Constitution  envisioned that the final “interpretation of the laws” would be “the proper and peculiar province  of the courts,” the U.S. Supreme Court Friday overturned the Chevron doctrine, potentially sapping the regulating power of government agencies and transferring it to the courts. The widespread ramifications of this decision are likely to impact numerous financial regulatory bodies, including the Department of Labor and its pending fiduciary rule.

The court, in its opinion, went on to say that “Chevron’s presumption is  misguided because agencies have no special competence in resolving statutory ambiguities. Courts do. The Framers, as noted, anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment. And even Chevron itself reaffirmed that ‘[t]he judiciary is the final authority on issues of statutory construction” and recognized that “in the absence of an administrative interpretation,’ it is ‘necessary’ for a court to ‘impose its own construction on the statute.’  … The Administrative Procedure Act requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous; Chevron is  overruled.”

So what impact will this decision have on the DOL’s fiduciary rule?

The DOL Retirement Security Rule was published April 25 in the Federal Register. It extends a fiduciary standard of care in a number of aspects, including to most annuity transactions, with the initial requirements taking effect Sept. 23. The Federation of Americans for Consumer Choice filed a lawsuit May 2 against the DOL rule, and a group of nine trade associations filed a second lawsuit May 24 in the U.S. District Court for the Northern District of Texas.

A 'rise in challenges' foreseen

The “Chevron deference, which instructed federal courts to defer to a federal agency’s reasonable interpretation of an ambiguous law, had been a cornerstone of administrative law and at the heart of federal agency rulemaking for four decades,” said Wyatt Kendall, partner, Morris, Manning & Martin.

“Rather than refine or supplement Chevron, the Supreme Courts opted to overrule it entirely and, in turn, flipped administrative law on its head. Without Chevron deference, federal agency power will be much more restrained as federal courts will not be bound to defer agency statutory interpretations. This will require Congress to draft well-defined and comprehensive legislation and will likely cause a rise in challenges to agency decisions and require more intensive and expansive judicial reviews of agency actions. It remains to be seen how overruling Chevron deference will impact the efficacy of the legislative and rulemaking processes and the ability of the next presidential administration to carry out its policy goals.”

'Higher bar' for enforcement of fiduciary rule

“As an attorney with extensive experience in finance and corporate law, I've followed the SCOTUS decision on Loper Bright Enterprises v. Raimondo closely,” said Jonathan Feniak, general counsel at LLC Attorney “The ruling could indeed have a significant impact on the stalled DOL fiduciary rule. Primarily, the diminished deference given to administrative agencies' interpretation of ambiguous regulations envisages a higher bar for the enforcement of the fiduciary rule:

1. With this decision, the DOL might face challenges in establishing that their interpretation of the rule is the correct one, which might slow down or alter the implementation of the fiduciary rule altogether.
2. It's possible we may see a move from corporations challenging the DOL's interpretation of the 'fiduciary' in court, given they now have a precedent favoring less deference to administrative agencies.
3. Finally, in light of this ruling, the DOL could decide to revise the rule to make its interpretations less ambiguous, thus steering clear of future legal disputes.

“The landscape has certainly shifted, and legal practitioners will be keen to track judicial responses to this precedent in the context of the DOL fiduciary rule. I'm anticipating a series of back-and-forths before we get a clear outlook on the rule's direction,” said Feniak.

'Formal rulemaking' may be needed

The SCOTUS ruling  “could potentially reshape the implementation and interpretation of the DOL fiduciary rule,” according to Mark Pierce, founder & CEO,  Wyoming Trust & LLC Attorney.  “This decision tailors the extent to which courts may defer to agency interpretations of their regulations and fundamentally impacts the regulatory landscape. The immediate effect could lead to further scrutiny and reconsideration of the DOL fiduciary rule. The era of automatic deference could be over, meaning that the DOL might need to establish a solid foundation for its rules that can stand up to judicial scrutiny. Another possible scenario is that the DOL, and other agencies, may opt for regulatory changes through formal rulemaking to limit potential legal challenges.

“This decision is likely the first in a series of steps as different players in the industry grapple with its implications. We could anticipate legal challenges as interpretations of the DOL rule evolve in response to the court's directive. In such a dynamic situation, it's crucial to keep abreast of the legal evolutions to ensure regulatory compliance,” said Pierce.

Rule 'likely to be struck down'

“As a lawyer who regularly advises businesses on regulatory and compliance matters, I see this decision as significantly impacting the pending Department of Labor fiduciary rule,” said Ladislav Beganyi, founder of Beganyi Professional Corporation Law Firm.  “Given the Supreme Court's decision, the fiduciary rule is likely to be struck down or require major revisions to pass muster.  My firm has several financial services clients subject to the fiduciary rule. We've spent considerable time analyzing the rule's requirements and helping clients develop compliance programs. This decision throws much of that work into question and creates uncertainty for businesses.”

“The DOL will likely have to revisit the rule in its entirety,” said Beganyi. “They'll need to perform a new cost-benefit analysis and make changes to address the issues cited by the Supreme Court regarding agency overreach. This process can take 6-18 months. In the interim, the fiduciary rule's future remains unclear. Businesses may face enforcement actions for non-compliance but the DOL may also stay portions of the rule. The fiduciary rule aims to protect retirement savers from conflicts of interest, so its goals remain important. However, regulations must still align with the Administrative Procedure Act. I expect a revised rule may still advance similar policy objectives but require financial services firms to make fewer changes to comply, reducing unintended consequences. The path forward won't be straightforward, but clarity should come in the months ahead.”

'A judicial free-for-all' anticipated

”In overruling Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the rule that has come to be known as the Chevron deference to interpretations by administrative agencies of the statutes they implement, the Supreme Court curiously asserts the exclusive power of the judicial branch of the federal government to ‘decide what the law is,’ while at the same time relying on an Act of the legislative branch—the Administrative Procedure Act—to limit how the judicial branch goes about ‘deciding what the law is.,’ " said Steve O'Day, partner and Head of the Environmental Law, Energy, and Sustainability Practices at Smith, Gambrell & Russell.

“By overruling Chevron without putting anything else into the interpretive crater thus created," he said, "the Court has begun a judicial free-for-all in which different courts will be free to apply their different judgments on the meanings of words, phrases, ambiguities, and gaps in the laws passed by Congress. The resulting confusion about what the law is will bring less certainty to the realm of regulated industries.”

John Forcucci is InsuranceNewsNet editor-in-chief. He has had a long career in daily and weekly journalism. Contact him at [email protected]. Follow him on Twitter @INNJohnF.

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John Forcucci is InsuranceNewsNet editor-in-chief. He has had a long career in daily and weekly journalism. Contact him at johnf@innemail.