Judge Again Upholds DOL Fiduciary Rule

Department of Labor fiduciary rule opponents suffered another loss in court Friday when a Kansas appeals court ruled against Market Synergy Group.

Judge Daniel Crabtree granted a summary judgment to the DOL, ruling that the agency did not violate the Administrative Procedures Act in developing and publishing its fiduciary rule.

In particular, MSG cited irreparable harm if fixed indexed annuity sales require a Best Interest Contract Exemption.

Under the DOL's preliminary rule, FIAs were placed under the Prohibited Transaction Exemption 84-24. When its final rule was published in April, FIAs surprisingly turned up under the more stringent BICE.

MSG claimed the industry was denied a chance to provide input on the change during the public comment period.

“Because the Department never indicated that it might view [FIAs] as dissimilar from other fixed annuities or discussed [FIAs] in its notice, nobody submitted a comment on that issue,” wrote J. Michael Vaughan of Walters Bender Strohbehn & Vaughan, an attorney for MSG.

The DOL contended that the court should invoke the doctrine of “harmless error,” which forgives an agency’s notice failure as long as public comments on a rulemaking actually were considered by the agency and the public was not prejudiced by the notice failure.

After a three-and-a-half hour hearing Sept. 21, Crabtree ruled for the government. He upheld that his own decision Friday.

“The administrative record shows that the DOL provided a reasoned explanation for its decision to move FIAs out of the scope of PTE 84-24,” Crabtree wrote in a seven-page decision. “And, thus, the DOL’s decision does not violate the APA.”

Judges in Washington, D.C. and Kansas federal courts previously upheld the fiduciary rule, which establishes a fiduciary standard of care for anyone working with retirement funds.

President Donald J. Trump ordered the DOL to review the rule to make sure it won’t add unreasonable costs or inhibit access to financial advice for retirees. The DOL filed a notice seeking a six-month delay earlier this month.

Otherwise, the rule is slated to begin taking effect April 10.

Stay Sought

In other court news, the DOL filed for a stay in a fourth lawsuit against the DOL rule – Thrivent Financial vs. Department of Labor. Department of Justice attorney Galen N. Thorp asked Minnesota district court judge Susan Richard Nelson for a stay "pending the results of the review directed by the President."

Thorpe suggested reconvening on May 15 to assess the case. Thrivent opposed the stay request in its own brief. A hearing in the case is set for March 3.

Thrivent's suit is different in that the organization takes no issue with the overall rule. The complaint specifically asks the court to overturn the class-action component.

“Nothing in ERISA gives DOL authority to preclude financial institutions and their clients from entering into and enforcing arbitration agreements that include class action waivers,” Thrivent's complaint reads.

Thrivent’s mechanism prohibits class actions. The controversial DOL rule allows advisory clients to file class-action lawsuits as part of its Best Interest Contract Exemption, which advisors must sign if they want to receive commission-based compensation.

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.