DOL Pushes Back Against Texas Courts Over Fiduciary Rule

The Department of Labor (DOL) is mounting an aggressive legal challenge to protect its new fiduciary rule for retirement advice, following preliminary injunctions that halted the planned implementation of the regulation. The department filed notices of appeal on September 20 against two separate Texas court decisions that placed stays on the rule just before its scheduled September 23 effective date.

The Rule at Stake

The Biden Administration's Retirement Security Rule, released in April 2024, aims to expand fiduciary obligations for financial professionals providing retirement-related advice. Under the regulation, advisors would be required to prioritize their clients' interests when recommending crucial financial decisions, such as 401(k) rollovers or the purchase of insurance products like annuities.

The stakes are particularly high given the current retirement landscape. Individual retirement accounts (IRAs) held $13.8 trillion by the end of 2023, according to the Investment Company Institute. Meanwhile, annuity sales have reached record levels, with first-quarter sales in 2024 hitting $113.5 billion—a 21% increase from the previous year.

Legal Challenges and Court Decisions

The legal resistance to the rule emerged from two separate cases filed in Texas federal courts. The first was brought in the Northern District of Texas by the American Council of Life Insurers along with eight other insurance trade groups. The second case was filed in the Eastern District of Texas by the Federation of Americans for Consumer Choice and various independent insurance agents.

Both courts found fundamental conflicts between the new rule and the Employee Retirement Security Act of 1974, the foundation of U.S. retirement law. The judges also expressed concern that the new regulation too closely resembled a previous DOL fiduciary standard that was struck down by the Fifth Circuit Court of Appeals in 2018.

Regulatory Gap at Issue

At the heart of the debate is what the DOL considers a significant regulatory loophole. While ongoing retirement advice relationships typically trigger fiduciary obligations, certain one-time recommendations—including suggestions to purchase annuities or transfer funds from employer-sponsored 401(k) plans to IRAs—currently fall under an exemption for "one-time advice."

Industry Response

Insurance industry representatives warn the proposed rule could limit retirement planning access for many Americans. At a Securities and Exchange Commission Investment Advisory Committee meeting last week, industry experts cautioned that increased compliance costs under stricter conduct standards might force providers to discontinue services to lower- and middle-income clients.

The regulatory landscape currently places many insurance sellers under state oversight rather than federal standards such as the fiduciary conduct standard for financial advisors or Regulation Best Interest requirements for broker-dealers. Industry representatives maintain there is little evidence the current regulatory framework fails to protect consumers adequately.

Current Retirement Landscape

The regulatory battle comes amid significant growth in retirement savings and products:

• IRA contribution limits have increased to $7,000 for those under 50
• Individuals over 50 can contribute up to $8,000
• First-quarter annuity sales showed a 21 percent year-over-year increase
• Total IRA holdings reached $13.8 trillion by end of 2023

What's Next

While the DOL's appeal notices don't detail specific legal arguments, legal experts familiar with the case suggest the department will likely focus on distinguishing the new rule from its 2018 predecessor. The department's strategy may emphasize how the current regulation addresses regulatory gaps while providing necessary consumer protections in an evolving retirement landscape.

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DOL Pushes Back Against Texas Courts Over Fiduciary Rule

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