As we previously discussed in our May 19, 2016 SW Benefits Update, the Department of Labor (“DOL”) recently issued final regulations on fiduciary conflicts of interest in retirement programs. Since 2010 when the DOL first proposed regulations addressing self-interested advice to retirement plan and IRA participants, the rule has been widely criticized by some in the financial services industry as being overly broad.
Both Congress and industry and trade groups have been unhappy with the DOL’s rulemaking in this area and have threatened further action since the rule was first proposed. On May 24, the Senate passed a resolution to block the fiduciary rule, which President Obama vetoed on June 8.
Likewise, in an expected move, lawsuits challenging the final regulations have begun. As of June 9, five lawsuits challenging the rule have been filed. The first case was filed on June 1 by the U.S. Chamber of Commerce and several other trade groups challenging the DOL’s authority to enact the legislation. In addition to the U.S. Chamber of Commerce, the National Association of Fixed Annuities, the American Council of Life Insurers, the Indexed Annuity Leadership Council and Market Synergy Group, Inc. have joined with other plaintiffs to challenge the regulations. Some of the claims asserted include that the DOL final rule violates the First Amendment’s free speech protection by restricting the speech of investment advisers, violates the Fifth Amendment’s due process clause by issuing an unduly vague regulation, fails to consider the impact of the regulations on small business, and unfairly disfavors retirement products without reasonable justification.
The litigation does not delay the effective date of the final regulations. The final rule is generally applicable on April 10, 2017, but some provisions have delayed effective dates. This deadline does not give those affected much time to comply, so those impacted by the rule may want to continue to take steps toward compliance with the final regulations despite the pending litigation.