A U.S. judge has blocked a Department of Labor rule that would have expanded the types of retirement advisers considered fiduciaries, finding the rule arbitrary and conflicting with a law governing retirement plans. The “Retirement Security Rule,” unveiled in April, faced challenges from insurance groups arguing it conflicted with the Employee Retirement Income Security Act (ERISA).
Judge Jeremy Kernodle in Tyler, Texas, ruled on Thursday that the Federation of Americans for Consumer Choice Inc. and other insurance groups were likely to succeed in their arguments. He blocked the rule from taking effect nationally on September 23 while the lawsuit proceeds.
The insurance groups contended that the rule improperly classified those providing one-time recommendations to retirees, such as rolling over investments from an ERISA plan to an individual retirement account (IRA), as fiduciaries. The Labor Department, in a statement, maintained that the rule ensures retirement savings advice is in the customer’s best interest, not the financial professional’s. “The department continues to believe that this rule is essential to ensuring that retirement investors are protected,” the DOL stated.
The rule aimed to close a loophole in the fiduciary standard that did not apply to recommendations for purchases of non-securities such as fixed index annuities, typically sold by insurance companies, according to the White House. Investments in such annuities appeal to risk-averse investors and have grown rapidly but come with higher costs. The White House estimated that the fiduciary rule could save retirees $5 billion a year on these investments.
Business groups have used the courts to challenge regulatory power, winning a major Supreme Court victory in June in a case known as Loper Bright, which held that judges should not defer to an agency’s interpretation of an ambiguous law. As a result of Loper Bright, Kernodle stated that he did not owe deference to the Labor Department’s interpretation of ERISA.
The Labor Department previously attempted to expand the fiduciary rule in 2016 under the Obama administration. However, the 5th U.S. Circuit Court of Appeals blocked that effort in 2018. Kernodle indicated that the latest version of the fiduciary rule fails for many of the same reasons.
