First Lawsuit Filed Against DOL Over New ERISA Investment Advice Regulations

Texas-based insurance industry plaintiffs, including a nonprofit trade group, have filed the first lawsuit to challenge the U.S. Department of Labor’s (DOL) recently issued final regulations that broaden the definition of fiduciary under the Employee Retirement Income Security Act (ERISA). The regulations expand the scope of a fiduciary to include many forms of advice by investment professionals and amend three sets of ERISA-prohibited transaction exemptions, including one specifically used by insurance agents (PTE 84-24).

The case is Federation of Americans for Consumer Choice Inc. et al. v. U.S. Department of Labor et al., case number 6:24-cv-00163, U.S. District Court for the Eastern District of Texas.

The plaintiffs allege that the regulations exceed DOL’s authority under ERISA, the Internal Revenue Code (IRC), and the Administrative Procedure Act (APA). They also claim that the rule and transaction amendments violate the APA because they are arbitrary, capricious, and incompatible with ERISA and the IRC.

According to their complaint, the plaintiffs seek a court order vacating the DOL’s final rule and the amendments to PTE 84-24 as beyond the agency’s statutory authority. They also have requested a permanent injunction to prevent the DOL from implementing the policies outlined in the rule or taking related enforcement action. While the plaintiffs criticize the DOL’s amendments to other ERISA-prohibited transaction exemptions in their lawsuit, the agency does not specifically challenge those amendments or ask the court to vacate them.

The challengers characterize the DOL rule as “virtually indistinguishable” from the DOL’s previous attempt to amend the ERISA fiduciary definition. The U.S. Court of Appeals for the Fifth Circuit rejected that rule in 2018. More specifically, the plaintiffs claim that the new final rule violates the Fifth Circuit’s 2018 holding by assuming that a special relationship of trust and confidence exists in ordinary commercial dealing between an investment professional and a client. As a result, the plaintiffs argue, every investment recommendation made by a stockbroker or insurance agent will become a fiduciary transaction.

Concerning PTE 84-24, the plaintiffs claim that the amendments impose new rules that conflict with longstanding business practices in the insurance industry. They argue that already-existing state insurance regulations are sufficient to govern these transactions and that the DOL ignored the insurance industry’s legitimate concerns by rushing the amendment through the rulemaking process.

The lawsuit should be no surprise to the DOL, as opponents of the final rule made it clear throughout the rulemaking process that they intended to challenge it as an overreach of the agency’s authority, considering the Fifth Circuit’s 2018 opinion.

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