Life insurance agents in Texas are plaintiffs in a federal lawsuit challenging the U.S. Department of Labor’s enforcement of a new fiduciary standard applied to the rollover of ERISA benefits into individual retirement accounts (IRAs). The Texas action was filed on Feb. 2 in the Northern District in Dallas. A week later, the American Securities Association filed a similar petition in the Middle District of Florida.
The Federation of Americans for Consumer Choice is the lead plaintiff in Texas, along with six named licensed insurance agents, four of whom have businesses in the Greater Dallas/Fort Worth area. The others are in Lubbock and El Paso. The Texas plaintiffs allege that the Department of Labor exceeded its authority by triggering higher standards of care from life agents through a new interpretation of fiduciary. The new interpretation is embodied in the 64-page preamble to a rule adopted in 2019 with postponed enforcement until Feb. 1, 2022.
The Texas plaintiffs said that the DOL’s new interpretation is a rehash of a rule originally adopted in 2016, but rebuked by a 2018 U.S. Fifth Circuit Court of Appeals decision, when the DOL’s fiduciary rule replaced the five-part test of a 1975 rule to determine which transactions fell within DOL’s regulatory reach. While DOL enforcement of the newest rule and its interpretation began Feb. 1, the rule itself does not repeal or replace the five-part test. Instead, the rule changes a prohibited transaction exemption that, under the preamble’s text, leads to the same end: Because he receives a commission, an insurance agent involved in the replacement of ERISA benefits with an IRA would become “categorized as an investment advice fiduciary under the 1975 rule” as he might have a continuing advisory investment role with his customer.
The petition quotes from the new rule’s purpose: “to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion-dollar markets for ERISA plans and IRAs.” The plaintiffs argue that this effort by DOL is “impermissible” and inconsistent with the statutory provisions of ERISA and Internal Revenue Code, the same arguments that were used to nullify the 2016 rule.
The petition says, “Pouring the same old wine into a new bottle does not change the result.”
The American Council of Life Insurers released a white paper during the comment period for the rule predicting that the rule would result in the unintended consequence of 10 million households losing access to financial professionals and increase the wealth gap by reducing projected IRA balances of Black and Hispanic Americans by 20 percent over 10 years.
The Florida lawsuit is a complaint against the guidance issued by DOL regarding the new rule, where DOL makes it clear how it intends to enforce the rule. The ASA petition alleges that the guidance is in fact “rule” and should have been adopted in accordance with the Administrative Procedure Act which would have allowed for public comment.
“If the Department wanted to change its rules, it needed to go through the required notice-and-comment process – not through guidance documents,” the lawsuit says.
Texas plaintiffs include John Lown, Lown Retirement Planning, Dallas; David Messing, Collin County; Miles Financial Services, Lubbock; Jon Bellman, Bellman Financial, Collin County; Golden Age Insurance Group, El Paso, and V. Eric Couch, ProVision Brokerage, Denton County. All the agent plaintiffs are members of Federation of Americans for Consumer Choice. The lawsuit indicates that FACC has additional members who will be directly and adversely affected by the rule.
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