Drinker Biddle: Companies must move forward with fiduciary rule compliance
The retirement industry has been in an uproar over the expected implementation of the Department of Labor’s fiduciary rules next year. Some organizations have filed lawsuits against the Department of Labor, saying it didn’t follow proper administrative procedures or that the fiduciary rules exceed the DOL’s authority. Others believe Congress can step in and stop implementation of the rule.
Brad Campbell, counsel in the Employee Benefits & Executive Compensation Practice Group at Drinker Biddle & Reath, LLP, said in a recent discussion about the rule that Congress won’t be able to do anything to stop the rule’s implementation. The only hope now for industry is the three lawsuits that are wending their way through the federal courts currently. In at least two of the cases, plaintiffs have asked the courts to delay implementation of the rule while the lawsuits are playing out in the courts.
A federal judge in Washington heard one of the cases in late August and is considering whether to issue a preliminary injunction in the case, while another case in Kansas was heard in mid-September. That judge has not issued a ruling, but according to Fred Reish, partner in the same group as Campbell and chair of the Financial Services ERISA Team and chair of the Retirement Income Team at Drinker Biddle, rumor has it that the judge is considering an injunction to halt the rule from moving forward.
“My understanding is if one court allows the case to go forward, but the other court disagrees, any of these courts has the authority to stop the rule on a nationwide basis,” Campbell said. “To put it in more of a colloquial way, plaintiffs have to get lucky once but the Department of Justice has to get lucky three times.”
The judge in the D.C. case has had a few weeks to make a decision, so the industry expects a decision fairly soon.
“A victory in any of the three courts would be a tremendously significant development in this regulation,” said Campbell.
The big feature in all three cases has to do with annuities. The final rule placed fixed income annuities under the Best Interest Contract Exemption rather than the Prohibited Transaction Exemption 84-24. The BIC, as it is called, costs more and is more onerous than 84-24 because it requires those who are selling fixed income annuities to complete numerous disclosures and sign a contract with their clients.
Market Synergy, the company that filed suit in Kansas, sells fixed income annuities and other insurance products. Representatives from the company have asked for a preliminary injunction against the rule.
Another rumor is circulating that the DOL is considering delaying the effective date of the rule beyond the current April 10 deadline because 12 months is not enough time for most companies to comply with the new regulations, Campbell said. He adds that he doesn’t believe the DOL will announce an extension until closer to the actual deadline.
That means that companies need to continue working toward that April 10 deadline, he said.
Reish pointed out that if companies stop trying to meet the deadline and the courts don’t issue an injunction and the DOL doesn’t extend the deadline for compliance, “they are dead. They can’t get into compliance in time. It seems like the ultimate outcome, when people analyze this, is full speed ahead with compliance.”