Congressional And Legal Challenges Won’t Stop The DOL Fiduciary Rule

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Congressional And Legal Challenges Won’t Stop The DOL Fiduciary Rule

July 12, 2016

by Ron Rhoades

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As I write this, in early July of 2016, three months has passed since the U.S. Department of Labor (DOL) issued its Final Rules applying fiduciary status to providers of investments to nearly all investors in 401(k) plans, other ERISA qualified retirement plans and IRAs. And only nine months remain until most of the substance of the rules (i.e., the imposition of fiduciary standards) takes place, on April 10, 2017.

In this article, I describe how the landscape is evolving. Specifically, I address the likelihood of the core provisions actually being implemented on April 10, 2017.

Several challenges might thwart or delay their implementation. Chances are far greater than 50/50 that most of the DOL Rules will go into effect on April 10, 2017. While there is some chance that a few aspects of the rule could be delayed by litigation, the march toward fiduciary status for all providers of investment advice to ERISA-covered retirement plans and IRAs is strong.


The U.S. Congress will likely vote a few more times on legislation to stop the DOL rule-making prior to the presidential elections, but any legislation passed by both houses won’t survive the veto process.

Presidential election

One renowned pollster gives Trump a 22% chance of winning the presidential election, based on poll data as of July 5, 2016. Given the apparent divisions in the Republican Party, the lack of funding for Trump’s campaign, its lack of organization and the electoral map, there is not much hope for those opposed to the DOL fiduciary rules.

(Note: Even if a Republican assumes the presidency in 2017, it remains unclear how fast the DOL fiduciary rules could be repealed and replaced with new rules – various statutes require extensive times for rule-making processes.)


Several insurance-company lobbying groups and SIFMA have filed suits. After consolidation, three suits remain:

  1. D.C. Circuit: National Association for Fixed Annuities (NAFA).This suit focuses on fixed-indexed annuities (FIAs). Briefs are being submitted in July and early August. Oral argument will take place in August. A decision on the injunctive relief sought is expected by September. Any decision would likely affect only equity-indexed annuities and the applicability of the Best Interests Contract Exemption (BICE) to them (as opposed to their earlier inclusion under the more liberal 84-24 exemption). Some of the arguments advanced by the insurance industry in this suit seem without merit; others will depend upon a review of the DOL’s cost-benefit analysis, as applied to FIAs.
  • Chance of insurance industry prevailing: Anything is possible in litigation. But, chances are less than 50/50 that NAFA will prevail.
    • While the inclusion of FIAs under BICE was said to be a “surprise,” several comments during the rule’s review process suggested applying BICE to FIAs, and the press reported in the fall of 2015 that FIAs might fall under BICE.
    • Despite claims in the lawsuit that BICE is “unworkable,” many insurance companies and independent marketing organizations in the insurance industry have already indicated that they are adapting to the DOL rule. Meetings at the DOL have discussed “private exemptions” for independent marketing organizations permitting them to become “Financial Institutions,” and the ways insurance companies themselves can operate as “Financial Institutions.”
    • Also, new and lower-cost FIAs are already emerging, indicating that a delay in applying the rule would likely harm consumers.
    • Granting the injunction could result in the inapplicability of the Impartial Conduct Standards to FIAs, which is counter to the desire expressed by many commentators that Impartial Conduct Standards be applied in the same manner, and with the same language, across the various rules.

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