Please open the link below to read a letter prepared by FACC regarding our DOL lawsuit.
We hope the letter provides industry colleagues with some insights about our legal action which we see as a critical component of industry efforts addressing DOL developments.
The letter – among other things – addresses certain misconceptions we have heard from time to time about our action.
We hope you find it informative and appreciate the support we have received from many of you.
As most of you know, FACC filed a lawsuit against the U.S. Department of Labor challenging its reinterpretation of the five-part test, which effectively turns most if not all insurance agents selling IRAs into fiduciaries.
We believe this is a critical step that had to be taken to protect our industry against unreasonable encroachment by a federal agency contrary to the Fifth Circuit decision rendered just a few years ago.
Representing FACC in this case is the distinguished Dallas law firm Figari + Davenport who put together on our behalf a strong but straightforward complaint challenging DOL’s reinterpretation of who is a fiduciary. FACC is joined in the lawsuit by several local Texas agents and agencies concerned about the future of their respective businesses and clientele. FACC and its co-plaintiffs brought the case in federal court in the Fifth Circuit where these matters will be reviewed by courts that decided the landmark Chamber of Commerce case in 2018.
FACC believes this lawsuit is an important complement to other industry efforts seeking to preserve the strengths of our financial services system and protect choices available to consumers. We believe such efforts should be multi-pronged which in varying ways may include discussions with DOL, addressing any new regulatory proposals, working as needed with public policymakers, ensuring enactment of the NAIC model law in as many states as possible, and otherwise working towards a coherent regulatory system that provides for a level playing field and workable requirements for all segments of industry for the benefit of all consumers.
The lawsuit is an important component of the overall strategy given there is widespread agreement among trade groups and legal experts that the DOL reinterpretation is wrong and contrary to the Fifth Circuit decision. Whether a lawsuit is brought now or later, DOL’s attempt to redraw the lines of the five-part test demands challenge. Similarly, FACC believes DOL’s attempt to expand ERISA to cover rollovers out of employer plans is similarly flawed and it too demands to be contested. As widely reported, FACC is not alone in this regard, in that a second lawsuit has been filed by the American Securities Association in a different jurisdiction raising similar issues that go to the question of whether DOL overstepped its authority in redefining who is a fiduciary.
In our view it is important to take this action now given DOL’s newly decreed departure from the Fifth Circuit decision and before DOL can continue further along a slippery slope of expanding regulation. Industry’s investment of millions of dollars in securing the Fifth Circuit decision should not be allowed to go to waste. It is important DOL be held accountable to the judiciary that clearly imposed limitations on DOL’s authority to regulate financial services in accordance with ERISA and
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applicable law. Now that the temporary enforcement policy expired and agents are being required to satisfy PTEs on grounds they are fiduciaries, these matters must not go unchallenged.
Some express concern over whether a pre-enforcement action will be considered ripe by the courts. Of course, the Chamber case was a pre-enforcement action and stands as one of many precedents demonstrating pre-enforcement actions are sustainable in these circumstances. We have spoken with several knowledgeable attorneys in this area – aside from our own counsel – and we believe a preenforcement action is clearly viable under these circumstances. Meanwhile others have expressed concern that DOL might render our case moot by introducing more formal regulations defining who is a fiduciary but that would only strengthen the basis for our lawsuit because either way we are challenging DOL’s authority – by final interpretation or formal rule – to redefine fiduciary beyond that which is allowed under the Fifth Circuit decision.
When all is said and done, it is our hope that industry will rally around our lawsuit, seeing that these issues must have their day in court. While there is certainly value in other efforts to ensure that any prohibited transaction exemption requirements promulgated by DOL are reasonable and workable, that is not a substitute for resolution of the threshold question, i.e., whether agents or other financial services professionals who sell products in the individual marketplace should be deemed fiduciaries in the first place and whether they should be subject to ERISA. FACC believes those questions deserve answers that can only be resolved ultimately by the courts.
At the heart of everything FACC does are the interests of the independent channel. While nobody enters into litigation lightly, FACC cannot sit back as DOL undertakes to create a new regulatory regime that is unnecessary and clearly not well suited for insurance agents selling fixed products in the individual marketplace. Insurance agents are regulated and consumers protected by state insurance departments, and we believe it is incumbent upon industry leaders to challenge the basis for yet another layer of regulation being pursued by DOL.
We hope our friends in the industry find this information helpful in understanding our rationale for bringing this action.
As always, we welcome any comments or questions.
Federation of Americans for Consumer Choice