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Nine Groups Suing DOL over Indexed and Variable Annuity Rule


Everyone in the financial industry has been talking about the new DOL fiduciary rule that changed the regulations for both variable and fixed indexed annuity products. Some consumer groups think that this is a positive change for consumers, but may not be taking into account the ramifications for the insurance industry that could change the overall products. Those who sell annuity products are up in arms and worried that their industry will be negatively impacted for the long term. Many groups, most not directly related to the sales of variable and indexed annuity products, believe that the DOL has broken the law with this new fiduciary rule.

Nine groups have banded together and filed a lawsuit against the DOL and their fiduciary rule. The lawsuit is being led by the U.S. Chamber of Commerce and includes eight major counts against the U.S. Department of Labor. Cyril Tuohy summarized these eight counts in the Insurance News Net article “The DOL Lawsuit Explained.” In addition to the Chamber of Commerce, there are either other groups included in the lawsuit. These are The Financial Services Institute and the Financial Services Roundtable, The Insured Retirement Institute, and The Securities Industry and Financial Market Association. There are also local Texas groups involved because this particular lawsuit is requesting that the U.S. District Court for the Northern District of Texas eliminate this rule right away. The Humble Area Chamber of Commerce, the Greater Irving-Las Colinas Chamber of Commerce, the Lubbock Chamber of Commerce and the Texas Association of Business are the remaining groups involved in the lawsuit. The basic gist of the lawsuit is that these nine groups don’t believe that the U.S. Department of Labor has the authority to regulate the financial services industry in this way.

Count One alleges that the DOL doesn’t have the authority to introduce this type of rule and that it violates ERISA guidelines, IRS Code and the Administrative Procedure Act. The plaintiffs say that the DOL does not have authority over IRAs, only covered employee benefit plans. Count Two calls the guidelines “arbitrary, capricious, and irreconcilable” with the Administrative Procedure Act. It says the rule is too broad and includes sales-related activity rather than fiduciary. Count Three alleges that the Best Interest Contract Exemption (BICE) and Principal Transactions Exemption (PTE) have created an unlawful way for consumers to sue financial institutions and advisors. The count alleges that a “private right of action” was created by the DOL rule. Count Four says that not only did the DOL create this rule without sufficient notice, they also basically ignored all of the comments they received against these new guidelines. Their Regulatory Impact Analysis was not sufficiently reviewed.

In Count Five, it says that the BICE and PTE guidelines are directly prohibited by the Federal Arbitration Act. The lawsuit says that ERISA does not override this act, therefore the DOL doesn’t have the authority to institute these rules. Count Six alleges that the regulation of fixed indexed and variable annuities is barred by the Dodd-Frank Act, among other accusations. The DOL is attempting to regulate the same fixed indexed annuity products that Congress already banned the SEC from regulating a few years ago. Count Seven says that regulators “arbitrarily and capriciously assessed the rule’s benefits, consequences, and costs.” They said that the analysis stating the savings that retirement savers would receive is flawed and does not take the likely consequences into account. In Count Eight, the lawsuit says that the DOL BICE is violating the free speech amendment. They say that the rule doesn’t allow advisors to have open conversations with their clients because of the strict parameters they have to follow.

While these eight counts might border on excessive, the nine groups suing the DOL over their Fiduciary Rule certainly seem to have a case against them. The BICE and PTE requirements facing the variable annuity and indexed annuity industry are tricky and could really impact the financial industry overall.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+


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