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DOL Fights Back Against Claims That FIA & VA BICE Exemptions Are Unlawful



***UPDATED: November 6, 2015*** On Friday, a judge denied a motion for preliminary injunction by the National Association for Fixed Annuities in its lawsuit against the DOL’s fiduciary rule, according to a recent InsuranceNewsNet article. Judge Randolph D. Moss presented a 92-page ruling that addressed all six claims in the District of Columbia District Court, including that the DOL acted “arbitrary and capricious” with its decision to add fixed indexed annuities in to the restrictive Best Interest Contract Exemption (BICE). Moss rejected NAFA’s claim and disagreed that opponents were not permitted to comment on the final decision to move FIAs. The judge also rejected NAFA’s claim that the rule generates a private litigation right, stating that the “DOL is merely extending rights that already exist under state law.” Citing several previous cases, Moss also concluded that the DOL’s reasonable compensation standard satisfies the law.

The NAFA case is just one of four lawsuits currently filed against the DOL rule. Three of these cases make similar claims that the DOL’s fiduciary rule overstepped its authority. For more information about this hearing, check out John Hilton’s original article here.


John Hilton’s recent article for Insurance News Net, “DOL: Fiduciary Rule May Lead To Fewer Annuity Recommendations,” discussed the current lawsuits against the DOL and what may come of them. Many lawsuits have been filed against the Department of Labor over their fiduciary rule, especially the BICE exemption as related to FIA and VA products. The first was by the Chamber of Commerce in Dallas federal court. They allege that the DOL has overstepped their authority, broken the law, actually hurt retirement savers rather than help them, and created unnecessary hardships in the industry. This lawsuit has since been combined with lawsuits filed by the Indexed Annuity Leadership Council and the American Council of Life Insurers.

The DOL finally responded to the accusations earlier this month and as expected, refuted the allegations. They say that the rule is reasonable, lawful and that they fully analyzed the costs and benefits. The DOL also accuses all of the plaintiffs of simply ignoring the laws that have combined to define the term “fiduciary” over the past 5 decades or so. The common law definition of this term is what the plaintiffs want Congress to use. It defines “fiduciary” as “a relationship of trust and confidence,” whereas the ERISA definition says that fiduciary is someone who “renders investment advice for a fee or other compensation, direct or indirect.” The definition of fiduciary is crucial to the outcome of these lawsuits. Multiple claims about brokers and agents who should not be included in the new rule were also rejected by the DOL.

Another claim made by the plaintiffs is that the DOL created a private right of action with this rule, something that only Congress has the authority to do. The DOL disagrees and said that they simply made contract terms more specific, something that can be enforced by current state laws. BICE exemptions and PTE 84-24 exemptions will ensure for “reasonable” compensation of advisors, make specific rules for disclosure and record-keeping, and require a signed contract between investor and advisor (BICE exemption). The DOL insists that these exemptions have been necessitated by the fact that nothing else has worked to ensure that investors do not get conflicted advice. They believe it is necessary for a separate fiduciary to ensure that contracts are in the best interest of investors.

Much has been said from DOL fiduciary rule opponents about the fact that the DOL’s analyses were flawed and didn’t take many important factors into account. The DOL insists that they factored in the costs to agents, IMOs and insurance companies in regards to complying with their rule. Plaintiffs argue that consumers will have less access to variable annuities and fixed indexed annuities because of the increased requirements. While the DOL agrees that the sales of these types of annuities will likely decrease, they say that the access will remain the same. Their belief is that if fewer types of annuity products are sold, then the products were not in the best interest of consumers to begin with. Plaintiffs argue that that isn’t the case, but say that consumers will be losing valuable retirement income options because the DOL is making it harder for advisors, IMOs, and brokers to offer these products.

There is a hearing set for November 17, so we’ll be following the next steps in the lawsuits against the Department of Labor’s fiduciary rule. One thing is clear, the DOL and the plaintiffs strongly disagree on the lawfulness of the rule and who is hurt or benefits from it. The Department of Labor is fighting back against lawsuits claiming their BICE exemptions for commission-based VA and FIA products are unlawful.

Written by Rachel Summit

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

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