Eleventh Hour DOL Fiduciary Rule Rescue Efforts Fail
Written by Pamela Yu, Special Counsel for Compliance and Research, NAFCU
Last-ditch efforts by one large interest group and three state attorneys general have failed to rescue the Department of Labor's (DOL) fiduciary rule, which was struck down by the 5th Circuit of Appeals in March in a 2-1 split decision by a three judge panel. The 5th Circuit decision overturned a Dallas federal judge's earlier order upholding the rule, which would impose a fiduciary standard of care on broker-dealers and investment advisers that provide investment advice to retirement plan investors. The rule now appears doomed unless the U.S. Supreme Court steps in to save the embattled regulation. The 5th Circuit's decision to vacate the rule goes into effect today.
On April 26, a coalition of the Attorneys General for California, New York, and Oregon filed a petition in the 5th Circuit to request the court's permission to intervene in a lawsuit challenging the DOL regulation, along with a petition for rehearing en banc asking the full 17-judge court to rehear the matter. In a separate filing the same day, the AARP—the behemoth association representing older and retired persons—also moved to intervene in the suit, in a last-minute attempt to defend the DOL's rule.
The parties attempted to intervene in a bid to save the rule upon the realization that the Trump Administration would not act to resurrect the Obama-era rule; indeed, an April 30 rehearing deadline came and went with no action on the part of the agency. The DOL still has until June 13 to appeal the decision to the Supreme Court, but it appears unlikely to do so.
In a death blow to these eleventh hour rescue efforts, last Thursday the court denied both the motions. The court did not explain its order, simply stating that the motions to intervene were denied.
The AARP had argued it had standing to intervene because its members will be adversely impacted by the 5th Circuit’s decision. Meanwhile, the three state attorneys general had argued that their intervention was necessary to "ensure an effective defense" of the rule, and to protect the interests of "those millions of their current and future retirees affected by this appeal." The attorneys general noted that "[u]ntil recently, DOL vigorously defended the Rule in this and other courts. Now, however, DOL appears ready to abandon its effort to protect retirement investors."
The plaintiffs challenging the fiduciary rule—including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute—opposed the parties' motions to intervene, arguing in their own filing with the court that the AARP and the state attorneys general had "delayed until the last moment to file intervention motions to seek rehearing en banc," saying the delay was "unjustifiable" and the motions should therefore be denied. Seemingly, the court agreed.
The latest ruling means the DOL fiduciary rule goes off the books today, May 7. This is good news for credit unions that may have been adversely affected by the rule. Generally, credit unions are prohibited from offering members investment advice as "investment advisers" under state or federal securities law. But the rule would have impacted credit unions that offer investment advisory services through credit union service organizations (CUSOs) or third-party arrangements.
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