The Department of Labor was dealt a serious double whammy by Texas Federal Courts last week. Federal Judges of the Fifth Circuit sided with the insurance industry by blocking the government’s attempts to handcuff advisors, broker-dealers, and carriers.
Naturally, this is a very welcome and positive development. While the fight is not over, this is a significant win for everyone in our industry.
The rulings came from two separate jurisdictions. On Friday, the second federal court in North Texas halted the DoL’s Retirement Security Rule, expanding on the East Texas court’s stay on the regulation. The ruling asserts that the plaintiffs were “virtually certain” to succeed in their claim against the regulator and that the planned September activation cannot occur.
Various insurance groups were party to the legal challenge to the DoL regulation. As plaintiffs, they argued that the proposed regulation inappropriately applies fiduciary responsibility to one-time recommendations of insurance products. Industry lawyers also asserted that consumers are already protected by existing state and federal regulations, along with the 1974 Employee Retirement Income Security Act (ERISA). For now at least, those arguments have been persuasive.
The insurance industry has consistently maintained that the proposed standards and associated costs would restrict non-wealthy investors’ access to sound financial advice, harming the very people it aims to protect.
These advantageous decisions were likely aided legally by the Supreme Court’s recent Chevron ruling. For 40 years the “Chevron Doctrine” meant that federal courts were bound to defer to federal agency guidelines. In considering Loper Bright Enterprises v. Raimondo, the Supreme Court has upended that convention, leaving judges more freedom to interpret individual cases.
The possibility remains that this battle itself could go all the way to the supreme court. Certainly, it is assumed that the DoL will appeal. Alternatively, there may be an effort by regulators to introduce commensurate legislation in Congress. A DoL statement made clear that the agency remains committed to the ruling.
This is not over. These rulings prevent the September 2024 effective date and make the agency’s road to implementation far more difficult. It is not the occasion for a victory lap, but it is certainly a moment to exhale and to be able to continue doing business—taking care of cleints without the need for regulation.
Stay tuned for further updates as we continue to monitor developments here closely.