A second federal court in Texas has temporarily blocked the Department of Labor’s new fiduciary rule and its related exemptions. On Friday, Judge Reed C. O’Connor of the Northern District of Texas, Fort Worth Division, issued a stay on the effective date of the regulation and amended exemptions.
The court’s order extends an earlier stay from the Eastern District of Texas that pertained to the rule and PTE 84-24, which involves commissions on non-security insurance products recommended for IRA rollovers. Friday’s ruling affects the entire rule, PTE 84-24, PTE 20-02, and other related exemptions. Both Texas courts sided with the plaintiffs, highlighting a high likelihood of their success in the cases against the rule.
Judge O’Connor stated, “Plaintiffs are virtually certain to succeed on the merits. Not only is the rule likely unlawful, but it also likely to cause irreparable harm to the plaintiffs.”
The plaintiffs, including insurance industry organizations, argue that the rule would subject many insurance agents to comply with the Employee Retirement Income Security Act (ERISA) for one-time annuity sales in IRA rollovers. They claim the DOL exceeded its authority and that the rule is arbitrary and capricious, containing similar legal defects as a 2016 version that was invalidated by a court in 2018.
Texas court blocks labor department regulation
The DOL maintains that the fiduciary rule, designed to benefit retirement savers, is crucial for investor protection. It aims to create a best interest standard for retirement advice, ensuring advisers act in the best interests of plan sponsors and participants.
Originally set to begin taking effect in September, with full implementation by April 2025, the rule’s future is now uncertain. The current five-part test used to determine fiduciary status dates back to a 1975 definition of investment advice. Further complicating the DOL’s position is a recent Supreme Court decision overturning the “Chevron deference,” which had allowed federal regulators leeway in making regulations based on their interpretations of laws.
While the Texas courts have been sympathetic to the plaintiffs, the cases will likely be appealed to higher courts. Fred Reish, a partner at law firm Faegre Drinker Biddle & Reath, noted, “It could take years of litigation and appeals before we will know. This could ultimately be decided by the Supreme Court.”
The insurance trade groups suing the DOL praised the court’s decision, stating, “If allowed to take effect, this rule would deprive millions of consumers of much-needed retirement financial guidance and protected lifetime income products.
The stay provides consumers a reprieve from these consequences as the court reviews the substantial legal issues we have raised regarding this ill-advised rule.”
