Challenging the Department of Labor's Authority to Regulate the Annuity Marketplace: National Association for Fixed Annuities v. Thomas Perez and the Department of Labor

I wrote yesterday on the first complaint filed, in federal court in Texas, challenging the Department of Labor’s new fiduciary regulations, and then within hours, a second such suit was filed. The second suit is a more narrowly targeted action, brought by sellers of fixed annuities and charging that the Department of Labor, for various reasons, overreached when it included insurance agents and this product within the scope of the regulation. As Nevin Adams writes on NAPA Net:

As it relates to the impact of the fiduciary regulation on fixed income annuities (FIA), the filing notes that in the Labor Department’s NOPR, both declared rate fixed annuities and FIAs were included in PTE 84-24, but that “without adequate notice as required under the APA, in the final Rule the Department moved FIAs out of PTE 84-24 and into the BICE.” The plaintiffs go on to note that all fixed annuities — including FIAs — had previously been treated as insurance products, exempt from federal securities laws and regulated under state insurance laws. “Yet the Department lumped FIAs in with securities products like variable annuities when it promulgated the Rule and the Exemptions.”

The plaintiffs here note that because FIAs are an insurance product, the FIA sellers represented by NAFA — including carriers, IMOs, and agents — “are ill-equipped to suddenly be subjected to the onerous compliance obligations required by the BICE, which more closely resemble the types of requirements imposed on the securities industry.” They go on to say that the FIA industry was “blind-sided by this last-minute switch” and that the impact to the industry and its clientele would be “highly detrimental.”

While the complaint filed in Texas yesterday is fairly read as a broad attack on the entire expansion of the fiduciary status and the BIC to retail customers, this complaint is more fairly understood as – through a number of different legal arguments – a claim that the Department simply cannot properly regulate insurance agents and the sale of this type of product, or if it can, did not follow proper procedures to do so. I like the precise focus of this argument which essentially asks, from a 30,000 foot perspective, whether ERISA itself captures such products and sellers.

And that’s an interesting question, which has a lot to do with your jurisprudential philosophy. Its almost an original intent question – do you believe that ERISA, and the Department, is limited to the issues and products on the table in 1974? If not, how much further down the field from the exact problems tackled by Congress at that time do you think the regulator can go? Or do you believe that ERISA is a federal statute intended, from the outset, to be developed along the way by regulators and the federal courts, so as to fit current circumstances and to avoid being hamstrung by changes in the retirement world over the past 40 years? To even begin to unpack these questions into subsidiary parts would turn this blog post into a law review article, so I won’t even hint at the answers in this post. But in a way, that’s what this second lawsuit asks.