DOL Posts Technical Fixes to Fiduciary Rule
July 11, 2016 by Frank Klimko
WASHINGTON – The U.S. Labor Department issued technical corrections to the fiduciary rule update, addressing one of the legal issues raised in litigation challenging the legality of the new rules, which change how retirement advisers conduct business.
The corrections address complaints, raised in several of the five pending lawsuits, regarding how advisers used the Best Interest Contract Exemption. The lawsuits claim the new rules make it impossible for insurance companies to sell fixed indexed annuities under the BIC. Fixed indexed annuities are included under the BIC in the final rule — rather than under the old Prohibited Transaction Exemption (PTE 84-24).
Under the BIC exemption, an insurance company that wants to sell the FIAs can qualify only if it is domiciled in a state which requires actuarial review of reserves be conducted and reported out annually by an independent firm of actuaries. Under those conditions, no carrier would qualify because no state requires insurers to undertake an annual actuarial review that must be reported to the appropriate regulatory authority, the lawsuits said (Best’s News Service, June 10, 2016).
The DOL admitted the mistake and the corrections delete the phrase “by an independent firm of actuaries.”
The BIC change was anticipated by the industry, Judi Carsrud, director of federal relations for the National Association of Insurance and Financial Advisors, told Best’s News Service.
“That was a correction we expected and it does clarify that the DOL does intend for insurance companies to rely on the BIC on transactions where it is necessary,” Carsrud said. “That is helpful and not unexpected.”
However, the corrections did not alter the broader thrust of the conflict-of-interest rule, which significantly revises the way advice is delivered in the retirement market, Carsrud said. NAIFA is party to one of the lawsuits.
“We weren’t expecting that and we didn’t get that,” Carsrud said.
The rule update, released in April, seeks to force retirement investment advisers to act in the best interest of their clients and imposes a range of new regulations (Best’s News Service, June 9, 2016).
It is unlikely the corrections will address all the issues raised by the lawsuits; the first will be heard by a federal court in Topeka, Kansas, on Aug. 24 in the case by insurer Market Synergy. That lawsuit focuses on the adoption of the BIC, which it said included FIAs at the last moment.
Meanwhile, the U.S. District Court for the District of Columbia has set Aug. 25 as the date to hear the lawsuit against thr DOL brought by the National Association for Fixed Annuities. NAFA is seeking a preliminary injunction.
In a related matter, the U.S. House Appropriations Committee on Wednesday will consider the Fiscal Year 2017 Labor, Health and Human Services funding bill, which includes language that would invalidate the rule. It was approved by a House Appropriations subcommittee last week.
(By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)