The National Association for Fixed Annuities (NAFA) has filed a federal lawsuit in the D.C. District Court seeking a preliminary injunction against the Department of Labor’s fiduciary rule. The suit, which comes on the heels of a similar suit filed by securities industry trade groups and the U.S. Chamber of Commerce Wednesday, alleges that the rule will cause “irreparable harm” to its members, which include insurance companies, independent marketing organizations and individual producers involved in selling fixed annuities.
“Our organization strongly supports consumer protection, but this rule exceeds DOL’s rule-making authority and will result in lost jobs in our industry, less choice for consumers and more lawsuits to line the pockets of class-action lawyers,” said Chip Anderson, executive director of NAFA, in a statement. “We will do whatever we can to help policymakers create real solutions, but this rule will do more harm than good, and we will challenge it in the courts.”
Under the proposed rule, the department had included fixed annuities in its prohibited transaction exemption, which would have cleared the way for the sale of fixed annuities under an exemption to the fiduciary rule. NAFA commended the DOL for that move, in its comment letter. But fixed annuities were not part of the prohibited transaction exemption (PTE) in the final rule, released April 6. Instead, they were included in the best interest contract exemption, which allows for the sale of the product but only if the selling firm demonstrates it's in the client's best interest and the pricing is reasonable and level with similar products. NAFA claims the PTE is less onerous.
The group argues that the failure to include fixed annuities in the exemption was done arbitrarily and without justification. Instead, the exemptions, the group believes, were designed for the securities industry.
The suit also claims that the DOL had no authority to regulate Individual Retirement Accounts; a similar complaint is laid out in the suit filed this week by the Securities Industry and Financial Markets Association (SIFMA) and others in Texas. NAFA also says the rule improperly labels insurance agents as fiduciaries.
In addition, the suit alleges the DOL wrongly creates a private right of action, which should be under Congress’s jurisdiction.
“The inherent problems with this rule are vast and far-reaching,” said Anderson, in a statement. “This rule is administratively unworkable, especially for the fixed annuity industry, and that means quality products and advice currently available to middle-income Americans will be harder to access and more expensive.”