Senate Democrats challenge DOL to defend fiduciary conflict of interest rules

Senate Democrats with long established backgrounds in consumer advocacy have sent a highly charged letter to Secretary of Labor, Alexander Acosta, challenging the Department of Labor to appeal the Fifth Circuit decision invalidating the fiduciary conflict of interest rules to the United States Supreme Court. In addition, the Senators request information on the protections the DOL is envisioning to protect retirement savers from conflicted investment advice.

Fifth Circuit panel vacates fiduciary rule
As noted in the above story, on March 15, 2018, a divided panel of the Fifth Circuit vacated the fiduciary conflict of interest rules, the Best Interest Contract Exemption and revised PTE 84-24, as an invalid exercise of regulatory authority by the Department of Labor (Chamber of Commerce of the United States of America v. United States Department of Labor).
The fiduciary rules have been upheld by other federal courts (see Chamber of Commerce of the United States of America v. Hugler; National Ass’n for Fixed Annuities v. Perez; Market Synergy Group, Inc. v. United States Department of Labor) . In addition, the panel’s decision poses a direct challenge to the DOL’s regulatory authority, which may certainly have inhibiting resonance in the future. However, the DOL has elected not to seek full Fifth Circuit review of the panel’s decision and has, further, not indicated whether it will pursue a Supreme Court appeal of the ruling.

Senators demand Supreme Court appeal
In their May 17, 2018 letter to Secretary Acosta, Senators Patty Murray (D-WA), Sherrod Brown (D-OH), Cory Booker (D-NJ), Elizabeth Warren (D-MA), and Ron Wyden (D-OR) express concern that the DOL’s failure to defend the fiduciary conflict of the interest rules will “create more confusion and uncertainty for both consumers and the financial services industry.” Allowing the Fifth Circuit decision alone to dictate the Department’s policy, the Senators maintain, “sets a dangerous precedent by failing to acknowledge the clear difference of opinion among the courts of appeal regarding the Department’s authorities.” The Department, thus, should defend its authority and the fiduciary conflict of interest rules by appealing the Fifth Circuit’s decision to the Supreme Court.

Specific inquiries attempt to gauge DOL’s next steps
In addition to demanding that the DOL defend its authority on the conflict of interest rules by seeking review from the Supreme Court of the “one outlying court decision” against the rules, the Senators request the DOL responses to the following pointed questions.

  1. Since the Fifth Circuit’s ruling what has the Department done to inform savers of their lack of protections from conflicted retirement advice, now that the Department is no longer enforcing the conflict of interest rule?
  2. Does the Labor Department plan to defend its authority to protect retirement savers, as courts outside the Fifth Circuit have affirmed, and appeal the 5th Circuit’s decision to the U.S. Supreme Court? If not, why not?
  3. If the Labor Department does not appeal the decision, or it is not overturned on appeal, what will the Department do in the future to protect retirement savers from conflicted advice?

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