By Tom Hales
WILMINGTON, Del. (Reuters) – A U.S. judge has blocked enforcement of a Labor Department rule that would have expanded the types of retirement advisers considered trustees, finding the rule arbitrary and in conflict with the law governing retirement plans.
The rule was unveiled in April as the “Retirement Security Rule,” and has been challenged by insurance groups who claim it conflicts with ERISA, or the Employee Retirement Income Security Act.
Judge Jeremy Kernodle in Tyler, Texas, said in a ruling Thursday that the Americans for Consumer Choice and other insurance groups are likely to prevail in their arguments. Kernodle blocked the rule from being applied nationwide on Sept. 23 while the case is pending.
Insurance groups had alleged that the rule improperly treats those who make one-time recommendations to retirees, such as transferring investments from an ERISA plan to an individual retirement account or IRA, as trustees.
The Labor Department said in a statement that the rule ensures that retirement savings advice is in the best interests of the client, not the financial professional. “The Department continues to believe that this rule is necessary to ensure that retirement investors are protected,” the Labor Department said in a statement.
The rule was intended to close a loophole in the fiduciary standard that did not apply to recommendations to buy non-core securities such as fixed-index annuities, which are typically sold by insurance companies, according to the White House.
Investments in such pensions are attractive to risk-averse investors and have grown rapidly, but they also come with higher costs. The White House has estimated that the fiduciary rule could save retirees $5 billion a year on such investments.
Business groups use the courts to curtail regulatory power, and won a major Supreme Court victory in June in a case known as Looper Bright, which ruled that judges should not be subject to an agency’s interpretation of an ambiguous law.
Kernodle said that as a result of the Luber-Bright case, he does not owe deference to the Department of Labor’s interpretation of ERISA.
The Labor Department tried to expand the credit rule in 2016, under Democratic President Barack Obama. That effort was blocked by the 5th U.S. Circuit Court of Appeals in 2018, and Kernodle said the latest version of the credit rule fails for many of the same reasons.