What was once a promising panacea of pause and repeal options each turned as cold as the wintry weather that greeted 2017. And the election of a regulation rival did little to stall the Department of Labor rule momentum.
So what happened? A combination of bad timing, bad luck and unfriendly court decisions.
But Trump remains at the start of a four-year term, and that means hope is not completely extinguished. Let’s review the three primary options to sink the fiduciary rule that we discussed immediately following the election.
 Delay and Retool
This is emerging as the prime route for the Trump administration to correct what the industry sees as “unworkable” about the rule. A delay requested by the DOL filed in mid-February is the first step.
Trump ordered the secretary of labor to examine the fiduciary rule and begin a process of rescinding or revising it only if the DOL finds that the rule has any of three effects:
Has harmed or is likely to harm investors due to a reduction of access to certain retirement savings products, accounts or information.
Has “resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees.”
“Is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”
Once public notice and comment periods end, the DOL is expected to enforce a six-month delay of the rule applicability date. As it stands, the rule is slated to begin taking effect April 10.
“Presumably, OMB is going to be urged on by the White House to not tarry,” said Bruce Ashton, a lawyer with Drinker Biddle & Reath. “I would expect by mid-March, or maybe late March, there would be this amendment in effect that extends the applicability.”
As written, the fiduciary rule requirements for disclosures, contracts and record keeping will be enforced on Jan. 1, 2018. A delay changes everything.
Most importantly, it gives the DOL the necessary time to amend the rule. While it isn’t the ideal scenario opponents were hoping for, circumstances have changed what is realistically attainable, Ashton said.
“My reading of the tea leaves is that we’re likely to see an amendment of the regulation and the exemptions, as opposed to revocation, because so many entities are down the road to compliance,” he explained.
“My suspicion is we’ll see a regulation in place but perhaps substantially modified with some additional exceptions and perhaps a cutback of what actually constitutes investment advice.”
Simply put, this strategy has not worked. In fact, the bevy of federal lawsuits may have hurt more than helped opponents.
To recap, the National Association for Fixed Annuities sued the DOL in a Washington, D.C., court and lost. NAFA lost again on appeal.
Market Synergy Group, an insurance marketing organization, filed suit in a Kansas court and lost. The company is appealing.
Several trade associations sued in a Northern District of Texas court, and those suits were consolidated. A Dallas judge upheld the DOL rule in a decision last month.
“I suspect it effectively ends the court route,” Ashton said of the Feb. 8 Dallas decision.
The problem for opponents is the lawsuits argue many of the same claims based on the same court precedents. So, multiple judges have ruled, for example, that the DOL did not act in an “arbitrary and capricious” manner in promulgating the rule, and that the agency does have the authority to further regulate advisors under ERISA statutes.
That creates a legal problem going forward, said Erin Sweeney, a Washington, D.C., lawyer with Miller & Chevalier.
“There are two district court decisions on summary judgment concluding that the new regulation is more consistent with the statute than the previous regulation,” concluded Sweeney, who previously served as senior benefit law specialist for the Office of Regulations and Interpretations at the U.S. Department of Labor.
“In addition, Judge Lynn's opinion squarely addresses two of the three items that the White House directed the DOL to reconsider, and she concludes that the DOL upheld its burden,” Sweeney added.
The two items are whether the rule would limit retirees’ access to retirement savings products and whether the rule would create unreasonable costs for consumers.
Since the DOL rule has few fans among the majority party in Congress, legislation crippling or killing the regulation remains in play.
But it might not be feasible for several reasons. First, the rule is a high priority for vocal Senate Democrats such as Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt. They could filibuster any attempt to undo the regulation.
Second, many big firms have sunk millions into complying with the DOL rule and are not likely to be interested in killing it, Ashton said. Third, full-scale political opposition just looks bad at this point in the game.
“There will be a push, if not in favor of retaining the regulation, at least not a huge outcry,” he added. “Optically, it’s just not a very good message to the base.”
The controversy surrounding Trump’s choice for labor secretary further complicated action by anti-regulatory forces.
As of magazine deadline, Andrew Puzder had yet to be confirmed. Opposition coalesced around his record as CEO of CKE Restaurants, which includes the Carl’s Jr. and Hardees chains, and revelations Puzder employed an undocumented immigrant for several years.
Without a secretary in place, the agency lacks undersecretaries, including an appointee to lead the Employee Benefit Security Administration. The EBSA has direct oversight of ERISA law and the fiduciary rule.
Puzder is on record as anti-regulation. Industry analysts expect the DOL philosophy to dramatically change on several regulatory fronts, including the controversial overtime rules advanced under the Obama administration.
A Texas judge issued a preliminary injunction halting the overtime rules in December. The Justice Department appealed that ruling, but the Trump administration is likely to abandon that effort.
Describing the overtime rule as “another barrier to the middle class rather than a springboard,” Puzder predicted that the rule would “cause some employers to reclassify salaried employees as hourly.”
If so, this reclassification “would limit the ability of entry-level managers to allocate their time to satisfy the needs of the business and their personal lives.”
The Obama administration claimed the current overtime rules were hopelessly out of date, and the new rules would have extended OT pay to about 4 million additional workers.