The Labor Department's proposal to delay the full implementation of the fiduciary rule to July 2019 will likely meet a legal challenge from consumer advocate groups, according to several sources.
"If they finalize the delay as it is proposed, Labor should expect a legal challenge," said Micah Hauptman, an attorney with the Consumer Federation of America, which filed a comment letter opposing the delay of the scheduled Jan. 1, 2018, implementation of the rule.
The proposed delay, released in August, was opened to a 15-day period of public comment, which closed Sept. 15.
At issue is the whether the Labor Department has adequately justified the necessity of a delay, which executive agencies are required to do under the Administrative Procedure Act.
Opponents of the delay have also claimed that Labor's proposal doesn't accurately cite its statutory authority to postpone implementation of the fiduciary rule.
At the core of consumer advocates' position is whether Labor is actually proposing a stay of the rule under the guise of a simple delay of the rule.
"This is clearly not a proposed delay; it's a proposed stay," wrote the Consumer Federation in its comment letter.
Attorneys with New York University's Institute for Policy Integrity, a nonpartisan think tank, also characterize the proposed delay as a stay of the rule, and argue that Labor does not have the statutory authority to issue a stay.
"Where is Labor's authority to do this? They haven't said," said Bethany Davis Noll, litigation director at the Institute.
Davis Noll says administrative law is clear: Agencies must describe their statutory authority at all levels of rulemaking and back it up with fact.
"We've surveyed the landscape and I don't see where they have the authority to do this," said Davis Noll. "If Labor thinks it has the authority, then tell us — but they haven't. It's not OK to hide the ball."
In its proposed delay, Labor cites a provision of the Employee Retirement Income Security Act that gives the agency authority to grant administrative exemptions.
But that authority does not allow Labor to issue a stay of the rules, says Davis Noll.
In the comment letter she co-authored, Davis Noll argues that Labor describes the proposal as an "extension" and a "delay" of the fiduciary rule, and does not say that it is issuing an exemption.
Moreover, the substance of the proposal amounts to a stay of the rule, because it would remove its enforcement authority for 18 months. "That proposed action can only be described as an administrative stay," according to language in the Institute for Policy Integrity comment letter.
Labor Accused of Pulling a Fast One
A provision of the Administrative Procedure Act gives agencies the authority to stay regulations.
But that authority is limited: It does not allow agencies to stay rules that are already effective. The fiduciary rule became effective in June 2016.
Labor does not cite that section of the APA in its proposal. Davis Noll said it is rumored that regulators were considering doing so, but they opted to base its proposal on ERISA's exemption provision, for fear of being sued.
"Labor knew this was going to be an issue," said Davis Noll. In her analysis, Labor is betting that it will have better legal grounds to repeal the rule if it is not implemented.
