Indexed Annuities Star in 5th Circuit DOL Fiduciary Rule Opinion

By trying to regulate indexed annuities through the fiduciary rule and fiduciary rule implementation guidelines, "DOL is occupying the Dodd-Frank turf," Jones writes.

"DOL has made no secret of its intent to transform the trillion-dollar market for [individual retirement account] investments, annuities and insurance products, and to regulate in a new way the thousands of people and organizations working in that market," Jones writes. "And, although lacking direct regulatory authority over IRA 'fiduciaries,' DOL impermissibly bootstrapped what should have been safe harbor criteria into 'backdoor regulation.'"

The Dissent

Stewart writes in the dissent that the Employee Retirement Income Security Act of 1974 gives  the DOL authority to regulate financial service providers in the retirement investment industry.

When developing the DOL fiduciary rule and implementation guidelines, DOL officials "comprehensively assessed existing securities regulation for variable annuities, state insurance regulation of all annuities, and consulted with numerous government and industry officials, including the [U.S. Securities and Exchange Commission], the Department of the Treasury, and the Consumer Financial Protection Bureau, among others," Stewart writes. "The DOL found the protections prior to the current rulemaking insufficient to protect investors and acted within its prerogative to modify the regulatory regime as it deemed necessary."

Industry Players

The list of "plaintiff appellants" in the case includes many life and annuity organizations, including the Insured Retirement Institute; the American Council of Life Insurers; the National Association of Insurance and Financial Advisors (NAIFA); a number of local and state NAIFA chapters; the Indexed Annuity Leadership Council;  Life Insurance Company of the Southwest; American Equity Investment Life Insurance Company; Midland National Life Insurance Company; and North American Company for Life and Health Insurance.

Industry Reactions

Chip Anderson, executive director of the National Association for Fixed Annuities, put out an alert to tell NAFA members about the ruling.

"As you know, NAFA has worked tirelessly on defeating this rule since it was first proposed in draft form back in April 2015, and we are grateful for the unwavering support of NAFA members in carrying this fight," Anderson writes. "Today we should celebrate, but we know that there are many challenges and threats facing our industry, and we will need to continue to work together to protect fixed annuities, the market that supports our products, and the consumers that we ultimately serve."

Lingering Clouds

One cloud is that there could still be a tiny possibility that some party might figure out a strategy for getting the U.S. Supreme Court to review the case.

Another cloud is that the rule died partly because the Trump administration refused to defend it. A lack of bipartisan consensus on indexed annuity sales standards could lead to wild swings in policy whenever control of the White House and Congress passes from one party to another.

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