BIC Litigation Provisions Trigger Another DOL Suit

By Nevin Adams • October 03, 2016 • 0 Comments
A new lawsuit has been filed challenging the Department of Labor’s (DOL) fiduciary regulation’s interference with existing arbitration structures.

The suit, Thrivent Financial for Lutherans v. Perez, D. Minn., No. 0:16-cv-03289, complaint filed 9/29/16, filed by Thrivent Financial for Lutherans in the U.S. District Court for the District of Minnesota, says that the requirements of the Best Interest Contract Exemption (the BIC) would, “by its terms and in its effect, require Thrivent either to cease conducting certain business that is beneficial to its Members or to abandon its longstanding commitment to resolving Member disputes amicably and through private, one-on-one mediation and arbitration.”

Specifically, the complaint notes that Thrivent has for decades marketed and sold a broad range of products to its members in connection with their IRAs, and with distributions from 401(k) or other ERISA retirement plans — transactions that, prior to the new regulation “…have never been regulated by DOL,” but rather by the SEC, FINRA, and — for insurance products (such as fixed annuities) by state insurance regulators.

Thrivent says that were it to continue engaging in those transactions, it would be subject to steep and serious penalties under federal law. “As a result, without an exemption, the New Rule would almost completely eliminate Thrivent’s ability to offer financial products to its Members in connection with their retirement planning through IRAs.” However, in order to take advantage of the BIC, Thrivent says it would be “…forced to agree contractually with its customers that they could pursue a breach of contract action against Thrivent and that they could participate in judicial class actions against Thrivent.” This result runs afoul of the fraternal relationship between Thrivent and its members by potentially setting in motion “adversarial litigation that could threaten to undermine the organization’s core mission,” and the organization’s “longstanding commitment” to resolving member disputes through alternative dispute resolution methods.

The complaint notes that because Thrivent employs captive agents who sell proprietary products on a commission basis, and because Thrivent receives differential compensation, Thrivent “cannot continue to do business and offer the full suite of products currently offered to its Members without relief — through the BIC Exemption — from the New Rule,” and that for reasons cited in the complaint “…and because the BIC Exemption is otherwise contrary to law, Thrivent seeks an order from this Court declaring unlawful, vacating, and enjoining implementation of the BIC Exemption’s requirement that best interest contracts include a provision permitting judicial class actions to resolve claims.”

Thrivent alleged that there is no provision in ERISA that indicates Congress’ intent to create a class action remedy that must be exclusively pursued in courts, and alternatively, where it has addressed the issue, it has said that the Federal Arbitration Act means that private arbitration agreements must be honored. Thus, in crafting the BIC exemption’s requirements, Thrivent alleges that the DOL exceeded its authority under the Administrative Procedure Act.

This is the sixth lawsuit to challenge the DOL’s fiduciary rule. The others have been filed by:

  • The Indexed Annuity Leadership Council (IALC), an association of insurance companies that offer fixed indexed annuities, along with several providers of these insurance products, in the U.S. District Court for the Northern District of Texas;

  • The Chamber of Commerce of the United States of America, the Financial Services Institute, Inc., the Financial Services Roundtable, the Insured Retirement Institute, and the Securities Industry and Financial Markets Association, among others, also filed in the U.S. District Court for the Northern District of Texas; and

  • The National Association for Fixed Annuities, filed in the U.S. District Court for the District of Columbia.