National Association for Fixed Annuities v. United States Department of Labor
217 F. Supp. 3d 1
| D.D.C. | 2016Background
- NAFA (trade association for fixed annuities sellers) sued the DOL under the APA and RFA challenging three April 8, 2016 final rules that redefine ERISA/Code "fiduciary" and create/modify exemptions (Final Fiduciary Definition, Final BIC Exemption, Final PTE 84-24).
- Key regulatory changes: the 1975 “on a regular basis” prong was removed from the fiduciary definition; PTE 84-24 was narrowed to cover only fixed-rate annuities; fixed indexed and variable annuities were shifted to the new BIC Exemption.
- The BIC Exemption allows commission-based compensation only if firms (1) acknowledge fiduciary status, (2) adhere to Impartial Conduct Standards (best-interest, reasonable compensation, no misleading statements), (3) adopt policies/procedures, and (4) for IRAs, enter written contracts with customers containing specified terms and limits on exculpation/class waivers.
- NAFA’s claims: DOL exceeded statutory authority in redefining "fiduciary" (Chevron); unlawfully extended ERISA duties to IRAs via exemption conditions; BIC’s contract requirement creates an unauthorized private cause of action; “reasonable compensation” condition is void for vagueness; moving fixed indexed annuities to BIC was arbitrary and capricious; DOL’s RFA analysis was inadequate.
- District Court (Moss, J.) denied NAFA’s motions and granted DOL summary judgment, resolving all challenges against NAFA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Revised fiduciary definition (dropping "on a regular basis") — Chevron | DOL exceeded authority; statute/ERISA context limits fiduciary to ongoing managers; prior 1975 five‑part test was controlling | DOL’s definition fits statutory text and ERISA purpose given market changes; rulemaking explained and justified | Court: DOL’s interpretation permissible at Chevron step 1–2; rule reasonable and well‑explained — challenge rejected |
| 2. Conditioning exemptions on ERISA duties for IRAs (loyalty/prudence) | DOL may not impose title I fiduciary duties on non‑title I plans via exemption condition; structural/legislative history forecloses it | Exemption authority under 26 U.S.C. § 4975(c)(2) permits conditional grants; duties are lawful, tailored conditions to mitigate conflicts | Court: DOL has authority to condition exemptions on these duties; not Chevron‑foreclosed; challenge rejected |
| 3. BIC written‑contract creates private federal cause of action (Sandoval) | Requiring enforceable contracts functionally creates a federal private right of action Congress didn’t authorize | Contract terms are enforceable under state law; DOL did not create a federal cause of action; similar contract conditions appear in other ERISA exemptions | Court: No Sandoval problem — DOL may condition exemption on state‑law‑enforceable contracts; challenge rejected |
| 4. "Reasonable compensation" void for vagueness (Due Process) | Term lacks meaningful guidance; exposes firms to severe tax/excise consequences without fair notice | Phrase long‑used in ERISA/Code, defined by existing regs and factors; context and longstanding usage give adequate guidance | Court: Standard is not unconstitutionally vague here; regulatory and common‑law guidance suffices — challenge rejected |
| 5. Placement of fixed indexed annuities in BIC (APA arbitrary & capricious; notice) | DOL failed to justify moving fixed indexed annuities to BIC, denied meaningful notice, ignored distribution/insurance regulation issues and costs | Final rule explains complexity/risks of indexed annuities, quantified marginal costs, solicited comments on placement, and adjusted BIC to address commenters | Court: DOL provided reasoned explanation, considered costs/alternatives, and gave adequate notice — challenge rejected |
| 6. RFA compliance | RIA and final rule failed to address small entity issues, comments, compliance burdens, and alternatives adequately | RIA and regulatory record contain detailed analysis of costs, small entities, alternatives, and steps to mitigate impacts | Court: DOL made a reasonable, good‑faith RFA effort; procedural RFA requirements satisfied — challenge rejected |
Key Cases Cited
- Chevron U.S.A., Inc. v. Natural Resources Def. Council, 467 U.S. 837 (invalidates agency interpretation only if inconsistent with statute; establishes two‑step review)
- FCC v. Fox Television Stations, 556 U.S. 502 (2009) (no heightened APA standard for reasonable agency change; adequate explanation suffices)
- Motor Vehicle Mfrs. Ass'n v. State Farm, 463 U.S. 29 (agency must articulate reasoned explanation; arbitrary and capricious standard)
- Varity Corp. v. Howe, 516 U.S. 489 (statutory fiduciary duties draw on but may depart from trust law)
- Goldstein v. SEC, 451 F.3d 873 (D.C. Cir.) (agency must show fit between market changes cited and regulatory change)
- American Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166 (D.C. Cir.) (fixed indexed annuities are hybrid products; SEC rulemaking review)
- Alexander v. Sandoval, 532 U.S. 275 (private rights of action must be created by Congress)
- U.S. Telecom Ass'n v. FCC, 825 F.3d 674 (D.C. Cir.) (vagueness and notice‑and‑comment law; logical outgrowth and fair notice doctrines)
- AFL-CIO v. Brock, 835 F.2d 912 (D.C. Cir.) (reenactment of statute does not automatically freeze preexisting agency interpretations)