Thrivent Financial Fires Latest Salvo at Fiduciary Rule
October 12, 2016 by Melanie Waddell
Thrivent Financial for Lutherans became the sixth plaintiff to sue the U.S. Labor Department over its fiduciary rule in a complaint that challenges the class action waiver requirement under the rule’s best interest contract exemption.
Thrivent’s case, filed in U.S. District Court for the District of Minnesota, takes issue with the Labor Department’s adoption of the best-interest contract exemption to the extent it requires Thrivent to abandon its commitment to alternative dispute resolution. The insurer also contends DOL’s rule would require its sales reps to become fiduciaries.
The exemption, according to the Labor Department, “ensures retirement investors receive advice that is in their best interest while also allowing advisers to continue receiving commission-based compensation.”
Thrivent’s complaint states the exemption would 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.”
The case comes as the investment industry awaits a ruling in Washington federal district court on a request to enjoin the fiduciary rule. A judge there heard arguments in August in a case brought by the National Association for Fixed Annuities.
Thrivent argues that it differs from other commercial stock and mutual life insurance companies in that it’s a membership-owned and member-governed fraternal benefit society. The insurer says that for more than 15 years its articles of incorporation and bylaws “required that disputes with members related to insurance products be resolved through a one-on-one alternative dispute resolution process.”
To avail itself of the best interest contract exemption, however, Thrivent “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,” the complaint states.
Thrivent argues that no provision exists within the Employee Retirement Income Security Act that indicates Congress’ intent to create a class action remedy that must be pursued in court.
Under DOL’s rule, Thrivent’s sales reps, who regularly offer proprietary investment products for IRAs and rollovers from ERISA plans, would be redefined as fiduciaries under ERISA and the tax code, the complaint states.
“Thrivent’s longstanding practice of paying these representatives on a commission basis would—for the first time—be treated as a ‘prohibited transaction’ under ERISA,” according to the complaint.
Thrivent argued if it were to continue to engage in such 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.”
Thrivent is represented in the case by a team from Greene Espel in Minnesota and by Cozen O’Connor lawyers in Washington.
Micah Hauptman, financial services counsel at the Consumer Federation of America, said Thrivent’s complaint “is another case in which an industry participant is grasping at straws to evade accountability for its advice.”
“If Thrivent or any other industry participant wants to take advantage of the [best interest contract exemption] so they can receive what would otherwise be prohibited compensation, they can’t include provisions that restrict their customers’ rights to band together when harmed,” Hauptman said. “This is not the same as if the DOL prohibited such restrictions outright.”
Several other fiduciary rule lawsuits are pending in Texas and Kansas courts. A judge in Topeka, Kansas, heard arguments last month in a case brought by Market Synergy but has not ruled.
Next up will be Nov. 17 oral arguments from both the DOL and lawyers representing nine plaintiffs in the three lawsuits filed in Texas against DOL’s rule. The rule is set to take effect in April.
“The courts have been made aware that this [fiduciary rule] is a real world kind of [regulation], and if we’re going to comply… we have to get going,” Allison Wielobob, counsel with Sutherland Asbill & Brennan, said on a recent ThinkAdvisor webcast about the regulations.
Wielobob said that despite the pending litigation “the responsible business decision [is to] not slow down efforts to comply with the rule.”
This story was first published at ALM affiliate ThinkAdvisor.
