Acting Labor Secretary Julie Su defended her department's work in finalizing a fiduciary rule as she spoke before members of the House Committee on Education & the Workforce during a May 1 hearing.

The Labor Department's final fiduciary rule, announced April 23, has been the subject of controversy since it was first proposed and has garnered pushback from insurance industry trade groups as well as state insurance regulators.

Throughout the rulemaking process, opponents of the retirement security regulation claimed the Labor Department does not have the authority to intercede in this area and argued that the rule is too similar to a prior version ultimately vacated by the US Court of Appeals for the 5th Circuit in March 2018.

In response to a question from Rep. Tim Walberg (R-MI) asking what makes this rule unique from prior versions, Su said this retirement security rule is "different" and addresses the reasons the last rule did not hold up in court.

"We are very confident that the rule is not only within our authority but [takes] into account existing case law," Su said.

Rep. Rick Allen (R-GA) also accused Su of rushing the comment period for the rule and not paying attention to comments, claiming her department had already come to a predetermined outcome before the comments were received.

In response, Su said for any rule that the department finalizes, it goes through comments and responds to them.

When asked by another representative if she had coordinated with the National Association of Insurance Commissioners and state insurance regulators on the rule, Su said, "I don't know for sure."

The controversy

The new rule impacts how retirement products are sold by updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act. The updated definition will be effective Sept. 23 and applies whenever compensated financial services providers give investment advice to retirement plan participants, account owners and plan officials responsible for administering plans and managing assets.

Several insurance industry trade groups — including the National Association of Insurance and Financial Advisors, the American Council of Life Insurers and Finseca — issued a joint release April 30, calling the 2024 rule "nothing more than a repackaging of its failed 2016 regulation."

Opponents of the rule also argue that the rule will limit consumer access to retirement products and oversteps the authority of state insurance regulators.

"The Department's action usurps the authority and expertise of state policymakers to oversee annuities," Insured Retirement Institute CEO Wayne Chopus said.

The National Association of Insurance Commissioners revised its Suitability in Annuity Transactions Model Regulation in February 2020 to incorporate a "best interest" standard. That standard requires all recommendations by agents and carriers to be in the best interests of the consumer and consideration of the consumers' interest must always be placed ahead of any financial interest that the agent or carrier could have in the transaction. The majority of states have adopted these updates.

After the Labor Department's rule was published, the NAIC said in a release that it has "significant concerns" about the impact of the rule as it relates to access for American retirees to certain life insurance and annuity products and said there was "virtually no coordination with state insurance regulators" as the rule was being processed.

Life insurers are also discussing the finalized rule on their first-quarter earnings calls. Principal Financial Group Inc. CEO Daniel Houston said he is "concerned" the rule will have an "unintended consequence" of stifling consumer access to financial tools and advice while also imposing immense compliance costs for firms.