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New legal challenge seeks to block provision of DOL fiduciary rule

ThriventFinancial for Lutherans is the latest insurance industryparticipant to file a federal lawsuit in the aftermath of the U.S. Departmentof Labor's April issuance of its final fiduciary rule.

But rather than challenge the rule's validity in itsentirety in a manner akin to the legal actions initiated in recent months byindustry trade groups, the fraternal benefit society more narrowly tailored itscomplaint to contest a provision of the Best Interest Contract, or BIC,exemption that imposes limitations on arbitration.

The exemption as outlined by the Labor Department isintended to ensure that retirement investors receive advice that is in theirbest interest, while also allowing advisers to continue receivingcommission-based compensation. It includes language that allows for individualclaims to be resolved through binding arbitration, but mandates that class orother representative claims be allowed to proceed in court.

"The BIC exemption would, by its terms and in itseffect, require Thrivent either to cease conducting certain business that isbeneficial to its members or to abandon its longstanding commitment toresolving member disputes amicably and through private, one-on-one mediationand arbitration," Thrivent alleged in the suit, which it filed Sept. 29 inthe U.S. District Court for the District of Minnesota.

Thrivent said its Member DisputeResolution Program, or MDRP, which requires binding arbitration, isincorporated into all of its fraternal insurance contracts and applies to allclaims, actions, disputes and/or grievances of any kind.

"The MDRP reflects Thrivent's Christian belief systemand strives to preserve members' fraternal relationship," the fraternalbenefit society said. The process includes three steps: an appeal to a panel ofmanagement-level Thrivent employees, mediation, and binding arbitration.Thrivent covers all administrative forum-related costs of mediation andarbitration, and it seeks to select an arbitral forum that is both financiallyand geographically accessible to its members.

"Experience has shown that the MDRP not only provides afair and efficient process for dispute resolution, but is also in the bestinterest of members," Thrivent said in the suit. "The MDRP enhancesThrivent's ability to resolve member disputes quickly and amicably."

Thrivent said it will have no choice but to utilize the BICexemption if it desires to continue selling fixed indexed annuities inconnection with transactions like IRA rollovers. To the extent that iteliminates or changes the MDRP requirement from the contracts that areaddressed by the rule, Thrivent said that would eliminate its chosen method ofdispute resolution and "underminethe vital fraternal interest in uniformity among members and the 'indivisibleunity' of the membership of Thrivent as a fraternal benefit society."

Further, the society argued that the "time and expenseof class action litigation would convert the fairness, promptness andefficiency that are the hallmarks of the MDRP into an expensive, lengthy andadversarial process."

Thrivent claimed that the Labor Department acted beyond itsstatutory jurisdiction in designing the BIC exemption to bar all waivers ofparticipation in class actions. The complaint seeks injunctive reliefprohibiting the enforcement of the limitation on arbitration and a declaratoryjudgment that the provision violates both the Federal Arbitration Act and theAdministrative Procedures Act.

In filing the complaint, Thrivent sought to differentiateits challenge to the fiduciary rule from those previously by the U.S. Chamberof Commerce, the American Council of Life Insurers, the Indexed AnnuityLeadership Council, the National Association for Fixed Annuities and variousother business groups. The complaint brought by the Indexed Annuity LeadershipCouncil includes several insurance companies as plaintiffs: member , AmericanEquity Investment Life Holding Co. unit , Midland NationalLife Insurance Co. and North American Co. for Life and Health Insurance.

Competing motions for summary judgment filed by the variousplaintiffs and the Labor Department are pending in the consolidated challengein the U.S. District Court for the Northern District of Texas, and a hearing onthose motions is scheduled for Nov. 17.

At least one of the summary judgment motions asks the courtto vacate and enjoin implementation of the BIC exemption for its allegedcreation of an enforceable private right of action and prohibition ofarbitration.

The Labor Department, in its summary judgment motion, arguedthat the BIC exemption still provides for binding arbitration and that it doesnot interfere with the primary purpose of the Federal Arbitration Act: toensure the enforcement of written arbitration agreements.

"DOL has broad discretion to craft exemptions so longas they are administratively feasible, in the interests of retirementinvestors, and protective of their rights," the department argued in anAugust filing. "Here, DOL concluded that the enforcement rights andprotections associated with class action litigation are important to ensureadherence to the impartial conduct standards and other anti-conflict provisionsof the exemptions."