Full opinion text
MEMORANDUM OPINION AND ORDER BARBARA M. G. LYNN, CHIEF JUDGE Before the Court are the parties’ Cross-Motions for Summary Judgment (ECF Nos. 48, 51, 54, 67). On November 17, 2016, the Court held oral argument on the Motions. For the reasons stated below, Plaintiffs’ Motions for Summary Judgment are DENIED and Defendants’ Motion for Summary Judgment is GRANTED. I. Introduction Plaintiffs U.S. Chamber of Commerce (“COC”), the Indexed Annuity Leadership Council (“IALC”) and the American Council of Life Insurers (“ACLI”) (collectively, “Plaintiffs”) bring this lawsuit to challenge three rules published by the Department of Labor (“DOL”) on April 8, 2016, which were to become effective on April 10, 2017. Shortly after the final rules were published, COC filed this action. On June 21, 2016, the Court consolidated that case with cases -filed by IALC and ACLI. On July 18, 2016, the Plaintiffs filed their Motions for Summary Judgment, asking the Court to vacate the new rules in their entirety. Prior to the new rules, a financial professional who did not give advice to a consumer on a regular basis was not a “fiduciary,” and therefore was not subject to fiduciary standards under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “Code”). Unless fiduciaries qualify for an exemption, they are prohibited by ERISA and the Code from receiving commissions, which are considered to present a conflict of interest. Prior to the new rules, fiduciaries could qualify for an exemption known as the Prohibited Transaction Exemption 84-24 (“PTE 84-24”), which, if they qualified, allowed them to receive commissions on all annuity sales as long as the sale was as favorable to the consumer as an arms-length transaction and the adviser received no more than reasonable compensation. The new rules modify the regulation of conflicts of interest in the market for retirement investment advice, and consist of: 1) a new definition of “fiduciary” under ERISA and the Code; 2) an amendment to, and partial revocation of, PTE 84-24; and 3) the creation of the Best Interest Contract Exemption (“BICE”). The first rule revises the definition of “fiduciary” under ERISA and the Code, and eliminates the condition that investment advice must be provided “on a regular basis” to trigger fiduciary duties. The second rule amends PTE 84-24, which provides ex-emptive relief to fiduciaries who receive third party compensation for transactions involving an ERISA plan or individual retirement account (“IRA”). The DOL excluded those selling fixed indexed annuities (“FIAs”) as eligible for exemptions under amended PTE 84-24. The third rule, BICE, creates a new exemption for FIAs and variable annuities, and allows fiduciaries to receive commissions on the sale of such annuities only if they adhere to certain conditions, including signing a written contract with the consumer that contains enumerated provisions. Plaintiffs complain that financial professionals are improperly being treated as fiduciaries and should not be required to comply with heightened fiduciary standards for one-time transactions. Plaintiffs also complain that the conditions to qualify for an exemption under BICE are so burdensome that financial professionals will be unable to advise the IRA market and sell most annuities to ERISA plans and IRAs. They challenge the new rules and rulemaking procedure, and ask the Court to vacate them in their entirety. II. Definitional Issues A. Annuities Annuities are insurance contracts where the purchaser invests money and receives payments at set intervals or over the lifetime of the individual. They are generally used as retirement vehicles. Annuity payments may be immediate or deferred. Deferred annuities have two phases: in the first phase, they accumulate value through premium payments and interest; in the second phase, they pay out based on an application of a predetermined formula. The three most common types of deferred annuities are fixed rate annuities, variable annuities, and FIAs (fixed indexed annuities). Fixed rate annuities guarantee the purchaser will earn a minimum rate of interest during the accumulation phase. Insurance companies bear the market risk on fixed rate annuities because the annuity is guaranteed to earn at least the declared interest rate for the time period specified in the contract. When the purchaser begins to receive payments, income payments are either based on the original guaranteed rate or the insurer’s current rate, whichever is higher. Fixed rate annuities are subject to state insurance regulations and are not regulated by federal securities laws. Fixed rate annuities are usually sold by banks and insurance agents. Variable'annuities do not guarantee future income. Instead, returns on such annuities depend on the success of the underlying investment strategy. Premiums are invested, and the consumer bears the investment risk for both principal and interest. There is opportunity for greater return, but it comes with a higher risk. Variable annuities are regulated under federal securities laws and are usually sold by broker-dealers. FIAs share features of fixed rate and variable annuities. FIAs earn interest based on a market index, such as the Dow Jones Industrial Average, or the S&P 500. Depending on the performance of the market index chosen by the consumer, returns on FIAs can be higher or- lower than the guaranteed rate of a fixed rate annuity. At the same time, the rate of return cannot be less than zero, even if the index is negative for the relevant time period. Principal, therefore, is shielded from poor market performance. FIAs give the purchaser more risk but more potential return than fixed rate annuities, but less risk and less potential return than variable annuities. FIAs are not regulated under federal securities laws and are usually sold by insurance agents. They, like fixed rate annuities, are regulated by state insurance regulators. B. Investment Advisers and the Distribution Model for Sale of FIAs Three groups of professionals generally provide investment advice to retirees: registered investment advisers, broker-dealers, and insurance agents. Registered investment advisers must register with the Securities and Exchange Commission (“SEC”). Broker-dealers are not required to register with the SEC as investment advisers if their advice is “solely incidental” to the conduct of their business and they receive no “special compensation” for advisory services. Broker-dealers are generally subject to a suitability standard, which requires they have a reasonable basis to believe that a recommended transaction or investment strategy involving securities is suitable for the consumer based on the consumer’s investment profile. Financial professionals generally charge for their services in one of two ways. In a transaction-based compensation model, the professional receives a commission, markup, or sales load on a per transaction basis. In a fee-based compensation model, the investor pays based on either the amount of assets in the account, or pays a flat, hourly, or annual fee. FIAs are most often sold by independent insurance agents. Independent marketing organizations (“IMOs”) serve as intermediaries between independent agents and insurance companies, and provide product education, marketing, and distribution services to agents. C. Title I of ERISA: Employee Benefit Plans To protect employee benefit plan beneficiaries, Title I of ERISA, 29 U.S.C §§ 1021 et seq., imposes obligations on persons who engage in activities related to employee benefit plans as fiduciaries. Under Title I, a person “is a fiduciary with respect to a plan” if: i) [h]e exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, ii) [h]e renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or iii) [h]e has any discretionary authority or discretionary responsibility in the administration of such plan. Under Title I, a fiduciary must adhere to the duties of loyalty and prudence, which requires the fiduciary to: [discharge his duties with respect to a plan solely in the interest of the participants and the beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries, and defraying reasonable expenses of plan administration; and act with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Title I also protects plan beneficiaries from a broad range of transactions deemed to present a conflict of interest for fiduciaries. The prohibited transaction rule prevents a fiduciary from participating in a transaction if he or she: [k]nows or should know that such transaction constitutes a direct or indirect sale or exchange, or leasing, of any property between the plan and a party in interest; lending of money or other extension of credit between the plan and a party in interest; furnishing of goods, services, or facilities between the plan and a party in interest; transfer to, or use by or for the benefit of a party in interest, of any assets of the plan. Congress delegated authority to the DOL to grant conditional or unconditional exemptions from the prohibited transaction rule, so long as such an exemption is 1) administratively feasible; 2) in the interests of the plan, its participants and beneficiaries; and 3) protective of the rights of the plan participants and beneficiaries. The DOL, fiduciaries, plan participants and beneficiaries may bring civil actions under Title I to enforce the fiduciary duty and prohibited transactions provisions. Title I of ERISA fully preempts state law. D. Title II of ERISA: IRAs Title II of ERISA establishes rules for the tax treatment of IRAs and other plans not subject to Title I. Unlike Title I, Title II applies to IRAs and other plans that are not created or maintained by either the plan beneficiary’s employer or union. In Title II, Congress amended the Code to make the definition of fiduciary under Title II identical to the definition under Title I. Title II also has a prohibited transaction rule that prevents the same transactions involving conflicts of interest as does Title I. Title II, however, does not expressly impose the duties of loyalty and prudence on fiduciaries. Congress delegated the same authority to the DOL under Title II to grant conditional or unconditional exemptions from prohibited transactions, with the same three limitations described above. Title II subjects violators of the Code’s prohibited transaction rule to excise taxes. However, Title II does not create a private right of action, nor does it fully preempt state law with respect to causes of action relating to IRAs. E. 1975 Definition of “Fiduciary” Under the second prong of ERISA’s fiduciary definition, a person is a fiduciary if “he renders investment advice for a fee or other compensation, direct or indirect.” In 1975, the DOL issued a regulation establishing a five-part test for determining when a person “renders investment advice.” If the following elements were present, the regulation would have the effect of rendering that person a fiduciary:. 1) [The person] [r]enders advice as to the value of securities or other property, or makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property, 2) On a regular basis, 8) Pursuant to a mutual agreement, arrangement or understanding, with the plan or a plan fiduciary, 4) The advice will serve as a primary basis for investment decisions with respect to plan assets, and 5) The advice will be individualized • based on the particular needs of the plan. Until the DOL’s recent rulemaking, the five-part test had governed the applicability of the prohibited transaction rules under Title I and Title II. Because of the second element of the test, sporadic or one-time advice would not constitute advice on a regular basis that would activate ERISA’s prohibited transaction rule, which only applies to fiduciaries. F. Prohibited Transaction Exemption 84-24 (PTE 84-24) The DOL originally adopted PTE 84-24 in 1977 as PTE 77-9, providing ex-emptive relief for parties who “receive[d] commissions when plans and IRAs purchased recommended insurance and annuity contracts.” The exemption applied to “[t]he receipt, directly or indirectly, by an insurance agent or broker or a pension consultant of a sales commission from an insurance company in connection with the purchase, with plan assets[,] of an insurance or annuity contract.” Relief under PTE 84-24 was conditional, requiring that any otherwise prohibited transaction was “on terms at least as favorable to the plan as an arm’s-length transaction with an unrelated party,” and that “[t]he combined total of all fees, commissions and other consideration received by the insurance agent or broker, pension consultant, insurance company, or investment company principal underwriter ... is not in excess of ‘reasonable compensation’ ” under ERISA and the Code. PTE 84-24 made exemptive relief available for the sale of fixed and variable annuities. Prior to the recent rulemaking, therefore, insurance companies could compensate employees and independent agents by commissions on the sale of any annuity product to ERISA plans and IRAs, so long as the related investment advice was not provided on a regular basis, or the transaction was as favorable as an arm’s-length transaction and for a reasonable fee. G. Recent Rulemaking a. Proposed Rule In 2010, the DOL published a notice proposing to revise the 1975 regulation’s five part-test for determining when a person “renders investment advice.” In 2011, the DOL withdrew that proposal. On April 20, 2015, the DOL issued a new proposal, which modified both the 1975 regulation and the prohibited transaction exemptions. It is that proposal which is being challenged here. 1.The DOL Proposed Replacing the Five-Part Test The DOL stated in the 2015 notice that the five part-test had been created “prior to the existence of participant-directed 401(k) plans, widespread investments in IRAs, and the now commonplace rollover of plan assets from fiduciary-protected plans to IRAs,” and that these rollovers “will total more than $2 trillion over the next 5 years.” Because the rollover of plan assets to an IRA is a one-time action, it did not satisfy the regular basis element of the five part test, and thus was not subject to the prohibited transaction rule, despite the fact that, as the DOL put it, rollover investments are often “the most important financial decisions that many consumers make in their lifetime.” The 2015 notice also stated that since 1975, “the variety and complexity of financial products has increased,” and that retirees “are increasingly moving money from ERISA-covered plans, where their employer has both the incentive and the fiduciary duty to facilitate sound investment choices, to IRAs where both good and bad investment choices are myriad and advice that is conflicted is commonplace.” With these marketplace changes in mind, the DOL proposed replacing the five-part test with a new approach that would cover “a wider array of advice relationships than the existing ERISA and Code regulations.” 2.Proposed Changes to PTE 84-24 The DOL also proposed significant modifications to PTE 84-24. The proposal “revoke[d] [PTE 84-24] relief for insurance agents, insurance brokers and pension consultants to receive a commission in connection with the purchase by IRAs of variable annuity contracts and other annuity contracts that are securities under federal securities laws.” The proposal required variable annuity sellers to use a new exemption, BICE, as the basis for being permitted to receive third-party compensation. The initial proposal did not contemplate revoking relief under PTE 84-24 for fixed rate annuities and FIAs. 3.BICE Proposal Finally, the DOL proposed BICE, a new exemption from prohibited transactions for fiduciaries who do not qualify for PTE 84-24. BICE would exempt “investment advice fiduciaries, including broker-dealers and insurance agents,” from prohibited transactions, including receipt of commissions and other third party compensation otherwise prohibited by ERISA and the Code. However, BICE proposed stricter conditions to securing an exemption from the prohibited transactions than did PTE 84-24. To qualify for BICE, financial institutions and advisers would have to enter into a written contract with the retirement investor, agreeing to: 1) acknowledge their fiduciary status, 2) commit to complying with standards of impartial conduct and to act in the customer’s “best interest,” 3) receive no more than “reasonable compensation,” 4) adopt policies and procedures reasonably designed to minimize the effect of conflicts of interest, and 5) disclose basic information about conflicts of interest and the cost of their advice. b. Final Rules The DOL provided a ninety-day comment period on the three proposed rules, during which it held a four-day public hearing in August 2015, and received over three thousand comment letters. On April 8, 2016, the DOL published its final rules. 1. Fiduciary Rule By this rule (“Fiduciary Rule”), the DOL replaced the five-part test with a new approach to the analysis of when one “renders investment advice,” and in turn redefined who is a fiduciary under ERISA. The DOL concluded that significant developments since 1975 in the retirement savings and investment market warranted removing the “regular basis” limitation in the definition of “fiduciary.” The DOL also concluded that the 1975 regulation had “narrowed the scope of the statutory definition of fiduciary investment advice,” and that the Fiduciary Rule “better comports with the statutory language in ERISA and the Code.” Under the Fiduciary Rule, a person “render[s] investment advice,” if: (1) Such person provides to a plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner the following types of advice for a fee or other compensation, direct or indirect: (i) A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property, or a recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA; (ii) A recommendation as to the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements (e.g., brokerage versus advisory); or recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made; and (2) With respect to the investment advice described in paragraph (a)(1) of this section, the recommendation is made either directly or indirectly (e.g., through or together with any affiliate) by a person who: (i) Represents or acknowledges that it is acting as a fiduciary within the meaning of the Act or the Code; (ii) Renders the advice pursuant to a written or verbal agreement, arrangement, or understanding that the advice is based on the particular investment needs of the advice recipient; or (iii) Directs the advice to a specific advice recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the plan or IRA. The Fiduciary Rule defines “recommendation” as “a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.” Under the Fiduciary Rule, a person suggesting a consumer buy a particular annuity to hold in an IRA would assumedly “render investment advice.” 2. PTE 84-24 The DOL’s final revised PTE 84-24 eliminated the 2010 proposal’s exemption for FIAs. Therefore, fiduciaries who provide investment advice for fixed rate annuities can obtain exemptions under PTE 84-24, but those selling FIAs and variable annuities cannot use PTE 84-24 to exempt their receipt of third-party compensation, including commissions. Instead, under the final rules, BICE, described below, is their only option for obtaining exemptive relief from the prohibited transaction rules under ERISA and the Code. To qualify for PTE 84-24, fiduciaries must sign a written contract with the customer, which requires adherence to “Impartial Conduct Standards.” 3. BICE To qualify for BICE, a Financial Institution, must: 1) Acknowledge fiduciary status with respect to investment advice to the Retirement Investor; 2) Adhere to Impartial Conduct Standards requiring them to: • Give advice that is in the Retirement Investor’s Best Interest (i.e., prudent advice that is based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, without regard to financial or other interests of the Adviser, Financial Institution, or their Affiliates, Related Entities or other parties); • Charge no more than reasonable compensation; and • Make no misleading statements about investment transactions, compensation, and conflicts of interest; 3) Implement policies and procedures reasonably and prudently designed to prevent violations of the Impartial Conduct Standards; 4) Refrain from giving or using incentives for Advisers to act contrary to the customer’s best interest; and 5) Fairly disclose the fees, compensation, and Material Conflicts of Interest associated with their recommendations. If a Financial Institution provides investment advice to IRAs or other plans not covered by Title I, it must enter into a written contract with the consumer that includes all but the fourth provision listed above. Exemptive relief under BICE is not available if the written contract includes: 1) “provisions disclaiming or otherwise limiting liability of the Adviser or Financial Institution for a violation of the contract’s terms,” 2) a provision that “waives or qualifies [the] right to bring or participate in a class action or other representative action,” or 3) a liquidated damages provision. The contract may, however, include provisions that reasonably agree to arbitrate individual claims, knowingly waive punitive damages, and waive the right to rescission of recommended transactions. Such provisions are permitted “to the extent such a waiver is permissible under applicable state or federal law.” III. Analysis Plaintiffs’ challenge is based on several grounds. First, Plaintiffs argue the Fiduciary Rule exceeds the DOL’s statutory authority under ERISA. Second, Plaintiffs argue BICE exceeds the DOL’s exemptive authority, because it requires fiduciaries who advise Title II plans, such as IRAs, to be bound by duties of loyalty and prudence, although that is not expressly provided for in the statute. Third, Plaintiffs argue the written contract requirements in BICE and PTE 84-24 impermissibly create a private right of action. Fourth, Plaintiffs argue the rulemaking process violates the Administrative Procedure Act (“APA”) for several reasons, including that the notice and comment period was inadequate, the DOL was arbitrary and capricious when it moved exemptive relief provisions for FIAs from PTE 84-24 to BICE, the DOL failed to account for existing annuity regulations, BICE is unworkable, and the DOL’s cost-benefit analysis was arbitrary and capricious. Fifth, Plaintiffs argue BICE does not meet statutory requirements for granting exemptions from the prohibited transaction rules. Sixth, ACLI argues the new rules violate the First Amendment, as applied to the truthful commercial speech of their members. Last, Plaintiffs argue the contractual provisions required by BICE violate the Federal Arbitration Act (“FAA”). The Court addresses each argument in turn. A. The Fiduciary Rule Does Not Exceed the DOL’s Authority Courts analyze an agency’s interpretation of a statute using the two-step approach set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). At step one, courts assess “whether the intent of Congress is clear,” and if “Congress has directly spoken to the precise question at issue.” Id. at 842-43, 104 S.Ct. 2778. If it has, “that is the end of the matter,” and courts “must give effect to the unambiguously expressed intent of Congress.” Id. If it has not, courts move to step two, and must defer to the agency’s interpretation of ambiguous statutory language if it is based on a “permissible construction of the statute.” Id. Plaintiffs challenge the Fiduciary Rule under both steps of Chevron. a. The Fiduciary Rule is Not Unambiguously Foreclosed by ERISA A person is a “fiduciary” under ERISA if “he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan.” Under the Fiduciary Rule, a person “renders investment advice” if he or she makes a “recommendation as to the advisability of acquiring ... investment property” that is provided “based on the particular investment needs of the advice recipient.” A “recommendation” includes “eommunieation[s] that ... would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.” The plain language of ERISA does not foreclose the DOL’s interpretation. ERISA does not expressly define “investment advice,” and expressly authorizes the DOL to “prescribe such regulations as [it] finds necessary or appropriate to carry out the provisions of [ERISA],” and to “define [the] accounting, technical and trade terms used in [ERISA].” Further, there is no “serious dispute that someone who provides a recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property is providing investment advice.” Nat’l Ass’n for Fixed Annuities v. Perez, CV 16-1035, 217 F.Supp.3d 1, 23, 2016 WL 6573480, at *15 (D.D.C. Nov. 4, 2016) (citations and internal quotation marks omitted). Aside from the plain language of ERISA, Plaintiffs cite six other reasons why the Fiduciary Rule fails at Chevron step one. 1. The Common Law of Trusts Plaintiffs argue Congress confined the definition of “fiduciary” under ERISA to relationships where special intimacy or trust and confidence exists between parties, in accordance with the common law of trusts. Plaintiffs contend that because everyday business interactions are not relationships of trust and confidence, a person acting as a broker or an insurance agent engaged in sales activity is not a fiduciary. This argument is not supported by the plain language of ERISA. Although fiduciary duties under ERISA “draw much of their content from the common law of trusts,” “trust law does not tell the entire story ... [and] will offer only a starting point.” Varity Corp. v. Howe, 516 U.S. 489, 496-97, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996); see also Pegram v. Herdrich, 530 U.S. 211, 225, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (“[t]he analogy between ERISA fiduciary and common law trustee becomes problematic”). When Congress enacted ERISA, it made a “determination that the common law of trusts did not offer completely satisfactory protection.” Varity Corp., 516 U.S. at 497, 116 S.Ct. 1065. In defining “fiduciary,” Congress made “an express statutory departure” from the common law of trusts. Mertens v. Hewitt Assocs., 508 U.S. 248, 264, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). In particular, ERISA does not define “fiduciary” “in terms of formal trusteeship, but in functional terms of control and authority over the plan ... thus expanding the universe of persons subject to fiduciary duties.” Id. at 262, 113 S.Ct. 2063. In its reply brief, COC claims that the express statutory departure referenced by the Supreme Court in Mertens applies only to “those expressly named as trustees.” This reading narrows the interpretation of the statutory text so that “renders investment advice” would only refer to plan managers, administrators, and others in comparable roles. The Supreme Court’s holding in Mertens, however, interpreted ERISA to define fiduciaries as “not only the persons named as fiduciaries by a benefit plan ... but also anyone else who exercises discretionary control or authority over the plan’s management, administration, or assets.” Mertens, 508 U.S. at 262, 113 S.Ct. 2063 (emphasis added). Further, even if the interpretation of “renders investment advice” were limited to the common law of trusts, Plaintiffs do not convince the Court that the Fiduciary Rule varies from the common law of trusts. 2. The Investment Advisers Act (“IAA”) The IAA defines the term “investment adviser,” and in doing so, specifically excludes “any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no compensation therefor.” Plaintiffs assert this distinction must be maintained by the DOL because in drafting ERISA, Congress closely tracked the IAA’s definition of an investment adviser. In defining a “fiduciary,” ERISA does not exempt investment advice that is “solely incidental to the conduct of [the] business.” It defines a fiduciary as anyone who “renders investment advice for a fee or other compensation, direct or indirect.” Congress did use the IAA as a source for ERISA, but only in certain express contexts, such as when ERISA addressed a plan trustee’s authority. In defining a fiduciary, however, ERISA did not refer to the IAA. The Supreme Court has held, “[w]here words differ ... Congress acts intentionally and purposely in the disparate inclusion or exclusion.” Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 63, 126 S.Ct. 2405, 165 L.Ed.2d 345 (2006). In enacting ERISA, Congress was obviously fully aware of the IAA, but did not limit the definition of fiduciary in ERISA to that in the IAA. ERISA does not unambiguously foreclose the DOL’s new interpretation, and the IAA cannot derivatively do so. 3. The Fiduciary Rule Regulates Those Rendering Advice for a Fee A person is a fiduciary under ERISA if he: (i) exercises any authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets or (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Plaintiffs argue the Fiduciary Rule exceeds the coverage of ERISA because it imposes fiduciary status on those who earn a commission merely for selling a product, regardless of whether advice is given. Actually, the Fiduciary Rule plainly does not make one a fiduciary for selling a product without a recommendation. The rule states: [I]n the absence of a recommendation, nothing in the final rule would make a person an investment advice fiduciary merely by reason of selling a security or investment property to an interested buyer. For example, if a retirement investor asked a broker to purchase a mutual fund share or other security, the broker would not become a fiduciary investment adviser merely because the broker purchased the mutual fund share for the investor or executed the securities transaction. Such ‘purchase and sales’ transactions do not include any investment advice component. Because Plaintiffs’ contention is directly contradicted by the plain language of the Fiduciary Rule, the Court rejects it. Plaintiffs also argue that financial professionals who receive sales commissions are not rendering investment advice for a fee. However, Plaintiffs’ interpretation truncates the statute and does not address the next clause, “or other compensation, direct or indirect.” The word “indirect” contradicts the notion that compensation must be paid principally for investment advice, as opposed to advice rendered in the course of a broader sales transaction. Plaintiffs’ interpretation is also at odds with market realities and their own description of the role insurance agents and brokers play in annuity sales. ACLI notes that insurance agents and broker-dealers help consumers assess whether an annuity is a good choice and which types of annuities and optional features suit consumers’ financial circumstances. Such advice requires significant and detailed analysis, often more than is required to sell other financial products, and therefore “insurers typically pay a sales commission to compensate agents and broker-dealers for the significant effort involved in learning about, marketing, and selling annuities.” This fits comfortably within the description of someone who renders investment advice for indirect compensation, thus imposing fiduciary duties under ERISA. Further, in its own prior regulations, the DOL has interpreted the second prong of ERISA’s fiduciary definition to include- commissions for advice incidental to sales transactions, and courts have held the same. 4. ERISA Does Not Require Covered Advice to Be Given on a Regular Basis Plaintiffs argue the first and third prongs of ERISA’s definition of fiduciary require a “meaningful, substantial, and ongoing relationship to the plan,” and that advice must be “provided on a regular basis and through an established relationship,” as had been required by the five-part test. Nothing in ERISA suggests “investment advice” was intended only to apply to advice provided on a regular basis, and the plain language of the first and third prongs do not indicate that an ongoing relationship is required. To the contrary, all three prongs are broad and written disjunctively; a person is a fiduciary if he satisfies any of the three prongs. Plaintiffs also claim that the first and third prongs of ERISA’s definition of a fiduciary involve a direct connection to the essentials of plan operation and that management and administration of a plan are central functions; as a result, they argue the second prong must be read consistently with the other two subsections, and a meaningful and substantial role of the fiduciary, that is ongoing, is required. It is true that the first prong addresses management and the third prong addresses administration, but that does not lead to the conclusion advocated by Plaintiffs. The second prong does not require a “meaningful, substantial, and ongoing relationship” with the recipient of the investment advice, nor must such advice be given on a regular basis for the adviser to qualify as a fiduciary. That is not required by the statute, and Plaintiffs’ attempt to read that into the language of the second prong is unpersuasive. 5. The Dodd-Frank Act Does Not Foreclose the DOL’s Interpretation Plaintiffs argue that because § 913(g) of the Dodd-Frank Act prohibits the SEC from adopting a standard of conduct that disallows commissions for broker-dealers, it is implausible that Congress intended to allow the DOL, through ERISA, to promulgate a regulation that would do just that. The enactment of § 913(g) in Dodd-Frank does not address what Congress intended when it enacted ERISA. Further, the DOL’s final rules do not prohibit commissions for broker-dealers. They only provide for modifications to exemptions from prohibited transactions, and if a person or entity qualifies for an exemption, that would allow the applicant to receive commissions and other forms of third party compensation. 6. Congress Has Not Ratified the Five-Part Test Plaintiffs argue that because Congress has repeatedly amended ERISA since 1975, without ever amending the five-part test, that test has de facto been incorporated into ERISA by way of ratification. Generally, congressional inaction “deserves little weight in the interpretive process ... [and] lacks persuasive significance because several equally tenable inferences may be drawn from such inaction.” Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 187, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). At the same time, if Congress “frequently amended or reenacted the relevant provisions without change ... [Congress] at least understood the interpretation as statutorily permissible.” Barnhart v. Walton, 535 U.S. 212, 220, 122 S.Ct. 1265, 152 L.Ed.2d 330 (2002). There is a stark difference between Congress acquiescing to a permissible interpretation and Congress affirmatively deciding that an interpretation is the only permissible one. If Plaintiffs’ argument were correct, the DOL could never revisit the five-part test because it has been, in effect, enshrined into the statute. To the contrary, courts have “consistently required express congressional approval of an administrative interpretation if it is to be viewed as statutorily mandated.” AFL-CIO v. Brock, 835 F.2d 912, 915 (D.C. Cir. 1987) (citing cases). Congress has not taken any express action or otherwise indicated that the five-part test is the only possible way to determine who is a fiduciary under ERISA. Plaintiffs concede that the DOL’s interpretive, authority under ERISA and the Code includes the definition of fiduciary. The DOL has defined what it means to render investment advice since 1975, and decided its new interpretation is more suitable given the text and purpose of ERISA, along with new marketplace realities. Congress has neither ratified the five-part test nor has it excluded other interpretations not precluded by the statute. b. The Fiduciary Rule Is a Permissible Interpretation Under Chevron Step Two Because the Fiduciary Rule is not unambiguously foreclosed by the plain language of ERISA, the Court’s analysis moves to Chevron step two. Chevron, 467 U.S. at 843, 104 S.Ct. 2778. Plaintiffs advance four arguments that allegedly render the final rules unreasonable under Chevron step two. 1. The DOL Reasonably Removed the Regular Basis Requirement Plaintiffs argue the DOL’s interpretation of what it means to render investment advice is entitled to no deference, because ERISA requires regular contact between an investor and a financial professional to trigger a fiduciary duty. If anything, however, the five-part test is the more difficult interpretation to reconcile with who is a fiduciary under ERISA. The broad and disjunctive language of ERISA’s three prong fiduciary definition suggests that significant one-time transactions, such as rollovers, would be subject to a fiduciary duty. Under the five-part test, however, such a transaction would not trigger a fiduciary duty. This outcome is seemingly at odds with the statute’s text and its broad remedial purpose, especially given today’s market realities and the proliferation of participant-directed 401(k) plans, investments in IRAs, and rollovers of plan assets to IRAs. An interpretation covering such transactions better comports with the text, history, and purposes of ERISA. 2. The DOL May Regulate Issues of Deep Economic and Political Significance Plaintiffs argue the coverage of the Fiduciary Rule will be vast, involving billions of dollars, presenting issues “of deep economic and political significance,” and that, therefore, the DOL is not entitled to Chevron deference under King v. Burwell, — U.S. —, 135 S.Ct. 2480, 2489, 192 L.Ed.2d 483 (2015). In Burwell, the parties disputed whether the IRS was authorized to interpret the Affordable Care Act to allow tax credits for individuals who enroll in an insurance plan through a Federal Exchange. The Supreme Court found that Chevron analysis was altogether inappropriate, because Chevron is “premised on the theory that a statute’s ambiguity constitutes an implicit delegation from Congress to the agency to fill in the statutory gaps ... however, there may be reason to hesitate before concluding that Congress has intended such an implicit design.” Id. at 2488-89 (citations omitted). The hesitation expressed by the Court in Burwell was that the interpretation by the IRS presented a [qjuestion of deep economic and political significance that is central to this statutory scheme; had Congress wished to assign that question to [the IRS], it surely would have done so expressly. It is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort. This is not a case for the IRS. Id. at 2489. The Court decided Chevron was not applicable in the first instance, not that the IRS’ interpretation was entitled to no deference at Chevron step two. Here, in contrast, the DOL may “prescribe such regulations as [it] finds necessary or appropriate to carry out the provisions of [ERISA],” and to “define [the] accounting, technical and trade terms used in [ERISA].” The Affordable Care Act did not expressly delegate interpretive authority to the IRS. Here, however, ERISA clearly envisioned the DOL would exercise interpretive authority, and specifically empowered the DOL to define terms, pass necessary rules and regulations, and to create exemptions. Unlike in Burwell, where the IRS “had no expertise in crafting health insurance policy,” for almost forty years the DOL has defined what it means to render investment advice, regulated investment advice to IRAs and employee benefit plans, and granted conditional exemptions from conflicted transactions. Although Burwell was not a case for the IRS, interpreting what it means to render investment advice under ERISA is certainly a question for the DOL. Therefore, the Supreme Court’s reasoning in Burwell does not invalidate the Fiduciary Rule. 3. The DOL’s Rules Reflect Congressional Intent Plaintiffs argue the Fiduciary Rule contradicts congressional intent because it in effect rejects the “disclosure regime established by Congress under the securities laws.” However, ERISA was enacted on the premise that the then-existing disclosure requirements did not adequately protect retirement investors, and that more stringent standards of conduct were necessary. Although ERISA includes disclosure requirements, it also imposes “standards of conduct, responsibility, and obligation[s]” for fiduciaries. The DOL’s new rules comport with Congress’ expressed intent in enacting ERISA. As a result of as the rulemaking process, the DOL rejected a disclosure-only regime, finding that disclosure was ineffective to mitigate the problems ERISA sought to remedy. 4. The DOL Justified Its New Interpretation Plaintiffs argue the DOL did not justify changing the regulatory treatment of those giving incidental advice in connection with sales of annuities. The DOL may change existing policy “as long as [it] provide[s] a reasoned explanation for the change ... and show[s] there are good reasons for the new policy.” Encino Motorcars, LLC v. Navarro, — U.S. —, 136 S.Ct. 2117, 2125-26, 195 L.Ed.2d 382 (2016). Here, the DOL concluded that the five-part test significantly narrowed the breadth of the statutory definition of a fiduciary under ERISA, allowing advisers “to play a central role in shaping plan and IRA investments, without ensuring the accountability that Congress intended for persons having such influence and responsibility.” In reversing that approach, the DOL found the Fiduciary Rule more closely reflected the scope of ERISA’s text and purposes. This reasoning, and the rest of what the DOL produced in the administrative record, satisfy the Encino Motorcars’ requirement that the agency explain the change. For the reasons stated above, the Fiduciary Rule is a reasonable interpretation under ERISA and is entitled to Chevron deference. B. DOL Did Not Exceed Its Statutory Authority to Grant Conditional Exemptions Plaintiffs next challenge the DOL requirement that fiduciaries who advise Title II plans, such as IRAs, agree to be bound by duties of loyalty and prudence as conditions to qualify for BICE. Although fiduciaries under Title I of ERISA are expressly subject to duties of loyalty and prudence, fiduciaries under Title II are not. The prohibited transaction rules, in contrast, apply to both employee benefit plans under Title I and to IRAs under Title II. In the modified PTE 84-24 and BICE, the DOL granted exemptions from otherwise prohibited transactions, but conditioned the exemptions by requiring fiduciaries to “act with the care, skill, prudence, and diligence [of] a prudent person acting in a like capacity ... without regard to the financial or other interests of the Adviser, Financial Institution ... or other party.” These conditions mirror the duties of loyalty and prudence under Title I and thus add new duties to advisers of IRAs and other Title II plans. Plaintiffs argue the DOL exceeded its statutory authority when it extended fiduciary duties expressed only in Title I to advisers of Title II plans through the regulatory scheme. The Court analyzes this argument under Chevron’s two-step approach. a. The Exemptions Are Not Unambiguously Foreclosed by ERISA or the Code Nothing in ERISA or the Code unambiguously prevents the DOL from conditioning exemptive relief under Title II on the fiduciary’s adherence to the duties of loyalty and prudence. The DOL does not impose the duties of loyalty and prudence on fiduciaries covered by Title II; it only provides an exemption from prohibited transactions. In other words, the DOL simply specifies conditions to qualify for exemptions when fiduciaries engage in transactions that are otherwise prohibited by ERISA and the Code. Plaintiffs assert that because Congress explicitly chose not to include the duties of loyalty and prudence in Title II, the DOL may not sweep Title I duties into Title II via exemption. According to Plaintiffs, congressional intent is clear and the DOL’s interpretation of its exemptive authority is unambiguously foreclosed. Congress, however, expressly granted the DOL broad authority to adopt “conditional or unconditional exemption[s]” from prohibited transactions under Title II, so long as any exemption is 1) administratively feasible; 2) in the interests of the plan, its participants and beneficiaries; and 3) is protective of the rights of the plan participants and beneficiaries. Plaintiffs advance four reasons why the DOL’s use of its exemptive authority fails at Chevron step one. 1. The DOL May Require Compliance with Title II Duties Congress’ decision to impose duties of loyalty and prudence to plans under Title I, but not under Title II, does not answer the question of whether Congress intended to foreclose the DOL from requiring that fiduciaries under Title II comply with the duties of loyalty and prudence as a condition for exemptive relief. Congressional silence does not overcome the DOL’s express statutory authority to grant exemptive relief. If Plaintiffs’ reasoning were correct, the DOL “would be barred from imposing any condition on a [TJitle II exemption that relies on a duty or obligation that Congress imposed categorically on Title I plans.” Nat’l Ass’n for Fixed Annuities, 217 F.Supp.3d at 34, 2016 WL 6573480, at *23. That outcome would be contrary to the plain language of ERISA and the Code. Plaintiffs advocate for a limitation that would prevent the DOL from granting exemptions even if the DOL satisfied Congress’ three requisite findings, essentially imposing a non-textual fourth limitation on the DOL’s express authority to grant conditional or unconditional exemptions. Title II does not contain such a limitation. No rule of statutory interpretation supports the conclusion that Congress clearly intended to bar the DOL from imposing a Title I duty as a condition for granting exemptive relief under Title II. 2. BICE Is Not Unduly Burdensome, Nor Is It a Mandate Plaintiffs make two claims as to why BICE fails at Chevron step one; first, that the DOL’s exemptive authority is limited to reducing regulatory burdens, and second, that financial professionals have no choice but to comply with BICE, making it a mandate that exceeds the DOL’s authority, rather than an exemption. Any exemption the DOL grants from the prohibited transaction rules reduces the industry’s regulatory burden. Without PTE 84-24, BICE, or some other exemption, the plain language of ERISA and the Code would apply, and fiduciaries would be barred from engaging in prohibited transactions altogether. In fact, the DOL is not required to grant any exemptions under ERISA or the Code. Although BICE imposes different obligations than did previous exemptions, it does not follow that the new exemptions exceed the DOL’s authority. Plaintiffs further argue the DOL has not imposed conditions for exemptions, but instead has created a regulatory mandate where financial professionals have no choice but to meet the requirements of BICE. In particular, Plaintiffs contend that because certain accounts cannot be serviced using a fee-based compensation model and 95% of accounts under $25,000 rely on transaction-based models, in order to serve those customers, financial professionals must rely on BICE. The DOL has not required Plaintiffs or its members to take a particular action; instead, the DOL has established conditions for qualifying for BICE. Plaintiffs’ interpretation would contravene ERISA by usurping the DOL’s authority to grant conditional exemptive relief. Plaintiffs and their members acting as fiduciaries under the new definition may adjust their compensation models, while others may decide BICE is their best option. Although the industry may have less ideal options than before the current rulemaking, the industry has been given viable choices. The industry’s choices for compensation models do not impact whether the DOL unambiguously exceeded its exemptive authority. Plaintiffs do not point to any portion of the statute or its legislative history showing Congress considered the particulars of financial professionals’ compensation practices when it enacted ERISA. Therefore, a change in their current compensation structure does not affect the meaning of a statute Congress enacted in 1974. b. BICE Does Not Exceed the DOL’s Authority Under Chevron Step Two Because the DOL’s use of its ex-emptive authority in BICE is not unambiguously foreclosed by the statute, the Court moves to an analysis of BICE under Chevron step two. The exemption created by the DOL is entitled to deference unless it is arbitrary and capricious. Am. Trucking Assocs. v. ICC, 656 F.2d 1115, 1127 (5th Cir. 1981). When a statute expressly delegates “the authority to grant [an] exemption and [the agency] is required to make certain other determinations in order to do so ... [t]hat grant and those determinations have legislative effect, and are thus entitled to great deference under the ‘arbitrary and capricious’ standard.” AFL-CIO v. Donovan, 757 F.2d 330, 343 (D.C. Cir. 1985). Plaintiffs argue that for two reasons BICE is arbitrary and capricious under Chevron step two. 1. Congress Has Delegated Exemptive Authority to the DOL Plaintiffs cite several cases to support their argument that the DOL’s use of ex-emptive authority is arbitrary and capricious because: when an agency claims to discover in a long-extant statute an unheralded power to regulate a significant portion of the American Economy, [the Supreme Court] greet[s] its announcement with a measure of skepticism [and] ... expects] Congress to speak clearly if it wishes to assign an agency decisions of vast economic and political significance. Util. Air Grp. v. EPA, — U.S. —, 134 S.Ct. 2427, 2444, 189 L.Ed.2d 372 (2014) (citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 159, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000)); see also Whitman v. Am. Trucking Ass’n., 531 U.S. 457, 468, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001); MCI Telecomm. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 231, 114 S.Ct. 2223, 129 L.Ed.2d 182 (1994). This case is a far cry from the line of precedent on which Plaintiffs rely. See Verizon v. FCC, 740 F.3d 623, 638 (D.C. Cir. 2014). In Brown & Williamson, the FDA departed from statements it had repeatedly made to Congress since 1914 that it did not have jurisdiction over the tobacco industry. The FDA changed its position, despite the fact that Congress had created a distinct regulatory scheme over the tobacco industry and expressly rejected proposals to give the FDA such jurisdiction. 529 U.S. at 159-60, 120 S.Ct. 1291. Here, in contrast, the DOL has exercised its ex-emptive authority by granting conditional exemptions from otherwise prohibited transactions since at least 1977, including regulating investment advice that is rendered to IRAs. In Whitman, the Supreme Court held Congress “does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions — it does not, one might say, hide elephants in mouse-holes.” 531 U.S. at 468, 121 S.Ct. 903. However, Congress expressly created a regulatory scheme through which the DOL has explicit and broad authority to regulate IRAs and employee benefit plans by granting conditional or unconditional exemptions from otherwise prohibited transactions. The retirement investment market may be an “elephant,” but it is in plain sight, and the exemptive authority of 26 U.S.C. § 4975(c)(2) and 29 U.S.C. § 1108(a) is “no mousehole.” Verizon, 740 F.3d at 638. Instead, Congress put a lock on prohibited transactions, and gave the DOL the key. In Utility Air, the Supreme Court held that “it would be patently unreasonable— not to say outrageous — for EPA to insist on seizing expansive power that it admits the statute is not designed to grant,” and found that a “long-extant statute [did not give EPA] an unheralded power to regulate a significant portion of the American Economy.” 134 S.Ct. at 2444. Contrary to the EPA in Utility Air, the DOL has long and continuously exercised the authority to regulate the retirement investment market under ERISA. The DOL has granted conditional exemptions under ERISA and the Code for almost half a century. Nor does the DOL’s interpretation “bring about an enormous and transformative expansion in [its] authority without clear congressional authorization.” Id. The new rules are compatible with the substance of Congress’ regulatory scheme, as the broad remedial purpose of ERISA is to protect retirement investors and benefit plans. In contrast to the situations in the cases cited by Plaintiffs, in ERISA Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted. The circumstances of Utility Air, Brown & Williamson, MCI, Whitman, and King v. Burwell cannot reasonably be compared to the DOL’s decisions to move FIAs from PTE 84-24 to BICE and to condition the availability of BICE on a contract requiring exercise of the duties of loyalty and prudence. Congress gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions. Although BICE may cover more advisers and institutions and its conditions may be more onerous than past exemptions, it does not follow that the DOL’s rules are within the orbit of the cases Plaintiffs cite, nor that the DOL’s use of exemptive authority is unreasonable. Nat'l Ass’n for Fixed Annuities, 217 F.Supp.3d at 23-24, 2016 WL 6573480, at *15. Plaintiffs also argue that if BICE is not arbitrary and capricious, the DOL would have “virtually unfettered authority to create substantive obligations.” The DOL’s exemptive authority, however, is limited by at least three factors. First, any exemption must be “administratively feasible, in the interest of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan.” Second, the Agency is bound by the APA and Chevron, and the DOL’s actions are assessed by courts on a rule by rule basis. Just because BICE is reasonable does not mean that any exemption the DOL could fathom would necessarily be reasonable. And third, the DOL must comply with the procedures for obtaining exemptions, as the DOL has previously established. 2. The Conditions and Consequences of BICE Are Reasonable Plaintiffs claim the conditions to qualify for BICE, as well as BICE’s consequences, are arbitrary and capricious, thus running afoul of Chevron. In particular, Plaintiffs note that certain accounts cannot be serviced using a fee-based compensation model, and that IRA advisers who are paid on a commission basis thus must seek exemptive relief. If such relief is extended via BICE, they will be subject to Title I fiduciary duties, while those duties will not extend to those paid an asset management fee. Plaintiffs assert this outcome is unreasonable. However, the DOL reasonably found that institutions and advisers that are paid on a commission basis may very well make investment recommendations that benefit themselves, at the expense of plan participants and beneficiaries. Advisers who are paid in asset-based fee arrangements are not faced with such a conflict of interest. Because small differences in investment performance will accumulate over time, those differences can have a profound impact on an investor’s retirement income; as the DOL noted, an “investor who rolls her retirement savings into an IRA could lose 6 to 12 and possibly as much as 23 percent of the value of her savings over 30 years of retirement by accepting advice from a conflicted financial adviser.” Therefore, BICE’s affect on compensation models is not arbitrary or capricious. To the contrary, it is reasonable for the DOL to incentivize certain compensation models over others to protect plan participants and beneficiaries. The DOL outlined several ways the industry could innovate and adapt to BICE. In particular, the DOL noted there is ample room for innovation and market adaption on the way advisers are compensated ... as consumers gain awareness that advice was never ‘free,’ demand is likely to grow not only for asset-based fee arrangements, but also for hourly or flat fee arrangements ... Advisory firms may compensate advisers less by commission and more by salary or via rewards tied to customer acquisition or satisfaction. Here, the input of amicus Financial Planning Coalition (“FPC”) is pertinent. Although FPC heard the same concerns regarding compensation when it implemented similar standards to BICE in 2008, commission-based compensation has survived, and FPC’s financial professionals continue “to serve middle-income investors using all types of [] compensation models and other innovative methods.” The Court also finds that the conditions to qualify for BICE are reasonable. FPC notes that its almost 80,000 members have since 2008 successfully operated under a regime similar to that in BICE, including a fiduciary standard, a written contract, disclosure of certain fees, costs, and conflicts of interest, prudency standards, and policies to mitigate conflicts. At oral argument, the DOL represented that Mass Mutual and Lincoln National, which sell variable annuities, “fully intend to use” BICE, and that broker-dealers such as Morgan Stanley, Ameriprise