Reading the Proverbial Tea Leaves? Is the Supreme Court Signaling Greater Consumer Protection for Financial Matters?

The Court’s ruling in Salinas could indicate a willingness to grant more power to retirees beyond the pensioners covered by industry specific boards, like railroad retirement boards.

Nothing says exciting like looking at a Supreme Court docket. But with a rising tide of concern over the stock market’s growing disequilibrium to the mainstream (or Main Street’s) economic concerns, and a Congress that is the human incarnation of a logjam, the Supreme Court’s recent opinions are worth a closer look.

As we mentioned in November,[1] “the only ERISA-related case that is scheduled to be heard in the October 2020 session is Rutledge v. Pharmaceutical Care Management Association, which involves Arkansas law regulating pharmacy benefits. Another potentially related case could be Salinas v. Railroad Retirement Board, which involves the Board’s denial of a request to reopen a prior benefits determination.”

In Rutledge, the court decided in an unanimous opinion that a state law concerning pharmacy benefits was not preempted by ERISA. Preemption occurs when a federal law conflicts with a state law. This is often seen in environmental or consumer protection laws where a state may have a more lax set of requirements for labeling chemical components than a federal law. In general in the US, federal law is considered “supreme” and any conflict between the two will be resolved in favor of the federal law (the federal law stands in front of the state or “preempts it” like a news bulletin preempting your TV show). While the ERISA law involved in Rutledge did not involve retirement savings, it’s worth noting that the Supreme Court’s ruling on the extent of preemption of ERISA could be read broadly to allow state laws concerning other employment benefits to similarly extend beyond ERISA. To wit, “ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”[2] Here, the US Supreme Court could have created an opportunity for states to legislate on advisor fees or costs, namely, to regulate those fees and costs downward for certain plans. This is worth discussing with legal counsel at your next review.

In Salinas, the court decided that the Railroad Retirement Board’s decision to deny disability annuity benefits to the petitioner was subject to review for an abuse of discretion but stated that the denial of a petition to reopen a case constituted the agency’s “final decision.” While the majority of the opinion may seem to concern only railroad agency law, there are some interesting elements of retirement law at stake. Specifically, as noted by the dissent, that the majority opinion conflates a statute concerning railroad retirement law with one involving railroad unemployment insurance. Such a conflagration could show an intent by the majority to find a way for folks aggrieved by an agency’s ruling to get a chance to argue to another, more friendly venue. More broadly, it could indicate a willingness by the US Supreme Court to grant more power to retirees beyond the pensioners covered by industry specific boards, like railroad retirement boards. Additionally, it could signal a willingness by the majority of the court to limit the deference given to executive agencies and similar industry boards. That limited deference could be of assistance to financial advisors who find themselves arbitrating in front of agencies like FINRA.

In AMG Capital Management, LLC v. Federal Trade Commission, another ruling in the same time frame, the Supreme Court sent a case back to the lower court to reconsider when it found that the Federal Trade Commission’s collection of $1.27 billion in fees from an alleged payday lender went beyond that executive agency’s powers. Again, this may show that the Supreme Court may be seeking to curtail some of the executive agencies’ powers concerning consumer financial crimes.  It’s worth noting that another executive agency case issued in roughly the same time frame, FCC v. Prometheus Radio Project , ruled in favor of the FCC. In that case, the agency had made rule changes to accommodate changes in the market. The impact of those rule changes did not affect consumers in the same way that AMG, Salinas or Rutledge did.

[1] For the full article, see

[2] For the full text of the opinion, see here

These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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