In revising PTE 84-24, the Labor Department moved the regulation of fixed indexed annuities to the rule's Best Interest Contract Exemption, which was a change from the rule's proposed form, which had kept fixed indexed annuities under PTE 84-24.

In shifting fixed indexed annuities to the Best Interest Contract Exemption, "the Department acted without providing adequate notice and an opportunity for comment, reflecting arbitrary and capricious conduct in excess of its statutory authority," putting that aspect of its final rule in clear violation of the Administrative Procedural Act.

In making fixed indexed annuities subject to the exemption, which is considered to be a more extensive and onerous set of contractual requirements than PTE 84-24, the Labor Department has endangered the livelihood of "tens of thousands of hard-working individuals and thousands of small businesses," Market Synergy said in its filing.

Effect on IMOs

Independent marketing organizations, or IMOs, account for a significant portion of sales of fixed indexed annuities by providing education and marketing support to independent insurance agents.

When independent insurance agents contract with an IMO to sell fixed indexed annuities, they share commission with the IMOs, which are paid directly by the insurance company.

Incorporated in 2014, Market Synergy's network of IMOs includes more than 3,000 insurance agents and independent financial advisors, which were responsible for $15 billion of the total $54.5 billion in fixed indexed annuities sales in 2015.

Prior to the Labor Department's final rule, the sale and distribution of fixed indexed annuities and fixed annuities were subject to a suitability standard of care, and not a fiduciary standard of care, that was regulated by state insurance commissions.

In claiming Labor Department finalized its rule in breach of the Administrative Procedural Act, Market Synergy argues that the former state-executed regulatory regime more than adequately protected consumers' best interests.

In 2015, insurance regulators reported a total of 68,592 complaints across the country for all insurance products. Of those, only 52 were tied to fixed indexed annuities.

Shifting fixed indexed annuities to the Best Interest Contract Exemption was one of the few components of the final rule that was "more restrictive, prejudicial, and onerous" than the proposed rule's form, according to language in the complaint.

The Labor Department "did not produce a cost-benefit analysis of the impact its actions would have on all components of the fixed indexed annuity industry," the plaintiff adds in its complaint.

"IMOs not affiliated with a financial institution or insurance company will be disenfranchised by the new regime, which will prompt a shift in distribution to registered investment advisers, banks, and broker-dealers," according to court documents.

In 2015, about 60 percent of fixed indexed annuities were sold through independent insurance agents. For the IMO's in Market Synergy's network, sales of fixed indexed annuities represented 90 percent of revenues.