Another Challenge to the DOL Fiduciary Rule

Congressional representatives seek to protect retirement investors and stall DOL fiduciary rule.

In the wake of approval of a House bill opposing the fiduciary proposal of the Department of Labor (DOL), four Republican and Democratic lawmakers outlined a series of seven legislative principles they believe must govern retirement advice and retirement advisers.  

The congressional effort is the latest shot against the DOL’s measure, and the stated bipartisan concern is that the rule will make it difficult for low- and middle-income families to access financial advice so they can adequately plan for retirement. “We are concerned that the Department of Labor’s current fiduciary proposal may have unintended negative consequences that could harm individuals and families saving for retirement,” the House members—Peter Roskam (R-Illinois), Richard Neal (D-Massachusetts), Phil Roe (R-Tennessee), and Michelle Lujan Grisham (D-New Mexico)—said in a release.

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At the same time, the legislators said in their statement that individuals seeking investment advice must have strong protections. The four are working together to introduce a bipartisan legislative solution that reflects several investor-friendly principles, such as the requirement that retirement advisers work in the best interests of the investor, and the need for clear, plain-English disclosure of conflicts of interest in compensation or fees.

Another principle states that investor choice and consumer access to all investment services, such as proprietary products, commission-based sales and guaranteed lifetime income, should be preserved in a way that does not pick winners and losers.

The legislators cited the need for the retirement savings industry to make immediate changes upon the rule’s release. In the event the final rule has flaws, they said, there is a strong likelihood those changes could limit access to services and education for those saving for retirement.

The Financial Services Institute (FSI), which has previously registered its general dislike of the fiduciary rule, issued a response to the bipartisan effort. “We have said all along the DOL needs to get this rule done right, not done fast,” said David Bellaire, FSI’s executive vice president and general counsel.

Without specifying any details of the bipartisan legislative solution to come, the legislators said it would ensure that all Americans have access to financial advice for retirement planning, protect individuals from conflicted advice and require advisers to act in the best interests of retirement investors.

SIFMA Speaks Out Against State-Run Plans

The group suggests other efforts to address the retirement savings crisis in America.

The Securities Industry and Financial Markets Association (SIFMA) says it is committed to increasing retirement plan coverage for Americans; however, the creation of a state-run retirement plan for private-sector employees is not the most effective way to do so.

The group says the private sector already offers a variety of retirement savings options, including fairly priced 401(k) plans, 403(b) plans, 401(a) plans, 457(b) plans, SIMPLE IRAs, SEP IRAs, and traditional IRAs.

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In a position statement, SIFMA outlined problems it sees with the creation of state-run plans. First, it would burden already fiscally strained states with additional costs and liability to operate the programs, which are already available in the private market.

Second, a state-run retirement plan would create conflicts between federal laws governing retirement plans and laws enacted by individual states. Different states would likely have different rules governing operation, accumulation and distributions, which SIFMA believes could result in confusion among employers and employees. SIFMA also has concerns that employees who save in a state plan will not have the same rights and protections that are provided under the federal regime.

NEXT: What is the answer?

Finally, SIFMA says, state-run retirement plans would have a number of implications under the Employee Retirement Income Security Act (ERSIA) and the Internal Revenue Code. Currently there is no direct guidance from the Department of Labor (DOL) or the courts about how a state-run plan would operate under ERISA. In the case of a state plan created for private-sector employees, ERISA would apply. In order for a plan to be a “governmental plan” exempt from ERISA, it must be established or maintained by a government entity for its employees. A plan for non-governmental employees would not qualify.

Earlier this year, President Obama tasked the DOL with providing guidance for states to set up plans for private-sector workers. The guidance is expected by the end of the year.

A survey of workers not covered by an employer-sponsored retirement plan, conducted for the state of California, found the majority of workers surveyed say such a program would be good for them, but a significant number still would not save or save enough.

To address the savings challenge, SIFMA believes financial literacy and general investment education need to become part of the American education curriculum. The association says there needs to be complementary general outreach by states, the federal government, employers and retirement plan providers to educate the American public about their savings, including on issues such as compounding interest, finding appropriate investments, monitoring investment portfolios and making changes to portfolios when appropriate.

More information from SIFMA is here.

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