Compliance October 20, 2023

DOL Fiduciary Proposal Expected by End of October

The proposal is expected to redefine fiduciary in the context of retirement investment advice.

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The Office of Management and Budget held its final meetings on the Department of Labor’s new fiduciary rule proposal, and a full proposal is likely to be released by the end of October, retirement industry sources speaking on background confirmed this week.

The OMB is currently considering a draft proposal submitted by the DOL which the budget office must first approve before it is sent out for comment.

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According to attendees of meetings with OMB, officials in that department appear to be leaning strongly in favor of releasing the rule soon. This could be partially motivated by fear of a government shutdown come November 17, when the current continuing resolution authorizing funding for the federal government is set to expire, a risk aggravated by the vacant Speaker seat in the House of Representatives.

The “retirement security” proposal, as the DOL refers to the rule, aims to address compensation structures and potential conflicts among retirement advisers. It would likely broaden ERISA obligations to include advisers offering advice on rollovers to individual retirement accounts from defined contribution plans, according to statements made by the DOL.

Industry sources say the proposal is expected to be “comprehensive” in scope and could regulate revenue-sharing agreements and conflicts related to affiliate transactions. The challenge for the DOL would be to make a proposal consistent with previous litigation, which has said that IRA rollovers are one-time transactions and therefore cannot trigger ERISA fiduciary status.

Industry advocates have said that Regulation Best Interest, enforced by the Securities and Exchange Commission, is adequate to address potential conflicts with regards to IRA rollovers. However, the DOL likely wants to expand ERISA’s application to more advisers, since ERISA is stricter than Reg BI as it relates to conflicts: Whereas Reg BI permits conflicts to exist as long as they are mitigated and disclosed, ERISA fiduciaries need a prohibited-transaction exemption to address a conflict.

 

 

Compliance October 20, 2023

Bipartisan Support Shown for Federal IRA in Re-Introduced Bill

Members of Congress from both parties have been pushing for a federal auto-IRA program through the Retirement Savings for American Act.

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Members of both parties and both legislative chambers re-introduced the Retirement Savings for Americans Act on Thursday. The legislation would create an automatic individual retirement account program for low- and middle-income workers, similar to programs already operating in many states.

The 2023 version of the bill is similar to the 2022 version. The contribution limits are the same as regular IRAs, and the contributions are post-tax. The program would be administered by the Department of the Treasury and would feature a 1% automatic match and up to a 4% tax credit match that would be phased out with income.

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The program would also automatically enroll participants at 3% of their income, with an option to opt out or increase their contributions. The bill specifies that the program must have a government security fund, a fixed-income fund, a common stock fund, a small-cap stock index fund and an international stock index fund.

The bill is sponsored by Senators Thom Tillis, R-North Carolina, and John Hickenlooper, D-Colorado, in the Senate, and Representatives Lloyd Smucker, R-Pennsylvania, and Terri Sewell, D-Alabama, in the House. The bill received supporting statements from DoorDash and Uber, whose gig workers would stand to benefit from a federal IRA program.

“With more Americans choosing new ways to work than ever before, we’re proud to support this bipartisan effort to enable more workers in the modern economy to access the kinds of benefits that have long been out of reach for all but full-time employees,” Max Rettig, vice president of public policy at DoorDash, said in a statement with the bill.

Private industry asset managers and brokerages have also been seeking ways to get workers without workplace retirement plans to invest in long-term savings vehicles. On Thursday, BlackRock Inc. announced a target-date exchange-traded fund to serve as a long-term, relatively low-cost savings option that will adjust to an investor’s risk tolerance as they get closer to retirement. In late 2022, online brokerage Robinhood announced an IRA with an automatic 1% match up to $6,000.

When the Retirement Savings for America Act was last introduced in December 2022, industry actors candidly described it as a threat to the private retirement industry and retirement advising. Brian Graff, executive director and CEO of the National Association of Plan Advisors, told attendees of a NAPA conference in April that they should donate to the American Retirement Association’s political action committee to help defeat the bill because the resulting federal program would compete with private plans for the remaining market. It could potentially cause some employers to terminate their plans and let employees take advantage of the federal program’s 5% match.

At the same conference, Graff noted that, “what you should be worried about is that there is actually bipartisan support for the idea of a federally run retirement savings plan.”

The ARA is an advocacy group for the private retirement industry.

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