Compliance February 21, 2017

DOL Fiduciary Defenses Prevail In District Courts, But Does It Matter?

A series of recent district court decisions show strong deference for the DOL’s right to promulgate a more aggressive fiduciary standard—how relevant the decisions will remain under President Trump is still anyone’s guess. 
Reported by

Much remains uncertain about the future of the Department of Labor (DOL) fiduciary rule—crafted and adopted by former President Barack Obama’s administration but left to current POTUS Donald Trump to implement.

Will the new president, who is an outspoken critic of government regulation of financial markets, make it a priority to halt the rulemaking before the first deadlines in early April, now just weeks away? What would the impact on client relationships be if the new administration only successfully halts the rulemaking later in 2017, or if it takes them until 2018 to do it? Is it possible the rulemaking will stand even after a review by the new DOL leadership? Even experienced attorneys and industry executives admit they are perplexed as to just what could happen next.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

One fact that is increasingly clear, however, is that federal district courts across the U.S. are ready to give broad authority to the DOL in enforcing its agenda, demonstrated by simple fact that the courts have so far been wholly unwilling to pull the teeth out of the aggressive DOL rulemaking that would turn pretty much anyone giving advice to retirement savers for compensation into a full-fledged fiduciary. Obama administration officials are no doubt feeling vindicated by the court victories, which confirm at least preliminarily that the DOL has sufficient regulatory authority to go after conflicts of interest in the defined contribution (DC) advisory marketplace.

It may not mean much in the end that the DOL has now posted a fourth district court victory related to the fiduciary rule, this one coming in the U.S. District Court for the District of Kansas in a case filed by annuity firm Market Synergy Group. In this particular case, plaintiffs argued unsuccessfully that they would never be able to make the Best Interest Contract Exemption (a key mechanism underlying the new fiduciary rule) workable given the commission-heavy distribution arrangements traditionally used for fixed-index annuities. They wanted the DOL to be forced by the court to allow annuity providers to work under the 84-24 exemption. Their claims were stated under the Administrative Procedure Act and Regulatory Flexibility Act.

Plaintiffs’ arguments failed outright, with the judge essentially just rehashing the same conclusions reached in a previous denial of a motion for preliminary injunction filed by Market Synergy. That initial decision led many to predict (successfully) the lawsuit would ultimately fail.

When all this is added to the news emerging last week that the Trump White House had submitted an order for the DOL to review the fiduciary rule, and to the fact that the DOL has actually now started asking for stays in fiduciary-focused litigation still outstanding in other district courts, it all makes for quite a confusing picture. As several Employee Retirement Income Security Act (ERISA) attorneys have suggested, at this point only time will tell what’s in store for advisers’ fiduciary future.

The full text of the most recent Kansas court decision is here. 

Data & Research February 21, 2017

Parents and Grandparents Prioritize Children’s Well-Being, Retirement

They are forgoing frills to raise their children and save for retirement.
Reported by

Parents and grandparents are keeping their sights on their retirement needs as well as raising their children—and to do so, they are willing to forgo treating themselves to life’s little luxuries, according to the TD Ameritrade Parents and Grandparents Retirement Survey.

Only 20% of Boomer grandparents and 12% of Millennial parents are willing to spend less on their children. Just 15% of parents would be willing to have fewer children.

These priorities come with personal trade-offs. Forty-nine percent of parents and 54% of grandparents think it makes sense to live a simpler lifestyle—and 36% of parents and 32% of parents would delay retirement—in order to ensure they have enough retirement savings to support themselves.

Forty-six percent of parents and 49% of grandparents would cut back on eating out and entertainment. Thirty-nine percent of parents and 45% of grandparents are open to buying a used car, 29% of both generations would cut back on vacations, and 36% of parents and 32% of grandparents would live in a smaller home.

“It’s encouraging to see that both generations of parents recognize there are trade-offs and are willing to make them in order to keep their retirement plan on track,” says Matthew Sadowsky, director of retirement at TD Ameritrade. “But it can be easier said than done, and to put this into practice, parents should take a hard look at what they’re truly comfortable scaling back on, if need be.”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Sixty percent of parents and 52% of grandparents have dipped into their retirement savings to help their family out. The reasons why have been for emergencies (20% of parents and 24% of grandparents), household bills (16% and 17%), medical expenses (13% and 11%), and vacations (10% and 4%).

“Tapping into retirement accounts early can put your retirement at risk, and for those parents serving as the ‘family bank,’ this could negatively impact the whole family,” Sadowsky says. “Retirement saveres are able to stay the course and stay disciplined by taking a few fundamental steps, including: setting aside an emergency fund so they don’t need to tap into their retirement nest egg and developing a clear financial plan that can help protect and potentially grow their nest egg. People with a financial plan are three times as likely to be confident they will reach their retirement goals.”

The survey also found that parents who are saving for retirement have an average account balance of $79,000, while grandparents have $338,000. One-third of both generations are confident they will reach their retirement savings goal.

Head Solutions Group conducted the online survey of 2,018 adults in October for TD Ameritrade. The full survey can be downloaded here.

«