Simplification of Retirement Plan Disclosures Included in Trump Executive Order

The executive order regarding RMD rules and open MEPs, signed last week by the President, also asks the DOL and Treasury to simplify disclosure regulations for plan sponsors and participants.

President Donald Trump last week signed an executive order that states, “It shall be the policy of the Federal Government to expand access to workplace retirement plans for American workers.”

The order called on the Secretary of Labor to clarify and expand the circumstances under which U.S. employers, especially small and mid-sized businesses, may sponsor or adopt an open multiple employer plan (MEP) as a workplace retirement option for their employees, subject to appropriate safeguards; and increase retirement security for part-time workers, sole proprietors, working owners, and other entrepreneurial workers with non-traditional employer-employee relationships by expanding their access to workplace retirement plans, including MEPs.

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The President also ordered the Secretary of the Treasury to examine the life expectancy and distribution period tables in the regulations on required minimum distributions (RMDs) from retirement plans and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis.

While Trump noted that expanding access to MEPs can reduce administrative costs for the establishment of a retirement plan, especially for small businesses, he also pointed out that reducing the number and complexity of employee benefit plan notices and disclosures currently required would ease regulatory burdens.

So, in the executive order, Trump calls on both the Labor and Treasury Departments to “complete a review of actions that could be taken through regulation or guidance, or both, to make retirement plan disclosures required under ERISA [Employee Retirement Income Security Act] and the Internal Revenue Code of 1986 more understandable and useful for participants and beneficiaries, while also reducing the costs and burdens they impose on employers and other plan fiduciaries responsible for their production and distribution.” He says the review should include an exploration for the broader use of electronic delivery of disclosures.

An American Retirement Association study found current regulations requiring paper delivery of participant defined contribution (DC) plan information can cost investors between $350 million and $500 million per year, which can reduce the average account balance by 2.4% over a 40-year work life. Five years ago, the Government Accountability Office (GAO) asked the U.S. Treasury and Department of Labor (DOL) to revise electronic disclosure rules governing employee-sponsored retirement plans to improve clarity and protect participant rights.

And, legislators continue to push for a bill that would allow retirement plan sponsors to automatically default participants into receiving plan documents and statements online.

Investors Better Prepared for a Downturn, Advisers Say

They have also become more inclined to work with an adviser since the Great Recession of 2008.

Sixty-one percent of registered investment advisers (RIAs) and fee-based advisers say that investors are better prepared to make it through another major market downturn, according to a Nationwide Advisory Solutions survey of more than 370 RIAs and fee-based advisers.

Seventy-four percent say that investors are more likely to work with an adviser today than they were before the Great Recession of 2008. Ninety percent say investors are more likely to listen to their guidance. Eighty-nine percent say investors are more likely to be transparent about their financial situation, and 84% say they are more likely to stick to a financial plan. Sixty percent of advisers say their clients ask if their advice is in their best interest or aligned with a fiduciary standard.

“Even a decade after the 2008 financial crisis, the most significant market downturn since the Great Depression has had a lasting impact on investors’ concerns about minimizing risk and protecting their assets, as well as their desire for guaranteed income in retirement,” says Craig Hawley, head of Nationwide Advisory Solutions.

Eighty-four percent of RIAs and fee-based advisers say investors are concerned about a future market downturn, are concerned about market volatility (79%) and are more risk averse (67%). They are also more likely to focus on product costs (56%) and ask how advisers are compensated for their advice (51%).

Seventy-nine percent of RIAs and fee-based advisers have increased their communications with clients about market conditions, and 60% have become more proactive about communicating about their compensation model. Fifty-seven percent have increased their focus on an independent, fee-based approach.

“RIAs and fee-based advisers have adapted to the needs of the post-financial crisis investor by adopting a more holistic approach, aligning the products and tools they leverage to meet investors’ concerns and proactively communicating about market risk and movement,” Hawley says.

Seventy-three percent of RIAs and fee-based advisers say they have increased their focus on holistic financial planning for clients since the crisis. Sixty-four percent say that clients are more likely to seek out guaranteed retirement income than they were before 2008 and guaranteed downside market protection (62%) to hedge against risk.

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Fifty-six percent have increased their use of dividend-yielding stocks, 41% have increased their use of yield-generating exchange-traded funds (ETFs), and 37% have increased their use of variable annuities with guaranteed living benefits. The top three products they are using more since 2008 are liquid alternatives (45%) fixed index annuities (43%) and fixed annuities (31%).

Sixty-three percent are educating their clients about market cycles and holistic financial planning (57%). Twenty-eight percent are adding annuities to provide guaranteed income, and 28% are adding annuities to provide guaranteed downside protection.

Nationwide Advisory Solutions conducted the survey in August.

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