DOL’s fiduciary rule is now final, but critics say, 'Is it in savers' best interests?'
On Tuesday, the Department of Labor finalized its Retirement Security Rule that updates the definition of an investment advice fiduciary, while critics say millions could now lose access to professional financial guidance.
The Biden Administration announced the Retirement Security Rule in October, saying its objectives were to ensure retirement advisors provide advice in the best interest of savers when offering insurance products and fixed index annuities, when advising on 401(k) rollover assets to an IRA, and when advising plan sponsors – including small employers – about which investments to include in 401(k) and other employer-sponsored plans.
In finalizing the rule, DoL noted the current definition of investment advice fiduciary was adopted in 1975 before 401(k) plans existed and individual retirement accounts were rare. It highlighted a recent analysis by the Council of Economic Advisers that found conflicted advice could cost savers up to $5 billion per year on just one investment product — fixed index annuities — chipping away at many workers’ savings.
“These new rules update regulations created nearly a half-century ago that simply are not providing the protections America’s workers need and deserve for their retirement savings so that they can retire with dignity,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez. “The investment landscape has changed, the retirement landscape has changed, and it is critical that our regulations are responsive to those changes so that workers can reach the secure retirement that they work for decades to finally achieve.”
The American Retirement Association praised the rule, saying a significant regulatory gap exists regarding plan sponsors and the investment advice they receive. While larger plan sponsors generally have access to the expertise and support of professional retirement plan advisors, an advisor who sells a small employer a 401(k) and has no further action with the plan has not until now been required to provide investment advice protection under ERISA, ARA said.
“Since a plan sponsor is making decisions on behalf of participants, ARA believes it is essential, as provided in the Department’s Rule, that such a fiduciary plan sponsor be able to rely on the fact that their investment advisor will be subject to the same fiduciary standard of care regardless of whether such advice is just once or on a regular basis,” ARA CEO Brian Graff said.
However, the Insured Retirement Institute (IRI) criticized the rule, saying millions of consumers could now lose access to professional financial guidance.
“Based on our preliminary review, in issuing this unnecessary and redundant rule, DOL disregarded data showing how millions of lower- and middle-income consumers will be deprived of access to affordable retirement planning assistance,” said Wayne Chopus, president and CEO of IRI. “This rule is the product of a severely flawed rulemaking process and defies applicable judicial precedent and the limitations on DOL’s rulemaking authority as established by Congress.”
Related: The new DOL fiduciary rule: How it could change your company’s 401(k) plan
IRI instead supports the application of a best interest standard to firms and financial professionals who provide retirement savers with guidance or recommendations about insurance or investment products. IRI believes the vast majority of firms and financial professionals already act in the best interest of their clients and that the existing regulatory framework provides the necessary protections to maintain this standard.
IRI said it will support a Congressional Review Act (CRA) resolution to reject the DOL regulation.
The Federal Register will publish the final rule and amended prohibited transaction exemptions on April 25.