Biden administration proposes new rules to protect retirement plan customers from “junk fees”
Washington, D.C. – The Biden administration is taking steps to close loopholes that allow retirement plan providers to sell products that prioritize their own revenue at the expense of customers. The United States Department of Labor has proposed new rules aimed at ending these practices and protecting retirement savers.
The proposed rules, which were announced on Tuesday, would require retirement plan providers to only sell commodities and insurance products, such as annuities, when it is in the best interest of the customer. This move aims to ensure that financial advisors prioritize the needs of the savers and do not sell them lower returning products to maximize their own fees.
Lael Brainard, director of the White House National Economic Council, highlighted the importance of putting savers’ best interests first. Brainard stated, “When a retirement saver pays for trusted advice that is actually not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee.”
The proposed rules would also hold Wall Street to a higher standard for the advice they provide when individuals roll over assets from an employer plan to another account, such as a 401(k) to an Individual Retirement Account (IRA). Currently, brokerage firms are not required to prioritize investors’ needs in these situations, leading to potential conflicts of interest.
By implementing these rules, the Biden administration aims to ensure that retirement advisers provide advice in the best interest of the saver, regardless of whether they are recommending a security or insurance product. Senior administration officials emphasized that the rules would apply to all types of advice, closing the existing loophole that allows certain products to be recommended without considering the customer’s best interest.
This move aligns with President Joe Biden’s broader efforts to crack down on “junk fees” across various industries. Companies such as Airbnb and Live Nation have joined forces with the administration to address additional charges that customers often incur when booking concert tickets, hotels, and airfares. Tackling these fees demonstrates the administration’s commitment to reducing costs and supporting individuals in managing their expenses.
In 2022 alone, Americans rolled over approximately $779 billion from defined contribution plans, such as 401(k)s, into IRAs. The proposed rule is designed to protect these savers and ensure that the advice they receive is in their best interest.
The Biden administration’s proposal is part of a broader effort to hold financial institutions accountable and prioritize consumer protection. These measures aim to bring about a fairer and more transparent financial system for all Americans.
Reporting By Jarrett Renshaw; Editing by Michael Perry