Labor Department’s New Retirement Security Proposal Raises Concerns
The Labor Department recently introduced a new retirement security proposal that has raised concerns among financial professionals and retirement savers. This proposal is the latest attempt at a fiduciary-only regulation, following the rejection of the department’s 2016 fiduciary regulation by a federal appellate court.
According to a Deloitte LLP study, the 2016 rule resulted in more than 10 million small retirement account owners losing access to their financial professionals in 2017. The new proposed regulation is expected to cause even more restrictions to access, potentially harming middle-income Americans who are saving for retirement.
One of the key issues with the proposed regulation is its potential impact on access to financial professionals. Fiduciaries typically manage investments over a long period of time for a fee, requiring clients to have a minimum of $100,000 to invest. This creates a significant barrier for middle-income Americans, whose median retirement savings in the United States are below that amount.
In a time of economic uncertainty, many retirement savers are seeking certainty and looking for options that provide guaranteed lifetime income, similar to traditional pensions. However, the proposed regulation may limit their access to such options, including annuities.
An alternative to the fiduciary-only approach is a best interest standard, which ensures that financial professionals work in a client’s best interest and are compensated by a one-time commission instead of ongoing management fees. This standard is set out by the Securities and Exchange Commission (SEC) in its “Regulation Best Interest” (Reg BI) and has been adopted by 40 states, covering more than two-thirds of the U.S. population.
In contrast to the Labor Department’s proposal, the SEC and state laws and regulations ensure that retirement savers’ interests come first in the annuity sales process while still maintaining access to retirement options, including the ability to turn savings into a lifetime income stream.
The potential impact of the Labor Department’s new retirement security proposal raises concerns for many retirement savers and industry professionals. The American Council of Life Insurers (ACLI) has expressed its concerns about the detrimental impact this proposal may have on the best interest of retirement savers.
As discussions around the proposal continue, it is essential to consider the implications for retirement savers and ensure that any regulations put their best interest first.