Fri, August 23, 2013
In a curious turn of events, Congress appears poised to reduce the level of protection provided to holders of IRAs and 401(k) retirement plans.
In 2010, the Department of Labor proposed a rule that would have more broadly applied the definition of fiduciary advice to retirement savings plans covered under the Employee Retirement Income Security Act (ERISA). By one account, “The purpose of the proposal was to level the playing field and make it so investors know that the investment advice they are receiving is in their best interest and not the interest of the person giving the advice.” The rule was immediately opposed by the financial services industry, and its implementation has been delayed until this year.
Just as the rule is poised to be re-proposed in October, two new bills have surfaced in Congress that would actually impede the Department of Labor’s ability to apply greater protections to investors in 401(k)s and IRAs.
A House bill, the Retail Investor Protection Act, would force the DOL to delay any action on fiduciary responsibility until after the SEC has made its own decision about fiduciary rules. In the event that the SEC decides to take no action, this bill would effectively kill any effort by the DOL to extend a fiduciary standard of responsibility. A second bill, introduced by Orrin Hatch of Utah in the Senate, would strip the Department of Labor of its power to oversee IRAs entirely.
The main objection to the Department of Labor’s proposed rule seems to be that it would prohibit those giving advice to IRAs and 401(k)s from possessing certain kinds of conflicts of interest. Thus, these moves seem calculated to assist the financial services industry rather than consumers. Barbara Roper, director of investor protection for the Consumer Federation of America, says that her organization “strongly supports allowing the DOL to move forward with strengthened fiduciary rules, and we believe application of those rules to IRAs is essential to protect the millions of middle income workers who need to make every penny count in their efforts to fund a modest retirement.”
Since most consumers would like to be able to trust their financial advisers to give them unbiased advice, it’s strange for Congress to be pursuing various approaches intended to defeat the DOL’s consumer-protection efforts. Given the relative absence of media focus on this issue, the financial services lobby may well win on this issue.