By Cyril Tuohy
A broad-based coalition of labor unions and consumer protection groups has reiterated its support for the U.S. Department of Labor (DOL) to update, strengthen and clarify rules around advice provided to workers saving through retirement plans.
The DOL earlier this year delayed proposing changes to the rule governing Employee Retirement Income Security Act (ERISA) plans until January.
“The DOL fiduciary rule is outdated, and those saving for retirement need sound investment advice more than ever,” the coalition wrote in a letter addressed to members of Congress.
Signatories of the letter include AARP, the AFL-CIO, the Consumer Federation of America, the Economic Policy Institute, the NAACP, the International Brotherhood of Teamsters and the Pension Rights Center.
Updating fiduciary responsibilities around ERISA plans are long overdue, said Dennis Kelleher, president and chief executive officer of Better Markets, a nonprofit organization that promotes the public interest in financial reform and is a signatory of the letter.
Kelleher, who was a panelist in a series of conferences to bring attention to fiduciary standards of care, said that tolerating a 40-year-old rule governing the duty under which people obtain investment advice is “quite remarkable.”
Fiduciary responsibilities spelled out in ERISA refer to vague concepts of prudence and responsibility. The law allows for conflicts of interest and hidden fees, which in many instances people would find unacceptable today, Kelleher said.
“It’s as if Gerald R. Ford were still president,” he said.
President Ford signed ERISA into law on Labor Day 1974 and the ERISA rules took effect in 1975.
In 1974, consumers were buying vinyl records in retail stores and defined contribution retirement products such as individual retirement accounts had just been authorized — the 401(k) didn’t even exist, Kelleher said.
Forty years later, rules governing how financial advisors give advice have not changed, yet, people now download songs from iTunes, individual retirement accounts contain $6.5 trillion in assets, and 401(k)s have ballooned to $5.9 trillion in assets.
In 1974, retirement benefits were also professionally managed by corporate-defined benefit plans and a higher proportion of the workforce belonged to labor unions. The rise of the defined contribution system has made workers more dependent on their own savings to fund retirement.
Every dollar eaten up by commissions and fees charged by intermediaries is one less dollar that can earn a return for the worker.
A previous attempt by the DOL to make changes to the way advice is dispensed for ERISA plans was withdrawn after interest groups criticized the proposal.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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