The Department of Labor fiduciary rule is just one impediment to Americans getting the retirement savings advice they desperately need, witnesses testified Thursday before a House subcommittee.
Industry witnesses joined House Republicans in calling on President Donald J. Trump to further delay the rule. As it stands, the rule will take effect in two phases: June 9 and Jan. 1, 2018.
Small savers will lose if that timeline stands, argued Bradford P. Campbell of Drinker Biddle & Reath, a law firm that advises on DOL issues.
“You have insurance agents that, come January, won’t be able to provide advice on a variety of products, even if those products are in your best interest,” Campbell testified before the House Education and Workforce Subcommittee on Health, Employment, Labor and Pensions.
Fiduciary rule opponents are hoping new Labor Secretary Alexander Acosta will provide a reprieve. Although he hasn’t spoken publicly on the fiduciary rule, Acosta wants to freeze the rule permanently, according to an email that leaked last week.
The first phase of the rule means agents must adopt a fiduciary standard and accept only “reasonable compensation,” although what is reasonable is up in the air. On Jan. 1, 2018, more disclosure and contract requirements kick in.
Abandoning Small Accounts
Testimony on Thursday referenced a new Investment Company Institute survey, in which members cited plans to abandon smaller accounts.
"Advisors and financial institutions reported increasing minimum asset requirements for advisory accounts" as well as "a shift from commission-based accounts to more expensive fee-based accounts," he added.
The survey that found "loss of advice and assistance to the very retirement savers the rule should be protecting, and who are most in need of assistance," Campbell said. He noted that the average account balance of those surveyed was roughly $17,000.
In light of the new data, the DOL rule "should be delayed until a complete review of this new, compelling evidence is complete,” said Campbell, who led the DOL Employee Benefits Security Administration under President George W. Bush.
James Kais, senior vice president for Transamerica, which provides retirement plan services to small businesses, spoke of the important role small businesses play in helping Americans save for retirement.
"As the number of small businesses continue to grow and become a large source of new jobs, expanding retirement plan coverage among small businesses is critical to enhancing Americans' retirement security," he said.
Unfortunately, the "fiduciary rule restricts small employer access to advice needed in establishing and maintaining plans, as well as increases the cost of these plans," Kais said.
Make it Easier to Save
The hearing looked at several other regulatory hurdles to saving for retirement, include regulation of small-business retirement plans.
Kais urged the subcommittee to empower small businesses to band together through "multiple employer plans" (MEPs) to "achieve economies of scale and avoid the administrative burden and liability in running the plan by turning over administration of the plan to a named plan fiduciary, recordkeeper, and plan administrator, making the plan both more affordable and effectively managed."
Under current law, small businesses can only join together through MEPs if they're in the same industry. There is growing bipartisan support for eliminating this requirement.
Other witnesses underscored the need to reduce red tape surrounding retirement plans.
"Congress should look to eliminate unnecessarily burdensome rules that divert funds from employees' retirement benefits," said Erik Sossa, vice president of global benefits and wellness for PepsiCo.
Congress should modernize outdated federal rules that make it harder for retirement plan sponsors to deliver important information electronically and at a lower cost, he explained. It's estimated that this reform would reduce disclosure costs by 36 percent.
"By eliminating hurdles to sending electronic communications to other plan participants, retirement plans will eliminate a major source of waste -- and in the process, enhance the quality of communications." Sossa said. "In addition to cost savings, modernizing electronic communication rules can enhance the quality of the communications themselves and enable employees to have easier access to relevant documents."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com.
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