The Department of Labor (DOL) finalized the Retirement Security Rule last week. It’s set to take effect on September 23. The rule revises the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA), aiming to ensure that retirement advisors act in the best interest of savers.
The rule’s reception has been mixed, with some industry groups welcoming the increased protections for savers, and others expressing concerns about its potential impact on individuals’ access to financial guidance, according to a recent BenefitsPro article. (Read our previous report on recent developments for the rule here.)
The Biden Administration introduced this rule with the intention of protecting savers when they’re offered insurance products and fixed index annuities, receive advice on 401(k) rollovers to IRAs, or when plan sponsors receive guidance on investment choices for employer-sponsored plans. The rule addresses a gap in regulations established in 1975, 401(k) plans and IRAs became prevalent. In support of the rule, the DOL highlighted a study by the Council of Economic Advisers, which showed that conflicted advice on a single product–fixed index annuities–could cost savers up to $5 billion annually, significantly eroding their retirement nest eggs.
Assistant Secretary for Employee Benefits Security, Lisa M. Gomez, emphasized the need for updated regulations that reflect the current investment and retirement landscapes, ensuring that workers can retire with dignity after decades of saving.
The American Retirement Association (ARA) welcomed the rule, noting that it fills a significant regulatory void for plan sponsors, especially smaller employers who may not have had access to professional retirement plan advisors. The ARA believes it is vital for plan sponsors to trust that their investment advisors are held to a consistent fiduciary standard, whether they provide advice regularly or on a one-time basis.
Conversely, the Insured Retirement Institute (IRI) criticized the rule, arguing that it could deprive millions of lower- and middle-income consumers of affordable retirement planning assistance. Wayne Chopus, president and CEO of IRI, described the rule as unnecessary and redundant, suggesting that it overlooks data and “defies judicial precedent and congressional limits on the DOL’s rulemaking authority.”
The IRI supports the application of a best interest standard across firms and financial professionals, asserting that most already act in their clients’ best interests and that the current regulatory framework is sufficient. The IRI plans to back a Congressional Review Act (CRA) resolution to reject the DOL regulation.
The final rule and amended prohibited transaction exemptions will be published in the Federal Register on April 25.
The DOL’s Retirement Security Rule represents a significant update to the fiduciary guidelines for retirement plan advisors. It seeks to protect savers by ensuring that advisors provide advice that aligns with savers’ best interests, particularly when it comes to rollovers and insurance product offerings. If the new DOL rule sticks, employers must prepare for upcoming changes to their workplace retirement plans and make sure they’re ready to comply with the new fiduciary standards.
