We’ll get back to the many other topics important to seniors soon, but we have to call your attention to some developments in Congress last week that could damage seniors. They were easy to miss because of all the other news taking place.
Back in April, the Department of Labor proposed a rule change requiring financial advisers to put the best interest of their clients first when providing advice on investments for 401(k)-type retirement plans. With the decline of the traditional pension plan, more and more workers have been made responsible for building their own retirement nest eggs through these tax-favored retirement savings plans. Understandably, many are turning to professionals for financial advice.
However, as the DOL points out, “an adviser may have a conflict of interest if he or she gets paid for steering clients into one investment product instead of another. Clients are sometimes unaware of these payments because they can be hidden in fine print or not disclosed at all. These fees can give advisers an incentive to make recommendations that generate the highest fees for them, rather than the best investment return for their client.”
The Labor Department is responsible for seeing that the retirement savings of America’s workers are secure, and that’s why it has been concerned about losses to savings caused by conflicts of interest, The Department estimates that conflicts are costing affected savers about 1 per cent of their savings per year, which can reduce total savings by a quarter over a 35-year period.
DOL has been seeking comments on the proposed rule change, which hasn’t come into force yet. But on June 24, the House Appropriations Committee approved a draft Labor/Health and Human Services funding bill that would deprive the Department of money for implementing the new provision. The day before, a Senate appropriations subcommittee had said that its version of the bill would “restrain regulatory overreach,” and specifically referenced the “Fiduciary Rule at the Department of Labor.”
With Republicans in control of both houses of Congress, the proposed best interest rule change will likely be de-funded in any final appropriations legislation. How the White House would respond is not yet known.
What we’ve learned so far is that seniors need to be on the alert, both with respect to their retirement savings and to developments in Congress that could affect those savings.