Retirement Savers Could Be Put At Risk By Proposed Rollover Rule, DOL Warned

Retirement savers could be put at risk by a proposed Department of Labor rule on workplace retirement plan rollovers and lump sum distributions, DOL was warned today.

Savers would be harmed because financial professionals giving rollover and lump sum advice would be held to non-fiduciary sales standards, Consumer Federation of America Director of Investor Protection Barbara Roper told a hearing on the proposal by DOL’s Employee Benefit Security Administration (EBSA).

Roper was joined by others testifying the proposal would leave broker-dealers and insurers plenty of room to avoid to obligations on rollover advice, even in circumstances when the retirement saver will rely on those recommendations as a primary basis for their investment decision.

They said the new rollover obligation isn’t a true fiduciary standard, and doesn’t prevent harm adequately from fraud, higher fees and lower returns by conflicts of interest.

Covid-19 worsens the potential impact of the changes on retirement savers warned AFL-CIO Deputy Director of Corporations and Capital Markets Brandon Rees.

Many of the millions who have become unemployed because of the pandemic are withdrawing retirement savings under financial and emotional pressure, he pointed out.

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That pressure, said Rees, makes them vulnerable to unscrupulous financial advisors. He called the proposal “wrong-headed.”

Enforcement by DOL of the standard would be weak because it doesn’t have the resources to review the trillions of dollars in retirement plan rollovers over the next decade, contended the AFL-CIO official.

The impact of advisors who put their own financial interest first can be devastating on retirement savers, said attorney Joseph Peiffer who has represented victims in court.

He said he has seen some of those victims become homeless and consider killing themselves.

Pension Rights Center advisor Norman Stein advisor said the rule is ambiguous and unclear which will make it hard to monitor compliance.

Requiring advisors to provide clients with written disclosures of conflicts of interest, as the proposal does, wouldn’t work because people don’t read disclosures, said attorney Sam Edwards president of the Public Investors Advocate Bar Association (PIABA).

Rollovers are an area where retail investors are particularly vulnerable because as retirement plan participants retire or terminate employment and are advised to move their 401(k) assets into IRAs, they are moving from a heavily regulated system with fiduciary protection to one without similar protections, said AARP Director of Legislative Policy David Certner.

The changes are based on and defer to the Securities and Exchange Commission’s Regulation Best Interest, which the AARP lobbyist asserted is a mistake.

“It is simply contrary to ERISA for the DOL to abandon its statutory and long understood fiduciary standard for a new ‘best interest’ standard based on the guidance of another agency. This will only lead to more confusion, greater litigation, and less protection for participants,” Certner said.

Since decisions on timing and manner of rollovers and other retirement plan are often irreversible and will have a major impact on individuals’ overall retirement security, it is essential that the adviser providing guidance at this critical juncture be subject to ERISA’s fiduciary duties, he added.

Public Citizen Financial Policy Advocate Bartlett Naylor called the changes part of an anti-consumer, racist agenda by the Trump Administration.

Securities Industry and Financial Markets Association (SIFMA) Associate General Counsel Kevin Carroll praised the proposal rule for permitting financial professionals to present advice in a flexible manner.

CFA Institute Head of Capital Markets Policy James Allen criticized the rule for not allowing investors to sue for violations.

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