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New retirement security final rule will protect workers from improper advice and investments, DOL says

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Dive Brief:

  • The U.S. Department of Labor finalized a retirement security rule that updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act and Internal Revenue Code, according to a Tuesday news release. The updated definition goes into effect Sept. 23, and other prohibited transaction exemptions will go into effect within a year, department officials said during a press call. 
  • The change is intended to free workers from overcharges and ensure advice is “prudent, loyal [and] honest,” the DOL said.  It will require advice providers to avoid recommendations that favor their own interests and require financial institutions overseeing advice providers to manage conflicts of interest.
  • “America’s workers and their families rely on investment professionals for guidance as they save for retirement,” Acting Secretary Julie Su said in a statement. “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”

Dive Insight:

Under the rule, an investment advice fiduciary is defined as a financial services provider who gives paid investment advice to retirement plan participants, retirement account owners and those who administer plans and manage assets, per the department.

The rule updates the definition of investment advice fiduciary that was adopted in 1975 before 401(k) plans existed and when fewer individuals were trying to make complex financial decisions about their retirement, the department said. 

“These new rules update regulations created nearly a half-century ago that simply are not providing the protections America’s workers need and deserve for their retirement savings so that they can retire with dignity,” Assistant Secretary for Employee Benefits Security Lisa M. Gomez said in a statement. “The investment landscape has changed, the retirement landscape has changed, and it is critical that our regulations are responsive to those changes so that workers can reach the secure retirement that they work for decades to finally achieve.” 

The Council of Economic Advisers estimates conflicted advice costs individuals up to $5 billion per year on fixed index annuities alone. 

DOL announced the proposed retirement security rule Oct. 31.

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