Biden Administration Enforces Stricter Regulations on Retirement Savings Advice

The Biden administration's Department of Labor has finalized a new rule that will enforce stricter regulations on retirement savings advice to protect workers' financial interests. The rule, set to take effect on September 23, 2024, redefines the investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code.

The updated definition of an investment advice fiduciary applies when trusted financial services providers give compensated investment advice to retirement plan participants, individual retirement account owners, and plan officials responsible for administering plans and managing their assets. The rule requires investment advice providers to give prudent, loyal, and honest advice free from overcharges, adhering to high standards of care and loyalty and avoiding recommendations that favor the providers' interests over the retirement savers' interests.

Financial institutions overseeing investment advice providers must have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines. The rule aims to ensure that financial professionals who hold themselves out as providing individualized advice that is in the investor's best interest will be held to a fiduciary standard. It also captures one-time transactions such as annuity sales, IRA rollovers, and investment menu sales into fiduciary status under ERISA.

Why this matters: The new rule is expected to have a significant impact on the retirement savings industry and provide greater transparency and accountability for workers saving for their golden years. Analysis estimates that the rule will save investors in retirement plans more than $55 billion in the first decade and savers who purchase annuities over $32.5 billion.

The White House estimates the rule will affect about 5 million savers and boost retirement accounts by 0.2% to 1.2% per year, or up to 20% over a lifetime. "These new rules are part of the administration's efforts to grow the economy from the bottom up and the middle out, supporting workers and their financial security," the Department of Labor stated. The rule has faced legal threats from industry groups, but the Biden administration maintains it is critical in standardizing the level of protection afforded to investors, aligning it more closely with the stringent standards expected in other areas of financial advice.

Key Takeaways

• DOL finalizes new rule to enforce stricter regulations on retirement advice
• Rule redefines investment advice fiduciary under ERISA and Internal Revenue Code
• Aims to ensure financial professionals provide advice in investors' best interest
• Rule expected to save investors $55B in first decade, boost retirement accounts
• Rule faces legal threats but Biden admin says it's critical to protect investors