The Department of Labor (DOL) recently announced that it would delay its redraft of fiduciary standards for work-sponsored retirement plan. While this change was originally set to launch in August, now the DOL says changes will not go into effect until at least 2015. This delay is welcome news to many in the financial industry who consider the proposed changes to be quite problematic.
What is Set to Change
The new DOL redraft is set to expand the fiduciary standard to anyone who gives advice to work-sponsored retirement plans like 401ks. Specifically, the DOL wants to tighten the rules for conflicts of interests between advisers and plan participants, especially regarding compensation. While the intentions behind the redraft are understandable, some industry participants worry that the change could have unexpected negative consequences.
Why Many Are Against the Redraft
Critics of the fiduciary redraft claim the change will do more harm than good for businesses and their employees; the people the DOL is trying to protect. Critics state, that the problem with the new fiduciary standard for advisers to ERISA plans is that it will create a conflict with how the financial institutions are compensated for setting up the plan. Because of this violation, firms would not be able to offer advice to participants after they set up a plan.
As a result, business owners would need to either hire an independent third party to provide investment advice or have employees manage the investments on their own. Neither choice is desirable because hiring a third party drains money from the plan while on the other hand many employees desire help with their investment choices. By trying to protect workers, the DOL may be making their retirement planning more difficult.
What to Expect Next
The DOL has made it clear that it will not launch the fiduciary redraft until at least January 2015. This will give businesses and financial institutions more time to prepare for the switch. In addition, lobbyists from the financial industry will continue to push the DOL to cancel this change. One counter proposal that has been suggested is to make the SEC in charge of fiduciary rules for ERISA plans, not the DOL. The logic is that the SEC has a better understanding of the issues behind advising for these plans.
Whether the DOL will consider this change is unclear. For now, advisers and business owners should expect the management of retirement plans to change in 2015.