Public hearings and comment periods related to the Department of Labor’s proposed new fiduciary rule are currently slated to end in early January, 2024, making it important for plan sponsors to understand the basics of the recommended changes and rationale behind them.
Reducing Junk Fees, Increasing Competition
According to leaders at The White House, the purpose of the proposed new fiduciary law is to:
Close loopholes and require that financial advisers provide retirement advice in the best interest of the saver, rather than chasing the highest payday. This step would minimize junk fees in retirement products, promote competition, and protect American workers’ retirements….Requiring advisers to make recommendations in the savers’ best interest can increase retirement savers’ returns by between 0.2% and 1.20% per year. Over a lifetime, that can add up to 20% more retirement savings—potentially tens or even hundreds of thousands of dollars per impacted middle-class saver that could otherwise have been lost to junk fees. For example, advice rooted in conflicts of interest regarding the sale of just one investment product—fixed index annuities—may cost savers as much as $5 billion per year.
Increased Responsibilities for Advisors and Employers
Stricter fiduciary standards are anticipated as the ultimate result of the proposed new fiduciary rule. Richard Clarke, a national risk management expert, and the Chief Insurance Officer of Colonial Surety Company, notes that since the proposed rule is not yet final, it would be premature for plan sponsors to begin making adjustments, though understanding the potential shift is wise. Heightened scrutiny of plan sponsors and benefits advisers is likely to result from the DOL’s proposed update to the fiduciary rule:
The proposal would modify language in the Employee Retirement Income Security Act of 1974 that determines when a person who is responsible for investing assets of an employee benefit plan or individual retirement account is considered a fiduciary. If enacted, the rule could impact employers when they roll over qualified employer plan assets into an IRA on behalf of an employee…The new rule would represent the latest in a long line of modifications to the ERISA legislation, which is the primary federal legislation governing employee benefit plans. The proposed amendment/rule would place greater responsibility upon persons involved in providing services to employers, and by extension, employers themselves, theoretically making it easier to accuse these persons of negligence/wrongdoing in performing these services (thus changing the standards for those persons defined in the proposed rule as fiduciaries).
No matter what the “final, final ” version of the DOL’s update to the fiduciary rule ends up including, one thing is certain: it’s always best for retirement plan sponsors to reduce their risks via liability insurance. At Colonial, a whole year of Fiduciary Liability coverage is less than a few dollars a day, and we even include Cyber Liability coverage to further protect the business and retirement plan.
Armed with Colonial’s liability coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Protect yourself and your business, for a few dollars a day, now:
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Serving customers since 1930, Colonial Surety is the trusted source for the pension industry to secure legally required ERISA bonds, fiduciary liability insurance and cyber-liability insurance. We help safeguard plan sponsors, pension professionals and financial advisors — and keep their businesses compliant — with pain-free, efficient, and friendly service every time. Colonial Surety Company is rated “A Excellent” by A.M. Best Company, US Treasury listed and in business all across the country.