With two announcements a little more than seven-and-a-half years apart, successive Democratic presidents have committed to reforming the retirement counseling industry.
In 2016, then-President Obama Ministry of Labor regulations announced The bill would, among other things, prohibit contradictory advice that the typical worker may receive when rolling over a 401(k) to an Individual Retirement Account (IRA) or annuitizing savings. The purpose is His administration had been working on the proposal since the beginning of the decade.
However, those fiduciary duty rules struck down Two years later, the 5th U.S. Circuit Court of Appeals ruled.
This week’s story is: President Biden. announced his own plans It covers much of the same material, albeit framed as part of his administration’s ongoing fight against “junk fees.” Like Mr. Obama, Mr. Biden is focused on fiduciary responsibility, particularly the one-time advice given to savers as they consider rolling over retirement assets into IRAs and pensions.
Although some legal frameworks have changed, the two efforts across two Democratic administrations are “very similar” [and] Policy-wise, they are pursuing the same goals,” Alison Itami, an attorney specializing in employee benefits programs at Groom Law Group, said in an interview this week.
The question, of course, is whether Biden’s efforts will meet the same fate.
A legal battle seems inevitable, but the terms of the lawsuit are still being fleshed out as the proposed rules are finalized in the coming months, and the agency will almost certainly face legal challenges starting next year.
One group that has already pledged to oppose the proposal is industry group the Insurance Retirement Institute (IRI).
Jason Berkowitz, the group’s chief legal and regulatory officer, told Yahoo Finance that the Biden administration is “trying to frame this proposal in a way that allows it to exercise its jurisdiction and overturn the recommendations and the IRA recommendations. But in our view, that is not the case.” What the 5th Circuit said in 2018 doesn’t work. ”
Supporters say the new rules are different enough to withstand legal scrutiny. Julie Su, the Biden administration’s acting labor secretary, told Yahoo Finance on Friday that the Biden administration has taken into account the 2018 ruling and additional input from industry, “so we’re trying to strike the right balance here.” I’m sure there is,” he said.
In any case, the stage seems to be set for a battle, which has already turned out to be extremely malicious just a few days after it was announced, with both sides saying the outcome is a big gamble for savers. says.
The Biden administration and its allies say conflicting retirement advice could cost Americans up to 20% of their potential lifetime retirement benefits.
Meanwhile, industry advocates say: Deloitte research It found that even with more restrictive 2016 rules in place, the supply of financial professionals was reduced, effectively leaving some less wealthy savers to fend for themselves. did.
some differences in details — But not public rhetoric.
In the public sphere, the rhetoric and stated goals of both the 2016 and 2023 initiatives are strikingly similar.
“The goal here is to end Wall Street brokers who profit from backdoor payments and hidden fees at the expense of their customers,” President Obama said at the time. in 2015 At the White House Conference on Aging.
“When you pay for trusted advice and there’s a hidden cost to it, I call it junk fees, and I think that’s wrong,” President Biden said. this week.
Under the hood, there are some legal differences that could change future trials. Itami said the 2016 rules focused on individual advisors, but Biden wants to put more responsibility on the companies that hire those advisors.
It remains to be seen whether this difference in emphasis will have an impact on legal issues, but Itami notes that it could in any way increase resistance from the industry.
Depending on how it is finalized, this rule could also result in entire companies being deemed ineligible for some exceptions by forcing a single exemption for everyone in the company. It’s a change that could put some companies out of business if they fail to meet stricter standards.
Itami said this week that the scope of the Biden administration’s efforts is “more than they should have done,” adding, “If it annoys more people, confuses more people, makes them more uncomfortable, they’ll do more. “The more they do so, the more resistance they will face,” he added.
A tough battle awaits
Beyond the legal nuances, another important difference may lie in the political realm. Debate over the rule in 2016 and 2018 spanned the transition from Obama to Donald Trump.
The case was considered in 2017 and 2018, but Republicans appointed by President Trump refused to defend the rule or appeal the circuit court’s decision that struck it down.
And the upcoming battle is already proving to be extremely fierce, with repeated personal accusations. President Biden on Tuesday accused at least some financial advisers and brokers of “swindling Americans out of their hard-earned money.”
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IRI’s Berkowitz fired back that Biden is “dragging pensions through the mud.” [which is] This is deeply unpleasant for the millions of financial professionals across this country who work hard every day. ”
Already different battle lines are being drawn in the coming weeks on the question of comment period length.
“It’s not a conducive environment for them to get real, meaningful, valuable, substantive feedback to inform their decision-making process,” Berkowitz said.
Ben Werschkul is Yahoo Finance’s Washington correspondent. Jennifer Schonberger contributed reporting.
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