Complexity of the U.S. Retirement System
The financial services industry has been involved in a steamy debate in concerns to the appropriate market conduct standard for investment advice in the past ten years. The debate goes up a notch in the arena of retirement where a number of different agencies with overlapping authority joins forces with the department of labor.
Gene Dodaro, comptroller general of the Government accountability office, in a testimony before the Senate committee on aging recently reinforced that point in a much broader context where he repeated the GAO’s call for the national retirement system comprehensive reform. A panel of 15 retirement experts was brought together by GAO in 2016, and they all agreed that a comprehensive review was really needed.
Several panelists during the discussion said that the current system was unnecessarily complicated. Also discussed was how the private sector retirement system posses litigation and financial risk for employers especially with respect to fees, investment decisions, and fiduciary duty. A number of examples could be offered by advisers. Like a clients’ retirement portfolio that has a single investment recommendation which was provided by a financial adviser will be subject to oversight by at least three regulators. These three being: The Internal Revenue Service, the Securities and the Exchange Commission. If the product just so happens to be a variable annuity, then there are two more regulators which include the Financial Industry Regulatory authority and state insurance regulators.
Three independent federal commissions have since been established since the enactment of the employee retirement income security act in 1974 by either the president or the Congress. Their primary duty being to make policy recommendations and study retirement-related issues. It is quite unfortunate that many of them have been ignored by policymakers.
The GAO suggested as a starting point for a new commission, a limited number of policy goals in a 2017 report. Some of the issues addressed nearly four decades ago were included in the report. The current debate over the policy inconsistency of the fiduciary standard to those who advise participants and retirement plans was touched on in the last point.
Although the important role played by SEC in the retirement regulation realm in the report by GAO, the agency along with representatives of other agencies, academics, financial services industry, employers and labor unions should participate in any new commission. The commission would need to address large ideas if they are to advance in the discussion. The Bush administration’s treasury department proposed a new blueprint that was radical for modernizing the regulatory structure by consolidating financial regulators into three primary agencies. This was done in 2008, and the three agencies include a business conduct regulator that oversees all types of firms providing financial product and advise.
The Congress lost its appetite for the project seeing as the blueprint was unfortunately released just before the financial crisis of 2009 and the Congress didn’t feel like starting from a blank sheet. Federal agencies were instead called upon to adopt some 400 new rules under the Dodd-frank reform law. The initiative’s concept of comprehensive reform is what is needed to drive us away from the current morass, whether the content of the 2008 treasury blueprint was on the mark or not.
