DOL Hearing on Federal Retirement Savings Investment Advice Standards


The U.S.  Department of Labor held a hearing yesterday on its controversial Conflict of Interest Rule Proposal which updates the definition of “fiduciary investment advice” under the Employee Retirement Income Security Act (ERISA).

The proposed Conflict of Interest Rule aims to ensure that individuals saving for retirement are protected by a “best interest standard” when receiving investment advice.

The focus is on changes to the definition of who is a “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA), as well as who is a “fiduciary” of a plan under section 4975 of the Internal Revenue Code of 1986, including an individual retirement account (IRA).

Currently, the best interest standard does not apply to federal retirement savings investment advice given on a one-time basis, or to advice regarding rollovers from the TSP (Thrift Savings Plan) or company 401k plan, or advice on investing in an IRA.

Such advice is only subject only to a “suitability” standard, which makes it legal for financial advisers to provide recommendations to put their own interests ahead of their clients’ best interests. The result is that the adviser may receive a better commission, but the federal employees and retirees making investments may be subject to excessive costs, poor performance and even unnecessary risk.

Testimony of NARFE National President Richard G. Thissen on Retirement Savings Investment Advice

The National Active and Retired Federal Employees Association (NARFE) is particularly interested in the DOL’s proposed rulemaking over concerns that federal employees, retirees, and military members invested in low-fee Thrift Savings Plan (TSP) funds are not adequately protected from bad financial advice regarding their TSP investments.

NARFE National President Richard G. Thissen testified at the hearing, in which he said that “Because rollovers are not covered by the existing definition of fiduciary investment advice, financial advisers may legally recommend that TSP account holders roll over their TSP holdings into an IRA, where the money may be invested in the same, or essentially similar, products, such as an S&P 500 index mutual fund, for as much as 50 times the cost.”

“NARFE believes the proposed rule will protect individuals, including federal employees and retirees, from receiving unsound retirement investment advice. If finalized, the rule should result in better investments and/or lower fees and, therefore, lead to greater returns on the hard-earned retirement savings of millions of Americans,” added Thissen.

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