pension plan

The DOL Revisits Conflict of Interest Rules

Over the past several decades, there has been a significant shift in the retirement savings landscape away from employer-sponsored defined benefit pension plans to defined contribution plans, such as 401(k)s. At the same time, there has been widespread growth in assets in IRAs and annuities.

One consequence of this change, according to the U.S. Department of Labor -- the governmental body that oversees pensions and other retirement accounts -- is the increased need for sound investment advice for workers and their families.

The DOL says its so-called "conflict of interest" rules are intended to require that all who provide retirement investment advice to employer-sponsored plans and IRAs abide by a "fiduciary" standard -- putting their clients' best interest before their own profit.

Originally proposed more than a year ago, the "final" rules -- introduced in April 2016 -- have been revised to reflect input from consumer advocates, industry stakeholders, and others. Following are some of the key takeaways from the DOL's final regulatory package.

The Role of the Fiduciary

According to the DOL's definition, "a person is a fiduciary if he or she receives compensation for providing advice with the understanding that it is based on a particular need of the person being advised or that it is directed to a specific plan sponsor, plan participant, or IRA owner. Such decisions can include, but are not limited to, what assets to purchase or sell and whether to roll over from an employment-based plan to an IRA. 1 In this capacity, a fiduciary could be a broker, registered investment adviser, or other type of adviser.

The Best Interest Contract Exemption

The DOL's final rules include a provision called the Best Interest Contract Exemption (BICE). This exemption is intended to allow firms to continue to use certain compensation methods provided that they "commit to putting their client's best interest first, adopt anti-conflict policies and procedures, and disclose any conflicts of interest that could affect their best judgment as a fiduciary rendering advice" -- among other conditions.2

How does the BICE affect you? The contract provisions of the BICE are slated to go into effect January 1, 2018. At that time, IRA clients entering into a new advisory relationship should expect to sign the contract either before or at the time that a new recommended transaction is executed. IRA clients already working with an investment adviser as of January 1, 2018, may receive a notice from their adviser describing their new rights, but they should not be required to take any action unless they object to the terms of the notice.

Clients receiving advice about investments in an employer-sponsored retirement plan should receive the same general protections and disclosure, but should not expect to receive a contract to sign.

Education vs. Advice

The DOL's final rules clarify its position that education about retirement savings is beneficial to plan sponsors, plan participants, and IRA owners. As such, the DOL said that plan sponsors and service providers can offer investment education without becoming investment advice fiduciaries.

Further, the DOL stated that communications from plans that identify specific investment alternatives can be considered "education" and not a "recommendation" because plans have a fiduciary who is responsible for making sure the investment offerings in the plan are prudent. Since there is no such responsible fiduciary in the IRA context, references to specific investment alternatives are treated as fiduciary recommendations and not merely education.

Time to Get on Board

The new regulations are expected to take effect in the spring of 2017 (at the earliest) to allow all affected parties to adapt to and incorporate the changes.

To learn more about the new regulations and how they may affect you, visit the Department of Labor website.
 

Source:

United States Department of Labor, "FAQs About Conflicts of Interest Rulemaking."


Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Retirement Confidence Leveled Off in 2016

Americans' confidence in their ability to retire in financial comfort has rebounded considerably since the Great Recession, but worker optimism leveled off in 2016. According to the 26th annual Retirement Confidence Survey -- the longest-running study of its kind conducted by Employee Benefit Research Institute in cooperation with Greenwald & Associates -- worker confidence stagnated in the past year due largely to subpar market performance.

The percentage of workers who reported being "very confident" about their retirement prospects hit a low of 13% between 2009 and 2013, recovered to 22% in 2015, and stabilized at 21% in 2016. However, significant improvement was reported among workers who said they were "not at all" confident about retirement, as their numbers shrank from 24% in 2015 to 19% this year. Curiously, the attitude shift away from being not at all confident came from those respondents who reported no access to a retirement plan.

It's All in the Plan

The data clearly shows a strong relationship between the level of retirement confidence among workers and retirees and participation in a retirement plan -- be it a defined contribution (DC) plan, a defined benefit (DB) pension plan, or an IRA. Workers reporting they and or their spouse have money in some type of retirement plan -- from either a current or former employer -- are more than twice as likely as those with no plan access to be very confident about retirement.

Still Not Preparing

Underlying the generally positive trend in the 2016 survey was the persistent fact that most Americans are woefully unprepared for retirement, having little or no money earmarked for retirement. For instance, among today's workers, 54% said that the total value of their savings and investments (excluding the value of their home and any defined benefit plan assets) is less than $25,000. This includes 26% who have less than $1,000 in savings.

Retirement Plan Dynamics

Not only do workers and retirees that own retirement accounts have substantially more in savings and investments than those without such accounts, on a household level, these individuals tend to have assets stored in multiple savings vehicles. For instance, according to the 2016 RCS, about two-thirds of those with money in an employer-sponsored plan also report that they or a spouse have an IRA. Further, 90% of survey respondents with access to a defined benefit pension plan either through their current or former employer also have money in a defined contribution plan.

Retirement Age

Perhaps as an antidote to their lack of savings, some workers are adjusting their expectations about when they will retire. In 2016, 17% of workers said the age at which they expect to retire has changed -- of those, more than three out of four said their expected retirement age has increased. Longer-term trends show that the percentage of workers who expect to retire past the age of 65 has consistently crept higher -- from 11% in 1991 to 37% in 2016.

For more retirement trends among workers and retirees or to review the 2016 Retirement Confidence Survey in its entirety, visit EBRI's website.


Source:

Employee Benefit Research Institute and Greenwald & Associates, 2016 Retirement Confidence Survey, March 2016.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.