The US Labor Department's new proposed standard to protect retirement savers who roll over money from their 401(k)s to individual retirement accounts (IRA) is facing massive backlash from the insurance industry. The rule will ensure insurance agents transition from selling products for high commissions to recommending investments that benefit clients during rollovers. The move will save retirement investors north of $3 billion yearly on reduced commissions when rolling over funds into fixed-indexed annuities alone. Savers are transferring almost $1 trillion annually from their 401(k) accounts to IRAs as baby-boomer retirements peak, offering more incentive for financial firms to earn from the products and services they recommend.
While rolling over 401(k) funds into IRAs can offer more personalised investment choices at lower fees, they lack the protections provided by employee-sponsored plans under the Employee Retirement Income Security Act (ERISA). The law mandates workplace retirement plan advisers to offer financial advice and recommend products in the best interest of the investors. The Labor Department's new rules would extend fiduciary laws under ERISA to advisers, brokers, and insurance agents offering financial advice on IRAs and rollovers. When you roll over money into an IRA, the money sits as cash unless actively invested. Agents and advisers may steer investors into buying products that might not be in their best interests for higher commissions. New regulations will slash hefty commissions on products like annuities, which often carry hidden and excessive charges. The White House estimated the new standard would potentially boost retirement savings by up to 20% over a lifetime.
