Redefining ‘fiduciary’ could mean higher costs for 401(k)s, IRAs, experts say

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The definition of “fiduciary” being proposed by the U.S. Labor Department could do more harm than good for workers and employers, according to two industry experts.

John Berlau, CEI

John Berlau

The Labor Department is holding a public hearing this week to address its proposed amendment to the definition of “fiduciary.” The federal agency is updating the definition from when it was written in 1975 in an attempt to protect workers and employers from conflicts of interest in retirement plans.

The Competitive Enterprise Institute argues in its prepared testimony that the rule changes will hurt workers.

Expanding the definition, according to testimony from John Berlau, CEI’s director of the Center for Investors and Entrepreneurs, “will make it harder, not easier, for workers to exercise their rights and responsibilities in their retirement plans. Individual choice is the hallmark of defined contribution plans such as 401(k)s, and we believe this proposal will make it more difficult for workers to get the information or advice they seek to make informed decisions.”

It also will mean higher costs for 401(k)s and IRAs, Berlau suggests.

The free-market think tank advocates allowing plan sponsors and workers to be “free to select service providers on a non-fiduciary basis to assist them in making their own decisions—we believe the likely effect of the proposal would be to limit the ability of plans and workers to make that choice.”

Karen Prange, executive director and assistant general counsel for JP Morgan Chase & Co., testified March 1 that the regulations are too broad, according to a Bloomberg report.

“Existing standards governing plan distribution education and guidance are sufficient and need not be modified,” Prange said, according to Bloomberg.

The proposed regulation expands a fiduciary standard to those firms who advise plan sponsors about which investments to offer to ensure that conflicts of interest, say recommendations about investments that would pay better to the advisor, do not occur.

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