Proposed EBSA fiduciary rule could put rollovers at risk, ARA warns


A proposed Department of Labor (DOL) regulation on fiduciary duties would likely have a significant and negative impact on financial advisors’ ability to work with retirement plan participants on rollovers, according to the American Retirement Association (ARA). According to a White House statement, the Employee Benefits Security Administration (EBSA) will soon formally propose a new rule that would expand the types of retirement investment advice subject to ERISA. EBSA had previously issued proposed regulations in October 2010 that attempted to address these issues. The rules came under intense criticism and, in 2011, EBSA announced it would be re-proposing the rules.

In situations where a terminated participant wants to roll over a plan account balance to an IRA and fees differ in the rollover IRA in relation to the 401(k) plan, a financial advisor who becomes a fiduciary under the proposed rule would be prohibited from working with the plan participant on the rollover, the ARA suggests. Further, the ARA cautions, this prohibition would exist even if the 401(k) plan provider’s IRA is the most cost-effective product on the market.

According to the ARA, 401(k) plan participants would be unable to discuss rollover options with their trusted current plan service provider and would be forced to find another provider on their own. The result, says the ARA, would be a greater likelihood that the participant will end up with a more expensive retirement product. In the end, if a re-proposed rule “does not correct the flaws in the previously proposed rule, relationships with trusted advisors will be disrupted or severed, and the retirement security of American savers will be undermined,” the ARA suggests.

Source: American Retirement Association,

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