Federal rules on the fiduciary responsibility of financial advisors to pension plans should be proposed by the U.S. Department of Labor within the next couple of months, a department official said today.
A consumer has an “absolute right to believe” his or her interests come first, no matter how an advisor is paid, said Phyllis Borzi, assistant secretary of labor for employee benefits security.
Registered investment advisors to pension plans—unlike RIAs who serve retail clients—are not legally required to be fiduciaries that put the participants’ interests above their own. The DOL proposed such a requirement in 2010, but it was withdrawn after some members of the financial industry objected.
Speaking of the DOL’s recent proposal to require 401(k)s and other defined contribution plans to estimate the lifetime income streams on accounts, Borzi said plans that have done that voluntarily have seen increases in savings by participants.
“We have a big hill to climb to convince people there is a need for lifetime income,” she said, noting most people who have a choice between lifetime income or lump sum distributions from 401(k) plans opt for the latter.
She noted that 401(k) plans are not retirement plans, which has allowed many people to withdraw from the accounts before they retire. When people take their 401(k) money as a lump sum, she added, they tend to spend it too fast or too slowly.
Her comments came at a Washington, D.C., forum of the International Foundation of Employee Benefit Plans. The group is the primary trade association for union-negotiated plans that cover industries where employees often work for multiple employers, such as in construction, trucking and entertainment.