Biden proposes rule to cut junk fees for retirement savers

President Joe Biden is rolling out a plan he says will ensure retirement savers receive financial advice that is in their best interest.

The Biden administration announced Tuesday it would propose a new Department of Labor rule that would expand the existing fiduciary standard that covers advice related to securities, such as mutual funds, to include new types of non-securities, including index annuities, advice to employers and plan fiduciaries, and one-time advice for transactions such as 401(K) rollovers.

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“When a retirement saver pays for trusted advice that is actually not in their best interest and comes at a hidden cost to their lifetime savings, that’s a junk fee,” National Economic Council Director Lael Brainard told reporters Monday. “But retirement advisers shouldn’t be paid more for recommending one investment product over another, if it isn’t in the client’s best interest.”

“Advisers may earn as much as a 6.5% commission to recommend one retirement product over another,” she said. “Over a lifetime, those conflicts of interest can really add up and cost retirement savers up to 20% of their entitlement savings — that’s tens or even hundreds of thousands of dollars per middle-class saver.”

Requiring advisers to make recommendations in the savers’s best interest can increase retirement savers’s returns by between 0.2% and 1.20% per year, according to the White House.

“For example, advice rooted in conflicts of interest regarding the sale of just one investment product, fixed index annuities, may cost retirees as much as $5 billion per year,” the White House said in a fact sheet. “This hurts workers, families, and the American economy.”

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The proposed rule comes after Biden’s broader work concerning junk fees and retirement savings, with Biden signing Secure 2.0 into law last December, which he and his aides say encourages employers to provide retirement plan benefits to employees and makes it easier for those people to save. He also signed the Butch-Lewis Emergency Pension Plan Relief Act into law as part of the American Rescue Plan as he and other Democrats have criticized Republicans who want to make changes to Social Security.

Biden is expected to speak about his rule in the State Dining Room on Tuesday afternoon.