Biden Touts 401(k) Fiduciary Rules as Attack Against ‘Junk Fees’

The new proposed rules for retirement plan investment advice are intended to “level the playing field” for workers and retirees and update outdated laws that don’t reflect developments in the industry, President Joe Biden said.

The regulatory package the US Labor Department released Tuesday would amend 48-year-old rules defining who qualifies as an investment advice fiduciary, making it harder for financial advisers to avoid the strictest standards of care under common trust law and federal benefits statutes.

By applying the definition broadly, the administration can oversee a wider swath of the financial services industry, threatening its stake in the multi-trillion-dollar market for employer-sponsored savings and IRAs.

“Most financial advisers give their clients good advice at a fair price and are honest with them, but that’s not always the case,” Biden said at a White House event Tuesday afternoon. “Some advisers and brokers steer their clients toward certain investments not because they’re in the best interest of their client, but because it means the best payout for the broker. I get it, I understand it, but I just want to let you know, we’re watching.”

Officials are tying this latest attempt at fiduciary rulemaking to the administration’s fight against “junk fees,” hidden service charges usually associated with credit card statements and airfares.

Those fees have been an administration target since shortly before the president announced his re-election bid, resulting in a near whole-of-government regulatory strategy that involves agencies ranging from the Federal Trade Commission to the US Department of Agriculture.

Trusted Advice, Hidden Costs

Biden’s fiduciary focus could pit a powerful financial services sector with deep pockets and an experienced lobby against the administration’s chief benefits regulator. Several trade organizations already have come out firmly against the rule as agency overreach that they say will drive up financial advisory prices for low-income retail consumers.

But financial advisers who earn commissions on riskier, high-fee investment products risk undermining workers’ savings, the president said.

“When a person pays for trusted advice and it comes with a hidden cost, that’s what I call a junk fee,” he said. “I think it’s wrong. It’s wrong.”

Several lobby groups said Tuesday that they intend to ask the department for more than 60 days to comment on the nearly 500 pages of regulatory text.

Biden is the third president making the federal government’s fourth attempt in a little more than a decade to extend tough fiduciary standards. An Obama-era fiduciary regulation was struck down by an appeals court in 2018, and more recent reinterpretations of the original 1975 definition of a fiduciary have run afoul of district courts in Florida and Texas.

The US Securities and Exchange Commission’s Regulation Best Interest standard applied a best-interest standard to many financial transactions, but it excludes many of the assets that are marketed to unsuspecting workers near retirement. Those rollover decisions are often one of the most important a saver will make about one of their biggest assets, and it can be whittled down or locked away by costly securities and variable management fees senior DOL officials said.

“They’re putting their self-interest ahead of their clients’ best interest, and they’re scamming Americans out of hard-earned money,” Biden said. “People should be able to trust that when they get advice from a so-called expert, they’re getting real help, not getting ripped off.”

‘Played for Suckers’

The president took direct aim at the insurance industry, which has made significant inroads in recent years by selling annuities—a guaranteed lifetime income product that helps ensure people don’t outlive their savings—to workers and retirement plans.

DOL’s regulatory package would apply the strict fiduciary standards to more insurance companies and their brokers who sell those products and then would limit the exemptive relief they have historically used to earn commissions on those sales.

It’s likely to be a major point of contention that puts the administration in the industry’s crosshairs and makes the rules a target for litigation, but Biden said Tuesday he’s up for the fight.

“Right now millions of Americans, especially seniors, are being targeted by financial advice and insurance brokers selling bad annuities that work for the broker, not for the client. I’m not saying all brokers, I’m just saying some.”

The package of rules also would extend the Labor Department’s authority outside traditional employer-sponsored plans into IRAs, both within the context of account rollovers and advice on how to invest IRA assets.

Laws governing retirement plans are outdated and don’t reflect the industrywide shift away from traditional defined-benefit pension plans to 401(k)s and IRAs, Biden said. The responsibility for picking and choosing investments falls squarely on the shoulders of the individual worker or retiree, leaving them especially vulnerable to shoddy advice.

“If this rule is finalized as proposed, it’s going to protect workers that are saving for their retirements. It will protect seniors from being exploited. It will protect many trustworthy financial advisers out there who are doing the right thing from unfair competition,” Biden said. “Now they won’t be undercut by competitors willing to use deception or underhanded tactics to make a profit. Look, the bottom line is, this is about basic fairness. People are tired of being played for suckers.”