SECURE and the DOL Rule
The Department of Labor’s controversial proposed Retirement Security Rule, introduced at the end of last October, certainly has the attention of the guaranteed income solutions market. Many note that Congress worked specifically to expand access to annuities as a source of retirement income for retirement savers to help close retirement savings gaps with the SECURE Act and SECURE 2.0, and note that the DOL proposal seems to be at odds with that intention by limiting access—particularly for low- and middle-income savers.
Others think the rule would be beneficial.
“We’re keeping a close eye on the progress of the Retirement Security Rule. We believe it’s a positive step forward for end investors and those who serve them. Under the proposed rule, those who dispense financial advice would be held to a higher standard,” Income America’s Wolniewicz said.
He added that advisors must develop and implement a prudent process for selecting the right guaranteed income solutions for their clients, and should evaluate whether solutions are “fiduciary friendly” (i.e., non-proprietary, with fully disclosed fees, and portable between recordkeepers).
QPA’s Matthew Eickman points out that recent history suggests the Retirement Security Rule—whether adopted as is or with modifications to the proposal—won’t live a long life.
“If President Biden loses in November, the Republican president would almost certainly abandon the initiative. If President Biden is re-elected, the proposal’s opponents will go to great lengths to find a Federal court to strike down the regulation,” Eickman said. “Although the DOL did an admirable job of shaping the new proposal to address the fate of the 2016 regulation, I anticipate at least one Federal court will be willing to strike down the new version.”
That said, Eickman added that the adoption of the Retirement Security Rule could be really good for the in-plan guaranteed income market.
“If more advisors and brokers are subject to a fiduciary standard with respect to distribution and rollover recommendations, they may be much less likely to push participants to use their qualified plan accounts to buy expensive guaranteed income options in the retail market,” Eickman said. “Instead, participants will be more likely to leave money in plans, where they have potentially two levels of fiduciary support from the company fiduciaries and any third-party advisor or consultant.”
In a highly regulated industry in which plan sponsors have significant fiduciary responsibilities, Principal’s Teresa Hassara said it’s challenging to make swift decisions about their benefit dollars without proper due diligence.
“That said, I don’t believe in-plan annuities will ever gain high adoption until they are part of the QDIA. It can be incredibly difficult to manufacture a retirement income solution tied to the QDIA that is suitable for all plan participants but continual advancements in technology to support data gathering and personalization are making it easier,” Hassara added. “This is where we should be moving as an industry with plan sponsors, providers, and financial professionals working collaboratively to develop an infrastructure for communicating, educating, and advising participants on retirement income earlier in their lives.”
Colangelo adds that the clear and consistently stated friendly provisions of the SECURE Act and SECURE 2.0 are now helping annuities be viewed as broadly acceptable.
“Auto enroll, auto escalate, QDIA and TDFs all took many years to take hold,” he noted, adding that even though regulation made them permissable, there was hesitancy in being the first over the wall. “In this case, it has become so obvious that the DOL is behind these, and committees’ desire for these are ahead of consultants introducing them, leading to a more rushed environment of, ‘I better offer these to my clients or someone else will’ mentality.”
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