The Department of Labor's Harmful New Retirement Plan Guidelines

Date: August 20, 2015

New Department of Labor regulations would make financial advising and retirement planning more of a dream than a reality.

The Department of Labor is holding hearings about its proposed new fiduciary guidelines that would apply a standard service cost for everyone from money managers to financial advisors, greatly expanding the number of transactions that would be subject to “fiduciary” guidelines. The rules could potentially complicate many existing relationships between small businesses and their investment advisors. Many analysts predict that these regulations could replace the commission model that has been in place for brokers and financial advisers for decades.

In theory, the new guidelines aim to block the ability of big-time investors and advisors to exploit the average client by creating a broad, standard fee for financial services. In reality, the measure could push up the price of financial advising for those who need it most—including small business owners. 

The guideline could put access to smart financial advising out of reach for most small businesses. And as many as 30 percent of small businesses could be forced to eliminate their retirement plans altogether if the guidelines took hold, according to a survey by Greenwald & Associates. A separate study by the Financial Services Institute found that the new rules could likely force a majority of smaller brokers and advisers out of business. 

NFIB is in opposition of the proposals because of the substantial impact it’s likely to have on small businesses.

“We are concerned that the changes to the definition of fiduciary could substantially transform the way in which financial service providers deliver services to small businesses and their employees,” said Amanda Austin, vice president of public policy at NFIB. “This could result in providers no longer being able to offer these services to small businesses in an affordable manner. Consequently, it is the employees of these small businesses—the very individuals these rules purport to benefit—that stand to lose access to retirement benefits.”

The research group Quantria Strategies predicts the policy could result in an annual loss of up to $80 billion in retirement savings. 

“In addition, if small businesses cannot offer retirement benefits they will be less competitive with larger businesses, thus hurting innovation and job opportunities for everyone,” Austin said. 

The Department of Labor’s proposal is just the latest in potentially harmful retirement-policy regulations for small businesses. As NFIB highlights, growing momentum for state-sponsored retirement plans also poses a threat to owners. 

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