Biden administration to crack down on ‘junk fees’ in retirement plans

by | Oct 31, 2023 | Financial

Julie A. Su, nominee for deputy secretary of Labor, testifies during her Senate Health, Education, Labor and Pensions Committee confirmation hearing in Washington, D.C., on March 16, 2021.Tom Williams | CQ-Roll Call, Inc. | Getty ImagesThe Biden administration is cracking down on so-called “junk fees” in retirement accounts.  The U.S. Department of Labor on Tuesday proposed a rule that would raise the bar for financial advisors, brokers and insurance agents who give investment advice to Americans saving in 401(k) plans, individual retirement accounts and other types of savings vehicles.Specifically, the proposal seeks to close “loopholes” in current law that sometimes allow trusted advisors to recommend investments that aren’t in a saver’s best interest but may pay the advisor a higher commission, administration officials said.More from Personal Finance:Inherited IRA withdrawal rules are ‘so complicated’It may take $10 million to achieve ‘financial freedom’Retirement withdrawal rules are ‘crazy’ this yearThe rule targets financial advice in three areas: rollovers from 401(k) plans to IRAs; “non-securities” products like indexed annuities and commodities like gold, which generally aren’t regulated by the Securities and Exchange Commission; and recommendations made to employers on which investment funds to offer in 401(k) plans, according to the White House.There’s a 60-day period for the public to submit comments on the proposal.Financial conflicts of interest are ‘hidden costs’The proposal, if codified, would impact millions of investors.For example, in 2020, about 5.7 million Americans rolled a total $618 billion into IRAs, according to most recent IRS data. Individuals also funneled $79 billion into indexed annuities in 2022, an annual record, according to LIMRA, an insurance industry group. And 86 million people were actively investing in 401(k)-type plans as of 2019, according to the Congressional Research Service.The “hidden costs” of financial conflicts in retirement plans amount to “junk fees,” Lael Brainard, director of the White House National Economic Council, said during a press call Monday evening. They can reduce a middle-class household’s retirement savings by 20% — amounting to perhaps tens or even hundreds of thousands of dollars, she said.”It’s time to get junk fees out of the retirement savings market,” said Julie Su, acting secretary of the Labor Department, during the call.Critics think regulating the retirement market in such a way would do h …

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