Since the enactment of ERISA in 1974, there has been a dramatic shift in the retirement savings marketplace from employer-sponsored defined benefit plans to participant-directed 401(k) plans, coupled with the widespread growth of Individual Retirement Accounts and Annuities (IRAs). In fact, 401(k) plans did not exist at the time the Department of Labor (DOL) published its ERISA fiduciary rules governing retirement investment advice in 1975, while IRAs were just introduced in the same year. Until recently, these rules had not been meaningfully changed since 1975.
The DOL believes that many investment professionals, consultants, brokers, insurance agents, and other advisers operate within compensation structures that are “misaligned with their customers’ interests and often create strong incentives to steer customers into particular investment products.” According to the DOL, these conflicts of interest result in the loss of billions of dollars a year for retirement investors. Specifically, the White House Council of Economic Advisers has determined that conflicts of interest lead, on average, to 1 percentage point lower annual returns on retirement savings or a total of $17 billion of losses every year for America’s families.
To learn more, please read the GT Alert “The DOL Issues Broader Fiduciary Adviser Definition: What Does it Mean for You?”