Could Biden’s junk fee crackdown boost YOUR 401(K) by up to 20%? White House proposes new protections on retirement accounts in bid to yield better returns for savers

HomeUncategorized

Could Biden’s junk fee crackdown boost YOUR 401(K) by up to 20%? White House proposes new protections on retirement accounts in bid to yield better returns for savers

The Biden administration is cracking down on so-called 'junk fees' on retirement accounts.Under new proposals, Americans will have more protections wh

Think it’s all over? Why the Covid experts are not so sure about that | Coronavirus
Ireland Baldwin takes Easter Sunday trip to LA dog park with shirtless boyfriend Corey Harper
Supermodel Catherine McNeil announces engagement to NBA star Miles Plumlee

The Biden administration is cracking down on so-called ‘junk fees’ on retirement accounts.

Under new proposals, Americans will have more protections when they roll over money from a 401(K) into an individual retirement account. 

The US Department of Labor said it would raise the bar for financial advisors, brokers and insurance agents who give investment advice to Americans putting money into 401(K) plans, IRAs and other savings vehicles.

The rule seeks to close ‘loopholes’ in current regulation so that ‘recommendations to purchase any investment product must be in the saver’s best interest.’

These changes, the White House estimates, could help savers increase returns by between 0.2 percent and 1.2 percent per year – or boost retirement savings in a lifetime by up to 20 percent.

‘America’s families spend a lifetime saving so they can retire with dignity,’ the White House said in a statement Tuesday. ‘But junk fees are chipping away at their savings, going to financial advisers with conflicts of interests instead of to American families, and making retirements less secure.’

The Biden administration is cracking down on so-called 'junk fees' on retirement accounts - and providing Americans with more protections when they roll over money from a 401(K) into an individual retirement account

The Biden administration is cracking down on so-called 'junk fees' on retirement accounts - and providing Americans with more protections when they roll over money from a 401(K) into an individual retirement account

The Biden administration is cracking down on so-called ‘junk fees’ on retirement accounts – and providing Americans with more protections when they roll over money from a 401(K) into an individual retirement account

A financial advisor may be paid a commission as high as 6.5 percent by a firm to recommend a particular product, which can lead to Americans making an investment which yields lower returns, the White House warned. 

Under the Employee Retirement Security Act (ERISA), a 1974 federal law, employers have a duty to manage 401(K) accounts in the best interest of employees – including vetting fees.

This fiduciary standard, however, has not traditionally extended to IRA rollovers – which the proposal plans to change.

‘One-time advice is often the most important advice the retirement investor will ever receive and affects roughly 5 million savers per year who are rolling their money out of 401(K)s and into IRAs,’ the White House statement read.

‘In 2022 alone, Americans rolled over approximately $779 billion from defined contribution plans, such as 401(K)s, into IRAs. The proposed rule will close this loophole to ensure this advice is in the saver’s best interest.’

The rule is also targeting financial advice in commodities or insurance products like fixed index annuities, which are often recommended to retirement savers. They are generally not covered by the Securities and Exchange Commission’s regulation on best interest.

The White House estimates that advice rooted in conflicts of interest regarding the sale of fixed index annuities may cost American savers as much as $5 billion per year. 

The proposal also targets advice to plan sponsors on which investments to make available as options in 401(K)s and other employer-sponsored plans. 

Lael Brainard, director of the White House National Economic Council, said during a press call that the ‘hidden costs’ of financial conflicts in retirement plans amount to ‘junk fees.’

They can reduce a middle-class household’s retirement savings by 20 percent – amounting to tens or even hundreds of thousands of dollars over a lifetime, she said. 

Lael Brainard, director of the White House National Economic Council, said during a press call that 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 that 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 that the ‘hidden costs’ of financial conflicts in retirement plans amount to ‘junk fees’

The proposals build on the Biden administration's ongoing crackdown on junk fees across various sectors

The proposals build on the Biden administration's ongoing crackdown on junk fees across various sectors

The proposals build on the Biden administration’s ongoing crackdown on junk fees across various sectors 

Critics say the proposed legislation would mean a higher regulatory burden for advisory firms – making them less willing to work with savers, and particularly those with smaller accounts.

Senator Bill Cassidy and Congresswoman Virginia Foxx wrote to the Labor Department in August saying the efforts were ‘misguided’ and would cause instability for retirement plans, retirees and savers.  

The Labor Department also tried to rewrite similar rules under the Obama administration, but the measure was killed in court. 

The proposals build on the Biden administration’s ongoing crackdown on junk fees across various sectors.

The administration has vowed to cut down on hidden fees which it estimates cost Americans around $65 billion every year.

These extra add-ons are rife in everyday life, inflating prices and making it difficult for consumers to know exactly how much they will end up paying for a hotel, flight, ticket or banking service.

Under the Junk Fee Prevention Act, Biden aims to ‘provide relief to consumers and make our economy more competitive, particularly for new and growing businesses.’ 

COMMENTS

WORDPRESS: 0
    DISQUS: