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Rekenthaler Report

Setting the Record Straight on the DOL's Fiduciary Proposal

In a politicized discussion, the truth can be hard to find.

An Unpopular Idea
You may have heard about the Department of Labor’s proposal to tighten fiduciary standards for financial advice. Entitled "Conflict of Interest Rule--Retirement Investment Advice," the new regulations extend the protections given to investors in tax-sheltered plans under the Employee Retirement Income Security Act of 1974, or ERISA. ERISA protections already apply to ongoing 401(k) assets. Under the new rules, they would also cover 401(k) rollovers, as well as IRAs and IRA rollovers.

As the DOL reminds us, ERISA was created under different circumstances. At that time, in the '70s, tax-sheltered retirement plans were almost universally advised, in that they were professionally managed pension plans. ERISA was drafted to impose "trust law standards of care and undivided loyalty on plan fiduciaries." Since 1974, of course, the development of 401(k)s and IRAs has changed the field, so that much advice on tax-sheltered plans falls outside of ERISA's beat. The DOL believes that updating its rules would restore the legislation to the authors' original intent.