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Jonathon Trugman

Jonathon Trugman

 Business

Labor Department releases new fiduciary regulations

By
Jonathon Trugman
Published April 18, 2015, 11:11 p.m. ET

The creep of the Obama administration into financial waters — about which it has shown little to no acumen — continued last week as the Labor Department released new regulations requiring brokers to become fiduciaries.

Leaving aside the fact that the Labor Department and not the Securities and Exchange Commission is issuing the rules, the White House is piling on to fix a nonexistent problem.

Even though Uncle Sam’s inability to manage its own retirement fund — Social Security — has resulted in it teetering on the verge of extinction, this administration has decided it wants to nudge its rather extensive overreach into the middle class’s last bastion of savings that they can control themselves.

Mind you, you still have to pay into Social Security with every paycheck despite the diminished likelihood that you will be able to draw meaningful returns in retirement.

Traditional pensions have pretty much gone the way of the Model T, with exception of just a few professions.

It is important to recognize that the Department of Labor under the 1974 ERISA Act has authority to “protect” America’s tax-deferred retirement savings, but it really was designed back then to
focus on pension plans.

Sliding individual’s IRAs and 401(k)s under that umbrella take some liberties and quite a bit of nerve.

For sure, the “rules” will be covertly dressed up as a way to protect the savings of individuals in IRAs and 401(k)s, much the way Obamacare was going to save every family $2,500 and allow you to “if you like your doctor you can keep your doctor.”

How did those promises work out?

IRAs and 401(k)s are elective retirement contribution plans, in which low fees and good performance matter. Requiring brokers that handle IRA and 401(k) money to be held to a fiduciary duty simply means more paperwork and regulatory compliance costs. And higher costs always get transferred to the customers fees.

If Uncle Sam thinks he can oversee financial advisers on their proper choices for retirement funds, Let me return the favor on a way the feds could have saved Social security.

On Jan. 1, 1980, the S&P 500 closed at 102.09. Today it stands at 21XX.XX. Yes, a dollar invested in 1980 is $20.63, or 20.63 times your money. The $10,000 invested at the close of business Jan. 1, 1980, is now worth $206,300.

And yet Congress failed to ever invest any of the Social Security Trust Fund in the stock market.

Almost every other country puts some of its public savings into its own markets. Imagine where Social Security would be today had Washington merely put a conservative 25 percent in the S&P 500 fund in 1980?

Well, let’s see, 1.4 trillion x .25 = $350 million x 20.63= $7.22 trillion. Yes, I am sure that would have gone a long, long, long way to shoring up the average American’s retirement plan.

If the new rules get adopted as is, it surely means that even more small accounts will be kicked out of brokerage houses and fewer new financial advisory firms will enter the marketplace to serve the middle-class retirement investor.