A newly finalized Labor Department rule regulating financial planning could cost workers $1,375 a year if they are unable to rollover 401(k) plans into Individual Retirement Accounts, according to a new analysis from a right-of-center think tank.
The American Action Forum published an analysis Tuesday finding that the typical saver who suffered a job loss or changed jobs would incur an additional $1,375 in fees if they were unable to transfer their previous company-sponsored 401(k) into an IRA because of the Labor rule.
The finding buttresses claims made by critics of the Obama administration rule who have said that its paperwork and legal burdens will cause some advisers to stop serving low-income individuals or small businesses.
The analysis published Tuesday puts a price tag on the losses to some savers, one likely to be picked up by congressional Republicans as they seek to stop the rule from going into effect next April.
And the $1,375 figure will provide a response to the White House’s own estimates that savers currently lose out on 1 percentage point on returns because of conflicted advice, especially advisers steering people choosing IRA investments into higher-cost products for which they, the advisers, receive kickbacks. Altogether, such conflicts cost savers $17 billion annually, according to the White House.
The rule would require all retirement brokers to be “fiduciaries” to their clients, meaning that they must give them advice that is in their best interests.
“The concern all along has been that the fiduciary rule would backfire, and essentially get less investment advice to the people who need it the most,” said Douglas Holtz-Eakin, president of the American Action Forum. People with only modest savings, he noted, are the people least likely to be able to navigate the system and rollover their funds into IRAs without professional help.
The assumption in the analysis is that savers will not be able to access retirement advice. Advocates of the Labor Department’s rule have argued that the industry will adapt to the rule and that advisers will still take on low-income clients while being fiduciaries.
Holtz-Eakin suggested that the losses to people who would be cut off from professional advice outweighs the benefits of the protections afforded by the rule.
“On this basis alone it seems like a breakeven at best,” he said of the costs to people cut off from advisers versus the savings from people protected by the rule, “and then you have all the other costs that come with it, so it can’t be a good idea.”
In late May, the Republican-led Congress sent a resolution to President Obama’s desk to block the rule. While Obama can simply veto the resolution, Republicans are likely to target the rule in future Congresses.
