The U.S. Chamber of Commerce challenged the Department of Labor’s proposed rule on retirement plans Tuesday, publicizing a study arguing that the new regulation would limit small businesses’ ability to offer their employees tax-advantaged retirement plans.
The rule, which President Obama directed the Labor Department to write, has been billed by the White House as an effort to protect savers from “backdoor payments and hidden fees” for retirement planners who steered them into high-fee plans in exchange for kickbacks. The rule would require a broader range of brokers and advisers to adhere to a fiduciary standard, meaning that they would be required to act in their clients’ best interests.
But the business lobby said Tuesday that the proposed rule would entail “unintended consequences” for some workers, making it harder for small businesses that can’t afford in-house financial advisers to offer retirement plans to their employees.
The rule would be a “catastrophic shift” in retirement law that “will harm most the people it is intended to protect,” said Alice Joe, the managing director for the Chamber’s Center for Capital Markets Competitiveness.
In particular, it would affect small business’ ability to facilitate certain individual retirement account plans, specifically SEP and SIMPLE-type IRAs, for their employees, according to the study written by Brad Campbell, counsel at the law firm Drinker Biddle & Reath, a former Labor Department official.
Currently, those types of retirement plans account for $472 billion in savings, according to the research, and nine million households have IRAs through such plans offered by small businesses. The plans are favored by small businesses that cannot offer 401(k) plans or other traditional retirement plans because of administrative costs and complexity.
Campbell called the proposed rule a “complete rewrite of the rules that have been in place for the last 40 years.”
The fiduciary standard would mean added legal risks, transition costs and new insurance fees for the advisers it would apply to, said Campbell, forcing them to raise fees charged to businesses or pulling out of the market. It would be “quite a significant change” that would affect only small businesses, he said.
The public can comment on the rule, which was proposed by the Labor Department in April, through July 6.
