The U.S. Department of Labor withdrew its proposal yesterday to make investment advisers responsible for the advice they provide to savers in 401(k)s and other workplace retirement plans.
The rule change would have required investment professionals to act as fiduciaries, a role that makes them legally responsible to act in the best interest of their clients. The goal was to protect retirement savers from conflicts of interest, such as limiting investment offerings to those that are most profitable to the investment adviser.
Companies that provide 401(k) plans have been highly critical of the Labor Department's proposed rule change, saying that it was poorly defined and would raise costs for savers and discourage companies from offering these plans.
"We believe the Labor Department has made the right decision," Kenneth Bentsen, executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association, said in a statement.
"We have raised significant concerns about the proposal and lack of cost-benefit analysis on a rule that would affect millions of IRA holders and plan participants."
The Labor Department says it's not giving up on the rule change -- just delaying it so it has time to iron out the kinks. "We have said all along that we will take the time to get this right to ensure that we provide the strongest possible protections to business owners and retirement savers in plans and IRAs," said Employee Benefits Security Administration Assistant Secretary Phyllis C. Borzi in a statement.
"Investment advisers shouldn't be able to steer retirees, workers, small businesses and others into investments that benefit the advisers at the expense of their clients. The consumer's retirement security must come first."
From the point of view of retirement planning, narrow investment offerings is a worse problem with 401(k) plans. In many cases, the variety of investment options available to 401(k) savers hasn't keep pace with the market. Before the Labor Department settles on a rule, it ought to take that issue into account. It seems more important than protecting us from self-serving investment advice.