Labor Department to Repropose 401(k) Rule

September 19, 2011

The U.S. Department of Labor (Labor Department) withdrew its proposal to subject financial professionals to a higher standard of care when advising companies on their retirement plans.  The Labor Department, which has jurisdiction over retirement plans, said it will repropose the rule early next year. As currently written, the rule would have imposed a fiduciary standard that requires brokers and other advisers to put their clients' interests first as opposed to merely providing suitable advice. The pension plan proposal also would have forced big brokerage firms to decide whether to limit their brokers from working with corporate retirement plans. The Labor Department rule would not only limit brokers' ability to recommend their companies' own products to employers but prohibit them from collecting commissions from investment companies when employees purchase their funds or other retirement plan products without providing extensive disclosure.

The new proposal, expected in early 2012, will likely include advice about individual retirement accounts under the fiduciary definition.  Industry groups argued against including IRAs in the most recent proposal, because doing so would restrict brokerages from collecting commissions without extensive disclosure.  Such groups argued that would make financial advice less accessible to Main Street investors.

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Exchange-Traded Funds (ETFs), Investment Advisers, Investment Companies, Regulatory