Greetings & a warm welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
As Yankee great Yogi Berra once quipped, it’s de ja vu all over again as a Texas Court where regulations go to die issued a stay on the DOL’s latest edition of their fiduciary rule. In issuing the stay, the Northern District of Texas Court wrote that it was virtually certain that plaintiffs would succeed on the merits and would suffer irreparable harm if the rule went into effect. They also noted that there was no pressuring need that the rule take effect on September 23rd.
Did the overturning of the Chevron case which had given difference to agencies over courts interpreting ambiguous laws have an impact? Will a new administration either change the DOL’s posture as it did in 2018 when the previous fiduciary rule was vacated? And will it take an act of Congress to get this rule implemented?
At issue is whether advisors recommending rollovers and insurance agents selling annuities will be held to a fiduciary standard. Though DC participants expect advisors to act in their best interest, the fundamental issue is whether the DOL should be imposing that requirement.
There’s a growing ground swell by DC participants to get advice at work, according to a recent Schwab survey. Over 60% want or need advice, up from 55% in 2023 with 39% getting that advice through their 40k plan, another 35% from a financial advisor, 27% from a friend or family member and 25% from their provider.
Surprisingly, 61% were comfortable getting advice through ChatGPT, up from 49% though humans are preferred by 3 to 1.
With uncertainty about Social Security, 43% expect to get income from their 401k plan, a hopeful sign for that industry waiting to be born.
Now the question is who can deliver advice at scale which may be impacted by the fate of the DOL’s fiduciary rule.
After a Northern Texas District court found that the DOL’s ESG rule, which allows plans to take into consideration the economic effects of ESG funds if they equally serve the financial interests of the plan, did not violate ERISA, the 5th Circuit Court of Appeals vacated the ruling and remanded it in light of the US Supreme Court’s Loper decision overturning their Chevron case. Meanwhile, the rule will remain in effect.
All of which raises the question of whether courts or the DOL should be the prime decision maker about retirement related rules with the answer now clearly in favor of courts most of which, until a decade ago, could not even spell ERISA.
The defined contribution industry is abuzz with the potential for advisors and providers to leverage the convergence of wealth, retirement and benefits at the workplace. And while there are a few skeptics, there are also very few advisors and providers able to fully participate.
So is convergence a fad, which only a select group will benefit from, and not really take off like we have seen with retirement income, or will it define the winners and losers in the DC world?
Read my recent WealthManagement.com column outlining the case for and against and make your own decision.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- Annuities have arrived in TDFs
- Forfeitures have become a hot litigation touchpoint
- BC academics question whether PEPs are the answer
- RIA M&A market stays hot
- Paychex passes 120,000 plans
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.
