Greetings and 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!
Another day, another lawsuit against the controversial DOL fiduciary rule filed by a group of insurance and brokerage associations in the same Texas federal district that the previous case was filed mirroring the same allegations.
The plaintiffs claim there is little difference between the current and 2016 DOL rule that had been vacated except that now there is the SEC’s Reg BI and model guidelines by state insurance regulators governing annuities.
Biden’s DOL will certainly defend the 2024 rule with some provisions set to take effect on September 23rd while it also almost certain that a Trump DOL will not.
Unless the courts issue an injunction, the financial service and insurance industries will need to comply soon.
HSAs have mostly been outside the scope of ERISA and fiduciary scrutiny but that will change with the new DOL rule. And though the effect will be limited compared to IRAs with only $123 bn in assets as of 2023 in 37 million accounts, it could affect the practices of advisors providing holistic financial planning.
The DOL has specifically included HSAs under the new rule if advice, not just education, about the investments is offered. HSAs re a good way to identify potential high net worth or mass affluent participants most likely to take advantage of these triple tax-free options available only within high deductible healthcare plans.
Speaking of convergence, another state regulator is clamping down on wealth tech firms that allow advisors to manage their clients’ DC accounts without the knowledge or permission of the record keeper.
Missouri has warned their state RIAs about the potential dangers which also cover savings and brokerage accounts affecting firms like Pontera, Envestnet’s Yodlee, Morningstar’s ByAllAccounts and Fiserv.
Convergence is here and gaining momentum, something state regulators should not and cannot stop. The industry and regulators need to find ways to allow investors to let advisors manage their DC accounts as part of a holistic financial plan which firms like Pontera are trying to do in a safe and compliant way.
Though not as widespread as previous data breaches, Merrill Lynch announced that an employee “inadvertently” disclosed sensitive information about 1800 participants to an unauthorized 3rd party. Though they claim there was no harm, it may be a while before they know for sure.
The breach shows the many ways that data can be compromised, not always the result of hacks and cyber criminals – and as long as humans are involved, there will be errors and breaches like this one.
Though it should be taken with a grain of salt given the source, LIMRA is claiming that DC plans and participants are not just open to in-plan annuities but eager to adopt them. Their research shows that 4/10 plans are actively considering or have already added the feature while 7/10 participants age 40-80 with at least $100,000 are very or somewhat likely to select them.
Objections to in-plan annuities?
- Too complicated
- Hard to explain
- Expensive
- Resource intensive
- Not flexible
- Not portable
Otherwise, no problem.
These issues and others, like how to get greater adoption, will be discussed at the June 17th-18th RPA Retirement Income Roundtable at P&I’s NYC offices.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- New School’s Theresa Ghilarducci claims current retirement asset pool not nearly enough
- OneDigital CIO opines about the prospects of in-plan retirement income
- New fiduciary rule protects plans as well as participants
- Many sponsors do not have implementation plans for SECURE 2.0
- Forfeiture lawsuit moves forward
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.
