DOL signals that they intend to expand harmful regulation that will limit retirement services for low- and middle-income savers.

In a blow to middle-income families across the United States, the Department of Labor (DOL) appears to be moving forward with plans to slap more restrictions on the retirement savings options available to American workers. A proposed rule currently under discussion would broaden the definition of which investment professionals must be classified as fiduciaries under the Employee Retirement Income Security Act (ERISA). This misguided proposal stands to fundamentally limit the number of Americans who have access to affordable retirement planning.

This is not the first time DOL has tried to strengthen its grip on retirement investment advisors through regulatory fiat. In 2016, DOL issued a similar rule, known as the Fiduciary Rule, aimed at reclassifying the fiduciary status of nearly all investment professionals and financial institutions working with retirement savers. The Fiduciary Rule would have effectively eliminated the most affordable savings option used by most Americans – commission-based financial guidance – where they pay per transaction.

If implemented, Americans would have been left with primarily fee-based advisory arrangements, typically where investors pay their financial professionals a percentage of their assets under management, which are often costlier and less accessible. By removing both choice and competition from the market, the lower-income Americans, whom the DOL claimed would benefit from the new rule, stood to be the most harmed. Even economists at the left-leaning Brookings Institute commented to the DOL that fee-based advisory “may seem to take less of the investor’s funds, but that is not usually the case. … Regulations that push savers into accounts with [ongoing fees instead of commissions] may not be in their best interests.”

Thankfully, the Fiduciary Rule was vacated in federal court. Nonetheless, the mere threat of a fiduciary expansion caused investment advisory firms to reduce their investment product offerings preemptively. For example, Deloitte found that 53% of financial firms surveyed limited access to commission-based brokerage for retirement accounts, all in preparation for the rule’s implementation.

These actions – all proactively taken in good faith to comply with DOL’s impending rule change – made affordable savings options less available for low- and middle-income Americans. A recent study from the Hispanic Leadership Fund found that if the Fiduciary Rule had not been eliminated in court, the loss of commission-based services could have reduced the projected accumulated IRA balances of Black and Hispanic Americans by approximately 20 percent over ten years.

In 2019, the Securities and Exchange Commission (SEC) took a measured approach to create new investment advice regulations without restricting low- and middle-income Americans’ choices. The rule, called “Regulation Best Interest,” required financial professionals to only make recommendations that are in the best interest of their clients, and to mitigate conflicts of interest that could impact their guidance.

Unsurprisingly, the career bureaucrats in President Biden’s DOL have signaled that they are launching another regulatory power grab and intend to ramp up efforts to revive the original Fiduciary Rule. Earlier this month, representatives from the AARP, AFL-CIO, and Public Investors Advocate Bar Association (PIABA) held a briefing on Capitol Hill to “respond to questions” from staffers on the proposed rule. In reality, this meeting was the first step in the hand-in-glove effort between the Biden Administration and their allied special interest groups to gin up support for the resurrected rule.

The Department should halt its regulatory crackdown by abstaining from issuing an expanded Fiduciary Rule. Instead, it should let Regulation Best Interest stand, and study its effectiveness in preventing conflict of interest violations. A new Fiduciary Rule would only erode the available investment options for low- and middle-income savers and future retirees.