Expected Fiduciary Rules Could Worsen Retirement Crisis, Fidelity Chief Warns
WASHINGTON - A top executive with Fidelity on Wednesday urged congressional action to stave off what he described as "a looming retirement crisis," appealing to lawmakers to pressure the Department of Labor to avoid an expansive redefinition of fiduciary responsibilities for advisors, among other things.
In remarks at a capital markets conference hosted by the U.S. Chamber of Commerce, Ronald O'Hanley, Fidelity's president of asset management and corporate services, spoke at times in dire terms about the road to retirement for millions of Americans working today.
O'Hanley described a confluence of factors clouding the retirement picture, ranging from the decline in defined-benefit plans and low savings rates among workers to longer life expectancies and a generation of Baby Boomers nearing retirement age.
"If we don't get serious now, we're going to face a crisis that we just can't get in front of," he said. "The challenge is not new. The demographers in the room will tell me that. But the potential consequences grow more ominous every day."
O'Hanley pointed out that some 10,000 Americans are turning age 65 every day, and those retirees are living longer than ever, creating the financial-planning challenge of saving enough to support a retirement of 30 years or even longer.
O'Hanley offered a series of policy prescriptions, which he admitted will not be a panacea to the crisis he described, but could nonetheless go a long way toward helping advisors, employers and individuals take steps to strengthen retirement security.
"We need to make significant reforms to the U.S. retirement system now, and we need to do them because there's an ever-increasing number of Americans that are marching towards retirement with very little hope of maintaining their standard of living," he said.
At the Department of Labor, officials have been contemplating a potential expansion of the fiduciary responsibilities for advisors to retirement plans, raising concerns among many industry members that advisors and broker-dealers could face new legal liabilities that would compel them to abandon a commission-based model and potentially exit the retirement-plan market altogether. The Labor Department withdrew its initial proposal and is currently working on a revised version expected to be released later this year.
The original draft rule "would have significantly expanded the definition of fiduciary investment advice," according to O'Hanley. "The effect of this rule was clear: It would have shifted the legal line between investment advice and education, and thus dramatically curtail the valuable education and guidance investors receive today. The real outcome of this misguided proposal would be no education and no guidance for average and low-income Americans. They are the ones that are going to get hit most by this."
O'Hanley worries about the impact that an overly broad rulemaking could have on the level of financial literacy that is so key to preparing for retirement, particularly at a time when a growing share of the burden of planning and funding falls to individuals.
"Many Americans simply do not have a good grasp of basic financial concepts, such as living within a budget, saving, investing for the future and the advantage of compound return. In our schools, we teach our kids about sex and drugs, but not about money. In the workplace, some employers are reluctant to provide financial retirement education and guidance out of fear of lawsuits, and recent signals from the Department of Labor suggest this fear may be well-founded," he said.
"We should be doing everything we can to expand, promote and perhaps require financial education in the workplace. Investors certainly need protections in place, and we need to make sure the proper protection's in place, but their best interest can only be served if the regulatory framework allows for a wide range of tools to serve the needs of investors and provide low-cost guidance, education and advice that they want and need," O'Hanley added, calling on lawmakers and industry representatives "to keep the pressure on Labor and reject any proposal that would limit the availability of education and guidance to workers."
In addition to close scrutiny of the Labor Department's fiduciary rulemaking, O'Hanley urged members of Congress to revisit the 2006 Pension Protection Act to increase the maximum default savings rates and automatic savings increases permitted under the law governing employer-sponsored plans.
Fidelity is also calling on policymakers to relax rules for retirement plans to expand the availability of both individual IRAs and employer-sponsored plans, particularly by making it easier and more cost-effective for small businesses to offer their employees 401(k) plans.
"With the vast majority of jobs creation and job growth in the country coming from small businesses, it's imperative that we create simple, streamlined savings plans that would... make it as easy for an employer to offer a retirement plan as they do a paycheck. Regulators need to take a fresh look at the rules that govern these plans and make changes with an eye toward making them simple to set up and easy to administer," O'Hanley said. "Our goal should be to create a system where it's as easy to offer a retirement savings plan to the employer with two employees as it is with 20,000 employees."