Washington, D.C., (July 21, 2015) - The U.S. Department of Labor (DOL) has proposed a regulation that would make it harder for middle-income Americans to plan and save for retirement while also hurting small businesses’ ability to start up and maintain retirement plans for workers.

The American Council of Life Insurers (ACLI), a Washington, D.C.-based trade association whose approximately 300 members are providing financial and retirement security to 75 million American families, made these and other points in a filing today with the Labor Department over its proposed fiduciary regulation. As currently drafted, the regulation would negatively affect the way many people planning for retirement, as well as small businesses, receive financial information and education.

“There is time to improve this proposal. Life insurers want to help the Department with its regulation so that it works in the best interest of America’s retirement savers,” ACLI President & CEO Dirk Kempthorne said.

“America faces enormous retirement security challenges. Some 10,000 baby boomers will reach age 65 every day until the year 2030. And, with Americans’ increasing longevity, they could live 20 years, 30 years or more in retirement,” Gov. Kempthorne said.

“The need for financial advisors to help people manage their retirement savings over lengthy retirements is abundantly clear,” he added.

The complexity, potential liability and costs associated with the proposed regulation will drive many dedicated financial advisors from the market.

The proposed regulation would make it extremely hard for people to access information on guaranteed lifetime income solutions through an annuity. The annuity is the sole means in the marketplace for retirees to secure income for life and is especially popular with low to middle-income Americans. According to a 2013 Gallup survey, 60 percent of individual annuity owners have total annual incomes below $75,000.

Indeed, the Department itself has studied the issue of consumer losses associated with the lack of financial advice: “Investor losses associated with an absence of professional assistance, according to the Department’s own figure, were estimated to be $114 billion in 2010 alone,” ACLI noted in its filing.

Without significant changes to the Department’s proposal, ACLI is concerned that there will be a dramatic decrease in:

• savings due to lack of access to investment and distribution education and guidance;
• the number of small business retirement plans for workers;
• guaranteed lifetime income solutions through annuities;workplace benefits such as life, disability income, long-term care, and other non-medical insurance products. 

In its extensive comments, ACLI outlined its concerns with the proposal and offered solutions to improve it. Among many concerns are:

• The proposal’s definition of “advice” is unnecessarily broad and should be narrowed and/or clarified. The proposal should narrowly focus on persons who provide advice regarding investments.
• The proposal’s exceptions are unnecessarily narrow without any discernible economic or other net benefit to consumers. The proposal is inconsistent with public policies to expand retirement coverage and savings, and should preserve and expand the current rules regarding investment education.
• Changes to Prohibited Transaction Exemption 84-24 (the rule that appropriately relieves fiduciaries from penalties associated with certain common transactions). The proposal should continue to allow both plans and individuals to purchase insurance and annuity contracts and this exemption should be expanded to cover variable annuity purchases.
• The Best Interest Contract Exemption (BICE), which must be revised and re-proposed since it is unworkable. The proposal should preserve reasonable and customary commission-based practices with an exemption that offers compliance certainty and avoids increased costs.
• The proposal’s cost-benefit analysis. The Department failed to conduct a thorough, objective cost-benefit analysis in this rulemaking by overstating benefits, understating costs, and disregarding harm to small retirement plans. The analysis fails to examine the proposal’s impact on the annuity market and the availability of lifetime income.

As noted today in a statement to a Senate Health, Education, Labor and Pensions subcommittee, ACLI believes retirement advisers should put the best interest of their clients above their own financial interests. Life insurers support common-sense fixes for a more balanced fiduciary rule that provides for:

• Advisors acting in the best interest of customers based on investment objectives, risk tolerance, and financial circumstances.
• Clear, understandable disclosures for consumers regarding an advisor’s financial interest in the transaction.
• Clear disclosures for consumers when an advisor is selling a company’s products and services.
• Continued consumer access to meaningful education and information about retirement savings and income options.