As a first-generation American who grew up in a low-income neighborhood, I know the challenges that working families face in building a solid financial future for themselves. So, when the federal government moves to impose rules that could hurt the ability of many Americans to save for their retirement, it is particularly dismaying.
Saving for retirement isn’t easy for everyone, particularly people in underserved communities. For example, Hispanic and Black families typically earn less than others, and their employers are less likely to offer 401(k)s or other retirement savings plans. In fact, nearly two-thirds of Hispanic families and more than half of Black families don’t have any form of retirement savings account.
The uphill road that people in underserved communities face is a big reason why it would be a bad idea for the federal government to reinstate a “fiduciary-only” regulation.
First proposed by the Obama administration’s Labor Department, the regulation worked against commission-based financial professionals, limiting information about and access to annuities, a popular product for low- to middle-income retirement savers. The rule promoted fiduciaries who provide financial and retirement planning services under fee-based compensation arrangements. The regulation was short-lived; a federal court struck it down in 2018.
Had the regulation been allowed to stand, it would have reduced retirement plan choices even more than it did in its brief life. A new regulatory push attempting to sidestep the court’s ruling also would make education and information about lifetime income options less accessible. In effect, the government would be tilting the playing field toward the type of financial planners that typically only the wealthy can afford.
Commission-based financial professionals tend to have low- to middle-income clients — people not always comfortable investing their hard-earned money in the stock market who prefer safer, more stable financial products such as annuities that commission-based professionals offer.
Annuities not only support long-term, tax-deferred savings, but they act like traditional defined benefit pension plans that guarantee lifetime income after you retire. No other financial product can guarantee lifetime income. Under a federal “fiduciary-only” regulation, these products would be virtually off limits to low- and middle-income savers, because the strict requirements would push many financial professionals out of the business. Alternatively, these financial professionals would be forced to become fiduciaries themselves and get compensated in a way that would discourage annuity sales.
Fiduciaries often require account holders to invest at least $100,000. Working families simply don’t have the level of savings needed to meet fiduciary account requirements. One-time fees charged by…
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