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Fiduciary Rule Delay to Cost Investors $11 Billion: Economic Policy Institute

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Consumer groups have come out in full force against the Labor Department’s plan to delay implementation of the fiduciary rule and potentially water it down.

(Related: DOL Set for 15-Day Comment Period on Fiduciary Rule Delay)

“ ‘Delay’ is just another word for ‘decimate,’” said Karen Friedman, executive vice president at the Pension Rights Center, in a statement from the Save Our Retirement Coalition. The statement was released today, marking the end of a 15-day comment period for the Labor Department’s latest proposal.

(Related: Critics of DOL Fiduciary Rule Push for Long Delays)

Heidi Shierholz, the policy director of the Economic Policy Institute, another coalition member, said the delay of the fiduciary plan, from Jan.1, 2018 to July 1, 2019, “literally takes billions of dollars out of retirement savers’ pockets.”

(Related: DOL Releases Fiduciary Rule Request for Information)

More specifically, the delay from January 1, 2018 until July 1, 2019, will cost consumers billion $10.9 billion over 30 years, according to an extensive comment letter that EPI filed with Labor. (That figure is the midpoint of projected losses between $5.5 billion and $16.3 billion.)

In addition, EPI says the current delay of full implementation of the rule will cost workers between $2 billion and $5.9 billion over the next 30 years (the midpoint is $3.9 billion).

How much is actually lost will depend on compliance with the final rule, and EPI projects compliance will range between 75% and 25%, which explains the wide range of projected losses. (The $10.9 billion figure is based on a 50% compliance rate.)

The EPI analysis is based on methodologies and assumptions from a 2015 report released by President Barack Obama’s Council of Economic Advisers, which underpinned the original fiduciary rule developed by his Labor Department, and an April 2017 report from Morningstar focused on how new mutual fund share classes could reduce conflicted financial advice.

But the council’s assumptions are limited, focusing on only IRA assets and not Keogh plans or 401(k) plans, and on load funds and variable annuities, excluding fixed annuities and other mutual funds, so the losses could be greater than it projects, according to EPI.

In addition, notes EPI, the Morningstar report finds that the use of the less conflicted T shares could boost returns by about 50 basis points when the spread between A shares with a front-end load, charging 5.75%, and T shares charging 2.5% is much greater than that.

 “Without effective enforcement, however, mutual fund companies have little incentive to market these lower-cost and higher-performing funds,” the EPI writes.


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