Removing IRAs from DOL Authority
A new piece of legislation has been introduced to eliminate the DOL's regulatory authority over IRAs. If passed, it would mean that IRAs would no longer be subject to the DOL's prohibited transaction rules. The law would, however, preserve a ban on self-dealing and eliminate tax benefits for IRA owners who improperly use IRA assets for personal benefits. The law would clarify that individual IRA owners would not need a specific exemption to access reduced cost or enhanced services and products that are already allowed through another type of account.
This has meant that IRAs have been subject to DOL fiduciary rulemaking (including the Obama-era fiduciary rule in 2016 and the Biden-era retirement security rule in 2024, arguably creating confusion for advisors and limiting advisory services for IRA owners. The Simplifying Modern Access to Retirement Tools for Savings (SMART Savings) Act was introduced by Republicans in both the House and Senate.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about recent proposals to remove IRAs from the DOL's regulatory authority.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Byrnes: The prohibited transaction rules were designed for large employer-sponsored retirement and pension plans, not individual IRAs. It makes absolute sense that Congress should act to remove IRAs from the DOL's regulatory reach. Prohibited transaction rules enforced by the DOL were designed entirely to protect participants in large employer-sponsored pension plans. They're entirely inappropriate when it comes to individual retirement accounts, where account holders have the ability to make their own investment selections if they so choose.
Bloink: The Department of Labor is tasked with protecting the interests of retirement savings--in recent years, primarily via the ever-evolving investment advice fiduciary standard and related prohibited transaction safe harbors. IRAs are an incredibly common retirement savings vehicle. Removing IRAs from the DOL's regulatory reach would leave roughly 65 million American retirement investors without the protections they deserve.
_______________________________________________________
Byrnes: We've all seen that the DOL also has a tendency to overreach when it comes to its fiduciary advice standard--bringing many advisors within the fiduciary purview even if they're only making one-off investment advice recommendations. That means more advisors are likely to avoid providing much-needed advice to individual retirement savings looking for advice about their IRA investments. By removing IRAs from the DOL's regulatory reach, we're really taking a step to ensure hardworking Americans have access to the investment advice they need.
Bloink: American retirement savers deserve to be able to depend on the investment advice they receive regardless of the savings vehicle they use. In today's gig economy, many savers are limited to IRAs. The DOL is the primary regulatory body tasked with providing standards that govern investment advisors' obligations and duties, regardless of the type of investment vehicle involved. This proposal is yet another GOP attempt to limit fiduciary obligations for advisors who provide conflicted advice.
_______________________________________________________
Byrnes: The rules retain the existing ban on self-dealing, so those regulations will remain in place. This proposal would simply remove the IRA vehicle from those fiduciary-enforcement rules that weren't meant for privately owned IRAs in the first place. Congress' proposal to limit the DOL overreach in the fiduciary arena is entirely justified.
Bloink: The bottom line is that American IRA investors deserve all of the protections that the law has to offer. Sure, the prohibited transaction rules were initially designed with an eye toward large employer-provided pensions, but DOL regulations have evolved over the years to reflect the changing reality of Americans' retirement savings behaviors and choices. This proposal is simply an attempt to circumvent any forthcoming fiduciary liability or enforcement going forward.