The DOL's new rules increase fee dis-
closures and put the best interests of
the client first. No longer may financial
advisors rely on the suitability stan-
dard, which required investment rec-
ommendations to be suitable but did
not require the advisors to put the cli-
ent's interests first. Financial advisors
must now act in the best interests of
the client, and all fees and commis-
sions must be fully disclosed.
The practical effect of the rule change
is that fewer investment advisors will
charge on a commission basis, and,
as a consequence of fee transparency
and the additional scrutiny, advisors
may be less interested in smaller 401(k)
rollovers. As Pioneer Investments
points out in one of its publications, "If
the RIA (registered investment advisor)
will receive more compensation from
rolling an IRA than from the plan (e.g.,
a higher percentage of the assets), the
recommendation will be a prohibited
At one time the benefits of rolling
401(k) dollars out of an employer's
plan and into an individual IRA were
believed to outweigh the risks. Advan-
tages of a rollover include the flexibility
to tap into greater investment choice
options, to take advantage of a Roth
IRA, to have additional payout options
upon death, and for some, the com-
fort of having immediate control over
retirement funds, skipping over plan
Potential risks of rollovers have been
thrown into sharper relief as a result of
the DOL's fiduciary rule. Pooled assets
within a plan may entitle the retiree to
institutionally priced fees, lower than
those paid by an individual IRA ac-
count holder. In addition, moving mon-
ey out of a 401(k) may force retirees
to take on investment decisions they
aren't equipped to handle when com-
pared to investment advice available
within the defined contribution plan.
Some defined contribution plan fidu-
ciaries are actively deepening their
plan's commitment to in-plan retirees
as part of their duty to diversify in-
creasing education, communication,
and resources to assist this growing
group. Educating in-plan retirees about
portfolio risk in retirement is particularly
crucial to participant outcomes.
The Retirement Risk Conundrum
If you Google "retirement risks," you
will likely be returned an eight-item list:
longevity risk, investment (sequence
of returns) risk, interest rate risk, with-
drawal rate risk, inflation, cognitive
impairment, unanticipated major ex-
penses, and public policy risk. Most
of these risks are challenging and, in
some cases (e.g., unanticipated major
expenses and public policy risk), im-
possible to manage completely.
When it comes to the glide path for
investments during retirement, Baby
Boomers may end up turning conven-
tional wisdom on its head once again.
Prior generations tended to move into
a higher ratio of fixed income to equi-
ties as they moved deeper into retire-
ment. Lifecycle funds tend to employ
a declining equities glidepath, shifting
from equities to fixed income the clos-
er one draws to retirement.
For those who retired during the great
recession beginning in the late 2000s
We are in large part in
uncharted territory, as
Baby Boomers are the
first generation to use
defined contribution plans
as their primary retirement
What do the numbers say?
How close is the rate to 100%?
Overall savings rates
What is the average deferral rate and
the median deferral rate? If there
is an employer match, what is the
total deferral rate? How close does
the total deferral rate get to the rate
the retirement plan committee is
encouraging participants to achieve?
What percentage of plan participants
hold assets sufficient for an income
replacement ratio of 70% or more?
What are the tranches of the remaining
These are identified by
the retirement plan com-
mittee to help participants
achieve their goals.
Education and communication
Not only general investment advice,
but also sessions and communication
structured for participant career stages.
Plan design and behavioral triggers
Auto-enrollment, auto-escalation, auto
re-enrollment, and/or increasing the
percentage employees must defer to
have the full employer match.
In-plan retirement income.
Is the committee fulfilling its
duties? Meeting regularly?
procedures, and results? Keeping
current with DOL regulations?
Pioneer Investment, "Concerns Advisors Now Face With the DOL's Fiduciary Rule."