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Proposed rule would combat retirement plan conflicts of interest

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The U.S. Department of Labor has released a proposed rule designed to protect 401(k) and IRA investors by cracking down on conflicts of interest in the retirement plan marketplace. The proposed rule would update and close loopholes in the nearly 40-year-old Employee Retirement Income Security Act, which governs employer-sponsored retirement plans.

In February, a White House Council of Economic Advisers analysis found that conflicts of interest siphon off about 1% per year from retirement investments—an annual total of about $17 billion.

Under the rule, retirement advisors would be required to put their clients’ best interests before their own profits. Those who wish to receive commission payments from companies selling products they recommend will need to rely on one of several proposed prohibited transaction exemptions.

“This boils down to a very simple concept: if someone is paid to give you retirement investment advice, that person should be working in your best interest,” said Secretary of Labor Thomas E. Perez. “Under the proposed rule, retirement advisors can be paid in various ways, as long as they are willing to put their customers’ best interests first.”

The proposed rule would expand the number of persons who are subject to fiduciary best-interest standards when they provide retirement investment advice.

Here are links to the proposed fiduciary rule, prohibited transaction exemptions and an economic impact analysis.

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