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Representative Darin LaHood

Representing the 18th District of Illinois

Guest commentary: 'Fiduciary rule' targets middle class

May 2, 2016

It’s May 1st, and that means that tax season — when Uncle Sam dips into our pockets and takes far more than his fair share — is behind us. But the Department of Labor just made it even more difficult for workers to get ahead.

What’s the best way to save for retirement? How should you invest in your 30s versus your 50s? Who should you turn to if the stock market dips?

We can’t all afford a personal financial adviser to answer these questions, build a retirement plan, and determine the best savings strategy for our family. Various financial service firms and their advisers or agents, such as State Farm, fill in the gap and offer services and products to help low and moderate income investors make the best decisions about their finances.

It’s called the “fiduciary rule.” On April 8, the Labor Department published this rule that reclassifies and expands the scope of individuals considered “financial advisers” for purposes of federal regulation — and expands Labor's authority into the individual retirement account (IRA) marketplace.

What sounds like a technical role distinction in D.C. actually is a pretty big deal that reaches into local communities and middle-class pocketbooks in Central Illinois and across the country.

The bottom line? The rule drastically narrows the access that hardworking Americans have to retirement advice. It hurts middle and working class families trying to save for a secure retirement and it penalizes small businesses that want to provide benefits for their employees.

Th rule change will significantly raise legal and compliance costs, hindering companies and their advising agents like State Farm from continuing to provide these services to small businesses and customers. Ultimately, this will drastically narrow who can give you financial advice.

How? Let's take just one element of the rule. If you leave an employer to start your own business or begin a new job, you are often required to roll over your previous employer's 401(k) plan to an IRA or a new 401(k) program.

But the new rule restricts your previous employer from providing guidance in this important process. For example, withdrawing from a retirement account has significant tax penalties and rolling these funds into an IRA can be beneficial to the employee over the long run.

That’s not all. This rule targets small businesses trying to offer their employees a retirement program, like a 401(k). Because of this rule, they will face more challenges in getting good advice on what products they can offer because brokers and agents will have to risk steep legal liability.

Ultimately, this rule widens the chasm between those who can afford to hire expensive advisers to navigate the legal world of finance and those who cannot.

What’s the kicker? While private companies face the their biggest mandated overhaul in a decade, the Labor Department has proposed waivers so new state-run retirement plans don’t have the same regulatory burden as private employers. If this fiduciary rule truly benefits hard-working American families, then why is the government exempting itself? Why not make all retirement plans comply? This sounds far too familiar to Obamacare, doesn’t it?

House Republicans are fighting to roll back this rule. Last week, I debated in favor of H.J. Res. 88 on the house floor, a joint resolution passed by the House to nullify the Department of Labor’s rule. If signed into law, this resolution would block the rule, preventing it from going into effect.

We should be making it easier — not harder— for Americans to save for retirement.