Predicting the Future
Last Friday, Punxsutawney Phil emerged from his home on Gobbler’s Knob and didn’t see his shadow.
As legend has it, this means we’re due for an early spring.
It’s anybody’s guess whether Phil will be right. Predicting the future is usually pure speculation.
But sometimes it’s quite simple. We know what will happen if the Department of Labor’s ill-advised fiduciary-only regulation is adopted. After all, we’ve seen it all before.
The DOL tried to advance a restrictive fiduciary-only package in 2016. Two years later that rule was vacated by a federal court. But before the Fifth Circuit acted, more than 10 million American workers’ accounts with $900 billion in savings lost access to professional financial guidance, according to a 2018 Deloitte study.
If the DOL presses forward with its proposed fiduciary-only package, millions of middle-income Americans will be impacted. In a recent letter to the DOL calling for the proposal to be abandoned, a bipartisan group of 50 House members cited a Quantria Strategies study that showed that if the rule was reinstated, it would reduce the projected accumulated retirement savings of 2.7 million individuals with incomes below $100,000 by approximately $140 billion over 10 years. In addition, the wealth gap for Black and Hispanic Americans would increase roughly 20%.
Saving for retirement is hard enough, especially since most workers no longer have access to traditional pensions. The DOL rule would make it even harder by restricting access to annuities, which enable people to create their own stream of guaranteed lifetime income. It’s not surprising that annuity sales set records last year, as they can provide financial certainty throughout retirement.
The median household income among annuity owners is $76,000 a year. The median household income in the United States is $63,000. You don’t need a crystal ball to see that annuities are clearly a middle-income product and that the DOL’s proposal would restrict retirement options and build a barrier to financial inclusion.
The DOL’s proposal also ignores what is happening around the country. Since 2020, 42 states representing nearly 80% of U.S. consumers have implemented enhanced consumer protections in the National Association of Insurance Commissioners updated model regulation on annuity transactions. These robust state measures protect consumers against conflicts of interest while also protecting consumer access to retirement options.
Let’s end with another prediction: by the time Punxsutawney Phil shows up next year, most, if not all, of the remaining states will have passed similar measures. And hopefully the DOL’s proposal will be withdrawn and long forgotten.