New Fiduciary Rule Does NOT Apply to K-12 403(b)
April 30, 2024
Nearly four years after the Trump Administration killed the fiduciary rule (see below), the Department of Labor announced sweeping new protections for retirement savers, especially those in 401(k) plans. While the new rule applies primarily to retirement savings plans covered by the Employee Retirement Income Security Act (ERISA), the news is not all bad for savers in K-12 403(b) plans which unconscionably do NOT enjoy ERISA fiduciary protections.
- Trump Leaves Elderly Savers Vulnerable by Dooming Broker-Conflict Rule
- Trump, The Fiduciary Rule And Your IRA
- Trump Killed the Fiduciary Rule. Sales of Questionable Investment Products Soared
New DOL Final Fiduciary Rule
“The rule and amended prohibited transaction exemptions (PTEs) will protect retirement investors by requiring trusted advice providers to follow high standards of care and loyalty when they make investment recommendations. Under the final rulemaking, trusted advisers will have to:
- Meet a professional standard of care when making recommendations (give prudent advice);
- Never put their financial interests ahead of the retirement investor's when making recommendations (give loyal advice);
- Avoid misleading statements about conflicts of interest, fees, and investments;
- Charge no more than what is reasonable for their services; and
- Give the retirement investor basic information about the adviser's conflicts of interest.
Retirement investors should expect no less from trusted investment professionals. The rule and exemptions are carefully designed to honor retirement investors' legitimate expectation of advice that is in their best interest.” - from DOL Fact Sheet.
Silver Linings for K-12 403(b) Plans
- Will apply to rollovers out of K-12 403(b) plans — Rollovers out of retirement plans, especially the K-12 403(b) are ripe for abuse. A non-fiduciary advisor can generate substantial financial reward by rolling money into investments that benefit the advisor over the client. That ends on September 23, 2024.
- More ammo for why the K-12 403(b) should enjoy the same fiduciary protections as 401(k) contributors — Is it not bonkers that educators are the only unprotected class of retirement plan savers?
- Participants should ask every "trusted" advisor in the lounge if they will adhere to the new Retirement Security Rule. And if not, why not?
- Educators should make their employer aware of this fiduciary protection loophole and insist they put their plan out to be bid to ensure the best non-ERISA plan possible. Montgomery County Public Schools in Maryland did this very thing. Learn how they accomplished this in Episode 5 of Learned by Being Burned: Teachers and the K-12 403(b).
Goes Into Affect September 23, 2024
Beware because I suspect a tsunami of rollovers by non-fiduciary advisors who love to call themselves "trusted" advisor before new rule goes into effect.
Stay wise and well (ask every "trusted" adisor in the lounge if they will adhere to the new Retirement Security Rule. They won't. But maybe your colleagues will hear their answer).
