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Labor Department wants to reward financial advisors at the expense of consumers

Thursday, August 10th, 2017

The Labor Department would like to delay a rule that would require financial advisors to act in the best interest of their customers and their retirement accounts.

The federal court filing, made on Wednesday, said the department wants to delay implementation of the rule to July 2019. The full implementation of the rule is currently set for January 2018.

In February, President Donald Trump ordered a review of the Obama-era regulation. Financial companies and lobbyists representing them have opposed the rule. On the same day of the order, White House advisor Gary Cohn, who is a former Goldman Sachs executive, told the Wall Street Journal he thought it was a “bad rule.” Congress has introduced bills trying to kill the rule on multiple occasions.

Right now, there are two standards investors must be aware of — the fiduciary standard and suitability standard. A financial advisor operating under what is called the “suitability standard” is only required to make sure a client’s investment is suitable for the client’s finances, age, and risk tolerance at that point in time, but they don’t have a great legal obligation to monitor the investment for the client.

But under the fiduciary standard, an advisor has to keep monitoring the investment as well as the customer’s overall financial picture. Under the fiduciary standard, advisors also must disclose all of their conflicts of interest, fees, and commissions. Essentially, this makes it more difficult for advisors to push investments that will make them money but may not be in the best interest of their clients.

Retirement plans have changed a lot since the 1970s, when more private workers were enrolled in defined-benefit plans funded by their employers that promised a certain monthly benefit once they retired. Now more people have defined-contribution plans, which don’t promise a specific benefit for people when they retire, requiring them to contribute money to an account they are responsible for. Only 10 percent of workers older than 22 have a traditional pension and only 6 percent of Millennials do. Most workers have to choose how to invest these contributions and manage their own retirement savings but most Americans aren’t knowledgeable on investment decisions.

A 2016 Prudential Investments survey of more than 1,500 Americans showed 42 percent of Americans surveyed didn’t know how their assets were allocated in their portfolios, and 40 percent said they didn’t know how to prepare for retirement. Investment terms are often difficult to understand and investors may be overwhelmed by choices.

The financial industry argument against the rule is essentially that a commission system is necessary to pay for financial advice for the average investor, despite the adverse incentives it creates. Gary Burtless, an economist and senior fellow at the Brookings Institution, has disputed this argument.

“This claim does not seem terribly compelling. There are alternative ways to compensate financial advisors that do not create an obvious conflict between the interests of advisors and retirement savers,” Burtless writes.

The financial industry tried to persuade the public that investors were up in arms over the rule. The Financial Services Institute claimed that consumers sent over 100,000 letters with opinions on the rule. But Money reviewed 100 of the letters FSI claimed were from investors, and found that 64 percent came from financial advisors and people involved in financial companies.

The Trump administration would have to jump through numerous hoops to reverse the progress made on the rule, however, just as Obama officials did when they first wanted to advance the rule. The final rules were issued last year, but first the department took thousands of public comments, held four days of hearings, and 100 stakeholder meetings. The administration would have to field all of these comments and go through this process again to justify whatever changes it would make. It took about six years for the Obama administration to advance the fiduciary rule.

This article was originally published at ThinkProgess on August 10, 2017. Reprinted with permission.

About the Author: Casey Quinlan is a policy reporter at ThinkProgress. She covers economic policy and civil rights issues. Her work has been published in The Establishment, The Atlantic, The Crime Report, and City Limits.

A Winning Week for Corporations and Wall Street—Paid for by Your Health and Retirement

Friday, May 12th, 2017

Corporations and Wall Street won big last week, and working people will pay a high price for it. Here are three things Congress did for Big Business that will harm working people’s health care and retirement:

1. 7 million fewer people will get workplace health benefits. Last Thursday, the U.S. House of Representatives passed the so-called American Health Care Act by a vote of 217-213. This is the bill that President Donald Trump and House Speaker Paul Ryan (R-Wis.) are using to repeal much of the Affordable Care Act and that will cut health coverage for some 24 million people. The U.S. Senate now has to vote.

Professional lobbying groups that represent employers, like the U.S. Chamber of Commerce, are behind this bill because it guts the Affordable Care Act’s requirement that large and mid-size employers offer their full-time employees adequate, affordable health benefits or risk paying a penalty. According to Congress’s budget experts, within 10 years, this bill will result in 7 million fewer Americans getting employer-provided health insurance. Corporate interests also like the huge tax cuts in the House bill, especially the $28 billion for prescription drug corporations and $145 billion for insurance companies.

Big company CEOs—the people who now earn 347 times more what front-line workers earn—are probably salivating over the huge personal tax cuts they will get from the Republican bill. One estimate is that those with million-dollar incomes will receive an average yearly tax cut of more than $50,000. The 400 highest-income households in the United States get an average tax cut of $7 million.

2. As many as 38 million workers will be blocked from saving for retirement at work. The Senate voted 50-49 last Wednesday to stop states from creating retirement savings programs for the 38 million working people whose employers do not offer any kind of retirement plan. The House already had voted to do this, and Trump is expected to sign off on it.

In the absence of meaningful action by the federal government, states have stepped in to address the growing retirement security crisis. But groups that carry water for Wall Street companies, like the Securities Industry and Financial Markets Association, have been actively lobbying Congress and Trump to stop states from helping these workers.

3. More than 100 million retirement investors may lose protections against conflicted investment advice. The House Financial Services Committee approved the so-called Financial CHOICE Act on a party-line vote last Thursday. It now goes to the full House of Representatives, and then to the Senate. In addition to gutting the Consumer Financial Protection Bureau that protects working people from abusive banking practices and ripping out many of the other financial reforms adopted after the 2008 financial crisis, this bill overturns key investor protections for people who have IRAs and 401(k)s. A massive coalition of Wall Street firms and their lobbying groups has been fighting to undo these retirement protections by any means possible.

About the Author: Shaun O’Brien is the Assistant Director for Health and Retirement in the AFL-CIO’s Policy Department, where he oversees development of the Federation’s policies related to Medicare, Medicaid, Social Security, and work-based health and retirement plans. Immediately prior to joining the AFL- CIO, he held several positions at AARP, including the Vice President for the My Money Portfolio and Senior Vice President for Economic Security. O’Brien holds a Bachelor of Arts degree from American University and a law degree from Cornell Law School.

Republicans launch their crusade for elder poverty with repeal of automatic retirement accounts

Friday, April 14th, 2017

America is headed for a retirement crisis—too many people have no significant retirement savings and no pension and will have to rely almost entirely on Social Security benefits that Republicans are constantly trying to cut. You know that the Republican-controlled Congress isn’t going to do anything to fix it, so it’s fallen to cities, towns, and states to try to do something to prevent the disaster we can see approaching us in slow motion. But now, that same Republican-controlled Congress and Donald Trump have teamed up to roll back the ability of cities and towns to protect their future retirees, Bryce Covert reports:

… state and local governments have started setting up auto-IRA savings accounts for private sector workers. Unless a worker opted out, he would get automatically enrolled in such an account, allowing him to save some of his money for retirement.

But there was a question as to whether these accounts ran afoul of federal law. So in August of last year, President Obama finalized a rule that cleared the way for the establishment of these plans and clarified that they wouldn’t conflict with strict rules that apply to pension and retirement plans. That allowed cities and states to move forward.

Under the Congressional Review Act, Congress recently voted to undo Obama’s protections for cities and counties that set up these accounts. On Thursday, Trump put his signature on it, making it official.

States could be next, because why stop at screwing some workers when you could do so much more damage? Combine this with the eternal Republican plans to gut Social Security, and the United States could truly be a nation of senior citizens faced with the choice of working until they drop dead on the job or living on one can of cat food a day.

This article originally appeared at DailyKOS.com on April 14, 2017. Reprinted with permission.

Laura Clawson is a Daily Kos contributing editor since December 2006. Labor editor since 2011.

This week in the war on workers: Republicans take aim at retirement savings program

Monday, February 27th, 2017

The United States is heading for a major retirement crisis, with the shift from pensions to 401(k)s leaving at least half of households in danger of running short of money in retirement. There are a lot of possible solutions to that, and one of them doesn’t even involve employers paying their workers more:

What if people who wait tables, wash cars, take care of children, or perform other low-wage jobs for small businesses—which often don’t offer 401(k) savings plans—could have money taken out of every paycheck and deposited into a low-cost retirement savings account operated through the state government? Five states have enacted plans that are making this possible, and 28 states are at various stages of considering such plans. If all of these states did enact these laws, 63 million people could have access to retirement savings options.

This was the goal of the Obama administration, which put in place regulations to help states that wanted to provide retirement savings options. Though some states had set out on this path before, this new policy that made it easier and safer for states to offer these plans, paved the way for this positive development in the states. This was great news for millions of workers! Make it easy for people whose employers don’t offer retirement savings option to do the responsible thing: put away money every month toward their retirement in a way that limits the amount of their savings that is lost to fees and commissions. It helps people prepare for their old age. It chips away at a looming retirement crisis. What’s not to like?

You know where this is going, right? Of course you do. Republicans don’t like it because of this part: “in a way that limits the amount of their savings that is lost to fees and commissions.” Those fees and commissions don’t vanish into thin air, they go into the bank accounts of rich people. Plus, letting workers save their own money toward retirement creates a little extra work for employers, and there are a lot of crappy bosses out there who’d rather not bother, even if it means their workers will suffer in retirement. So the regulation helping states offer this retirement option is one more regulation being slashed by congressional Republicans.

This article originally appeared at DailyKOS.com on February 25, 2017. Reprinted with permission.

Laura Clawson is a Daily Kos contributing editor since December 2006. Labor editor since 2011.

Saving for retirement isn’t simple when earning poverty wages: The old adage of spend less and save more doesn’t cut it for adjuncts

Monday, October 31st, 2016

It’s National Save for Retirement Week, a time when financial services industry experts offer Americans conventional advice for preparing for their golden years. However, saving for retirement isn’t as simple as these people would have you believe.

A growing number of Americans are struggling just to get by—let alone save for retirement. I should know; I’m one of them. There’s no such thing as a retirement for me.

As an adjunct professor, my wages are so low that I haven’t been saving for retirement.  I’ll be working until they carry me out of my job. That’s what makes retirement terrifying for me.

Many of my colleagues around the country share my fears and retirement prospects.

Nearly a third of part-time faculty at our nation’s colleges and universities are living near, at or below the poverty line.

The old adage of spend less and save more doesn’t apply to us.

Although I’ve been teaching writing and literature at small Vermont colleges for more than 35 years, this year I will only earn $10,000. This makes it difficult to save for retirement or anything else. With the help of my modest Social Security income (which is about $900 a month) I just purchased my first home—a mobile home—last year. I’m 67 years old.

You see, saving for retirement isn’t as simple as opening an IRA at your local bank or diversifying your portfolio when you’re an adjunct instructor. In fact, this advice isn’t applicable to many working Americans in today’s economy.

Wealthy corporations have pushed down employee wages and benefits making it harder for the average person to save for retirement. They have also eliminated the pension plans that our parents and grandparents fought for decades ago.

As a result, the availability of retirement savings is often tied to income for today’s workers who have fewer savings options than previous generations. Nearly half of working-age households do not own any retirement account assets. Those of us who aren’t earning the big bucks are unlikely to have a retirement account. Those who do have retirement accounts have virtually no money in them.

According to the National Institute on Retirement Security, the median retirement account balance is $2,500 for all working-age households and $14,500 for near-retirement households.

If the financial services industry wants to help more working families prepare for retirement, it should acknowledge the old advice isn’t working.

Times are changing and so is my profession. Adjuncts around the country are standing together and forming unions to get better pay and benefits. We’re even winning retirement benefits for adjuncts, including those at my job, who didn’t have access to our employer’s plan.

I’m also hopeful that our approach to retirement planning will change too.  Several states around the country have begun to address the retirement security crisis faced by low income families by creating plans for people who don’t have access to one at work.

Plans like the California Secure Choice Retirement Savings Program would help many adjuncts around the country achieve a simple, dignified retirement after lifetime of hard work and playing by the rules. Hopefully, Vermont lawmakers will pass a similar bill soon.

Also, more lawmakers need to do more to make it easier for our nation’s educators to retire by expanding Social Security to increase benefits.  After all, teachers do very important work.

This article was originally printed on SEIU.org in October 2016.  Reprinted with permission.

Sharyn Layfield is an adjunct professor at St Michael’s College in Vermont.

House Republicans Have A Temper Tantrum Over Rule That Bans Financial Advisers From Scamming Retirees

Monday, May 2nd, 2016

Bryce CovertThe Department of Labor (DOL) has finalized rules that require financial advisers who help people make investments for retirement to put their clients’ interests ahead of their own. But House Republicans aren’t letting the rule go into effect without a fight.

On Thursday, the House voted on a resolution that would effectively block the new rules, which require advisers to adhere to a “fiduciary standard,” that passed along strict party lines, with 234 Republicans voting yes and 183 Democrats voting no. Republicans claim that the rule will make investment advice more expensive, with Rep. Phil Roe (R-TN), a sponsor of the legislation, saying it would “protect access to affordable retirement advice.” They’ve also characterized the rules as government overreach, with House Speaker Paul Ryan (R-WI) calling them “Obamacare for financial planning.”

Their position mirrors that of the financial industry, which has fought the rules with claims about the impact they could have on their businesses that Sen. Elizabeth Warren (D-MA) has questioned as being disingenuous. Ahead of the House vote on the resolution, eight big financial industry trade groups sent a letter to lawmakers urging them to vote in favor of the resolution.

The vote, however, is a largely symbolic move. For the resolution to have any power, it would have to be taken up and passed by the Senate, and President Obama would have to sign it. But he’s already threatened to veto the measure. DOL Secretary Thomas Perez called Thursday’s vote “a waste of time.”

Before the new standard, advisers were only required to give “suitable” advice, which left the door open for them to steer clients into products that made the advisers more money but weren’t the best option. That practice was costing Americans an estimated$17 billion a year in conflicted advice, according to the White House. Some people say their finances, particularly their chances of retiring comfortably, have been destroyed by bad advice and that they would have simply been better off without it.

Americans have little wiggle room for losing money when it comes to saving enough for retirement. Pensions, which guarantee payments in old age, have beenoverwhelmingly replaced with 401(k)s, which require individual workers to make smart investment choices in order to have enough to live off of when they stop working. And by and large workers aren’t putting enough aside. The gap between what they should have saved up and what they’ve actually put away is $6.6 trillion. Meanwhile, about 60 percent of working age people have no retirement savings at all.

This blog originally appeared on Thinkprogress.org on April 29, 2016. Reprinted with permission.

Bryce Covert Bryce Covert is the Economic Policy Editor for ThinkProgress. Her writing has appeared in the New York Times, The New York Daily News, New York Magazine, Slate, The New Republic, and others. She has appeared on ABC, CBS, MSNBC, and other outlets.

401(k) Retirement Plans Amplify Income Inequality and Racial Disparities

Thursday, March 3rd, 2016

Isaiah J. Poole

It’s bad enough that the move toward individual retirement plans has been a massive failure when it comes to providing average working Americans retirement security. But now there’s research that shows that our dependence on individual retirement plans adds fuel to the fire of racial and class inequities in ways that the pension plans that used to be common did not.

The Economic Policy Institute presented that research Thursday in its “State of American Retirement” report. The report underscores the need to keep up the fight for strengthening Social Security and increasing its benefits, rather than cutting them.

“We’re moving toward a retirement system that magnifies inequality,” said Monique Morrissey, the EPI economist who wrote the report. That happened, she said, as the percentage of workers who received a pension (a “defined benefit plan”) declined from 35 percent of private-sector workers in the early 1990s to less than 20 percent today. (In the early 1980s, the percentage of private-sector workers in large companies that had a pension exceeded 80 percent.)

Pension plans were surprisingly egalitarian, Morrissey said, in the sense that once you got a job with a pension, what you received in retirement was affected only by your wages and years with the company. With “defined contribution plans” – like 401(k)s and individual retirement accounts (IRAs) – differences widen by race and class.

According to the report, among the people in the top 20 percent of income, nine out of 10 have retirement account savings; among those in the bottom 20 percent, it’s worse than totally flipped; fewer than one in 10 have any retirement account at all. The workers at the top fifth of the income scale accounted for 63 percent of total income, but have 74 percent of the total stashed in personal retirement accounts.

Only 41 percent of black families and 26 percent of Hispanic families had retirement account savings in 2013; 61 percent of white households do. The average retirement account among African-American and Hispanic workers contains about $22,000; for whites, the average account contains $73,000. On top of that, research shows that African Americans are disproportionately in jobs where retirement plans are simply not offered. “401(k)s have really been a disaster for African Americans,” Morrissey said.

In fact, for all ordinary workers, “401(k)s were never designed to be a primary retirement plan,” Morrissey said. Yet they filled that role at the same time President Ronald Reagan and Congress cut a deal to improve the solvency of Social Security that pushed back the retirement age over time from 65 to 67 – and at the same time worker wages stopped keeping pace with productivity and with income gains for corporate executives.

The result is that today fewer Americans than ever will have a financially secure retirement. The Government Accountability Office in 2014 found that half of all households age 55 and older have no retirement savings at all; close to 30 percent also do not have a pension to rely on, either. Of those who do have a 401(k) or IRA-type plan who were between the ages of 55 and 64, their retirement savings would yield a monthly check upon retirement of about $310 a month.

Morrissey said these realities reinforce the case for expanding Social Security benefits. “That’s the number one thing we need to be doing,” she said. (To support the call for strengthening Social Security benefits, add your name to this petition.)

She added that while waiting for action at the federal level, states can play a role. For example, the California Secure Choice Retirement Plan would opt workers into making regular contributions to a state-managed plan if they did not have a retirement plan available in their job. The state plan would invest in a balanced portfolio of assets that would not be driven by the kinds of management fee incentives that often drive retirement plan investments.

This blog originally appeared at OurFuture.org on March 3, 2016. Reprinted with permission.

Isaiah J. Poole worked at Campaign for America’s Future. He attended Pennsylvania State University and lives in Washington, DC.

Read our lips: Americans want to expand Social Security - not to raise the retirement age

Sunday, October 25th, 2015

seiu

The recent presidential debates reminds us that Democrats and Republicans are polar opposites when it comes to Social Security.

While many of the Democratic candidates want to bolster the program and increase benefits, GOP candidates Chris Christie, Ben Carson, Jeb Bush and Marco Rubio have all called for cutting Social Security’s modest benefits by raising the retirement age.

Raising the retirement age may not be a big deal for the wealthy Americans who finance political campaigns or even politicians proposing these cuts. However, it would have a devastating impact on Americans who live paycheck to paycheck, including Patricia Walker of Tampa, Fla.

“For me as a home care worker, I couldn’t work until 70. I already have problems with my knees. I’m already trying to make it,” says Walker, who’s in her early 50s.

Although she works long hours, Walker’s low wages prevent her from being able to purchase a car let alone save money for her golden years. Social Security will be her only plan for retirement.

If Walker and other working Americans apply for Social Security’s retirement benefits before they reach the full retirement age, their benefits will be permanently reduced. For example, when someone retires at age 62, their benefit would be about 25 percent lower than it would be if they waited until they reach full retirement age.

This is a Social Security cut Republican presidential contenders seemingly want to avoid discussing while on the campaign trail.

These same candidates also seem to be ignoring the voices of voters who want lawmakers to expand Social Security; not cut its already modest benefits.

A 2014 poll from the National Academy of Social Insurance found 69 percent of Republicans, 84 percent of Democrats and 76 percent of independent voters support Social Security and they don’t mind paying higher taxes to preserve benefits for future generations. The poll also found 71 percent of Republicans, 79 percent of Democrats and 70 percent of independent voters oppose raising the full retirement age to 70.

Republicans calling for raising the retirement age may be willing to ignore the fact that income levels and life-expectancy rates remain stagnant for the poor as well as the needs of nurses, home care providers, construction workers and others with strenuous jobs that would suffer under their proposal.

One thing any presidential candidate can’t ignore is the retirement crisis looming over the United States. Our country’s next president must be willing to put ideology aside and focus on policies to deliver retirement security to more workers. That includes increasing Social Security benefits, especially for low- and middle-income workers.

Wonder what your full retirement age will be or how your monthly benefits may be reduced if you retire before your full retirement age? Click here.

This article was originally printed on SEIU in October, 2015.  Reprinted with permission.

A New Approach (and Attitude) Needed for Social Security

Tuesday, January 7th, 2014

seiu-org-logoA recent study from the National Institute on Retirement Security (NIRS) finds while the retirement crisis affects all, it is particularly dire for households of color. Fewer than half of blacks and Latino workers have retirement plans on the job, leaving the vast majority with no retirement savings and more likely to depend on Social Security’s modest benefits.

What’s equally as disturbing as the findings of this study is the position toward Social Security taken by Charles Blahous, research fellow with the Hoover Institution and one of the trustees appointed to oversee Social Security and Medicare.

In an email interview with the Washington Post, Blahous argued that Social Security has the perverse effect of discouraging cash-strapped people from making a priority of retirement savings.

“A true answer to the problem would mean decreasing our society’s dependence on income transfer programs as a source of retirement income, and increasing the net amount of saving that we do,” he said.

As someone appointed to oversee Social Security, he should know this program remains the foundation of retirement security for almost all Americans as it is the only portable defined benefit retirement plan available to virtually all workers. The problem with Social Security is that alone it doesn’t provide retirees with adequate income as the program was never meant to be the sole source of retirement savings.

More than 65 percent of single and married seniors depended on Social Security for the majority of their income in 2010. We can only expect our reliance on this program to increase as private employers freeze pension plans and cut retirement contributions of all types.

According to the National Academy of Social Insurance, 87 percent of Americans? including 71 percent of Republicans, 97 percent of Democrats, and 86 percent of independents? agree it is critical to preserve Social Security for future generations even if it means increasing taxes paid by wealthier Americans. It’s time for lawmakers and those who help to shape policies to listen to their constituencies who want an opportunity to retire with dignity after a lifetime of hard work and playing by the rules.

This article was originally printed on SEIU on January 6, 2014.  Reprinted with permission.

Author: Eileen Kirlin, SEIU Executive Vice President

Bold Policies Will Solve Retirement Inequality

Friday, September 27th, 2013

seiu-org-logoRondell Johnson is a 23-year-old baggage handler at the Philadelphia International Airport. He aspires to one day attend business school and prepare for a career as a real estate entrepreneur. But he, like many other low-wage workers who work full time for minimum wages, brings in “just over $15,000 a year before taxes.”

The poverty line for one person who lives alone is $11,490.

The latest Census Bureau data on poverty is a sobering reminder of America’s need to address income inequality. It’s also a wake-up call for lawmakers to create bold policies to strengthen our nation’s retirement system.

Under our current policies, retirement has become one of the greatest examples of income inequality in America. The availability of retirement savings is often tied to income for today’s workers who have fewer savings options than previous generations.

For low-wage workers such as Johnson, obtaining a secure job with decent wages feels difficult, and achieving a secure retirement is virtually impossible.

“I don’t want to retire where I started,” he says. “I started broke. I started in poverty. I’m going to retire into poverty, too? Then what has my life been about at that point?”

A recent report from the Economic Policy Institute shows Rondell’s story is more common today than it was 20 years ago. Our shift from traditional pensions to more individualized savings plans such as the 401(k) has helped spur retirement income inequality in America.

The majority of our most affluent workers have savings sitting in a 401(k) or similar retirement savings account which averaged $308,674 in 2010.

In contrast, only 52 percent of middle-class Americans have savings in retirement accounts where the average balance was only $34,981.

Retirement savings options and balances are severely low for America’s poorest workers who are less likely to have access to a retirement plan at work or cannot afford to contribute enough out of their own stagnant wages. Only 11 percent of workers, representing the lowest quartile, have any 401(k) savings. Their average savings balance is just $7,543.

The rise of the 401(k) has also helped lead to a greater reliance on Social Security. Although Social Security benefits were never intended to be a stand-alone retirement plan, it is the primary source of income for 65.3 percent of retirees.

Perhaps one of the boldest, income gap closing policies lawmakers can implement is strengthening Social Security by making everyone pay their fair share.

If wealthy bankers, CEOs, athletes and celebrities contributed the same percentage of their income to fund Social Security as the 99%, we would also be able to significantly improve benefits for current low-income retirees receiving $1,200 or less a month, deliver retirement security to more workers, and help close the wealth gap.

This article was originally printed on SEIU on September 27, 2013.  Reprinted with permission.

Author: KEIANA GREENE-PAGE.

 

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