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NARFE President to Testify August 12 on DOL Rule to Protect Investors from Bad Advice

FOR IMMEDIATE RELEASE Contact: Jessica Klement
August 11, 2015 jklement@narfe.org
  703-838-7760

Alexandria, VA – Richard G. Thissen, National President of the National Active and Retired Federal Employees Association (NARFE), will testify before the Department of Labor (DOL) tomorrow, Wednesday, August 12, in support of DOL’s Conflict of Interest Rule Proposal, which updates the definition of “fiduciary investment advice” under the Employee Retirement Income Security Act (ERISA) to ensure individuals saving for retirement are protected by a “best interest standard” when receiving investment advice.

The rule proposes regulatory changes to defining who is a “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA), as well as who is a “fiduciary” of a plan (including an individual retirement account (IRA)) under section 4975 of the Internal Revenue Code of 1986, as a result of giving investment advice to a plan or its participants or beneficiaries.

In his written testimony, Thissen said, “NARFE believes the proposed rule will protect individuals, including federal employees and retirees, from receiving unsound retirement investment advice. If finalized, the rule should result in better investments and/or lower fees and, therefore, lead to greater returns on the hard-earned retirement savings of millions of Americans.”

Specifically, the proposed rule updates the definition of fiduciary investment advice under ERISA to ensure individuals saving for retirement are protected by a best interest standard when receiving investment advice. Under the current rule, the best interest standard does not apply to advice given on a one-time basis, advice regarding rollovers or advice on investing in an IRA. Instead, such advice is often subject only to an extremely weak “suitability” standard, which allows financial advisers to provide recommendations that serve their own interests instead of their clients’ best interests. The adviser may receive a better commission, but the investor may be subject to excessive costs, poor performance and even unnecessary risk.

NARFE is particularly concerned that federal employees and retirees, as well as uniformed service members, invested in low-fee Thrift Savings Plan (TSP) funds currently are not adequately protected from bad financial advice regarding their TSP holdings. To this end, Thissen will testify, “Because rollovers are not covered by the existing definition of fiduciary investment advice, financial advisers may legally recommend that TSP account holders roll over their TSP holdings into an IRA, where the money may be invested in the same, or essentially similar, products, such as an S&P 500 index mutual fund, for as much as 50 times the cost. Due to economies of scale, TSP funds charge very low administrative fees – on average, 0.029 percent. Investing in these funds is far cheaper than alternatives that provide the same, or essentially similar, returns.”

For a copy of Thissen’s full written testimony before the DOL, click here.

The hearing will be streamed live on DOL’s website, which can be accessed here.

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The National Active and Retired Federal Employees Association (NARFE), one of America’s oldest and largest associations, was founded in 1921 with the mission of protecting the earned rights and benefits of America’s active and retired federal workers. The largest federal employee/retiree organization, NARFE represents the interests of nearly five million current and future federal annuitants, spouses and survivors.