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|FOR IMMEDIATE RELEASE||Contact: Jessica Klement|
|April 6, 2016||703-838-7760|
Alexandria, VA – The National Active and Retired Federal Employees Association (NARFE) today applauded publication of the Department of Labor’s final conflict of interest rule and its protections for retirement savings. The rule is designed to ensure that individuals saving for retirement are protected by a “best interest” or “fiduciary” standard when receiving investment advice.
“Release of this rule is a major accomplishment that will help to safeguard the retirement savings of all Americans, including federal employees and retirees who are currently receiving poor advice regarding their Thrift Savings Plan (TSP) holdings,” said NARFE National President Richard G. Thissen. “When you turn to an adviser for guidance on how to invest your hard-earned retirement savings, you should expect to receive advice that is in your best interest, not theirs.”
Under previous law, the best interest standard did not apply to advice given on a one-time basis, advice regarding rollovers, or any advice on investing in an individual retirement account (IRA). Instead, such advice often has been subject only to an extremely weak “suitability” standard, which allows financial advisers to provide recommendations that serve their own interests instead of their clients’. The adviser may receive a better commission, but the investor may be subject to excessive costs, poor performance and unnecessary risk.
“NARFE has been particularly concerned that federal employees and retirees invested in low-fee Thrift Savings Plan funds – the federal employee version of a 401(k) – have not been adequately protected from unsound financial advice regarding their TSP holdings,” said Thissen. “In fact, a 2013 survey of NARFE members revealed that many of them received poor advice about their TSP holdings and options for rollovers once retired.”
Because rollovers were not covered by previous rules, financial advisers legally could recommend that TSP account holders roll over their TSP holdings into an IRA, where the money could be invested in a mutual fund providing the same, or essentially similar, product, such as an S&P 500 index fund, for as much as 20 times the cost. Due to economies of scale, TSP funds charge very low administrative fees – on average, 0.029 percent. These are far less than the fees charged for alternatives that provide the same returns. While there still are some legitimate reasons to roll over TSP holdings into an IRA – such as withdrawal flexibility, higher tolerance for risk and investment in some asset types not available in the TSP funds – the TSP offers a lower cost for a well-diversified investment portfolio than is available in IRAs.
“We call on every member of Congress to reject any efforts to block the implementation of this rule and, instead, stand up for the hard-working Americans who deserve the protections this rule will provide,” concluded Thissen.
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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.
NARFE (National Active and Retired Federal Employees Association)
606 N. Washington St., Alexandria, VA 22314, Phone: (703) 838-7760, Fax: (703) 838-7785.
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