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New Rule on 401(k) Rollovers Takes Effect


The Labor Department said late last week that it will build upon a Trump administration regulation governing advice that affects the trillions of dollars in retirement accounts, rather than replace it.

The measure, which goes into effect Tuesday, will cause many rollovers, in which hundreds of billions of dollars move annually from 401(k)s to individual retirement accounts, to be more heavily regulated. It also gives investors who feel they have been given bad rollover advice the right to file a lawsuit or arbitration claim.

Because investment fees tend to be lower in 401(k) plans than in IRAs, “financial firms have a strong incentive to get you to move money out of your 401(k) plan into an IRA, where they can manage it more profitably,” said Barbara Roper, director of investor protection at the nonprofit Consumer Federation of America.

“This is a signal from the Labor Department that they are going to continue to beef up consumer protections to ensure rollover recommendations are really in consumers’ best interests,” she said.

The regulation also will hold advisers to IRA owners to a higher standard when it comes to managing conflicts of interest, including those that arise in the sale of products such as variable annuities that pay commissions or other sales incentives, said Fred Reish, a lawyer who specializes in employee benefits.

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