Jun 17, 2015 - 9:15am

Perez’s Perilous Costs: 4 Eye-Catching Numbers DOL Is Ignoring With Retirement Proposal


Former Senior Manager, Member Outreach and Communications

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Tom Perez, U.S. secretary of labor, speaks during an interview in Washington, D.C. Photo Credit: David Banks/Bloomberg

The Department of Labor (DOL) can do many things, but basic math does not appear to be one of them. It recently proposed a sweeping rewrite of rules governing retirement savings plans, and while DOL may be well intentioned its numbers are not adding up. When we are talking about trillions of dollars in investment and lifetimes worth of savings, the government owes it to people to be sure it is not costing them more than it is saving them.

Secretary of Labor Tom Perez will testify before Congress today and will no doubt defend the department’s proposal. But here are four numbers you will not hear from the secretary -- and that you should seriously consider.

  1. $472 Billion in Retirement Savings – Small business owners, through SEP and SIMPLE-type IRA plans, provide roughly $472 billion in retirement savings to their employees. But DOL’s proposal does not treat small business retirement plans the same relative to large employer plans, putting them at a disadvantage and making it harder for small business owners to do the right thing for their employees.
  2. 9 Million Households – Studies estimate that more than 9 million households in the United States own IRAs as a result of small employer-provided retirement plans. Because DOL has included advisors to small businesses in its fiduciary definition, many small business employees trying to save for retirement will no longer enjoy access to low-cost investment assistance.
  3. $100 Billion in Prevented Losses – Ironically, DOL itself has estimated that access to professional investment advice saves more than $100 billion per year in preventable financial mistakes. That is more than five times the amount that DOL says it will save people by finalizing its new regulation. Spend $100 to save $17? Not exactly a bargain.
  4. 2.7x – Speaking of multiples, a recent study found that people who took advantage of professional financial guidance over many years ended up accumulating more than 2.7x more wealth than those who did not have guidance. And that is after taxes and the cost of advice. Unfortunately, DOL’s proposal will have the unintended effect of reducing access to financial advice for those that need it the most.

Study after study has shown that people and the millions of workers planning for retirement need access to better advice, not less. One recent report found that savings rates alone were the single biggest factor in determining lifetime asset accumulation. All indications are that people need this type of personal financial advice because access to advice results in Americans saving more for retirement. And if access to highly trained advisors is the best way to provide that advice, we should be cautious about endorsing any proposal that would have the unintended consequence of limiting access and advice on the scale that DOL would achieve.

At the end of the day, DOL’s biggest achievement may be adding up the numbers and having the courage to start over.

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About the Author

Former Senior Manager, Member Outreach and Communications