The Biden Administration wants to close a retirement savings 'loophole' that could be costing you 20% on your investments

• The Biden administration is proposing a new rule to ensure people saving for retirement get the best advice possible.
• Currently, investors might be losing up to $5 billion a year on investments, the administration said.

The Biden administration is continuing its crackdown on junk fees — and this time, retirement savings are in the limelight.

A new proposed rule by the Department of Labor would close what the administration calls "loopholes" in retirement advice, potentially saving retirees billions. DOL is proposing requirements that retirement advisers give advice that's in the best interest of retirees, rather than pushing products that they might profit from.

"Most financial advisors give their clients good advice at a fair price and are honest with 'em, but that's not always the case," Biden said in Tuesday remarks. However, some advisers steer their clients towards what's best for them, not the retirement savers, he said.

"They're putting their self-interest ahead of their clients' best interest, and they're scamming Americans out of hard earned money," Biden said. "People should be able to trust that when they get advice from a so-called expert, they're getting real help, not getting ripped off."

Biden said that the new rule would mean that, should advisers breach their fiduciary duty, they could face "serious penalties" — including restitution.

Currently, the Securities and Exchange Commission has regulations mandating that investment advice needs to be in a saver's best interest. The Department of Labor similarly regulated who can give retirement advice in 1975, but the ways that Americans save for retirement has changed, and, as the Biden administration notes, that means that some practices — like one-time advice for rolling over a 401k — aren't covered. For instance, an adviser might give the advice to buy a fixed annuity, a popular retirement option, and would likely not be subject to SEC regulations.

That's where the new rule is meant to come into play: It'll expand the definition of who is subject to the best advice standard. The White House estimates that the new rule could mean savers see their retirement savings grow by 20% over their lifetimes.

For instance, fixed index annuities — a popular retirement investment that promises a guaranteed income, but also has its own fees — are potentially costing retirees up to $5 billion a year, the White House estimates.

Cerulli, a financial services firm, found that annuities are booming, especially as the Federal Reserve continues to hike interest rates. According to LIMRA, an insurance trade association, fixed income annuity sales hit another sales record of $25.4 billion in July — the fifth consecutive quarter of record sales.

Individual Retirement Accounts, known as IRAs, have also surged in the years post-Great Recession. In 2020, according to the IRS, nearly 5.7 million taxpayers rolled over $618 billion into IRAs. In total, around 16.5 million taxpayers contributed $83 billion into IRAs in 2020. While IRAs or fixed index annuities might be the right fit for some retirees, the rule aims to ensure that advisers telling savers to roll over their funds are not motivated by a commission.

Reducing unnecessary and costly fees has become a cornerstone of the Biden administration's agenda. The FTC is now proposing a rule to outright ban the hidden fees baked into the costs of booking a hotel, flight, or concert ticket.

The eye on retirement might run into old hurdles: In 2016, the Obama administration proposed and enacted a similar rule. That rule was struck down in 2018. The Department of Labor said in a fact sheet that Biden's proposed rule — which will soon be open for comment — is narrower than the 2016 rules. But that's already bringing its own industry pushback.

"We think that this is, again, similar to what we saw in 2016 — significant overreach by the department trying to exert their jurisdiction because they don't think that other regulators are as capable of protecting consumers as they are," Jason Berkowitz, the chief legal and regulatory affairs officer at the Insured Retirement Institute, told Insider.

Broadly, there's a "wide range of regulators" that oversee different parts of the industry, including in annuities, Berkowitz said.

"What you have here is the Department of Labor coming in as the white knight from Washington, coming out to the states and saying, you guys didn't do this well enough, so we are going to fix it," he said.