The Association of BellTel Retirees has added its voice to the important effort to crack down on pension fiduciaries’ conflicts of interest. In a letter to the U.S. Department of Labor (DOL), the Association has thrown its support behind an effort to tighten rules on those who serve as fiduciaries, to ensure they are obligated to put the best interests of clients ahead of their own profits.
The White House Council of Economic Advisers determined that conflicts of interest among investment advisors directly lead to about 1 percentage point in annual losses for retirement savers, costing about $17 billion per year. The Council also calculates that an individual could lose an astonishing 25 percent of his or her savings over the course of 35 years.
“We believe that those entrusted with a fiduciary responsibility should owe the highest debt of trust and confidence to the principal they represent and no other,” BellTel President and Executive Director John Brennan and Board Chairman Jack C. Cohen wrote to the Department of Labor. “Fiduciaries cannot serve two masters, and given significant transgressions, especially against older savers, the only way retirees can have greater certainty is with a new and more stringent standard and set of rules proposed by the DOL for investment managers and advisors.”
Financial managers with control over retirement savings are often paid fees and commissions to steer clients’ money into certain funds or investment vehicles. Currently, they operate under an uncertain patchwork of regulations and disclosure requirements. In many instances, managers do not have to tell clients they are also being paid by the investment funds to which they steer the assets.
“(Financial advisers) can get paid a lot more money to sell one product over another and there’s just a ton of conflicts of interest and a lot of hidden fees,” Ron Rhoades, a professor of finance at Western Kentucky University, told Bloomberg News. “Having a conflict of interest is a breach of fiduciary duty. You have to cure that breach.”
The Association urged the DOL to adopt a set of proposals that would increase transparency and expand the number of investment managers bound by strict conflict of interest rules. Those subject to the tougher conflict of interest regulations are required to always prioritize the interests of clients over their own profits.
Just as importantly, Mr. Brennan and Mr. Cohen tied the need to tighten rules on fiduciaries to the actions taken by Verizon when it transferred some $8.5 billion in assets from 41,000 retirees to a third-party insurance entity without consulting or informing the retirees themselves. This is precisely the type of occurrence that the Employee Retirement Income Security Act (ERISA) is meant to guard against.
“We are gravely concerned with fiduciaries that unilaterally and significantly alter the way that earned defined benefit pensions are managed and administered,” they wrote.
Was the action of Verizon as fiduciary proper in the case of 41,000 retirees, transferring $7.5 billion in retiree pension assets, plus another $1 billion for expanses to Prudential? How might that impact the remaining tens of thousands of retirees, including the many retired union members and others still under the Verizon pension umbrella? In what ways does that transfer negatively impact their future and the future of their families?
As the federal agency considers tougher rules on how fiduciaries make decisions about retirement assets, the 41,000 retiree pensions that were transferred are now subject to far-less stringent and consistent rules than they enjoyed under ERISA and the Pension Benefit Guaranty Corporation.
The Association is currently pursuing litigation against Verizon, Pundt v. Verizon, over this action and the U.S. Supreme Court is now considering hearing the case.
At the same time, our sister organization, ProtectSeniors.Org, is working in Congress to pass legislation that would affect companies’ ability to cut or eliminate earned benefits for retirees. That bipartisan legislation, the Employee Benefits Protection Act, H.R. 1856, has been introduced by U.S. Rep. Louise Slaughter (NY-25).
What all this reflects is that your Association is actively advocating on your behalf with not one, but all three branches of the federal government: The Executive, Judiciary and Legislative. These issues are all of pressing importance to all retirees and we will remain forefront of fighting to protect, preserve and defend your retirement benefits.