Most Americans were stunned when Obamacare was put into place and many still do not understand all of the ramifications the healthcare law requires. But just when readers thought they had been dealt all the changes they were expecting, President Obama's regulatory agencies have plans to make changes with regulations for retirement savings. According to the Wall Street Journal, the Labor Department is set to implement new rules by the end of 2016. But what will these rule changes do? Essentially, the proposed changes will require private retirement investments to change to government accounts. They will do this by making private investment options, like IRAs, risky and expensive. Opponents of the new plans argue that the new rules will take away some basic freedoms to choose which retirement accounts to invest in. Additionally, it is likely that government accounts will not allow for as many choices in interest rates or other account options. The Department of Labor claims that its fiduciary rule will help force potentially dishonest financial advisers to act in the best interests of clients. In many instances, these advisers choose to act in the best interest of themselves in the interest of making a significant profit. On the downside, the proposed rule could carry potential legal liability if advisors do not follow a certain standard of care. This problem currently happens when advisors shun non-affluent accounts. This then forces middle-income investors to look elsewhere for financial advice. Interestingly enough, the new rule is set to begin in January as President Obama is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But government officials have already proposed waivers from the federal Erisa law. This means that new state-run retirement plans will not have the same regulatory burden as private employers currently do. Many program opponents are seriously concerned at the problems this could cause for retirement saving in general. Experts also believe that this scenario could ultimately lead to workers saving less for retirement, government agencies raiding retirement accounts to pay the costs of other programs and greater government dependency.
What Is ERISA?ERISA is the Employee Retirement Income Security Act (ERISA). Created in 1974, ERISA establishes minimum regulations for retirement, health, and other welfare benefit plans. The rules also include life insurance, disability insurance, and apprenticeship plans. ERISA’s rules address transactions associated with employee benefit plans. Additionally, they mandate that qualified plans must follow certain rules to ensure that plan fiduciaries do not use plan assets for their own needs.
What Parties Must Abide By ERISA Regulations?ERISA laws apply to employer-sponsored health insurance coverage and other benefit plans offered to employees. This only includes private employers and not public ones. Corporations, partnerships, sole proprietorships, and non-profit organizations are covered under this plan, but churches and governmental employers are not. ERISA law does not require employers to offer retirement plans. Essentially, it establishes rules for the plans and benefits which employers can choose to offer their employees.
What Exactly Does ERISA Regulate?Here are some of the areas that must be managed in compliance with ERISA:
- Accountability and Reporting: ERISA regulations require accountability and specific reporting to the federal government.
- Conduct: ERISA rules regulate the managed care conduct and other fiduciary responsibilities.
- Disclosures: Certain disclosures must be provided to plan participants under ERISA regulations.
- Best-Interest Protection and Financial Interests: ERISA was designed to act as a safeguard to assure that retirement plan funds are adequately protected and distributed in the best interest of each plan member. ERISA also prevents discriminatory practice when distributing plan benefits to qualified individual members.
- Procedural Safeguards: Written rules should be established to address how claims should be filed, and how members can appeal the process if their claims are denied. ERISA also requires that any decisions be conducted in a “fair and timely manner”.
- ERISA also addresses health insurance coverage via the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) and the Health Insurance Portability and Accountability Act of 1996 (HIPAA).