Oct. 31 (UPI) -- President Joe Biden proposed new federal rules Tuesday aimed at eliminating junk fees associated with retirement investment advice and promoting increased competition for post-employment savings plans.
In an address at the White House, Biden explained that junk fees take money out of pockets of Americans, which can add up to hundreds of dollars.
"Today we're taking additional action to eliminate junk fees in retirement savings ...," Biden explained. "Many Americans spend their whole lives working, putting every dime left at the end of the month in their retirement account. After working hard for decades they can retire with dignity and a little bit of security."
The White House detailed the move by the Department of Labor to close loopholes that would require financial advisers to begin prioritizing the best interests of consumers over personal profits, which would minimize junk fees in a broad range of retirement products, the White House said in a statement.
As part of Biden's proposal, hidden fees paid to financial advisers for recommending investment products that don't always lead to greater benefits for consumers would face tougher regulations that aim to disrupt business as usual in the retirement investment sector.
"The action we're taking today, is, I believe, long overdue," said Biden. "If this rule is finalized as proposed, it's going to protect workers, and it's going to save workers that are saving for their retirement and save seniors from being exploited."
While the Securities and Exchange Commission mandates that advice for buying securities like mutual funds must prioritize the saver's best interest, these protections don't extend to insurance products like fixed index annuities, which are commonly suggested for retirement planning.
As a result, inadequate federal protections have created gaps in investment protection and incentives that have contributed to a 25% surge in fixed index annuity sales, the White House said.
Currently, federal law does not require one-time advice, like suggestions to move funds from a 401(k) into an IRA or annuity, to prioritize the consumer's best interests, affecting about 5 million Americans who pay fees to roll over their retirement money each year.
On the flip side of the coin, brokers receive commissions as high as 6.5% for giving advice on certain insurance products, leading to increased hidden costs that continue to sap retirement savings, the White House said.
Eliminating the advice could increase retirement savings up to 1.2% per year, which could boost a nest egg by more than 20% over a lifetime.
The latest effort on junk fees comes amid a broader push by the administration to ban hidden fees on goods and services that continue to nickel and dime American consumers with unexpected costs.
In early October, the Federal Trade Commission proposed similar rules that would prohibit junk fees and deceptive charges for airline tickets, hotel and resort bookings, live events, apartment rentals, and utility bill payments -- potentially saving taxpayers tens of billions of dollars each year.