New federal rule puts Virginians’ retirement at risk

This year, about 280 Virginians will turn 65 every day, according to estimates based on Census Bureau data. While this is a momentous milestone worthy of celebration, many of these individuals are uncertain how they’ll be able to finance retirement and if their savings will last. Social Security is part of the answer, but for most people it is not enough.

Some individuals, particularly those with union or public sector backgrounds, may qualify for traditional pensions that guarantee lifetime income, an important supplement to Social Security. However, pensions are no longer common, leaving a substantial portion of the aging population without this financial safety net.

These realities have workers planning and saving for retirement looking for options. Indeed, national research by Morning Consult found more than half between the ages of 45 and 64 say the current economy has them considering purchasing a guaranteed lifetime income product that pays out like a pension.

Unfortunately, the U.S. Department of Labor is pursuing a regulation that could severely limit access to financial professionals offering annuities — the sole financial product capable of furnishing lifetime income like traditional pensions.

The department wants every financial professional helping people plan and save to be a fiduciary. That’s an advisor who typically manages customers’ investments over a long period of time for an ongoing fee, usually a percentage of a customer’s assets. Fiduciaries also usually require their clients to have an absolute minimum of $100,000 to invest. They also do not regularly recommend annuities because it would mean less assets under their management and less income from fees.

This proposed regulation is problematic, particularly for middle-income savers, who in Virginia have an average retirement savings of $35,306. In the same Morning Consult poll, 91% of retirement savers say they want to maintain the ability to work with different types of financial professionals that meet their specific needs. Because the department wants every financial professional to be a fiduciary, savers would have limited access to professional financial guidance, and these individuals would face a significant gap in education and information.

The draft regulation makes no sense. Interestingly, Virginia already has an alternative approach in place. The Virginia Department of Insurance adopted a regulation requiring financial professionals to work in the client’s “best interest,” aligning with the Security Exchange Commission’s “Regulation Best Interest.” It also closely aligns with a model rule on annuity sales adopted by the National Association of Insurance Commissioners, whose state regulator members are responsible for overseeing annuity sales and protecting annuity consumers.

Forty-one other states in addition to Virginia have adopted similar best interest laws, enhancing consumer protections while preserving access to diverse retirement options. These policies, along with existing federal consumer protections, make further action by the DOL completely unnecessary.

Annuities, with their guaranteed lifetime income, offer a viable solution for middle-income retirees as traditional pensions decline. The median household income among annuity owners (at $76,000) aligns with Virginia’s overall median household income of $87,249, demonstrating their relevance to the demographic. Despite opposition from numerous members of Congress, the Labor Department is anticipated to finalize the regulation in early 2024.

As Congress voices its disapproval and citizens flood the department with concerns, it is evident that the fiduciary-only regulation is unwelcome due to its detrimental impact on average savers. For the well-being of retirement savers in Virginia and nationwide, the hope is that the Labor Department heeds these concerns and reconsiders its stance.

Rose Goheen, CLU, of Virginia Beach, is the 2024 Virginia president of the National Association of Insurance and Financial Advisors, a nonprofit organization founded in 1890 to protect and promote financial security for all Americans. She has more than 40 years of experience in the insurance industry.