Morningstar, NAPFA Affirm Support for Final DOL Fiduciary Rule

A Morningstar policy analysis, estimating impacts of the final Department of Labor fiduciary rule addressing work with retirement plans and their participants affirmed their support for the Department of Labor’s final fiduciary rule, after the regulator published the final Retirement Security Rule, in the Federal Register last week.

The National Association of Personal Financial Advisors also affirmed they support the final rule, in a May 2 press release, following a comment letter submitted to the DOL, in January.

The final rule applies fiduciary status under the Employee Retirement Income Security Act to specified one-time sales interactions, including rollovers from retirement plans to individual retirement accounts, annuity sales and plan investment menu design. 

The impact of the fiduciary rule would be most significant for participants in small retirement plans with assets of $25 million or below, found the Morningstar research. 

“We did this analysis as part of our comment letter on the proposed rule, but given the final rule, we think that these are still reasonable assumptions,” says Lia Mitchell, a senior policy analyst at Morningstar.

Analyzing Form 5500 data under the final rule, Morningstar estimated retirement plan participants would save $55 billion in the next 10 years in lower investment fees, explains Mitchell.

More than 80% of these savings would be experienced by small-plan participants, of which there are currently more than 20 million, according to Morningstar’s savings estimate, which was in undiscounted, nominal dollars and unaccounted for inflation. 

Morningstar submitted a comment letter supporting the rule during the comment period, which closed in January. 

Participants in small plans with less than $25 million in assets pay nearly twice as much as participants in large plans, based on the median reported fees a percentage of assets under management, Morningstar found in the 2023 Retirement Plan Landscape Report.

The fiduciary rule redefines who qualifies as a fiduciary, clarifying when financial professionals must adopt a fiduciary standard and act in the best interests of their client.

The effect of the rule will expand the number of “providers who currently—with the five-part test [to determine fiduciaries]—would not be considered fiduciaries [who afterwards] are more likely to meet the definition of fiduciary under the new rule,” says Mitchell. With this new standard, “we expect that they would be looking at these fees and assessing the value that the plans are getting, and potentially identifying plans where the costs are out of line with what might be in the best interest of the plan and the plan participants and therefore adjusting them towards the average for plans of a comparable size.”

“Plans that are currently charging really high fees are likely to bring those fees down towards the average,” Mitchell says.  

Lower costs could “help plan sponsors,”  adds Mitchell.

In addition to the NAPFA comment letter, the group also endorsed the final version of the rule by signing a separate April statement and joint letter to Congress that was also signed by 68 other groups, including AARP, the Center for American Progress and NAACP.   

“The U.S. Department of Labor’s Retirement Security Rule is a win for retirement savers across America,” said Daphne Jordan, chair of NAPFA’s board of directors, in a statement “It is an essential and long-overdue reform that will improve retirement security and give retirement savers peace of mind that their interests—and their hard-earned savings—are put first.”