Originally published in Denver Business Journal

By Paula Hendrickson

As President Obama’s years in office come to a close, his administration is looking to make one last sweeping change: reforming the retirement planning industry by requiring investment professionals to adhere to a higher standard when advising retirement plan sponsors and participants.

This would substantially widen the number of retirement professionals who would be held to the standard of acting as a fiduciary on behalf of the client. A fiduciary is required to act solely in the interest of the plan participants and beneficiaries. That means a range of duties, such as diversifying plan investments and following plan documents. Today, retirement plan advisors may or may not act as fiduciaries, so they are not necessarily held to these standards.

On the surface, the proposal sounds reasonable. But, as is often the case with legislation, the devil is in the details; Many unanswered questions exist: Who will regulate? What will compliance with the new law cost? How will it affect individuals outside of the retirement advisors, such as business owners or HR directors, who may exercise discretion or control over the plan?

Most importantly, how will it help Americans save more for their retirement?

We have a crisis: Americans are not saving enough. With the current proposal to expand fiduciary standards and other proposals to limit the ability for high earners to save money in a tax-deferred retirement plan, the government appears to be complicating matters. Simplifying the process and providing guidance and incentives to all Americans to save for retirement is what is needed.

An expanded fiduciary standard also may be counter-productive, because the law (ERISA) governing most retirement plans is so complex. It is almost impossible for a small business owner to understand fully the retirement plan it sponsors for its employees. The choices facing the business owner are bewildering and the legalese is so difficult to comprehend that even lawyers who specialize in the field sometimes profess bafflement.

In our current environment, plans are typically sold to small businesses by financial advisors who are paid by the investment product provider. If commissions and fees from investment firms are banned because financial advisors are deemed to be fiduciaries will they be motivated to sell retirement plans? And if they do not continue to advise and sell retirement plans, many business owners will not see the value in spending the time and money necessary to sponsor a retirement plan for their employees, thus, further exacerbating the problems of Americans not having enough retirement savings.

Moreover, what about retirement plan financial advisors? There are generally two types: Those who operate on a fee-only basis and are fiduciaries by definition and those that work in the brokerage industry who have not historically been treated as fiduciaries and who are typically compensated by the investment product provider. Admittedly, commissions and back-end fees from investment companies can lead to conflicts of interests and unethical practices. Most in the financial planning industry, however, abhor such conduct because it unfairly taints the industry.

Besides, is this the smart way to police the industry? Especially when the DOL, the IRS and the SEC are stretched thin to enforce existing rules, which are sometimes conflicting or overlapping? The White House’s proposal creates a chill on an industry that needs to be offering more information to plan participants, not shying away. Although the current proposal appears to preserve the ability of retirement plan participants to work with the advisor of their choice, the new compliance requirements will be significant and will add cost and complexity to the process.

If the president really wants to make a large and lasting change in how Americans save for their later years, here’s a suggestion: simplify the rules for pensions and retirement plans. Don’t add to them, restrict them or make them more complicated.

Another suggestion: remove means testing in determining contribution limits. Only pensions, 401ks and IRAs face this limitation. Mortgage and real estate-related tax deductions are not means tested, nor are interest, dividends or capital gains. Means-testing reduces the ability for everyone to save for retirement.

President Obama’s administration and the DOL have put thought into the issue, and I applaud that. I am also hoping that over the summer we get much needed clarity and understanding of the regulations proposed to provide protections to retirement plan investors.

If not, as lame duck status looms, I fear that the president’s prescription to heal the ill-conceived way Americans save for retirement might turn out to be quackery.