Wall Street Is Looting the American Retirement System. The Trump Administration Is Helping

I suggest reading the whole article.

https://www.yahoo.com/entertainment/wall-street-looting-american-retirement-120016264.html

David Bradley Isenberg
August 23, 2020, 8:00 AM EDT

The Trump administration is pushing dramatic changes to the American retirement system that will benefit Wall Street but push average citizens into plans that are riskier, less profitable, and loaded with high and hidden fees.

In the past two months, the Trump’s Labor Department has introduced two pending changes to deregulate vulturous private equity firms and multi-trillion dollar retirement managers like Vanguard, Fidelity, and BlackRock. A third proposed change would restrict retirement investments with an underlying environmental, social, or governance mission — mainly to boost the struggling fossil-fuel industry.

If finalized, the result will be death by a thousand cuts to Americans’ diminished retirement nest egg, amounting to an all-out Wall Street looting of American retirement.

Pushing this through is Secretary of Labor Eugene Scalia — son of the late Supreme Court Justice Antonin Scalia — who for many years was one of Wall Street’s most prominent litigators, representing corporations like Chevron, Walmart, and Facebook, as well as over a dozen banks and financial firms during his tenure at Gibson, Dunn & Crutcher, a law firm with a robust corporate lobbying wing.

•••••

The federal government, and the Labor Department in particular, have a big role making sure these plans work the way they’re intended, and in (at least in theory) preventing people from getting swindled by investment managers. One of the main guardrails aspiring retirees have is what’s known as “fiduciary duty,” a rule that requires managers of both pensions and 401(k)s to provide the best possible service — here, meaning the best quality investments for the lowest possible cost — or face liability.

The fiduciary duty combined with workers being on the hook make the 401(k) sector a fertile breeding ground for high-stakes, multiparty lawsuits, where employers fight off accusations by workers and retirees of selecting low-performing and/or high-fee funds for their 401(k)s. An employer may negligently choose a retirement investment manager because they were the most readily available, or they didn’t have the resources to find an optimal plan, or they were mistaken of a fund’s potential. Other times — as was alleged against the Massachusetts Institute of Technology’s retirement plan last year when the school received a $5 million donation from Fidelity Investments — the employer might have an incentive for choosing a certain fund.

For many years, one of the most prominent employer-side litigators was Eugene Scalia himself.

•••••

Andy Behar, CEO of As You Sow, a nonprofit that rates the financial sector for its ethical standards, said that Scalia’s three most recent DOL rulemakings suggest a personal vendetta. “He’s couldn’t win as an attorney, so he’s changing the rules,” Behar said.

One of the Trump administration’s planned changes to retirement rules will open up 401(k) investments to high-risk, high-fee private equity funds. It’s a major break with past practices, but it wasn’t done through a formal rule process that would allow for scrutiny and public input.

•••••



The consensus in the financial sector is that this rule will have a chilling effect on ESG and benefit the Trump-allied fossil-fuel sector.

“Basically the rule that they proposed is deeply internally conflicted. On the one hand, you have to make decisions on financial returns, and yet if you did that, you’d have to exclude fossil fuels,” Behar from As You Sow said. “Why is the DOL saying that fiduciaries should steer clear of less risk, steer clear of outperformance?”

•••••

Together, the Trump administration’s plans contribute to a remaking of a retirement system that gives financial firms new opportunities to cash in at the expense of greater risk to workers, while making it harder for us to use our money to build the kind of world we’d like to retire into.

The most perplexing aspect of these rules is their open contradictions. The Labor Department’s justifications for the private equity letter and the standard of conduct rule were to expand “investor choice.” While the rule on environmentally and socially conscious investing effectively shuts out investor choice. The rules allow a retiree to “choose” a high-risk, high-fee investment, or to “choose” a retirement adviser who gets a kickback for their imprudent recommendations. But retirees may not choose an investment that promotes the idea that cutting carbon emissions or increasing diversity are in and of themselves good investments.

“You could understand if they took a laissez faire approach to both.… or if they took a restrictive approach to both,” Roper said. “This is about picking winners and losers. And the losers are going to be retirement savers.”

•••••