Maryland AG Joins Multi-State Effort to Shield Retirement Savings from Risky Investments

Maryland Attorney General Anthony G. Brown has joined a coalition of 24 states in formally opposing a federal proposal that could significantly weaken protections for the retirement investments of millions of Americans. The proposed rule from the U.S. Department of Labor, if enacted, is expected to steer substantial retirement savings toward more volatile and speculative assets, including cryptocurrency.

The coalition submitted a comment letter to the Department of Labor, outlining their concerns that the proposed changes would expose workers and retirees to increased risks. These risks are associated with alternative assets such as cryptocurrency and private credit, which are often complex and may lead to significant financial losses for individuals. The Department of Labor itself has estimated that the rule change could result in approximately $178 billion annually, representing the savings of about 4.5 million workers and retirees, being directed into funds that hold riskier investments.

The existing legal framework, established by the Employee Retirement Income Security Act (ERISA) of 1974, mandates a high standard of prudence for individuals, known as fiduciaries, who manage 401(k) plans. This standard requires fiduciaries to exercise careful consideration and ongoing monitoring when selecting investment options to ensure the financial stability of retirement plans. Decades of legal precedent have underscored the necessity for fiduciaries to demonstrate both skill and diligence in managing these savings. When fiduciaries fail to meet these legal obligations, they can be held accountable through government enforcement actions or lawsuits filed by those who suffer financial losses. Congress has provided workers and retirees with the ability to pursue legal action to ensure fiduciaries remain accountable and refrain from taking undue or unnecessary risks with retirement funds.

The Department of Labor’s proposed rule is seen by the coalition as creating a potential loophole that could impede courts from thoroughly reviewing whether fiduciaries acted with the required care and skill when making investment decisions for workers’ retirement accounts. The Department has acknowledged that this regulatory shift is likely to encourage fiduciaries to move a significant portion of Americans’ retirement savings away from traditional investments like stocks and bonds and towards more speculative options, such as cryptocurrency. This shift in investment strategy effectively transfers financial risk from the fiduciaries to the workers and retirees themselves.

The attorneys general argue that such a move would not only negatively impact individuals but also have broader consequences for the states and their residents. A decline in retirement income could compel individuals to remain employed beyond their intended retirement age, potentially affecting their health and well-being. Furthermore, seniors who experience losses in their retirement savings may become more reliant on public assistance programs administered by federal and state governments. The coalition includes the attorneys general from Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaiʻi, Illinois, Maine, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, and Wisconsin. The Pennsylvania Department of Labor and Industry also joined in submitting the comment letter.

Article by Mel Anara, based upon information from the Maryland Attorney General’s Office

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