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Retirement May Have to Wait After Trump’s Latest Executive Order

The presidential orders continue to come thick and fast from the Trump administration.  One of President Trump’s most recent orders, titled Presidential Memorandum on Fiduciary Duty Rule, takes aim at deregulating those who invest your retirement funds.  It does this by undercutting something we have discussed on this blog before–the Obama Administration’s changes to the duty somebody investing your retirement funds has to you.

Planning for retirement is always challenging.  With that in mind, you always want the best possible advice.  However, the standards the people giving you that advice are held to might surprise you–and not in a good way.  The fiduciary duty rule was designed to make sure your always got the best advice possible.  So let’s take a look at exactly what the rules being targeted do and how Trump’s new memorandum will affect them.

What Are the Changes Being Targeted?

RetirementEarly last year, the Obama administration announced through the Department of Labor that they were changing the rules when it came to the duties a retirement investor owes their clients.  As it was, retirement advisors generally owed their clients “suitable advice.”  The new rule applied a higher level of obligation, known as a fiduciary duty, between client and retirement investor.

fiduciary duty is a legal duty to put the interests of a person or party above all else; violating this duty leads to legal repercussions. Somebody who has a fiduciary duty is called a fiduciary. In 1974, the Employee Retirement Income Security Act (ERISA) was passed to help create standards and practices for retirement and health plans. The original act applied a broad rule, assigning fiduciary duty to those rendering investment advice regarding a retirement plan for compensation. However, one year after ERISA was passed, the act was amended so that the application of fiduciary duty to retirement advisors was substantially limited.  Thus, the usual standard applied to retirement investors has been, as mentioned above, “suitable advice.”  Suitable advice requires an advisor to provide investing suggestions which the adviser believes are, as the name of the advice suggests, suitable to the client’s interest.  This is as opposed to providing advice that puts the interests of their client above all else–as per a fiduciary duty.

So just how much damage can entrusting your retirement to an advisor who is held to less than a fiduciary standard do? While there are certainly advisors who will provide non-conflicting advice regardless of the standard they are held to, the damage caused by conflicted advisors is substantial.  Leading up to the rule change, the Obama administration issued a study estimating that conflicts of interest cost retirement plans about $17 billion a year. The Department of Labor estimated that conflicted investment advice “could cost IRA investors between $95 billion and $189 billion over the next 10 years and between $202 billion and $404 billion over the next 20 years.”

The way the lack of fiduciary duty might be costing you money is where an retirement advisor suggests investment opportunities that provide them better commissions instead of providing you better returns. It is very common for companies to offer percentage commissions or rewards to advisors on certain investments or types of investments.  For example, the company Table Bay offered “a Maserati to advisers who sell at least $7.5 million in annuities in 2014 and a BMW, Range Rover, or Porsche to those with at least $6 million in sales.” These sort of deals can lead a retirement advisor to recommend investments with the best commissions as opposed to investments that are best for your retirement portfolio—leading to the costs described above.

Looking at these facts, this rule change certainly seems like it’s pretty beneficial to the public.  However, it has had its critics since it was first announced.  Those opposed to the rule have said that the changes may push some advisors out of the market by decreasing their profits.  They have also argued that it will lead retirement investors to offer services to lower income individuals.  While there hasn’t much evidence to indicate investors would abandon such a substantial market, it seems President Trump has been listening intently to the fiduciary duty rule’s detractors as he took the time to focus an entire memorandum on gutting the rule.

What Exactly Does the Presidential Memorandum Do?

A Presidential Memorandum has less formalities than an executive order, but carries similar force.  This means that, because the fiduciary duty rule was an agency policy change by the Obama administration as opposed to a Congressional Act, the rule is the sort of thing Trump can target directly through executive orders.

As it is, his memorandum is slightly more measured in its approach.  The memorandum states that the fiduciary duty rule is not consistent with the policies of Trump’s administration.  With this in mind, the memorandum requires the Secretary of Labor to review the rule in order to ensure that three tenants apparently crucial to any regulation under Trump’s watch.  First, the Secretary needs to determine is the rule, or any element of it, is likely to harm investors due to a reduction of access to advice–essentially ask advisors whether they will offer less services if they have to provide advice exclusively in the best interests of their client.  Second, whether the rule, or any of its parts, has caused disruption in the retirement investment industry sufficiently to have a negative effect on investors or retirees.  Third, the Secretary must determine whether the rule will cause an increase in litigation–an almost certain byproduct of holding investors to a higher standard of duty–as well as an accompanying increase in price for those seeking retirement services.  If, after a review of the legal and economic impact of the rule, it is determined that any of the three points in the memorandum are at issue then the Secretary of Labor must get rid of–or at least revise–the fiduciary duty rule.

Is This the End of the Fiduciary Duty Rule?

Given how broad the three elements in the memorandum are, it’s a pretty good bet that the fiduciary duty rule will be done for in the next few months.  At a minimum, we can expect a substantial delay before the rule takes effect.  Unfortunately, this change is part of a trend of demanding deregulation even where it doesn’t necessarily make sense.  What could have been a substantial step in consumer protection seems like it will, unfortunately, never materialize.

End of Obamacare: What Happens When Trump Repeals the ACA?

The GOP has hated what they’ve coined “Obamacare” from the start. Obamacare, also known as the “Affordable Care Act,” certainly has its kinks. For instance, high deductibles for its Bronze plan users make up about 20 percent of its customers. Nevertheless, the fact of the matter is that it has helped millions of people, most of whom are low-income or working class, who otherwise would not have health insurance. It has done this without raising taxes.

President Trump promised to repeal Obamacare as soon as he was elected. When he finally took office, he again promised to repeal Obamacare. Initially, indications from the GOP were that a repeal would occur within the first 100 days of Trump’s presidency. The repeal seems to have lost its initial steam.Obamacare

Possible Timeline

The Senate and House of Representatives started the repeal process in earnest. In January, both the House and the Senate passed a budget resolution that set the stage for introducing a bill that would strip major provisions from Obamacare.

In order to repeal Obamacare, the next step is for President Trump to the sign the budget resolution bill while simultaneously introducing a bill to replace key provisions of the Affordable Care Act, but the GOP seems to have faltered at this step. What they initially wanted to happen swiftly is now being pushed back to the end of 2017, primarily because the party is still trying to figure out what to replace Obamacare with.

Even when a replacement for Obamacare is presented and signed by President Trump, there will be delays built into the repeal bill in order to ease the transition. No one knows how long the delay will take, but it’s presumed a delay of two to four years is likely. For this reason, major changes are unlikely to affect Affordable Care Act consumers right away.

Why Delay Repeal?

For one, there are many parts of Obamacare that are popular. Under Obamacare, insurance companies cannot deny coverage based on a preexisting condition, and children stay on their parents’ plan until they turn 26. These provisions are popular among the majority of Americans.

Moreover, the Affordable Care Act has insured over 20 million people who otherwise wouldn’t have health insurance. Republicans have been bombarded with constituent concerns about the potential loss of coverage. There are stories of everyday Americans who say they would’ve died had it not been for the Affordable Care Act.

How Will Repealing Obamacare Affect Americans?

Under Obamacare, millions of Americans are insured and can’t be turned away despite pre-existing conditions. Senior citizens pay less for Medicare coverage and for their prescription drugs. Many Americans receive free contraceptives, mammograms, colonoscopies and cholesterol tests, Repealing Obamacare could threaten all these advantages.

For instance, “repairing” Obamacare could mean higher premiums and deductibles for those enrolled on Medicare, most of whom are on fixed incomes. Companies with at least 50 employees may no longer be required to provide affordable insurance to their employees who work more than 30 hours a week. This could affect millions of employees who work at least 30 hours per week but less than 40 hours. In addition, companies will no longer have to keep children on their parents’ health insurance plans until they turn 26.

Finally and perhaps most devastating, a repeal on Obamacare would no longer require nearly all Americans to obtain insurance or pay a penalty. Millions of Americans covered by the Affordable Care Act may be dropped by their insurance carrier with no way of obtaining alternative insurance.

Aetna Health Insurance Lied About the ACA and Triggers Anti-Trust Claim

The Affordable Care Act (ACA), also known as Obamacare, has been an extremely contentious bit of legislation.  The future of the act is currently extremely uncertain, President Trump signed an executive order his first day in office which–while vague enough to be nearly symbolic in nature–still serve to limit the law to some extent.  However, the law has also been at the heart of a recent court decision which put a stop to a $37B dollar merger between two health insurance behemoths.

Aetna ACA

The decision comes as part of the ongoing anti-trust case over the merger between Aetna and Humana–two of the five biggest health insurance companies in the nation.  The announcement of the merger agreement of these two companies in 2015 led to an immediate investigation, and ultimately led to the Department of Justice, eight different states, and the District of Columbia all filing lawsuits saying the merger was anti-competitive.

Aetna obviously disagreed and between the government and them they managed to produce millions of pages of arguments and evidence for each side as to the exact economic impact of the merger.  Aetna’s dedication to the issue is no surprise, beyond the desire to see the merger go through they had some serious skin in the game–a $1B dollar fee to be paid to Humana if the merger fell through.

What Did Aetna Claim about the Affordable Care Act (a.k.a. Obamacare)?

One of the most contentious arguments revolved around the ACA itself.  The Affordable Care Act created a public forum through which the public could purchase insurance plans, although it did allow insurance companies to offer alternative plans outside of this public market.  It also requires insurers interested in providing plans through this market to comply with certain obligations.  Just before the lawsuit began, Aetna withdrew from all but four of the states it offered insurance policies through the ACA.

Aetna said that they withdrew because the plans they offered under the ACA were not making them money.  The government argued that they did it as part of strong arm tactic.  They said that Aetna, knowing the impact it would on public perception of the ACA, threatened to leave the program if the merger wasn’t approved

There was a fair bit of evidence that many of the ACA programs were, in fact, making Aetna quite a bit of money.  However, the government struggled to produce evidence showing Aetna’s actual motivations in leaving the ACA programs.  That is, they were having trouble, until they produced an email from Aetna’s Chief Executive to the Department of Justice itself specifically stating that their participation in the ACA hinged on them being allowed to merge with Humana.  From there, they went on to produce conversations with Aetna officers where they heavily suggested, and one time outright stated, that if they weren’t happy with the merger results the government wouldn’t be happy with their involvement in the ACA.  They even found emails where, after a series of emails explaining that the withdrawal was to strengthen their position in their upcoming anti-trust lawsuit, Aetna executives actively mentioned they were trying to avoid leaving a paper trail indicating the reason they withdrew from the ACA and making efforts to shield any such evidence from being produced in a lawsuit.

A few weeks ago, in a 156 page monster of a ruling, the court finally agreed with the government and part of that ruling was based on the fact that Aetna had misled the public–and attempted to mislead the court–as to the motivations behind leaving the ACA program.  So in order to understand how, let’s first discuss exactly how anti-trust law works before looking at how Aetna’s deception as to the ACA effected their case.

How Do Anti-Trust Lawsuits Work?

Anti-trust law is basically the government trying to keep companies from becoming such an enormous market presence that they prevent other businesses from competing with them.  If you’ve ever played Monopoly you get the idea.

The government pays particular attention to health insurance companies in anti-trust cases because of how Medicare operates and specifically how the government pays insurance companies to provide insurance supplements to cover gaps for seniors on Medicare.  Where health insurance companies have huge enough market presence, it leaves seniors paying fees that make these gap-filler plans inaccessible.

In order to establish that a merger would violate anti-trust law, the government has to show that such a merger would “substantially lessen competition, or tend to create a monopoly.”  They don’t need to show that it will absolutely happen, but just that there is a probability that a merger would be anti-competitive.  Establishing this, as you could probably tell from the millions of pages of evidence and a 156-page ruling, is generally an incredibly complicated and in-depth process.  Where the government can show such a probability, there is a presumption that a merger is illegal.  However, a defendant in an anti-trust case, such as Aetna, can produce evidence to rebut such a presumption.

There was obviously an enormous amount of evidence here as to the economic impact of the merger, evidence supporting both sides.  However, the question ultimately came down to how much of the market Aetna would end up controlling–and that’s where their game-playing around their motivations behind leaving the ACA came into play.

The Repercussions of Aetna’s Lie

Aetna’s whoppers about the ACA weren’t the only or the deciding factor in the court’s ruling.  However, they were influential enough to one of the few elements they specifically mentioned in the summary of their ruling out of the over a hundred pages of evidence that ruling discusses.

So what did Aetna’s dishonesty actually mean for their case?  The government argued that because Aetna misled the public, the court had to ignore the fact that Aetna had in fact left the markets for those states and only consider Aetna’s market presence as it was before they withdrew.  The court didn’t buy this, however they still took Aetna’s deception into account.  They looked to the future to consider whether Aetna may expand into those markets in the future.  Given that Aetna was making money in those and only withdrew as part of a strong arm tactic, they felt it very likely they’d return to the markets they left after the merger completed.  They felt this true in Florida, where the ACA markets were actually found to be the only profitable part of Aetna’s business–a situation which led to confused emails from Aetna officials out of Florida–these emails received a hasty response to only discuss the matter over the phone.

With all this in mind, the court felt it was likely that Aetna would simply return to the markets it had abandoned post-merger.  As discussed above, likely is all a court needs in an anti-trust case.  Thus, in a very real way, Aetna’s approach to the ACA had a huge hand in killing their chances of a successful merger.

What Does This Mean on a Broader Level?

First and foremost, the most obvious lesson here is that judges don’t particular care for hiding evidence.  So much so that it took what could have been a fairly small issue and turned into an entire section of the court’s ruling.  However, the reality of the situation also impacts some of the arguments surrounding the ACA.

Just weeks ago, Aetna’s withdrawal was used as evidence to support the end of the act.  However, when the reality is a more profitable one than Aetna led the country to believe, it certainly muddies the water on the issue.  We’re almost certainly going to see a lot of changes to the ACA in coming months and years.  However, it’s important that we look at the facts as they are when discussing the issue–and not spin on the topic such as Aetna’s misrepresentations.

DAPL: Can Trump Push Forward the Dakota Access Pipeline?

The protests over the Dakota Access Pipeline (DAPL) have been going on for around a year now, with the Standing Rock Sioux Tribe and their allies demonstrating to stop the completion of the oil pipeline.  The Sioux argue that, not only does the project violate their treaty rights by failing to consult them on projects crossing through their land, the oil pipeline would also poison their only water supply by crossing under Lake Oahe and destroy land sacred to the tribe.

Their concerns have merit, during the Sioux Tribes lawsuit on the matter they brought concerns over specific sacred locations before the court–only to find the following Monday that all the areas they mentioned to the court had been bulldozed over the weekend.

Trump DPL

The protesters had won a huge victory last year, the Department of Justice under the Obama administration, along with the Department of the Interior and the U.S. Army, issued a joint statement pausing construction on the DAPL while the U.S. Army Corp of Engineers reviewed its decisions as to whether the pipeline’s construction was consistent with federal law.  In what looked like an ultimate victory for the Sioux, the Corp of Engineers ended up denying an easement which would have allowed the DAPL to cross Sioux land towards the end of last year. An easement is a legal term for the right to make use of land that isn’t yours for some specific, limited, purpose.

Many thought this was an end to the DAPL pipeline.  Last week, however, President Trump issued an executive order which has the potential to change all that.  The order, published on January 24th 2017, has been heralded as a potential deathblow to the protest efforts of the DAPL demonstrators.  So what exactly does the order do?

What is in the Order Itself?

Despite the frustration and worry that this order has caused to the Sioux tribe and their supporters, Trump’s order is not one outright ordering that the DAPL be finished and use Sioux land.  This is likely because Trump simply does not have the power to make such a proclamation via executive order, likely the same reason that President Obama didn’t simply end the pipeline via executive order.  The process of approving or denying the DAPL is a more complex administrative process.  The order takes a similar approach to attempting to expedite the completion of the Keystone XL pipeline–previously denied permit due to environmental concerns in 2015 by previous Secretary of State John Kerry.  However, what Trump’s order can–and does–do is make this administrative process quicker and smoother for the business interests behind these pipelines.

In his order, Trump leverages his authority to order the Secretary of the Army to instruct the U.S Army Corp of Engineers and the Assistant Secretary of the Army for Civil Works to review and approve, as quickly as possible consistent with current law, renewed requests for a DAPL easement.  It also orders them to, again consistent with existing law, consider whether to rescind or modify the steps that the Army Engineers had taken to stop the DAPL–last year’s memorandum rejecting the easement and a proposed review of the environmental impact of the DAPL issued last month.  Finally, it orders an expedited grant of all other permits and easements necessary along with a waiver of notice periods to further expedite the process–once again so long as these actions are consistent with existing law.

So you’ve probably noticed a trend in the order–consistent with existing law.  There’s even an entire section of the order saying that the order shouldn’t be construed to attempt to alter any Federal, state, or local property law.  This means that if the environmental impact, use of land, or other legal issue are still inconsistent with the requirements of law they will still not be made.

So does that mean that the Sioux and other DAPL protesters are worrying over nothing?  Absolutely not.   The DAPL has been given another bit at the apple and Trump’s order certainly shows how he thinks the process should proceed–stacking the deck in favor of the DAPL.  However, the Sioux have a number of legal rights which they will certainly argue in their renewed efforts to stop the DAPL from crossing their land.

What are the Rights of the Sioux?

The first and most obvious right of the Sioux is the right to a thorough and well considered review process of the environmental impact of the DAPL.  The process itself would likely take months and given the Standing Rock Sioux have already filed suit for an injunction on the review altogether there is very little chance that the process will be completed particularly quickly.  If the review goes through and the Army Corp of Engineers reverses their stance on the environmental impact of the DAPL, there is no question that the Sioux can and will bring a lawsuit questioning the thoroughness of the review–especially if the review is particularly hasty as Trump’s order requests..

The Standing Rock Sioux also have legal rights to the land itself.  In 1980, the Supreme Court ruled that the U.S. had unjustly taken the Black Hills from the Sioux tribe.  The U.S. government was ordered to compensate the tribes for the land taken from them.  However, the Sioux declined the payment and instead sought a level of ownership in the land taken from them.  Unfortunately, this does not mean that the Sioux actually own the land that was taken out from under them as U.S. law generally follows the “doctrine of discovery.”  This basically means that whoever initially documented land can lay claim to it.

This approach has led to two things, shaky ownership of ancestral lands for Native American tribes and a series of rights granted to those same tribes to try and recognize the land that has been taken from them.  One of the most important of these rights, granted in 1992, is the known as the right to be consulted.

The right to be consulted requires a federal agency to consult with local Native American tribes before undertaking or approving any construction project in order to ensure that there are no sacred sites near the construction site.  This applies even if the project is off reservation land in order to recognize the fact the many tribes have been forced to move far away from lands that were once theirs and sacred to them.

The exact nature of the consulting process has been a point of contention with the DAPL and the Sioux.  Those behind the DAPL argue that they did consult the Sioux sufficiently.  However, the Sioux argue that they should have been consulted more frequently as the project evolved instead of essentially brought in last second to rubber stamp what was a nearly completed project.

The Reality: Climate Not a Priority For Trump

Beyond a willingness to trample the rights of the Standing Rock Sioux, Trump’s order also shows a  disregard for the environment as a whole.  However, this is no surprise.  Trump has already vowed to cancel Obama’s Climate Action Plan and has threatened to pull out of or defund the Paris Climate Agreement, an international treaty with the goal of reducing human impact on global warming.  His appointment for head of the Environmental Protection Agency is on record as a climate change denier–even having previously stated that he didn’t feel the EPA was necessary at all.  The DAPL order is likely the tip of the iceberg of what we should expect–both when it comes to climate and when it comes to disregarding the rights of minorities.

TPP: Trump Backs Out of the Trans-Pacific-Partnership

Trump is no stranger to making controversial headlines and his recent decision to withdraw the United States from the Trans Pacific Partnership agreement is no different.  Obama spent the last 7 years negotiating the deal, so the decision comes as a blow to those loyal to the Obama administration.

The agreement was designed with the hope of eventually creating a single market, which would be similar to that of the European Union.  Since Trump has pulled the U.S. out of the agreement, the TPP will be nearly impossible to ratify as is; the agreement required all 12 countries to ratify within a 2-year period.  For those nations wanting to renegotiate a trade deal without the U.S., other key players, such as Japan, say U.S. participation was the carrot on the stick.

What is the Trans Pacific Partnership Agreement?

The TPP was a trade agreement between nations consisting of 40% of the world’s trade market: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and the United States.

If you’re not familiar with trade agreements, they’re treaties between two or more nations agreeing on terms of trade between them.  These agreements are typically aimed at reducing or eliminating tariffs, quotas, and other trade restrictions.  The intention is to grow economies by increasing the trade of goods and services between the nations party to the agreement.

TPPOf course the TPP agreement focused on reducing tariffs, but it went beyond the standards of the World Trade Organization and focused on negotiating labor, environmental and intellectual property protections as well.  Here’s a few highlights of what the TPP would have done:

  • Trade barriers. The TPP agreement would have cut over 18,000 tariffs on all U.S. manufactured goods and farm products.  The agreement also would have mandated expedited customs procedures.
  • Environmental protection. The TPP is argued by some to be the most environmentally friendly trade deal ever negotiated, as the agreement requires signatories to commit to take appropriate measures to protect and conserve wildlife.
  • Good governance. The TPP agreement required all signatories to join the United Nations Convention Against Corruption, which is focused on criminalizing bribery of public officials and the general governance enforcing anti-corruption laws.
  • Intellectual property. The TPP would have required signatories to establish uniform standards for patentability and copyright
  • Labor standards. The agreement would have enforced obligations to protect the freedom to form unions, as well as enforce fair labor practices.
  • Investor-state arbitration. The TPP would have granted investors the right to sue foreign governments for violating the treaty.

The Good and the Bad

Of course there’s two sides to every story.  Critics of the TPP applauded Trump for withdrawing from the agreement, arguing withdrawing will bring jobs back to America.  Proponents of the TPP feel the withdrawal will give China more control over the Asian market.

Since tariffs would have been reduced on industrial goods, Japanese car companies such as Toyota and Honda would have had cheaper access to the U.S., while vehicles exported from the U.S. could have increased because of new access to markets such as Vietnam.  Cuts on poultry, beef, dairy, sugar, wine, rice and seafood would have benefited several agricultural companies.

International labor laws were negotiated as part of the agreement, which is a major benefit for less developed countries, however, many argue this would have resulted in job losses from developed countries like the U.S.  The agreement is said to not be favored by pharmaceutical companies because the intellectual property rights were too lenient.  Additionally, those against the agreement urge it would have driven up prescription costs and, thus, left many without the means to afford life-saving drugs.  Decreased global roaming charges seems like a great idea, however, this could lead to increased competition between telecommunication companies and end up resulting in higher prices for consumers.

What’s Next for the U.S. and Trade?

As part of his “America First” stance, Trump promised throughout his campaign to be more aggressive against foreign competitors and backing out of the TPP agreement draws a stark line.  This global cooperation attitude risks doing more harm than good.  There’s been threats of increasing tariffs up to 10% on all foreign imports, not to mention Trump’s most recent plan to tax Mexican imports 20% in order to pay for construction of the border wall, which risks starting a trade war with other countries that could ultimately result in a financial spike in consumer goods.



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