Speaking at an event sponsored by Barclays Global Investors (BGI) in New York today, U.S. Congressman Rob Andrews (D-New Jersey) said that the real problem today was a lack of confidence in the economy, and that it would be “a mistake to confuse a loss of confidence in the economy with a loss of confidence in the 401(k) system.”
Acknowledging that there were voices in Washington who felt differently on the issue (see The Plot to Kill the 401(k) ), Andrews said that the best thing that could be done to help the 401(k) system was to “fix the economy”, and that he believed President Obama had taken steps to do just that.
He did, however, acknowledge that the current 401(k) system could be improved, citing four areas in which he said he has, and would continue to, press for change:
(1) Qualified independent investment advice
Andrews noted that most individuals are not capable of making and keeping up with complex investment decisions, and that they needed the help of professionals to do so. He noted that the Pension Protection Act (PPA) had provided a roadmap to help provide those services, but that the Department of Labor’s recent regulations on advice had gone “well beyond” what he thought the law called for (see DoL Delays Investment Advice Rules Implementation ). As a consequence, he predicted there would be a “battle royale” on the subject, but said he was confident that a resolution on the issue would be forthcoming (see Miller, Andrews Threaten to Block Advice Regulation ). His notion – and one that he said was supported by current law – is that if a plan sponsor exercises appropriate due diligence in selecting an adviser, they shouldn’t be able to be sued for doing so.
(2) Unbundled fee disclosure
Andrews said that Americans do a good job of comparison shopping when they have the information they need to make those decisions. “We need to build smart shoppers” when it comes to retirement plans, he said, citing his support for recent legislation introduced by U.S. Congressman George Miller (D-California), who also chairs the House Labor and Education Committee on which Andrews is also a member (see Miller Fee Bill Cruises through House Committee ).
(3) Provide a more conservative fixed income option
Andrews said that while he didn’t want to mandate fund choices, or impede worker’s ability to make personal investment decisions, he did believe in giving “every DC participant the ability to covnert to a DB-type plan.” In essence, the availability of some kind of annuitization option within, or attached to, the DC plan as an investment option.
(4) Expand access
Andrews said that he – and the Obama Administration – want to expand the kind of program benefits that are today enjoyed by 401(k) plan participants to the 71 million working Americans who today do not have access to such a program (see Proposals in President’s Budget Aim to Boost Retirement Savings ). He acknowledged that there are details to be fleshed out – how the program would be administered, and by whom, who would invest the contributions – but that the program design contemplates an automatic enrollment for every worker not already covered by a workplace savings plan into this new program. He said that care would have to be taken so that this program was “not as generous” as the current private system model so that employers with existing plans wouldn’t abandon them for the government alterative.
He also pointed to this so-called “automatic IRA” proposal, as “evidence of the belief” in the advantages of the private sector solution by both he and the Obama Administration.
After his presentation, Andrews was asked if he thought the existing rules on Qualified Default Investment Alternatives (QDIA) would be modified to provide for a money market solution, or perhaps a stable value choice. Noting that it was an issue that had already received “a lot of attention,” Andrews said he didn’t think a change was likely to come soon. “It had a tortuous approval process initially,” he noted, “and the thinking seems to be that we need to give the current approach a chance to work.”