SURVEY SAYS: Do We Still Need Legislative Clarity on Advice

February 16, 2006 ( - Congress is expected to shortly turn its attention once again to pension reform - and while much of the focus has been on reforms targeted at defined benefit plans, there are several items in bills pending in both the House and Senate that could have a tremendous impact on defined contribution plans.

Included in the bills are new rules regarding company stock (in the Senate bill), participant education (Senate), automatic enrollment safe harbor (House and Senate), and advice (House and Senate).   This week we asked readers their opinion on the need for clarity on advice, and how the current proposals met that need.     

This turned out to be one of the more difficult surveys to tabulate in recent memory.   Much as I tried to provide an array of plausible choices, this week even “other” didn’t seem to do justice to the breadth of responses.  

Nonetheless, when it all settled out, a whopping 44% said that we still need clarity on advice to relieve fiduciary concerns and foster greater utilization – which suggests to me that things haven’t changed as much “out there” as it sometimes seems from this editor’s desk.   Only about 28% said that we didn’t need the clarity, either because the market has created adequate alternatives, or because plan sponsors have come to terms with their responsibilities/liabilities.   Another 11% opted for “other” or none of the above – generally a combination of other responses (the need for clarity and the need for clarity on the current proposals was a common alternative), while just 17% said clarity would be nice, but it probably wouldn’t change anything.

Those findings notwithstanding, it is worth noting that this week’s respondents evidenced a strong, passionate NEED for true reform that would really help participants save more/better, and that would create an environment in which plan sponsors would feel comfortable doing all the right things to help foster those efforts.   And no, most didn’t seem to think that the current reform measures in Congress rose to that level.

Here’s a sampling:

“We need clarity in delineating the difference between plan level advice and participant level advice. Providing exemptions from existing prohibited transaction rules to allow conflicted advice at the plan level is simply a bad idea. Unless you work for a financial institution that would then be allowed to provide conflicted advice, there is nothing to be gained…and a lot to lose.”

“Clarity is abundant.   Clearly, it is not of the benevolence of the mutual fund manager, the annuity provider, the corporate executive, the class action plaintiff’s attorney, and the well-lobbied politician that we expect our retirement, but rather of their concern for their own self interest.”  

“It almost doesn’t matter what Congress does or doesn’t do in this area – the lawyers and judges will decide if such a situation gets that far.   Many would want it (for security), but I think few would like any rules or regulations that would be point specific for everyone.”  

“We have been given advice as to fiduciary responsibilities and understand what is expected of us and our vendors.   I feel if someone wants to sue us, they will attempt no matter what additional steps we take.   Our society encourages litigation; when and if the market takes a downward trend, people will begin to complain and find someone else (rather than themselves) to blame.”

“Clarity would be nice, but probably won’t change much, until plan sponsors see who wins in court when an unhappy participant sues the Plan because they (a) followed investment advice and lost some money or (b) didn’t follow the investment advice and lost some money.”  

“There are so many choices out there – individual funds, lifestyle funds, etc. – that employees need some explanation and advice from people who spend their time trying to understand the choices.   Certainly, there should be protection unless it can be clearly shown that the sponsor knew the advice was faulty prior to dissemination.”

“Something needs to be done to help Americans intelligently prepare for some sort of retirement.   But from what I know of these two bills, they fall short of allowing someone to efficiently help with that task.”

“The answer to your question is all of the above and none of the above.   There are many people in positions of fiduciary responsibility that are doing their jobs correctly and just as many that don’t have a clue.”  

“Clarity from theCongress?  Yet another oxymoron.”

“Today we’re in a situation which inhibits many of the most qualified advisors from providing advice to participants.   Professionals who spend much of their working day advising individuals on their investments are in many cases prohibited from doing the same for plan participants, even if the plan participant is their client.”

But this week’s Editor’s Choice goes to the reader who artfully echoed the sentiment of many respondents when they said, “Education alone is not going to encourage further savings or better use of investment options.   I would like to see Congress provide clarification on the issue of advice, reassure plan sponsors and ultimately plan participants that it is okay to offer and receive advice assistance.   It would be refreshing to see pension reform that truly simplifies the business for the sponsors and ultimately for the end user.”

Thanks to everyone who participated in our survey!

For more on the House bill:

For more on the Senate bill: