US Senate Gets K Plan Advice Shield Law

Driven primarily by US House of Representatives Education and the Workforce Chairman Representative John Boehner (R-Ohio), the House has already approved a similar measure three times starting in 2001.

Sponsoring The Retirement Security Advice Act (S 1698) were Senators Mike Enzi (R-Wyoming), Kit Bond (R-Missouri), Rick Santorum (R-Pennsylvania), and Health, Education, Labor, and Pensions Committee Chairman Judd Gregg (R-New Hampshire).

In a statement introducing the measure October 1, Enzi said federal laws and rules governing the providing of investment advice have lagged behind an “explosion” in 401(k) plans – particularly ERISA’s prohibition against advisors involved in developing a plan’s investment lineup from then offering participants advice.

Enzi reminded his colleagues that the bill is predicated on advisors’ full disclosure of their fees and any potential conflicts of interest. ERISA also considers such advisors as fiduciaries, which Enzi pointed out subjects them to a whole range of legal requirements to act solely in the participants’ best interest.

“Let us remember,” Enzi declared, “that workers are not required to seek or follow the investment advice. All advice given is strictly voluntary. With clear and full disclosure of fee arrangements and potential conflicts of interest, participants can decide for themselves whether or not to act on it.”

Requiring employers to get their K plan investment advice from someone other than their plan provider would prove especially burdensome to small companies, Enzi argued.

“Restricting the provision of investment advice services to independent advisors ensures that the advice gap will remain wide – particularly at small businesses,” Enzi said. “Employers would be required to look outside of their plan’s current administrative arrangement and hire another financial institution to provide investment advice services to employees. For small companies, meeting this criteria would be almost impossible….The cost of researching, selecting, and paying for the services of an independent advice provider will deter small employees from providing this valued benefit to employees.”

The House advice bill was eventually incorporated into a Bush Administration pension reform proposal. The proposal has twice been approved by the House as part of the post-Enron bill, most recently May 14 (HR 1000) (See  House OKs Advice Bill  ).