The Department of Labor rejected a change in regulation issued towards the end of the Bush administration that would have allowed brokers affiliated with mutual funds, brokerage firms and other companies that sell investments to provide investment advice to 401(k) participants.
“We believe the final investment advice regulation published in the January 21 Federal Register went too far in permitting investment advice arrangements not specifically contemplated by the statutory exemption,” said Phyllis C. Borzi, assistant secretary of the Employee Benefits Security Administration, at a conference sponsored by the American Society of Pension Professionals & Actuaries on September 14, 2009. “Today’s workers will benefit from quality investment advice – advice that is both affordable and unbiased.” Assistant Secretary Borzi went on to mention that the Labor Department will review the regulations that govern investment advice and will issue new rules.
The Obama administration and House Education and Labor Committee Chairman George Miller also objected to the rules issued by the Bush administration, stating they would allow advisers who have a conflict of interest to provide advice to the plan participants. The Obama administration delayed the rules’ effective date.
Now that the Department of Labor has rejected the Bush proposal, Congress will move forward with legislation that would require that advice be given by independent advisers. Labor Secretary Hilda Solis “will work with Congress to find ways to further develop the existing market of qualified independent advice,” stated Rep. Robert Andrews, chairman of the House Education and Labor Committee’s Health, Employment, Labor and Pensions Subcommittee. No deadline for issuing a new proposal has been given.
Currently, investment advisers are allowed to provide advice to 401(k) participants, under the Pension Protection Act of 2006, provided the adviser fees earned are no different for investment options that are recommended and as long as disclosures are provided. According to Representative Andrews, the Act would have to be changed in order for the Department of Labor to issue the investment advice rules that Congress would support.
No matter your views on the issue, 401(k) plan participants look for guidance from the individual selling them the products, as well as help in gathering as much information as possible to make an informed investment decision. With so many fund options available, it is not always easy for participants to navigate through all of the information available to determine if the investment is appropriate. In the near future, affordable and unbiased advice may be available to these individuals.
Regulatory Compliance will stay on top of proposed legislation and will provide updates as more information becomes available. For more information on the current regulations, please contact your Compliance Partners account manager.
Back to top
Back to Newsletter
|
