On July 11, the Senate Finance Committee passed S. 1971, "The National Employee Savings and Trust Equity Guarantee Act," a bill that is designed to protect employees' pension plans post Enron.
The Senate bill allows employees to divest company stock in their 401(k) or other defined benefit plan after three years; requires plans to give participants 30 days' notice prior to a company plan "blackout period," during which employees are prohibited from conducting account transactions; and requires employers to provide quarterly statements to participants telling them how much of their account is invested in company stock.
The bill, sponsored by committee chairman Senator Max Baucus (D-MT), also includes a safe harbor provision on the contentious investment advice issue, and supports a bill sponsored by Senator Jeff Bingaman (D-NM) that permits only investment advisor reps or registered reps to dole out 401(k) advice to plan participants. Senator Charles Grassley, (R-IA), said "there are two very different points of view on investment advice"--Bingaman's view favoring independent advice, and that offered in H.R. 2269, The Retirement Security Advice Act, sponsored by Rep. John Boehner, (R-OH). That bill, which already has passed the House, allows financial services companies that administer 401(k) plans to give investment advice to employees.
"I absolutely agree with comments by Senator Grassley that there are two very different points of view on how to give investment advice," says Duane Thompson of the Financial Planning Association. "The Senate version is very advantageous to the employer in encouraging and clarifying that the employer hand over the liability to an advisor. But I don't think there's any special advantage for the independent financial planner or investment advisor in that bill, because it can certainly permit a large wirehouse or Fidelity to give that advice; it makes no distinction between that entity and a small financial planning firm," he says. "What it does do, and we have talked to Senator Bingaman to clarify this, is to include state registered investment advisors as well."
Thompson says the FPA supports Senator Bingaman's provisions in the Senate bill " because we think it helps encourage some competency in the advice that's given." The FPA also supports Boehner's approach, "but only to the extent that the bill would limit or restrict [investment advice authority] to registered investment advisors. They are the only group over a long period who have had a disclosure regimen in place and who have experience in acting as fiduciaries."
Angela Arnett, senior counsel for the American Council of Life Insurers (ACLI), said in a prepared statement that the life insurance industry is "disappointed" with the Senate Finance Committee bill because it "fails to provide workers investment advice from financial professionals who are best qualified to provide it." She said the ACLI hopes "that this mistake can be remedied as the bill moves to the Senate floor."
Arnett said "current law restricts pension plan participants' access to investment advice from the very organizations best-equipped to provide such advice--financial services firms-- and drives up the cost of such services to participants."
The FPA's Thompson says there's been a "tit for tat" going on between Sen. Bingaman and Rep. Boehner on which approach is best, and it's likely there will be a "combining of both approaches" when both pieces of legislation go to conference in the early fall.