Agents And Insurers Applauding Return Of Pension Plan Advice Legislation
Agents and life insurance companies are lining up to support legislation expected to be introduced this week that would expand their ability to give investment advice to pension plan participants.
The legislation will be sponsored by Rep. John Boehner, R-Ohio, who chairs the House Committee on Education and the Work Force.
The bill is expected to be similar, if not identical, to legislation Boehner introduced last year, H.R. 4747.
The legislation would create new exemptions to the prohibited transaction rules of the Employee Income Retirement Security Act.
Under the legislation, a fiduciary advisor would be allowed to provide investment advice to an employee benefit plan or to a participant or beneficiary of the plan.
In addition, the fiduciary advisor would be allowed to receive fees or other compensation in connection with providing the advice.
The legislation contains safeguards aimed at assuring that any transactions are conducted on an arms-length basis.
Jack Dolan, a representative of the American Council of Life Insurers, Washington, says that, while the pension reforms enacted in the new tax relief act are vital to enhancing retirement security, more is needed.
Investment advice, he says, is a crucial element.
Plan participants are asking for advice, and life insurance companies and agents are well-trained in dealing with financial matters, Dolan says.
He adds that the legislation will give life insurers and agents an opportunity for increased interaction with workers.
David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says the legislation is long overdue.
It takes into account changes in pensions since the enactment of ERISA, Winston says.
The reality, he says, is that more and more employees have 401(k) plans and must direct how the money is invested.
They need investment advice, but they are inadequately served due to the ERISA restrictions, Winston says.
Winston cites a recent survey that found that only 16% of 401(k) plan participants have advisory services available through their retirement plans.
Under last years H.R. 4747, the new ERISA exemption would apply only if the fiduciary advisor discloses a variety of information to the benefit plan or participant.
This includes data on all fees or other compensation, any contractual relationship between the advisor and any property or security involved in the advice, and any limitations placed on the scope of investment advice provided by the advisor.
In addition, the compensation received by the advisor must be “reasonable,” and the terms of any transaction must be at least as favorable to the plan or participant as an arms-length transaction would be.
Plan sponsors would still be required to prudently select and periodically review fiduciary advisors. However, sponsors would not be required to monitor specific investment advice given to a plan participant.
In other news, legislation that would create a national database allowing financial services regulators to better track those who commit fraud passed its first hurdle last week.
A House Financial Services subcommittee approved the legislation, H.R. 1408, by a 20-1 vote.
The next step for H.R. 1408 is the full committee, which at press time had not announced when the bill would be considered.
The bill would create a central database that could be accessed by financial services regulators, including state insurance commissioners.
In addition, insurance commissioners would have access to the FBIs fingerprint database.
The goal is to prevent those who commit financial fraud from moving between different financial services disciplines without detection.
One potential snag was resolved by an agreement over what FBI information would be available to insurance commissioners.
Under the agreement, insurance commissioners will have access to all felony information.
In addition, they will have access to misdemeanor information involving financial crimes, crimes involving dishonesty or breach of trust, failure to pay child support, failure to pay taxes and anything involving violence.
Winston says NAIFA strongly supports H.R. 1408. In addition to combating financial fraud, he says, the legislation will help agents in terms of uniform licensing.
A database, Winston says, will make it much easier for states to grant licenses to agents from other states.
Financial Services Committee Chairman Mike Oxley, R-Ohio, says the legislation is vital in the new financial services world.
“With financial services fraud estimated to cost in excess of $100 billion a year, greater information sharing is imperative if regulators are to do their jobs in the new financial services world envisioned by Gramm-Leach-Bliley,” he says.
A database, Oxley says, could have prevented incidents such as those surrounding Martin Frankel.
Frankel, he notes, was barred from working in the securities industry due to allegations of fraud, but then moved into the insurance industry, where he stands accused of stealing hundreds of millions of dollars.
Reproduced from National Underwriter Edition, June 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.