Fate Of Investment Advice Provisions Hinges On House-Senate Negotiations

By contrast, the Senate bill provides more limited options and greater liability. This reflects the concerns of Senate Finance Committee Chairman Charles Grassley, R-Iowa, and Sen. Jeff Bingaman, D-N.M., a senior member of the committee, that the lessons of the broker abuses of the late 1990s and early 2000s should not be dismissed lightly.

As a result, the Senate bill provides liability protections for investment advice from third parties but not for advisors that offer funds under the sponsor’s 401(k) plan.

In a January note to investors regarding the potential performance of life insurance companies this year, Colin Devine of Citigroup said the language in the House bill “could represent a very large opportunity for insurers with large defined contribution record-keeping businesses.”

He said that if the House provision is adopted, “Principal Financial, Prudential, Manulife, Nationwide Financial, American International Group and Lincoln National could be in a very favorable position to capture a material slice of the estimated $250 billion-plus annual IRA rollover market.”

Lobbyists for the American Council of Life Insurers have prepared materials and briefed staffers of legislators expected to be on the conference committee. “We do prefer the House version on the investment advice provision because we believe it will get more advice to plan participants,” said Jack Dolan, an ACLI spokesman.

“Still we would be happy if the Senate version passes,” Dolan said. “Both versions could be included, which would be fine with us, allowing the employer to choose whether it wants to offer ‘affiliated’ or ‘independent’ advice to employees,” he said.

At the same time, lobbyists for the National Association of Insurance and Financial Advisors said they “strongly support” the House bill, called the Pension Protection Act.

“It removes impediments that prevent millions of Americans with 401(k) accounts from receiving critical advice fromsources in the best position to offer it,” said Mike Kerley, a NAIFA lobbyist. “Any pension reform bill sent to President Bush that does not include the investment advice provision could put hard-working Americans in serious financial peril when they reach their retirement years.”

Kerley said statistics show thatonly 16% of 401(k) plan participants have an investment advisory service available to them through their retirement plan. He said current law “discourages employers from engaging agents of insurance companies administering 401(k) plans from offering employees sound advice for how best to manage their account investments.”

Negotiations on the differing bills could continue into March, but the legislation is considered essential to reducing the government’s cost of bailing out defined benefit plans going forward. The Senate’s failure to appoint conferees because Democrats are asking for one more conferee than Republicans want to give them is delaying the start of negotiations.