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Investment Advice Provision Proving To Be A Tough Sell

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A provision in federal legislation that allows insurance companies and their agents to provide investment advice to beneficiaries of 401(k) programs they administer is proving a tough sell, especially to key members of the Senate Finance Committee.

The provision is one of four keenly sought by the life insurance industry. All four are contained in either the Senate or House versions of pension reform legislation a conference committee now is debating.

Before last week, it had been expected that work on the bill would be completed by April 7 at the earliest or April 17 at the latest. The latter is the date when public companies have to calculate their liabilities for the Pension Benefit Guaranty Corp. But that date is falling by the wayside, and industry officials and congressional staffers now are predicting passage of the bill may be delayed until Memorial Day.

The conference committee staff now is saying there is “no way the panel can complete its work by April 7,” said Michael Kerley, senior vice president, federal government relations for the National Association of Insurance and Financial Advisors.

That is especially so since Congress has spring recess planned and will not return to Washington until April 24.

“The committee is having a really hard time reaching consensus on the basic pension issues contained in the two bills,” Kerley said. “They are worlds apart. If they can’t come to agreement on those, it is clear that agreement on our issues will have to wait.”

The life industry provisions in the bill are so important to NAIFA that it will have key members of the group in town on April 4 for the specific purpose of lobbying its issues, Kerley said.

While the investment advice provision is meeting skepticism because of potential conflicts of interest it might create, two other provisions are being greeted with skepticism by conference committee members for a more mundane reason–they have been scored by the Congressional Budget Office as costing the government a great deal of future revenues, according to industry officials.

These are provisions allowing for a long term care rider to annuities and allowing workers to roll over up to $500 in their Flexible Spending Accounts.

A fourth provision of the legislation on the industry’s priority list is inclusion of language codifying the tax treatment as well as best sales practices for corporate-owned life insurance. That provision is regarded as less controversial. It is contained in the Senate version of the bill, while similar legislation in the House has broad and bipartisan support.

But the investment advice language is seen as the toughest sell. It is described by one industry lobbyist as being viewed by key conference committee members as “not ready for prime time.”

Such key conference committee members as Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Jeff Bingaman, D-N.M., a ranking member of the panel, are concerned that removing current barriers regarding who can provide investment advice to plan members will prove too tempting, according to NAIFA officials.

Current laws bar any employee of a company administering a 401(k) program from providing investment advice to plan participants. A provision lowering the bar for plan providers to give such advice either directly or through their agents is contained in the House version of the bill. It is strongly supported by Rep. John Boehner, R-Ohio, former chairman of the House Education and the Workforce Committee and now Majority Leader. He pushed it through his committee when he headed it last year.

The American Council of Life Insurers is neutral on which version of the investment advice provision should be included in the bill.

While it “strongly supports investment advice legislation,” and “prefers the House version over the Senate version,” the ACLI can live with the Senate provision, according to Jack Dolan, an ACLI spokesman. Either version “would open the door more widely to representatives of financial services firms, such as life insurers and their agents, to providing advice to 401(k) plan participants,” Dolan said. “Workers are clear on the topic: They want and need professional advice. Life companies and agents ideally are situated to help boost workers’ retirement security through sound investment advice.”

Dolan said that in many ways “life company representatives, and representatives of other financial industries, are already on the worksite, providing funds for plans and educational materials. It is a logical step to allow professionals to offer advice to plan participants.”

He noted that suggestions “that advice from these professionals would somehow be tainted fails to recognize the stiff requirements in the House bill, ensuring top quality advice from financial professionals.”

Still, Dolan said, “we also would support passage of both the House and Senate version in reconciliation. Under that scenario, employers would have the choice of the type of advice they would make available to their employees.”

NAIFA officials say they are facing “extreme difficulty” in getting key senators, like Grassley and Bingaman, to support the House version. Officials at the American Benefits Council, which is lobbying the whole bill, and lawyers, who are lobbying the entire bill for their own clients, also claim the investment advice language is a key hang-up to negotiators.

Kerley said Grassley and Bingaman “support only their language” on investment advice. Their language is restatement of current law that says that if a company wants to provide investment advice for employers, it has to hire someone who is totally unconnected to current 401(k) providers.

Kerley doesn’t think that is the best approach. “Employers think twice about doing it because it costs them extra money to do so,” he said. “In most cases, across the overall spectrum of 401(k) plan participants, the amount of investment advice reaching employees is relatively low,” Kerley said. “It means in the practical world that the people who need help the most, rank-and-file employees who don’t have experience in investing, don’t get the best advice. And therefore, they don’t get the maximum use of their money. Rank-and-file members aren’t reading investment advice magazines.

“Moreover, they don’t go out and seek that advice on their own,” Kerley said.

He calls it a “very difficult educational issue.” But some Senate members view the House language as a positive, he said, citing Sen. Mike Enzi, R-Wyo. “Enzi sees this issue the same way as Boehner sees it. Senate supporters believe the House version will get more advisors in front of rank-and-file employees,” Kerley said.

Conferee concern about the LTC rider provision deals with the cost. The Congressional Budget Office “scores” the LTC rider provision as costing the government $10 billion over 10 years, although NAIFA believes the estimate is high. “But it is worth it,” Kerley said. “Eventually, it will take the pressure off both Medicare and Medicaid.”

A similar problem exists for the FSA rollover program, which has strong support from Grassley. The FSA rollover cost is scored at $20 billion over 10 years by the CBO. It gives an individual the authority to roll over $500 annually in his FSA. Under current law all the money in the account has to be spent or it is lost.

Under the bill, $500 would be the maximum that could be rolled over from one year to the next. That provision is contained in the House bill.


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