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March 25, 2009 at 08:00 PM
Some House Democrats want to rewrite a Bush administration rule that would permit advisors who sell 401(k) plans to give plan participants investment advice.
The final rule, released in January, “raised substantial questions of law and policy” and, as issued, “would have allowed conflicted financial advice to workers with regard to their 401(k) and other types of defined contribution plans,” according to Rep. Robert Andrews, D-N.J., chairman of the Health, Employment, Labor and Pensions Subcommittee, an arm of the House Education and Labor Committee.
Andrews talked about the rule Tuesday at a hearing on the importance of having an independent investment advisor.
The Employee Benefits Security Administration, part of the U.S. Department of Labor, announced Friday that it is postponing the effective date of the final rule until May 22. The effective date was going to be March 20.
The final rule would have allowed producers who sell defined benefit or defined contribution plans to employers to offer financial advice to the plan participants.
As written, the rule could allow advisors to violate the Employee Retirement Income Security Act by concealing income they receive from other sources, such as other vendors servicing the plan, Andrews said..
Investment advice can be beneficial to workers as long as it “is independent and free from conflict,” Andrews said. “During a time where American workers have already lost $2 trillion in assets due to last year’s market downturn, exposing their hard-earned retirement savings to greater risk by allowing advisers to offer them conflicted advice is irresponsible and imprudent.”
The Bush administration developed the investment rule to implement provisions of the Pension Protection Act of 2006.
The provisions changed the prohibited transaction provisions of ERISA to permit DB or DC plan providers to offer investment advice to plan participants, if the providers disclose that they will receive income from the investments purchased.
