House Bill Targets 401(k) Advice

It would also require 401(k) plans to disclose fees taken from accounts in participants’ quarterly statements and would mandate that if workers get investment advice through their jobs, that the advice be based on the workers’ needs and not the financial interest of those providing the advice.

It would also require plan administrators to offer at least one low-cost index fund to plan participants in order to be protected against liability for participants’ investment losses and would require service providers to disclose financial relationships that potentially might create a conflict of interest.

The defined benefit pension funding relief provisions in the legislation “will help alleviate some of this funding pressure by permitting companies using the spot yield curve for 2009 to be able to elect to use the segment rates for 2010,” according to James Klein, president of the American Benefits Council.

It also would revise the effective date of the Internal Revenue Service funding regulations to apply to plan years beginning after Dec. 31, 2009 and would clarify that the term “target normal cost” excludes plan investment expenses.

According to Klein, an amendment to the bill offered by Representative Brett Guthrie, R-Ken., adds the “two plus seven” provision, under which employers would be required for two years to pay interest on their plans’ 2008 losses to prevent the plans’ shortfall from growing.

But under the amendment, the seven-year amortization of those losses would not begin until the expiration of those two years.

“This relief will help restore companies’ economic footing,” Kline said. “We look forward to the committee returning to this issue as soon as possible,” he added.

Misgivings about the bill were expressed by a number of other industry groups.

These groups sent a joint letter to the committee raising questions about the practical impact of the tough disclosure and conflict-of-interest provisions of the legislation.

The trade groups include the American Bankers Association; the Financial Services Roundtable; the Investment Company Institute; the National Association of Manufacturers; the Profit Sharing/401k Council of America; the Securities Industry and Financial Markets Association; the Society for Human Resource Management; and the U.S. Chamber of Commerce.

“We continue to have some concerns about the underlying 401(k) fee disclosure bill, which continues to expose employers to unacceptable levels of fiduciary liability,” Klein said.

Klein also noted that the investment advice portion of the legislation would not protect the many non-conflicted advice arrangements approved by the U.S. Department of Labor before enactment of the Pension Protection Act of 2006–including those established under the long-standing SunAmerica advisory opinion.

The American Benefits Council had urged lawmakers to validate these pre-PPA arrangements in recent comments on H.R. 1988, which was added to H.R. 2989. The ABC had included in its comments proposed modifications to the bill, but these apparently were not in the bill as passed by the committee.