The ability of insurance and financial advisors to offer investment advice to owners of 401(k) benefits has been imperiled through legislation recently passed by a House committee.
The legislation would reverse hard-fought advances won in a 2006 bill that allowed financial intermediaries who sell 401(k) plans to offer investment advice to plan beneficiaries. In addition, the new bill would mandate substantively greater disclosure of fees charged by 401(k) service providers and plan administrators, a provision that is also opposed by employers and providers.
Moreover, to heighten the chances that Congress would pass the bill, the committee added to it provisions sought by employers that would give them greater flexibility in funding their defined benefit plans.
A staff official of the National Association of Insurance and Financial Advisers acknowledged that adding the defined benefit provision to the bill heightens the chances it would pass Congress.
But everyone in the retirement financial advice industry hopes that “down the road, cooler heads prevail, and the provisions relating to defined benefit plans are allowed to pass,” the official said.
It is unclear when the legislation, a pet project of Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, will be considered in the House.
No companion bill is under consideration in the Senate.
NAIFA members are “deeply disappointed” in the proposed investment advice law changes passed by the committee, the official said.
He said that if they become law, “the practical effect will be that many, if not most, rank-and-file employees will not have access to affordable professional advice regarding their 401(k) plan contributions.”
The proposed changes would roll back advice reforms backed by NAIFA that Congress adopted in 2006, the official noted.
“The 2006 reforms provide legal protection for employers that make advisors available to employees,” he said.
“Without the 2006 protections, it is unlikely that many employers will risk legal liability or pay the expense of offering advisors that pass muster under pre-2006 law or the modifications proposed in the bill passed by the committee,” he added.
The panel approved the bill, the 401(k) Fair Disclosure and Pension Security Act, H.R. 2989, by a 29-16 vote.
It would require 401(k) service providers and plan administrators to disclose fees charged on 401(k) plans, broken down into four categories: administrative fees, investment management fees, transaction fees and other fees.