New 401(k) advice rules set to come out soon

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The Labor Department is likely to issue new rules governing investment advice given to 401(k) plan participants by the end of this month, Assistant Labor Secretary Phyllis Borzi said today.

“We're hoping that by the end of February it will be out,” she said of the new rules, which are now under review by the Office of Management and Budget.

Ms. Borzi made the comments to reporters after she spoke to a conference sponsored by the National Institute on Retirement Security in Washington.

She would not comment on what the new rules would look like, other than to say they “will be much more faithful to the statutory provision than the ones that we saw on Jan. 21, 2009,” referring to rules issued by the Bush administration just as President Barack Obama was taking office.

The new rules are “a much more streamlined version,” she said.

In her talk to the NIRS, she cautioned the Obama administration is not likely to waive fiduciary rules required of employers under ERISA. “The fiduciary duty of a plan sponsor under ERISA to prudently elect and monitor service providers with respect to the plan isn't going to be waived on my watch,” she pledged.

“On the other hand, there are things that could be done to make things easier,” she said, listing education programs for participants, better disclosures and the possibility of providing information on benefit statements showing participants what they would get in lifetime income under an annuity.

The Labor Department is also looking at reducing employers' liability exposure, including adopting hybrid pension programs that combine some features of defined benefit plans with those of a defined contribution plan.

But Ms. Borzi was critical of the “explosion” of executive compensation and deferred compensation plans that have come into being in recent years for company managers as defined benefit plans have waned.

“As long as they can get compensation in all these other ways … these are headaches” that hamper efforts to keep qualified pension plans, she said. “Once Congress pushed all the decision makers out of the defined benefit plan, there was nobody left who cared about keeping those plans going.”

Sara Hansard is the Washington bureau chief for InvestmentNews, a sister publication of Pensions & Investments.