WASHINGTON -- The Department of Labor might make it easier for employers and vendors to offer investment advice to 401(k) plan participants.
At the same time, Rep. John Boehner, R-Ohio, chairman of the House Employer/Employee Relations subcommittee, will hold a series of hearings starting next month that will be a broad review of the federal pension law.
The hearings also will focus on prohibited transaction rules, specifically those involving investment advice.
The Labor Department plans to re-examine guidance it gave employers and service providers in 1996 on what investment information they could give participants without unintentionally becoming fiduciaries with legal liability for participants' investment decisions.
At a meeting late last month, Leslie Kramerich, acting assistant labor secretary, said the agency is going to look at "the next generation of thought on investment education and advice."
The regulator will focus on holes in its earlier guidance, and will invite employers and plan providers to describe snags they are hitting, she said.
"What we'd like to do is sit down and talk about what are employers experiencing, what are employees asking for, what can we be doing together . . . to help them get out the services they want to deliver," she said.
Ms. Kramerich offered no details. But it is known the Labor Department will develop a list of model companies and look at how they give participants investment help, said an administration official, speaking on condition of anonymity.
Few employers themselves tell their workers how to invest their retirement money, relying instead on bundled service providers or independent advice givers.
Washington sources also suggest the Labor Department might be willing to loosen the rules on giving advice.
The biggest snag in the current rules, sources said, is that even if vendors agree to accept legal responsibility for the advice they offer, federal pension law forbids them from directly benefiting from it. The Labor Department's concern is that vendors might direct participants into funds from which the vendors could earn higher money management fees.
The Labor Department can exempt vendors from the self-dealing provisions of the Employee Retirement Income Security Act, but the exemption process is tedious and long.
Moreover, the process typically requires service providers to flatten their fees so they don't earn higher fees from any fund they recommend, or to set up separate affiliates to offer investment advice, neither of which is an appealing option.
The Labor Department might consider offering service providers a blanket exemption from the rules, suggested Ann Combs, chief counsel of pensions at the American Council of Life Insurers, the Washington-based industry trade group.
"The problem with the `prohibited transaction' rules as they're currently implemented is that they are just not workable," said David Wray, president of the Profit Sharing/ 401(k) Council of America, Chicago.
The Labor Department should simply scrap the current rules and rewrite the exemption process, said Russ Galer, senior counsel at the Investment Company Institute, the Washington-based mutual fund industry association.
"There's pent-up frustration on the part of financial institutions to provide financial advice similar to what Financial Engines, mPower or another third-party provider can provide in a manner that satisfies the prohibited transaction rules," Mr. Galer noted.
Skip the DOL, please
Service providers want to provide independent investment advice without having to get the Labor Department's permission to do so, said Steve Saxon, a partner at the Washington law firm of Groom Law Group.
In exchange, service providers would be willing to disclose details of how much money they expect to collect from the investment advice and how, said Mr. Saxon, who represents several 401(k) plan vendors.
It also would be helpful if the Labor Department would spell out the differences between discretionary investment advisers and retirement plan service providers that offer investment advice on a one-time or limited basis in response to a request from the participants, especially if the providers don't charge a direct fee, suggested David Neuman, vice president and associate general counsel at Charles Schwab & Co. Inc., San Francisco.
"The distinction would be that the customer seeks transactional help rather than ongoing help," said Mr. Neuman, who added Charles Schwab has discussed its proposal with Mr. Boehner's staff.
Schwab officials had contemplated offering investment advice to their 401(k) clients but concluded it couldn't under the current Labor Department rules, he said.
Instead, Charles Schwab Retirement Services recently signed up with Financial Engines and mPower to independently offer online investment advice to 401(k) plan participants for which it is a bundled provider.
If the Labor Department loosens the regulations, bundled providers such as Schwab would be more likely to offer investment advice directly to participants, rather than going through independent services, said Peter Starr, managing director at Cerulli Associates Inc., a Boston-based research and consulting firm.
Might consider advice
T. Rowe Price Inc., the big Baltimore-based mutual fund firm and bundled service provider, is among the firms that would "look at offering some of the advice products we have put together" for investors outside of retirement plans, said Charlie Vieth, president of T. Rowe Price Retirement Plan Services.
"The advantage service providers will have is we can provide lower cost, have access to (account) data and can integrate" the advice, compared to outside investment advice providers, Mr. Vieth said.
Meanwhile, T. Rowe Price is negotiating an agreement with an independent investment advice provider and hopes to make that available sometime in the first quarter, Mr. Vieth said.
Then there's Fidelity Investments, Boston, which already offers customized investment information to more than 1 million retirement plan participants at 150 employers through its online Fidelity Portfolio Planner service.
The firm believes it already can offer a lot of information without having to go beyond the confines of the guidance the Labor Department gave in 1996. Still, it might consider applying to the Labor Department for permission to offer investment advice if the regulator loosens its rules for an exemption from pension law, said John Kimpel, senior vice president and deputy general counsel.