WASHINGTON -- Lawmakers are planning to introduce a bill next month that would make it easier for 401(k) plan participants to receive investment advice from employers and vendors.
The bill, which has broad support from employers and the investment industry, would be the first attempt to revamp the Employee Retirement Income Security Act since it was signed in 1974.
Employers, mutual fund companies and vendors have been pushing for an easing of the current ban on vendors giving investment advice to plan participants, except in certain circumstances.
Reps. John Boehner, R-Ohio, chairman of the House Employer/Employee Relations subcommittee, and Rob Andrews, D-N.J., who have recently completed a series of hearings on modernizing federal pension law, are crafting a bill that would loosen the rules that prevent service providers from offering investment advice to participants if they benefit from it financially.
The bill being contemplated probably would contain a new statutory exemption from ERISA that would allow advice so long as advice providers give information about the fees they would collect from the funds they promote. They also would have to warn participants about possible conflicts of interests. Vendors also would have to assume legal responsibility as fiduciaries for the investment advice they provide.
The Department of Labor already has begun collecting input from employer groups so it can provide guidance beyond what it gave employers and service providers in 1996 on the type of investment information they could give participants without accidentally becoming fiduciaries (Pensions & Investments, Jan. 10).
"There's a broad consensus that we need to make it easier for individuals in pension plans to get the advice they need to make investment decisions," said Ann Combs, chief counsel of pensions at the American Council of Life Insurers, Washington.
Suggestion for exemption
At one of the hearings held by Mr. Boehner's subcommittee, Kenneth S. Cohen, deputy general counsel at Massachusetts Mutual Life Insurance Co., Boston, suggested that lawmakers grant a broad-based exemption from federal pension law for investment advisory services and products including mutual funds, individual securities and bank and insurance products. The exemption would depend on the type of advice offered, and would require detailed information about the services to be given to participants, but would not regulate the fees plan providers could collect.
At the same hearing, W. Allen Reed, chairman of the Committee on the Investment of Employee Benefit Assets, and president of General Motors Investment Management Corp., asked lawmakers to ensure any legislation that is crafted permits participants seeking investment advice to pay for it out of their retirement plan assets, or preferably through a pre-tax payroll deduction.
"It would be helpful for the government to clarify that the payment of reasonable fees for advisory services is a reasonable expense payable from plan assets, and does not violate the ERISA fiduciary rules governing retirement plans," Mr. Reed said.
But while investment advice is at the top of the list, the bill also is likely to loosen provisions of the federal pension law that broadly ban certain transactions between pension plans, investment advisers and others deemed to be fiduciaries to the plan. The legislation also might streamline the procedures that allow the Labor Department to exempt certain transactions.
Industry representatives have suggested that transactions between pension plans and affiliated parties should be exempt from any ban if they are carried out at an arm's length, the products or services are appropriate for the plan, and the fees and terms of the transaction are disclosed in advance to plan fiduciaries.
Panel vote in July?
Leslie B. Kramerich, acting assistant secretary of the Labor Department, has said officials there are open to examining ways to streamline the exemption process. "For instance, publication of a notice of proposed individual exemption in the Federal Register may not be necessary in every case," she told Mr. Boehner's committee.
Mr. Boehner has chalked out an ambitious plan for introducing the legislation in June and having it voted on by the subcommittee and the House Education and the Workforce Committee in July.
Even then, there is little guarantee the bill will make much headway this year.
For one thing, Messrs. Boehner and Andrews have not yet decided what to include in the bill beyond investment advice and prohibited transaction reform.
"They've got to find some solutions that are acceptable to both Republicans and Democrats, otherwise (the legislation) won't happen," said Randolf H. Hardock, partner in the Washington law firm of Davis & Harman.
For another, no lawmaker in the Senate has as yet stepped forward to craft a similar bill, and with Congress working on an abridged schedule for the election year, there is likely to be little time for the legislation to clear both chambers this year.
Separately, lawmakers in the House are planning to vote on legislation next month that would raise the contribution limits for individual retirement accounts to $5,000 from the current $2,000.
The proposal, which has broad support from lawmakers in both chambers and on both sides of the aisle, is expected to pass easily.