WASHINGTON - Defined contribution industry players like the final version of the Department of Labor's interpretive bulletin on participant investment education.
They say the bulletin is a case of government regulation catching up with private sector practice.
The final version contains few surprises. Extensive public comment on the first draft, introduced in December, is evident in the final document. That evidence ranges from new wording recommending sponsors encourage terminated employees to roll over plan distributions into individual retirement accounts to wording explaining what the Labor Department considers investment advice.
"It's my experience with the DOL that it takes public commentary on proposed regulations very seriously. In trying to be practical, the department listens to areas of concern and in this case, tried to draft language to deal with the reality of plan participant education," said Fred Reish, managing partner of the law firm Reish & Luftman, Los Angeles.
Pam Scott, principal with Kwasha Lipton L.L.C., Fort Lee, N.J., said: "There aren't any surprises....It should have its intended long-term effect - to encourage sponsors to provide employees with more education about investing their defined contribution plans at a greater depth than ever before."
Until now, many plan sponsors were held back by corporate counsels from offering the full range of investment education they considered prudent, said Michael Barry, a managing director at Bankers Trust Co., New York.
"I used to run into people from companies of all sizes who said they wanted to use techniques like gap analysis or comparisons of historical returns or interactive software to produce asset allocations, but their legal department wouldn't let them," Mr. Barry said. "They were really trailing what the market forces have been pushing employers to do for some time on investment education ...."
Mr. Barry said he hopes, but isn't convinced, corporate counselors will allow benefits managers more leeway now.
Most large plan sponsors are unaffected by the new bulletin because they already were practicing most of what the bulletin suggests for employee education, said Allen Steinberg, a principal at Hewitt Associates L.L.C., Lincolnshire, Ill.
"It's a great example of the private sector leading the way and government trailing behind. Corporate employers needed to provide investment education for their own benefit, because as they cut back on defined benefit plans, they didn't feel right about handing investment control to participants with inadequate education about their options," he said.
Mr. Steinberg noted Hewitt's 1996 employer survey showed more than 90% of large companies "already offer investment education or intend to. The latest DOL bulletin gives employers permission to do what they were already doing."
Among the changes:
The final draft drops the requirement that an asset allocation model identify all of the options in the plan that fit an asset class.
The Labor Department is encouraging educators to provide information on the consequences of not participating as early as possible in employer-sponsored plans and of early withdrawals from the plan.
The Labor Department and the Securities and Exchange Commission clarified that employers providing investment education to employees are not subject to the Investment Advisers Act of 1940.
