Bill Offers New Options for Workers Losing Money in 401(k)s

WASHINGTON, D.C. -- House Education & the Workforce Committee Chairman John Boehner (R-OH) today highlighted a new report by Cerulli Associates which showed that popular 401(k) retirement savings plans lost money for the first time in their 20-year history despite thousands of dollars in new contributions. Boehner recently introduced legislation -- the Retirement Security Advice Act (H.R. 2269) -- that could help workers make better investment decisions with their retirement dollars by updating the law to allow employers to provide their workers with access to high quality professional investment advice.

          "This report clearly shows that there is a greater need for high quality, professional investment advice than ever before," Boehner said. "Unfortunately, federal law prohibits employers from providing their workers with access to investment advice, and workers are struggling to cope with today’s maze of investment information without the benefit of professional advice."

          The bipartisan measure, which currently includes seven Democrat cosponsors, allows employers to provide their workers with access to professional investment advice as long as the advisers fully disclose their fees and any potential conflicts. The Employee Retirement Income Security Act (ERISA), enacted in 1974, creates barriers that currently prevent employers and investment intermediaries from providing individualized investment advice to workers. ERISA was enacted nearly 27 years ago, before the rise of employee-controlled pension plans that allow employees to make most investment decisions.

          Cosponsors of H.R. 2269 include House Majority Leader Dick Armey (R-TX), Democratic Caucus Chairman Martin Frost (D-TX), Financial Services Committee Chairman Michael Oxley (R-OH), and Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-TX).

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Bill Summary follows:

The Retirement Security Advice Act allows employers to provide their workers with access to professional investment advice as long as the advisers fully disclose their fees and any potential conflicts.

• The bill clarifies that employers are not responsible for the individual advice given by professional advisers to individual participants, removing the barrier that prohibits employers from contracting with advice providers.
  
  
• Employers will remain responsible under ERISA fiduciary rules for the prudent selection and periodic review of any investment adviser.

• The measure protects workers from potential abuses.
  
  
• It permits investment service firms who contract with employers to provide investment advice about all investment products as long as they disclose any relevant information about the advisers’ fees and potential conflicts.
  
  
• Investment advice may only be offered by "fiduciary advisers" -- qualified entities that are already regulated under other federal and state laws (such as registered investment advisers, registered broker dealers, insurance companies, and banks).
  
  
• Investment advisers will be subject to fiduciary liability under ERISA, including civil and criminal enforcement by the Labor Department.
  
  
• Under this fiduciary duty, advisers will be personally liable for any failure to act solely in the worker’s interest. This is the highest form of financial responsibility advisers can be held to under the law.
  
  
• The use of disclosure as a means of dealing with potential conflicts is well accepted in the securities laws and has been used in a number of ERISA exemptions granted by the Labor Department.
  
  
• Existing securities and state insurance law protections will continue to apply as well.

• The bill does not require any employer to contract with an investment adviser and no employee is under any obligation to accept or follow any advice.
  
  
• Workers will have full control over their investment decisions, not the adviser.