Congress is working on a bill that would allow 401(k) vendors to recommend specific funds. The change would make it easier for brokers to advise retirement plan participants by altering the current 401(k) legal framework, the Employee Retirement Income Security Act of 1974 (ERISA).
The bill, the Retirement Security Advice Act (H.R. 2269), is sponsored by Rep. John Boehner, R-Ohio. The House Committee on Education and the Workforce approved the bill in early October by a 29-17 vote. No date has been set for consideration by the full House. The White House supports the proposal.
While the idea has broad support, not all agree. Lowell Smith, managing director of ERISA services for Investmart, says the bill would undermine current protections by allowing “people who provide assets to potentially benefit financially from the advice they give.” Investmart is a Pittsburgh-based firm that works with more than 7,000 retirement plan providers.
The SIA and mutual fund groups are lobbying for the bill, which stalled in Congress during the Clinton Administration, but has been revived under President Bush. Groups in favor of the bill argue more advice would be beneficial in light of depressed market conditions. And brokers who sell plans say participants often want more than the generic allocation advice the reps are now allowed to give.
For the first time since 401(k) plans were established, the average account lost roughly 10% in 2000, according to Cerulli Associates, a Boston-based fund consultant. As a result, backers of the bill say investors could use help making investment decisions.