Practice

Lawmakers in the House and Senate last week reviewed two 401(k) reform bills that now include provisions designed to make it easier for investors to get advice about their retirement plans.

The U.S. Department of Justice's felony indictment of March 14, which charged Arthur Andersen with obstruction of justice in the federal investigation of Enron, may be causing fund advisers and their boards of directors to take pause and more carefully consider the auditing process for their funds. That is true even where fund groups have never utilized Andersen to audit their funds.

The troubles at Big Five accounting firm Arthur Andersen of Chicago over its auditing of the financial statements of Enron Corp. may be raising issues for the mutual fund industry.

Arthur Andersen's recent troubles in the wake of Enron's financial meltdown and its uncertain future have begun wafting over to the fund industry.

This is not the first time the fund industry has faced challenges with independent auditors.

With the recent issuance of Internal Revenue Service and U.S. Treasury Department guidance on capitalization, a drawn out conflict with the fund industry over the tax treatment of fund start-up costs appears to be drawing to a close. The Investment Company Institute has not issued an official comment on the issue, but it has indicated that the new rules do not go far enough in terms of the costs that can be expensed.

The financial implosion of Enron late last year has brought increased scrutiny to the regulations that govern 401(k) plans. Now, some say the longstanding issue of portfolio disclosure might be next.

The financial collapse of Enron, and reports that the firm's workers lost millions in their retirement plans when the company declared bankruptcy, has spawned a spate of recent legislative measures designed to protect 401(k) investors. But many of the initiatives are facing criticism from industry officials who say that lawmakers should be cautious in reacting to the Enron debacle.

As lawmakers debate possible reforms to 401(k) rules in the wake of Enron's financial collapse, Ted Benna, who launched the first 401(k) more than two decades ago, has suggested that workers be barred from spending their own money on stock in their companies.

Retirement plan providers are closely eyeing the new employer-only 401(k) plans as a vehicle that could capture greater rollover assets, open new markets and provide inroads to the high-net-worth crowd.