Hearings are expected to commence soon on a new bill that would allow retirement plan providers to offer advisory services to plan participants, something that is largely prohibited now. Representative John Boehner (R-Ohio), chairman of the House Committee on Education and the Workforce introduced the bill, called the Retirement Security Advice Act, last month.
The bill would amend the 1974 Employee Retirement Income Security Act (ERISA). Since then, there have been substantial changes in the retirement plan world, most notably in the growth of defined contribution plans. Allowing plan providers to offer investment advice is something that participants want and increasingly need, according to the Investment Company Institute, which fully supports the proposed legislation.
"More Americans are participants in pension plans to save for retirement," said Matthew Fink, president of the ICI, in a statement. "The Boehner bill would enable retirement plan participants to receive the investment guidance they need to manage their growing 401(k) plan investments while maintaining the protections afforded by [ERISA]. Because participants in 401(k) plans are responsible for deciding how to invest their retirement accounts and bear the risk of any such investment, it is imperative that they have access to the tools they need to help them make informed decisions."
Investors Want More
Currently, it is possible for plan sponsors to purchase advisory services from third parties that supply it online, but survey data suggests that participants not only want advice, but they also want it in a form other than just the Internet, according to John Collins, an ICI spokesperson. And although third parties can be used, only about 16% of participants in 401(k) plans are offered some type of advisory service, he added.
"One thing that some people haven't picked up on is that [the bill] would probably work to encourage employers to offer [plans with advice] to their employees," said Collins. "The bill gives the fiduciary responsibility that goes along with providing investment advice to the plan providing it, not the employer, so the employer wouldn't be left open."
The House is not in session this week due to July 4, but the hearings are likely to begin soon, and maybe as early as next week, according to Kevin Smith, a spokesperson for the House Com-mittee on Education and the Workforce. If the hearings are successful, the bill would be marked up in committee and sent to the floor of the House. While the timeline for such legislation varies, the bill has bipartisan support and the committee expects to have successful hearings and to move the bill by the end of the summer, according to Smith.
A similar bill was introduced last year, however Congress ran out of time and it never made it to the floor. Discussion about the bill and amending the ERISA laws has been going on for a while, and this particular issue has come to be known in Washington as the advice gap,' according to Collins. The ICI believes the bill would work to close that gap. "The Institute is a strong proponent of policy measures that would establish simpler and more accessible retirement plans, and this bill is a positive step," said Fink.