The Department of Labor last week endorsed a proposal in the House of Representatives that would allow 401(k) investors to receive advice from employer-sponsored financial planners, giving the initiative renewed momentum and prompting its proponents to assert that the House will pass it by year end.
Speaking before a subcommittee of the House Education and the Workforce committee, Assistant Secretary of Labor for Pension and Welfare Benefits Ann Combs said the proposal "could not come at a more opportune time."
Combs cited a recent newspaper report that many 401(k) investors were, for the first time in the retirement vehicle's history, losing money, according to a statement issued by the committee. She contended that providing advice to those planning for retirement could curb the phenomenon.
Current federal law, enacted before the rise in popularity of 401(k)s, prohibits most employers from providing advice regarding the plans. The Retirement Security and Advice Act, sponsored by committee chairman John Boehner (R-Ohio), would change that by allowing employers to enlist the services of financial professionals who would provide employees with investment advice.
Kevin Smith, an aid and spokesman for the committee, said the DOL's endorsement of the proposal was a crucial hurdle. "It's certainly an important day in this process," he said in an interview after the meeting. "Today was a significant step forward."
Some in the private sector, meanwhile, are watching the bill's progress with skepticism. Thomas Clough, president of New York Life Benefit Services, questions the effectiveness of such advice. To provide truly beneficial guidance, he said, planners need to examine an employee's financial situation in its totality, including whether that employee is invested in other mutual funds. He wonders if that will be the case.
"I'm not sure people are going to embrace this as being as encompassing as it needs to be," he said.
But Smith said officials are confident that the committee will approve the bill and move it to the House floor before the August recess. "We can pass the bill through the House by the end of the year--no doubt," he said.
From there, the bill, which Smith said has garnered bipartisan support among 26 House members, moves to the Senate, where its proponents have not yet found a sponsor, Smith said. "That's in full discussion mode at the moment," he said.
Smith wouldn't disclose who officials are courting to sponsor the bill, but said, "We're very excited about who we're talking to."