SCOTTSDALE, Ariz - The American Society of Pension Actuaries (ASPA) Executive Director Brian H. Graff warned the plan sponsor and retirement-services industries to jointly get their acts together and provide investors with better investment tools, or they will have Congress on their collective backs.
Introduced as a key Capitol Hill insider by ASPA, Graff, speaking at the association's 401(k) Sales Summit, did his best Jerry Seinfeld impersonation, asking "Why can't they leave us alone for a few minutes?"
"The problem is that Congress has finally realized the 401(k) is America's retirement plan, and what Congress knows, it wants to mess around with," Graff said.
However, certain responsibilities and expectations tend to go hand-in-hand with increased regulation, he said, noting that Congress has already started "messing around" and could continue to increase regulation.
He said there are various things the industry can do to stave off over-abundant requirements by our legislators, including providing participants with advice and helping better educate the investing public. One such way is to be more informative with quarterly statements. "They should consider more professional investment management," he also noted.
"The President is a mini-pension geek," he said. "The President wants to get rid of IRAs and replace them with the three sisters," he said, referring to Lifetime Savings Accounts (LSAs), Retirement Savings Accounts (RSAs), and Employer Retirement Savings Accounts (ERSAs) (see MFMN 2/10/03), which he nicknamed Lisa, Reesa and Ersa. ERSAs replace 401(k)s, 403(b)s, governmental 457 plans among others, available to all employers, he said. Qualified trust are subject to limits and rules similar to 401(k)s
Democrats say these plans would tilt the balance away from savings plans to individual accounts, and question what will happen to small business owners as a result of the change.
"I would not spend much time selling LSAs right now," Graff recommended, saying a Republican in Congress, who he did not name, dubbed the LSA account, the DOA account.
Either way, the point is moot at the moment, as it is likely this plan will take a back seat to President Bush's economic stimulus package, he concluded.
"You can still buy Enron stock, and I understand it's quite a bargain," he said, tongue-in-cheek. All joking aside, investment advice is an important topic, and there is significant legislation floating through both houses of Congress, primarily stemming from the Enron fiasco, that could affect the industry (see MFMN 10/28/02).
Legislation regarding investment advice in the House of Representatives includes making exemptions to the current rules prohibiting conflicted advice. It also includes the disclosure of all fees and commissions, the existence of any conflict, any limitation on scope, any advisor services offered, as well as whether the advisor is a fiduciary. This is defined as a registered investment advisor, bank, insurance company, broker/dealer or affiliate.
Additionally, fees and commissions received must be reasonable. And employers will still be liable for "prudent selection and monitoring" of advisors, but not for specific advice given.
A pending Senate bill, meanwhile, provides employers with safe harbor from all fiduciary liability. However, certain requirements must be met, such as the advisor must be independent and acknowledge fiduciary status. The advisor and its employees must be qualified, and employers must review certain forms before hiring the advisor and investigate if a significant number of employees have complained about the advisor services. The Senate bill also calls for a modification to ERISA to exclude investment advisors from protection from liability.
Dividend Tax a Bloody Mess'
Graff is not a big endorser of the current proposal by President Bush to eliminate the double tax, either, calling the current plan "a bloody mess."
While the President's proposal to eliminate the double tax on dividends does not apply to retirement savings vehicles, there is some concern that such plans could influence investors to move their allocations away from retirement savings products, in favor of other investments, according to Graff.
Small business retirement plan coverage would take a huge hit if the President's proposal is enacted as is, and it would reduce the incentives for small business owners to establish plans, Graff said.
Referring to blackout period notification rules in the Sarbanes-Oxley Act, Graf had a little fun at the President's expense, joking that "the President likes blackouts, probably going back to his college days."
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