Institute Submits Testimony on "Retirement Security Advice Act"

Washington, DC, July 26, 2001 - On July 17, 2001, the House Committee on Education and the Workforce, Subcommittee on Employer-Employee Relations, held a hearing on H.R. 2269, the "Retirement Security Advice Act." H.R. 2269- introduced by Chairman John Boehner (R-OH) of the House Committee on Education and the Workforce- would provide a statutory exemption from ERISA's prohibited transaction rules for the provision of investment advice. The Institute submitted written testimony urging enactment of the bill.

Four of the testifying parties-the Department of Labor, Mohawk Industries, TIAA-CREF and ACLI-also expressed support for H.R. 2269.

Institute Testimony
The Institute's written testimony noted that despite participants' need for investment advice regarding their retirement assets, only 16 percent of 401(k) participants have an investment advisory service available to them through their retirement plan. The "advice gap" is a result of current legal constraints imposed by ERISA's prohibited transaction rules, which prohibit participants from receiving investment advice from the financial institution managing their plan's investment options. And although current law allows "third-party" advice providers to give advice to participants, the advisory services they offer have not sufficiently addressed the problem.

In light of the gap that currently exists, the Institute's testimony urged enactment of H.R. 2269. By removing the legal barriers that significantly inhibit participants' access to investment advice, the bill would expand and enhance the investment advisory services available to participants by allowing advice to be obtained from a broad array of providers, including the financial institutions already providing investment options to their plans. In addition, the bill would impose a panoply of protections for participants. Advisers under the bill would assume fiduciary status under the stringent standards for fiduciary conduct set forth in ERISA; such "fiduciary advisers" also would be subject to an extensive disclosure regime under which they would be required to provide timely, clear and conspicuous disclosures to participants that identify any potential conflicts of interest. Finally, the testimony noted that plan participants would have legal recourse under the bill if a fiduciary adviser were to violate the standards set forth in the bill or ERISA.

Department of Labor Testimony
Representing a significant shift from the Labor Department's opposition to the bill last year, Assistant Secretary Ann Combs expressed support for H.R. 2269. Specifically, Combs' testimony provided that the protections in H.R. 2269 "create a basic framework for assuring that advice is fairly provided and [that she] would welcome the opportunity to work with the Committee to ensure that these protections are adequate." Additionally, she stated that "legislation like [H.R. 2269] will bring flexibility to the area by setting forth rules for all affiliated investment advisors. The Advice bill will also place affiliated advisors on a more equal competitive footing with nonaffiliated advisors, foster competition among firms, and promote lower costs to participants."

In conclusion, Combs commended the Subcommittee's efforts "to deal with this important issue and seek the same objectives as proposed by [the] bill-strong protections and certainty for participants, employers and service providers, a level playing field, greater choice among advisers and the expansion of needed investment advice for participants and beneficiaries in 401(k) type plans."

Testimony of Other Witnesses Supporting the Bill
Betty Shepard, Human Resources Administrator, Mohawk Industries- an employer that sponsors a large defined contribution plan- testified that their employees seek "specific investment advice." However, because of the "substantial fiduciary liability associated with the delivery of specific advice under current law," Mohawk currently does not offer access to advice to their employees. Additionally, Shepard noted that "while Internet based services can assist many plan sponsors, [Mohawk does] not feel that this will adequately address [their] employees' needs, as the majority do not have access to the Internet at home or work." Thus, Mohawk supported passage of "this important law so that [they] can provide [their] employees with the professional investment advice that they need to make good, sound investment decisions."

Richard Hiller, Vice President, Western Division, TIAA-CREF, also observed that participants are "seeking out retirement savings advice"-advice that is "personalized to the individual's situation." Because H.R. 2269 "will provide employees with much needed investment advice in an increasingly complex retirement planning environment ... [while affording] substantial protections to employees," he expressed TIAA-CREF's strong support for the bill. Similarly, Jon Breyfogle, Principal, Groom Law Group, on behalf of the ACLI, highlighted participants' desire for investment advice and described the legal impediments that prevent its availability. His testimony encouraged enactment of H.R. 2269 because it would address these legal barriers by striking "the right balance of allowing comprehensively-regulated financial services firms to provide specific investment advisory services, while at the same time carefully protecting the interests of plan participants."