Pay Attention to Source of Your 401(k) advice
You may not think this U.S. Department of Labor move affects you all that much, but it will.
The agency has announced the Aug. 22 publication in the Federal Register of two proposed rules under the Pension Protection Act. Both rules would govern how you can get investment advice when you're trying to figure out what to do with your 401(k)-type retirement plan or your Individual Retirement Account.
Yes, there are rules for that. There have to be. Back in the day, most Americans had company-sponsored pensions to look forward to. Those gave employees no options on investments. Now more than 40 million Americans are depending on 401(k) plans that often give them dozens of investment choices. But the fear has always been that conflicts of interest could arise among advisors. For example, an employee might work for a firm whose funds are among the investment choices. Should that firm be allowed to offer the employee an advisor who might steer him or her to those funds?
The Department of Labor has been working for years to answer these questions. Last year, it ruled that an advisor could be affiliated with investment funds offered in a 401(k) plan.
Now, it has taken some more steps to address at least a couple of other issues. One of the rules would allow you to get advice from a computer model, but it would have to be one deemed "unbiased" by the agency. The other rule would allow you to get advice from an actual person, but that person would have to receive a "level-fee," meaning that the fee cannot change depending on what investments he or she recommends. The advisor also has to disclose which fees you would have to pay.
"These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts," U.S. Secretary of Labor Elaine L. Chao said in a written statement.
The rules already have at least one critic: U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. Miller authored the 401(k) Fair Disclosure for Retirement Security Act (H.R. 3185), which requires that workers receive full disclosures about the fees charged on their plans.
"For far too long, the rules of the financial services industry have been tilted in the interests of companies and consultants, not the millions of American workers who are deeply worried about saving enough for a secure retirement," he wrote in a statement.
"Now, the Bush administration is proposing to further tip the scales towards special interests by opening the door to conflicts of interest among the very consultants purporting to offer unbiased investment advice, and potentially allowing companies to reap windfall profits at the expense of America's workers."
There's time to comment on the proposals. Written comments should be addressed to the Office of Regulations and Interpretation, Employee Benefits Security Administration, Room N-5665, U. S. Department of Labor, 200 Constitution Ave., NW, Washington, D.C. 20210, Attn: Investment Advice Regulations.You can also submit comments electronically by email to firstname.lastname@example.org, or through the federal e-rulemaking portal at www.regulations.gov.
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