NEWS RELEASE

June 17, 2009
PR-09/18
For additional information:
Jason Hammersla
202-289-6700
jhammersla@abcstaff.org

Investment advice, 401(k) fee legislation improved but additional safeguards for employers still needed

WASHINGTON, D.C. — "Employer sponsors of defined contribution savings plans and investment advice programs believe that their employees need transparent, useful information and clearly benefit from investment advice when making decisions for their future financial security," said American Benefits Council President James A. Klein before today's votes on the 401(k) Fair Disclosure for Retirement Security Act (H.R. 1984) and the Conflicted Investment Advice Prohibition Act (H.R. 1988) in the House of Representatives Education and Labor Subcommittee on Health, Employment, Labor and Pensions.

"These measures increase transparency and participant protections in defined contribution and investment advice arrangements. However, additional modifications will still be necessary to ensure that voluntary employer sponsorship of these arrangements are not disturbed," Klein said.

"The Council is especially pleased that the subcommittee has preserved the broad-based provision of investment advice to employees while still protecting the many non-conflicted advice arrangements approved by IRS before the enactment of the Pension Protection Act of 2006 (PPA) — including those established under the long-standing Sun America advisory opinion," Klein said. The Council had urged lawmakers to validate these pre-PPA arrangements in recent comments on H.R. 1988 and a proposed modification to the bill. We commend the subcommittee for their attention to these important details.

"H.R. 1984, while it makes numerous improvements to previously introduced 401(k) plan disclosure legislation, still requires additional modifications to make it administrable by employer sponsors. Under this bill, employers remain exposed to unacceptable levels of fiduciary liability," Klein said. In proposed modifications to H.R. 1984, the Council identified several liability issues raised under the bill as introduced:

Plan sponsors and other fiduciaries cannot be expected to investigate and audit fee disclosure information provided by service providers unless the information is clearly questionable on its face. It would be completely impractical for a plan sponsor to audit a mutual fund to determine if its reported expense ratio is accurate. Inevitably, however, some of the information provided will be incorrect due to inadvertent errors. If the plan sponsor or the participants act on the erroneous information, this should not expose the plan sponsor to liability.

Employers need legal protection from claims that they should have obtained or disclosed additional fee information. It should be made clear that, by obtaining and disclosing the comprehensive information required by H.R. 1984, plan fiduciaries will have satisfied their fiduciary duties regarding the amount of fee information that they should obtain and disclose.

Like plan sponsors, service providers should not have a duty to investigate and audit fee information provided by their service providers unless the information is clearly questionable on its face. As in the case of plan sponsors, if service providers had to audit information provided to them by other service providers, plans would be unaffordable.

"Also importantly, coordination between legislative and regulatory measures is essential to a seamless transition for plan sponsors and participants. Lawmakers should revisit the bill's effective date to address this concern," Klein said.

"Employer plan sponsors are encouraged by the progress lawmakers have made in developing these two important measures," Klein said. "We look forward to working with the committee to make additional improvements to these bills, ensuring employees' access to resources to help them best achieve financial security in retirement."

For more information, or to arrange an interview with Council staff, please contact Jason Hammersla, Council director of communications, at jhammersla@abcstaff.org or by phone at 202-289-6700 (office) or (202) 253-5458 (cell).

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council’s members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.