Regulation Forthcoming On 401(k) Investment Advice

Daisy Maxey, On Tuesday May 11, 2010, 11:03 pm EDT

The Employee Benefits Security Administration hopes to move forward with a regulation on investment advice for individual account plans, such as 401(k)s, within the next few months, said , assistant secretary of labor for the Labor Department agency.

No one doubts that retirement-plan investors need advice, but the debate has centered on who should be able to provide that counsel, she told the audience at the 52nd annual membership meeting of the Investment Company Institute, the mutual-fund industry trade group, last week in Washington.

The administration has received 70 comments on the proposed regulation relating to investment advice, and will begin sifting through them, Ms. Borzi said. However, the administration won’t propose any regulation related to one undertaking, an effort to clarify the definition of a fiduciary, until the fall, Ms. Borzi said. In December, the agency said it would re-examine its test of fiduciary status, fearing that advisers to retirement plans evade fiduciary responsibility.

Ms. Borzi also discussed the administration’s three-phase initiative related to target-date funds, as well as its request for comments on how best to provide lifetime-income streams. The Employee Benefits Security Administration has received almost 700 comments to help regulators determine what steps to take “to enhance retirement security” for participants in 401(k) and other employer-sponsored retirement plans through lifetime-income streams, Ms. Borzi said.

Many of those comments are from citizens expressing concern that the effort not become a vehicle for the government to take over their 401(k) plans, she said. In terms of its retirement initiatives, the agency is making an effort to give investors more choices and give them the tools they need to “make choices wisely,” Ms. Borzi said.

The agency, along with the Treasury Department, will begin sifting through the comments in coming months, she said. She said she uses the term “lifetime-income stream,” rather than “annuity.” There are alternatives for lifetime income outside annuities, she said. “I’m not a shill for the insurance industry.”

As for target-date funds, the agency is working to ensure investors and retirement-plan sponsors have more information on the choices available, Ms. Borzi said.

“We’re finding that people really don’t understand what they’re meant to be,” she said. Some investors put only a portion of their investments in a target-date fund, which is meant to be a one-stop solution, she said.

The agency hopes to release a best-practices checklist for fiduciaries within the next couple of weeks to provide guidance, information and help to plan sponsors, she said. This list likely will be of most use to small and midsize plan sponsors, she said.

In addition, it plans new disclosure obligations in connection with target-date funds as a qualified default for retirement plans. Ms. Borzi said the agency hopes it will have a “spillover application,” so the disclosure will be offered any time a target-date fund is offered as an investment option.