Company's 401(k) Plan.
| 30 September 2011
Common sense sometimes flies out the window in the regulation of retirement plans. For example, investment advice isn't always considered "investment advice" under the Employee Retirement Income Security Act of 1974 (ERISA). Assistant Secretary of Labor Phyllis C. Borzi explained this in testimony delivered on July 26, which appeared in an edited format in Investment News.
ERISA says people who deliver investment advice to private-sector employee benefit plans are fiduciaries with all of the related responsibilities. This includes defined contribution retirement plans such as 401(k) plans. But there's a whopping flaw in the Department of Labor (DOL) rule that defines investment advice. " … [A]dvice about investments is not considered … 'investment advice' merely because, for example, the advice was only given once, or because the advisor disavows any understanding that the advice would serve as a primary basis for the investment decision," Borzi said in her testimony. This meant many advisors could avoid fiduciary responsibility, which resulted in conflicts of interests that have hurt plan participants.
The DOL proposed a new regulation to fix this weakness. Published on October 22, 2010, the regulation is currently under discussion.
Smart Investor agrees with Assistant Secretary Borzi that, " … there is strong evidence that unmitigated conflicts cause substantial harm and … that the proposed fiduciary regulation would combat such conflicts and thus deliver significant benefits to plan participants and IRA holders."
If you'd like to learn more about fiduciary challenges or how to manage your company's 401(k) plan in the best interests of all participants, contact us at 916-435-2100.