Employers can now
offer more 401(k) advice
Independence is key
The framework set out by the advisory
- An independent financial expert must develop the
- Plan participants must be given the option of ignoring
- The models must be developed in the best interests
of the participants in the plan.
The fact that the advice has to
come from an independent source is key. This is designed to help
protect you and other 401(k) participants from receiving
biased advice. The concern is that without such protection, a plan
provider may steer participants toward investments that benefit
Some are wary
Everyone agrees that having investment-savvy workers is
a good idea, but some are wary of the changes wrought by the Sun
America letter. The biggest concern is whether the advice would
truly be independent. Some financial professionals argue that the
relationship between the plan provider and the third party could
influence the advice offered.
"Overall, I think there's a need for advice to
be delivered," says Neal Solomon, a certified financial planner
and head of Solomon Associates, a financial planning firm in Gloversville,
N.Y. He questions, however, whether the relationship between the
plan provider and the outside investment expert might influence
the advice that's offered.
For instance, a large brokerage firm may run a manufacturing
company's retirement plan, and bring in an outside investment adviser
to develop model investment portfolios. The brokerage company may
suggest that the brokerage firm's own funds be given priority in
any recommendations the adviser makes. If they aren't, the brokerage
firm may hint, it will decide to work with another outside expert.
Others contend that adequate protections are in place.
"Employers are legally responsible for managing the plan for
the benefit of participants," adds Wray. In addition, the opinion
states that neither SunAmerica nor its affiliates will have any
say in the expert's investment recommendations.
Down the road, proposed legislation may bring other changes.
With Republicans now controlling both houses of Congress, it's more
likely that some version of a bill introduced by Rep. John Boehner,
R-Ohio, will become law, says Ted Benna. Benna, who heads the 401(k)
Association, a consulting firm in Jersey Shore, Pa., created the
first 401(k) plan in 1980
The proposal would allow employers to provide retirement
plan participants with access to professional investment advice,
including advice from the company managing the retirement plan.
However, the employer has to use reasonable care in selecting the
adviser, and any conflicts of interest on the part of the adviser
have to be disclosed.
Some lawmakers, and others, including Benna, argue
that the potential for abuse is too high. For instance, the company
managing the firm's 401(k) plan could steer employees
to investments in which it stands to gain financially. Thus, while
the proposal has been introduced before, it has failed to pass.
The change in the makeup of Congress could boost its chances, estimates
As a result, you may find it even easier to obtain
investment advice on the job. However, you'll want to take any advice
with a healthy dose of common sense and skepticism. That's especially
true if the individual or firm providing advice stands to gain or
lose from your investment decisions.
"See if the advice makes sense and if you're
comfortable following it," says Benna. "Don't just blindly
follow it. You need to ask, 'Does this really sound right?'"
Karen M. Kroll is a freelance writer
based in Minnesota.