Employers can now offer more 401(k) advice

Independence is key
The framework set out by the advisory opinion says:

• An independent financial expert must develop the asset-allocation model.
• Plan participants must be given the option of ignoring the advice.
• 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 the provider.

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.

Possible legislation
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 Benna.

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.