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Barbara Whelehan writes Boomer Bucks for Bankrate.comDon't heed this 401(k) advice

If you could pick someone to give you advice about how to invest money in your 401(k) plan, whom would you choose? Would you pick an employee of your plan provider who could profit by steering you into certain investments? Or would you pick an independent adviser who would act solely in your best interests?
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This is not a trick question. It illustrates two starkly different solutions as they appear in recently passed House and Senate bills that address the 401(k) financial-advice problem. The massive 800-page pension reform legislation contains several provisions relating to 401(k) plans, but those on advice promise to be most contentious. In the next phase of the legislative process, a House-Senate conference committee hammers out differences between the two versions.

"A lot of people think this is going to be the toughest issue to resolve in conference because the approaches taken in the House and Senate bills are so different," says attorney Brian Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, or ASPPA.

The way things are now
Because of liability concerns, employers are not eager to provide advice to their workers. But because workers are in charge of their own retirement destinies, they could really use some advice. The problem isn't new, and legislators have been working on resolving it for several years but have made no real progress until recently.

Under current law, if plan participants do receive investment advice, they have certain assurances that the advice they are getting is impartial. That's because under the rules of the Employee Retirement Income Security Act, or ERISA, anyone who dispenses investment advice to 401(k) plan participants assumes the role of a fiduciary.

Fiduciaries must act solely in the interests of plan participants. They have the duty of loyalty, which requires full disclosure of compensation; the duty of care; the duty to diversify, and the duty to adhere closely to the provisions of the benefit plan. In other words, they are duty-bound to do the right thing.

ERISA prohibits fiduciaries from feathering their own nests by, for example, recommending investments that would positively impact their incomes. This would be considered a conflict of interest, resulting in a prohibited transaction.

"At the present time, you have to avoid giving investment advice that will cause yourself to be paid an additional fee," says Fred Reish, a lawyer who spoke last week to a group of 1,500 retirement-plan specialists at the annual 401(k) Summit hosted by ASPPA.

Even though fiduciary advisers must put client interests first, current ERISA rules don't hold advisers responsible for investment decisions made by employees. However, they are liable for the investment options in a plan, so they have an obligation to provide good funds for workers to choose from.

Next: "These advisers don't have to be licensed experts. ..."
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