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Don't heed this 401(k) advice
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Senate bill: Hired hands guard the hen house
One of the arguments against the House bill is that it would provide a competitive advantage to huge financial services companies and a disadvantage to independent advice providers. The Senate bill remedies that problem by offering employers an incentive to use independent advisers. Employers would be protected from fiduciary liability if they hire qualified, independent advisers. The advisers would have to have credentials as licensed professionals. They couldn't just work for an advisory firm.
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Businesses would have to check out the background of an independent adviser before hiring one. After hiring one, if a business were to receive numerous employee complaints about an adviser, it would be obliged to investigate the problem. But otherwise, employers would be off the hook, and not have to worry about getting sued by employees if their investments don't work out.

In fact, ERISA rules would be modified to protect participants more by excluding advisers from liability protection. "If they're going to provide advice, even if the participants make their own selections, they're going to be subject to liability for the advice that's given," says ASPPA's Graff.

Advocates of the Senate bill say that right now many employers don't provide advice to their workers because of liability concerns, and this bill would remove these concerns. Critics say the cost would dissuade employers, particularly small businesses, from providing any advice. However, Graff points out that "a provision in the Senate bill would allow for participants to pay for advice on a pretax basis and essentially get a deduction for investment advisory services, provided that the advice is available to substantially all participants."

Hen house up for grabs
How this will take shape in the conference committee is a matter of conjecture. It took two weeks for Senate leaders to agree on the simple matter of the ratio of Republicans to Democrats that would serve on the conference committee.

"Every once in a while you get into a major legislative conference, and there will be an issue so contentious that the members of Congress will ask the staff to leave the room and they actually decide the resolution of the issue on their own," says Graff. He had witnessed such battles before as former legislative counsel to the congressional Joint Committee on Taxation. "This is very possibly one of those issues. And I don't know about you, but I find that prospect very, very scary."

Graff says it's scary because, "This isn't easy stuff, and they can do a lot of harm here."

In Graff's opinion, there's no reason why both bills shouldn't be adopted, because they're not mutually exclusive. That way, employers could choose whatever they're most comfortable with.

In my opinion, legislators should put the financial-advice solution crafted by the House in the nearest shredder and adopt the Senate's solution. The last thing American workers need is advice from financial consultants who have the legal right to rip them off.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

If you have a comment or suggestion about this column, write to Boomer Bucks.

Bankrate.com's corrections policy -- Posted: March 8, 2006
 
 
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