Employers can now
offer more 401(k) advice
If you're like many 401(k)
investors, you could use some help in deciding how to invest the
"Most participants desperately
want someone to help them decide what to do," says Rick Meigs,
president and publisher of 401khelpcenter.com,
a Portland, Ore.-based online provider of information on the popular
Now, as a result of a change in government regulations,
you might find that advice right in your workplace.
Here's how it could work: Your employer would determine
a universe of funds from which you and other employees could invest.
Another company, independent of the 401(k) plan provider, would
develop model portfolios to help you decide how much to invest in
each fund, given your age, salary, risk tolerance and goals.
In addition, the company could develop general education
material, such as information on asset allocation or diversification.
This information might be available online, over the phone or through
one-on-one meetings. You could use the recommendations or ignore
An increasing number of companies offer such third-party
information, thanks to what's become known as the "Sun America
letter." In December 2001, the Department of Labor issued an
advisory opinion; these opinions provide guidance on existing regulations.
This particular opinion (2001-09A, issued Dec. 14, 2001, by the
labor department's Pension and Welfare Benefits Administration)
responded to a request by SunAmerica Inc., a financial-services
firm based in Los Angeles.
SunAmerica had asked whether it could, acting as a
retirement plan provider, hire an independent third party to provide
employees participating in a 401(k) plan with investment advice.
If so, the employees would be able to get advice through their workplace,
without having to find advisers on their own.
The answer was yes.
"The DOL said the process of offering third-party
advice is OK, as long as the process is developed appropriately,"
says David Wray, president of the Profit Sharing/401(k) Council
of America, a Chicago-based nonprofit organization.
This was significant. Previously, the department had
to review third-party advice offered by firms providing 401(k) plans,
such as SunAmerica. While the review was intended to ensure that
the plan provider didn't benefit from the advice offered, it added
time and expense to the process, says Wray. As a result, many employers
decided not to offer advice.
The Sun America letter made it easier for employers
to offer employees investment advice. "It provided a prescription
in writing under the DOL's signature. It said that if you provide
advice in the following manner, you as a provider are not violating
ERISA, and the plan sponsor is not taking on additional fiduciary
risk," says Christopher Covill, president of Scarborough Retirement
Services LLC, Annapolis, Md. ERISA stands for Employee Retirement
Income Security Act, the 1974 federal law that established private
pension plan rules.
Currently, about one-third of employers offer some
advice to participants, says Wray of the PSCA. As a result of the
Sun America letter, that number could rise to more than 50 percent
over the next several years, he estimates.