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Feds rethink 401(k) rules

By Jennie L. Phipps ·
Wednesday, September 21, 2011
Posted: 4 pm ET

The U.S. Department of Labor withdrew its proposal yesterday to make investment advisers responsible for the advice they provide to savers in 401(k)s and other workplace retirement plans.

The rule change would have required investment professionals to act as fiduciaries, a role that makes them legally responsible to act in the best interest of their clients. The goal was to protect retirement savers from conflicts of interest, such as limiting investment offerings to those that are most profitable to the investment adviser.

Companies that provide 401(k) plans have been highly critical of the Labor Department's proposed rule change, saying that it was poorly defined and would raise costs for savers and discourage companies from offering these plans.

"We believe the Labor Department has made the right decision," Kenneth Bentsen, executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association, said in a statement.

"We have raised significant concerns about the proposal and lack of cost-benefit analysis on a rule that would affect millions of IRA holders and plan participants."

The Labor Department says it's not giving up on the rule change -- just delaying it so it has time to iron out the kinks. "We have said all along that we will take the time to get this right to ensure that we provide the strongest possible protections to business owners and retirement savers in plans and IRAs," said Employee Benefits Security Administration Assistant Secretary Phyllis C. Borzi in a statement.

"Investment advisers shouldn't be able to steer retirees, workers, small businesses and others into investments that benefit the advisers at the expense of their clients. The consumer's retirement security must come first."

From the point of view of retirement planning, narrow investment offerings is a worse problem with 401(k) plans. In many cases, the variety of investment options available to 401(k) savers hasn't keep pace with the market. Before the Labor Department settles on a rule, it ought to take that issue into account. It seems more important than protecting us from self-serving investment advice.

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1 Comment
September 22, 2011 at 5:04 am

For the most part, I agree with "From the point of view of retirement planning, narrow investment offerings is a worse problem with 401(k) plans".

I think that's because of the limited choices, participants feel that they can't do much, so why do they need to learn much. Additionally, limited investments choices, so 401k plans limit their info to those choices and retirement planning, and not market info and current news. That's a big problem that comes to light like it did during 2008 when some people's 401k portfolios were down 50%. "Lambs to the slaughter" and happens every time the market goes down. Politicians think that its ignorant investors, partly true, but how do you educate them.
My company allows me to put up to 75% of my 401k money into a stock market trading account. I can buy US stocks, bonds, ETFs and mutual funds. I think a standard investment option in all 401k plans should be a trading account option. Yes, the trading account has access to "morningstar", good advice on where to look for market info and analysis.
Anyway, would be good if trading account could be put in, cause most people move their 401k money into an IRA trading account after they retire anyway. Companies like TD Ameritrade, Vanguard and so on have 401k as well as IRA offerings.
Just a thought.