Incentives and Protections for Employers
Provisions in the House- and Senate-passed pension bills
March 2006
Provides incentives and protections for employers who offer their employees financial/investment advice on their retirement plans. The House version of the pension bill would allow major mutual fund companies and retirement plan providers to provide advice directly to participants in sponsored retirement plans. The provision also passes on the fiduciary responsibility and liability from the employer to the plan provider. Even though 457 plan providers are not currently prohibited from offering 457 plan participants advice, ICMA-RC generally adheres to ERISA rules (for the private sector) that prohibit plan providers from offering investment advice. The House-passed advice provision is supported by the private sector plan providers that have been urging Congress for years to allow them to offer direct advice so that they can better respond to participants' calls for advice.
Opponents claim that fund companies that also serve as plan record keepers or providers would face a conflict of interest in recommending their own funds because they would have a profit incentive. This issue has been pending in bills for at least 6 years. Despite consumers' professed need for clear and direct advice on their retirement investments, the perception of conflict of interest has cast a long shadow throughout the debate. For these reasons, the provision remains “controversial” and it is likely that a much more limited version of the provision contained in the Senate bill will be in the final pension bill. That provision focuses on protecting employers from liability if and when they select an advice provider for plan participants. That “safe harbor” would only be available when employers make available investment advisers who are unaffiliated with the retirement plan. The Senate provision -unlike the House provision - does not change ERISA's rules that restrict advice given by plan providers.