New Rules for U.S. Retirement Plans

March 18, 2010 by rfg

The regulations, unveiled by vice-president Joe Biden as part of the annual report of his middle class taskforce, are aimed at preventing conflicts of interest when employees consult financial advisers on their 401(k) and individual retirement account (IRA) plans.

The new rules would require retirement investment advisers and money managers to either base their advice on computer models that have been certified as independent, or they would prohibit them from suggesting workers to invest in funds with which they are affiliated or from which they receive commissions.

“These rules will strengthen America’s private retirement system by ensuring workers get good, objective information. When that happens, workers make the kind of decisions that are good for their families and the nation as the whole,” said Seth Harris, deputy labour secretary. “Along with Social Security and personal savings, secure retirement allows Americans to remain in the middle class when their working days are done. And, the money in the retirement system brings tremendous pools of investment capital, creating jobs and expanding our economy,” Mr Harris said in a statement.

Once enacted, the regulations will apply to all financial institutions that offer 401(k) retirement programmes and financial advice to their workers.

The administration's middle class taskforce, headed by Mr Biden, is charged with improving the living standards for average Americans, and retirement security is one of its objectives.  In concept the rules are designed to protect tens of millions of workers across the US, are an important step in its efforts to make the retirement system more secure for middle class workers and families.  "These rules will strengthen America's private retirement system by ensuring workers get good, objective information," Deputy Labor Secretary Seth Harris said in a statement. "When that happens, workers make the kind of decisions that are good for their families and the nation as the whole."

But not everyone is convinced, one former employee of Employee Benefit Security Administration (a division of the Department of Labor) had this to say, "I am disappointed that this proposal eliminates the face-to-face advice permitted by the class exemption, depriving more than 10 million workers of access to this valuable form of advice."

"If the rule is adopted, it would put in place safeguards preventing investment advisors from slanting their advice for their own financial benefit. Investment advisors also would be required to disclose their fees, and computer models used to offer advice would have to be certified as objective and unbiased," he said.

The former agency employee is not alone. While the rules are being praised by "fee-only" investment advisors, many plans will be getting much less advise, and in a time of economic uncertainty perhaps less is not more.