Plan Administrators Seek Access to the Workplace

The Pension Security Act, which passed the House of Representatives in a 271-157 vote earlier this month, would allow "qualified investment advisors" to help employees to choose appropriate investments. Furthermore, employees paying for financial advice would receive encouragement through targeted tax incentives.

Financial advice for retirement planning fills a need that most households have, according to a survey conducted by BAI Global and American Express Retirement Services in November 2002. Indeed, 55 percent of the respondents indicated that "they need some help or a great deal of help with asset allocation in their company-sponsored retirement plan/401(k)."

Under current law, such help almost always comes from outside the workplace. "The current ERISA restrictions effectively keep a majority of retirement plan investors from obtaining the advice they need in the most affordable and accessible manner," wrote Rusty Field, vice president, and Victoria A. Vogt, senior market research manager at American Express. "The survey showed that receiving advice by talking one-on-one with an advisor who comes to the workplace, or talking with an advisor outside of the workplace setting, were the top preferences across the board."

Strictly speaking, section 404(c) of ERISA doesn't technically prohibit a company from offering financial advice to its employees. Even today, if a company wanted to tell its employees where to invest their retirement funds, it could do so - as long as it was willing to assume fiduciary responsibility and the attendant liability risk should the investments turn sour. Since that's a burden few companies are willing to bear, it's standard practice for companies to shift the responsibility and the liability for investment selection to their employees.

So far, hiring an outside firm to provide retirement advice has not been viewed as sufficient to shift the liability away from the company to the employee. But with the Pension Security Act, companies would be shielded from liability should their retirement plan administrators fail in their fiduciary responsibilities.

Such reform would open the way for retirement plan administrators to create stronger financial relationships with company employees, through a combination of office visits, personal advisory services and online, self-service channels such as account aggregation. Through doing so, observers say, the workplace would become an even more important channel for financial services firms to control.

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