House Reviews Rules for Retirement Investing Guidance

Lawmakers took a hard look Tuesday at rules adopted in the final days of the Bush administration on how millions of Americans with 401(k) and individual retirement accounts get guidance on investing for retirement.

Members of a congressional panel said they wanted to ensure that retirement account holders have access to unbiased investment advice — an issue that's all the more important since stock market declines drained billions from 401(k) accounts, which cover more than half of America's full-time work force.

A House pensions subcommittee heard testimony on the Labor Department rules aimed at making pension plan advice more accessible to a rising number of people who need it. The rules outline how advice can be rendered, when and how pension fund advisers must disclose conflicts of interest and when they are not required to do so.

Under the rules, which President Barack Obama put on hold for further review, a worker can get retirement investment advice from a financial adviser who uses a computer model that meets requirements for objectivity. A different aspect of the rules would require financial advisers to be paid the same no matter which products they recommend — and disclose any conflicts of interests they have if a worker chooses to participate in a certain plan.

Supporters say the complex rules have adequate safeguards to protect the consumer from biased advice given by advisers who have a financial incentive to recommend certain investment products. But some Democrats contend they could allow financial advisers to steer clients to investment products that maximize the advisers' profits rather than workers' retirement security.

"If workers receive investment advice, it should be independent and free of conflicts of interest," said Rep. Rob Andrews, D-N.J., chairman of the House Subcommittee on Health, Education, Labor and Pensions, which conducted the hearing. "This last-minute Bush administration special interest payback had the potential to further drain Americans' hard-earned retirement savings."

Andrews said the rules as written will tip the scales toward special interests by opening the door to conflicts of interest among the very advisers purporting to offer unbiased investment advice. "I applaud the Obama administration putting this regulation on hold and hope this flawed rule does not see the light of day," Andrews said.

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Rep. John Kline, R-Minn., disputed claims that the rules were "last-minute, midnight" regulations that provide giveaways to the financial services community. He said the rules have been the subject of months of debate and consideration. "Many of the policy choices made by the department are decidedly pro-participant and protective in scope," he said.

Andrew Oringer, a benefits attorney in Washington, said people who are responsible for investing their own retirement savings are crying out for personalized advice from expert professionals who know and understand the client and the various plans available. He warned against making rules to prevent conflict of interest so restrictive that no one gets the help they need. "The Holy Grail here should not be the delivery of purely conflict-free advice — it should be the delivery of conflict-safe advice," he said.

Mercer Bullard, an associate professor of law at the University of Mississippi who testified on behalf of the Consumer Federation of America, said new legislation is needed because administrative action alone cannot resolve the debate over the Labor Department rules. He said the rules, as written, will effectively suppress the ability of retirement account holders to get unvarnished advice. "At a time when Americans confidence in our financial system has been severely damaged, it is imperative that Congress act promptly to protect our retirement security," Bullard said.

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