The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“THE RETIREMENT SECURITY ADVICE ACT” mentioning the U.S. Dept of Labor was published in the Extensions of Remarks section on pages E1110-E1111 on June 26, 2000.
The publication is reproduced in full below:
THE RETIREMENT SECURITY ADVICE ACT
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HON. JOHN A. BOEHNER
of ohio
in the house of representatives
Monday, June 26, 2000
Mr. BOEHNER. Mr. Speaker, for the past several months, the Subcommittee on Employer-Employee Relations has held a series of bipartisan hearings examining the changes in the financial world since the 1974 passage of the Employee Retirement Income Security Act (ERISA) and looking for ways for American workers and retirees to take advantage of the economic opportunities created since then. To most people in 1974, personal savings meant a bank account. Now it means 401(k)s, IRAs, annuities, mutual funds, and a whole range of investment products that go well beyond what was available to the average American 25 years ago. Economists predict that this year, for the first time, nearly 50 percent of all Americans will have invested in some form of equity.
Moreover, in the past 25 years, the number of workers covered by a defined contribution plan has increased 35 percent, from 12 to 42 million. The explosive growth of defined contribution plans has left employees with the responsibility for investment decisions that many are ill equipped to make. ERISA creates barriers that currently prevent employers and investment intermediaries from giving individualized investment advice to plan participants.
The drafters of ERISA were preoccupied with the problems of defined benefit plans, where the participant has no responsibility for investment decisions. Only a small fraction of plan assets in 1974 were in defined contribution world. Today the picture is very different-- almost all new plan formation is taking the form of defined contributions plans, especially 401(k) plans. A typical 401(k) plan offers a range of stock and bond portfolios from one or more of mutual fund companies, banks, and insurance companies. The plan participant makes his or her own investment selections. Part of what many employees find attractive about defined contributions plans is that the employee pockets the investment gain on the assets in his or her account.
Employers and investment intermediaries would like to assist employees to make the most of their retirement saving opportunities. But an employer who arranges for financial professionals to deliver the tailored investment advice that those employees need risks a lawsuit by being deemed an ERISA fiduciary. Moreover, the arcane and highly complex ERISA prohibited transaction rules severely limited the ability of service providers (such as mutual funds, banks or insurers) to provide investment advice to workers in the plans they service. These rules are inconsistent with federal securities laws, which permit the provision of such advisory services when certain disclosures are made.
The result is that ERISA has been read to insist that individual workers by the millions become investment experts. It has not happened and it is causing workers to be less well invested than if employers or investment intermediaries were allowed to guide the individual employee on the asset allocation appropriate to his or her place in the life cycle, family circumstances, and other assets.
To address this problem, I am introducing the ``Retirement Security Advice Act,'' which permits investment service firms to provide investment advice about all investment products, including their own, as long as material information is disclosed. Use of disclosure as a means of dealing with potential conflicts is well accepted in the securities laws and has been used in a number of ERISA exemptions granted by the Department of Labor.
The ``Retirement Security Advice Act'' would provide a statutory exemption from the ERISA prohibited transactions rules for: (1) the provision of investment advice to a plan, its participants and beneficiaries, (2) the purchase or sale of assets pursuant to such investment advice, and (3) the direct or indirect receipt of fees or other compensation in connection with providing the advice. The advice provider, by virtue of providing the advice, would assume fiduciary status as a ``fiduciary adviser.''
Only specified qualified and regulated entities would be permitted to deliver advice: registered investment advisers, banks, insurance companies, registered broker-dealers, and the affiliates, employees, agents, or registered representatives of those entities. Any investment advice provided to participants or beneficiaries would be implemented
(through a purchase or sale of assets) only at their discretion. The terms of the transaction must be at least as favorable to the plan as an arms' length transaction would be, and the compensation received by the fiduciary adviser (and its affiliates) in connection with any transaction must be reasonable.
The fiduciary adviser, at or before the initial delivery of investment advice and annually thereafter, would have to provide a written or electronic disclosure of: (1) the fees or other compensation that the fiduciary adviser and its affiliates receive relating to the provision of investment advice or a resulting sale or acquisition of assets (including from third parties), (2) any interest of the fiduciary adviser or its affiliates in any asset recommended, purchased or sole, (3) any limitation placed on the fiduciary's ability to provide advice, (4) the advisory services offered, and (5) any information required to be disclosed under applicable securities laws.
A plan sponsor or other fiduciary that arranges for a fiduciary adviser to provide investment advice to participants and beneficiaries would not be liable under ERISA for the specific investment advice provided to individual participants or beneficiaries, but would not be exempted from any other ERISA fiduciary obligations. No employer would be required to contract with an investment adviser and no employee would have to accept or follow any advice. The entire process is completely voluntary.
The ``Retirement Security Advice Act'' will empower workers with the information they need to make the most of the retirement savings and investment opportunities afforded them by today's 401(k)-type plans.
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