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Rule Eased on Advice to Workers on 401(k)s

Source: WSJ - Melanie Trottman

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Posted on 25 Oct 2011

The Labor Department on Monday moved to widen access to employer-sponsored investment advice for workers with 401(k) and other similar retirement-savings accounts.

Previously, federal law limited companies' ability to offer workers investment advice using advisers employed for the company's retirement-plan administrator. But under the new regulation released Monday, employers will be able to get an exemption making it easier to use investment advisers who are affiliated with the retirement-account administrator, as long as the employers agree to certain rules aimed at making the advisers more objective.

To qualify, the adviser must use a certified computer model to draw up the recommendations, or agree to be paid using a "level-fee" structure that removes the incentive to sell employees investment products owned by the plan administrator. The rule also applies to Individual Retirement Accounts.

"Given the rise in participation in 401(k)-type plans and IRAs, the retirement security of millions of America's workers increasingly depends on their investment decisions," said Phyllis Borzi, the assistant secretary of the Labor Department's Employee Benefits Security Administration, which issued the rule. "This rule will make high-quality fiduciary investment advice more accessible, while providing important safeguards to minimize potential conflicts of interest."

For employees, the change means more companies could make financial advisers available online or by telephone to help with investment decisions. The change takes effect Dec. 27.

The agency said there was evidence that many participants in these retirement accounts make costly investment errors because of flawed information or reasoning. They often don't optimize their investment mix in accordance with generally accepted financial theories. Many investors are likely to pay excess taxes as a result of disconnects between their investments and current tax strategies, the agency said.

The financial losses from such mistakes amounted to more than $114 billion last year, the Labor Department estimated.


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