House Passes Bill on Employee Retirement-Plan Advice

The U.S. House passed legislation Thursday to allow providers of employer-sponsored retirement savings plans to offer more specific investment advice to participants at work.

The bill, passed 280 to 144, would allow such financial giants as Principal Financial Group, Merrill Lynch & Co. and other providers of the plans to counsel a company’s employees on issues such as how to distribute money among various mutual funds or other investments.

The proposed law also would ensure that employers aren’t held liable for bad advice given by qualified advisors.

A 1974 law prohibits investment firms from giving specific advice if it covers any of their own products or services.

Supporters said the legislation would encourage employers to include professional investment advice in their benefits packages and thereby help workers make sound decisions on their retirement savings, especially 401(k) plans.

“Without this bill, employees will continue to fend for themselves in this roller-coaster market,” Rep. Sam Johnson, a Texas Republican, said during the floor debate.

The bill would allow investment firms to advise participants in work-sponsored plans on all products, including their own, as long as they disclose any fees and potential conflicts.

But most Democrats opposed the bill, saying there aren’t enough safeguards to ensure that investors don’t receive slanted advice from an advisor who may stand to gain from certain decisions.

“The advice ought to come from somebody who does not have a vested interest in this,” said Rep. Jim McDermott, a Washington Democrat.

The Bush administration supports the legislation. But it has no sponsor in the Democrat-controlled Senate.

McDermott predicted the measure would die in the Senate. “I know they’re going to save us from this bill ultimately,” he said.

Before passing the bill, the House defeated an alternative proposal offered by Democrats that aimed to give participants in employer-sponsored retirement plans more protections from potential conflicts of interest among financial advisors.

The alternative, defeated 180-243, would have required that employers make available advisors from competing financial firms, and that advisors tell employees if they stand to gain higher commissions or other advantages if an employee makes one choice over another. Republican opponents said the proposal from Democrats would drive up the cost of providing advice and ultimately make it less available.