Employers that provide 401(k) advice
Employers that provide 401(k) advice
Employers who sponsor 401(k) plans and the financial services companies that provide those plans on behalf of employers have faced barriers that made it difficult to offer investment advice directly to plan participants. One reason employers were reluctant to provide assistance was the fear that it could compromise their fiduciary responsibility to act in the best interests of their employees.
Specifically, they were concerned they could be liable if employees received advice but failed to achieve their financial goals. There was also concern that if plan providers offered advice, they might steer participants towards investments that increased company profits rather than those that were in the best interests of plan participants.
Some employers attempted to fill the gap by providing software applications or the services of independent financial advisers to help employees identify appropriate investments within their plans. Some provided education about investing in general, though not about which of the plan’s specific options to choose.
Now, new laws provide protections for employers who arrange to offer 401(k) advice provided they prudently choose a qualified fiduciary adviser to do the job. That change is part of the Pension Protection Act of 2006.
Fiduciary advisers are financial professionals who choose to act in an advisory role. They’re subject to audits by the U.S. Department of Labor and could be held responsible if they don’t act in the best interest of the employees they work with to make 401(k) choices.
© 2008 by the SIFMA Foundation for Investor Education and Lightbulb Press, Inc.
Votes:29
Comments: 0