Proposed 401K Advice Rule

It is hard to say whether such a rule is necessary as we don't have the data that the Dept. of Labor presumably has on performance of 401K plans. A number of years ago, I worked as CFO of a company that provided pension plans to its employees on a defined benefit basis. As the government increased the rules and insurance premiums on such plans, the number of new firms that offered them dropped and today one has to work for a very large firm or the government to qualify for a defined benefit plan. We need to be careful that the same thing does not happen to 401K plans which largely replaced defined benefit plans to the detriment of the participants.

In fact, the ERISA law provides a number of penalties and liabilities that providers of 401K plans have to their participants. Fortunately, few employees choose to sue their plan sponsor when they lose money in their plan. But the right to sue is a major issue to a sponsor who must carry insurance coverage to protect them against their own employees who might not be happy. The increasing success of those who wish to further clutter up the administration of 401K plans will increase the number of smaller firms that will not offer them. This will leave the participants with fewer options, largely the IRA plan that allows much lower deductions from current income than the 401K plan.

There is always the risk of conflict of interest in financial advisors, both in the marketing and management of 401K assets. Everyone in the process takes some share of the assets, including the 401K administrator, marketer, funds management companies etc. It is almost impossible not to have a financial hand in this mess of providers and no one should have to do the work and not make a profit. The goal is to have competition force some kind of minimum performance level that benefits the participants and sponsor companies. I don't see that government rules on Financial Advisors will make matters better.