Feds propose a rule to expand the fiduciary definition to 401(k) advisers

by Fern LaRocca CFP®

in 401k limits

The U.S. Department of Labor wants to expand accountability for employer-sponsored retirement plans to investment advisers.

The proposed ruled announced today would broaden the definition of “fiduciary” to further protect 401(k) participants from conflicts of interest, such as investment advisers recommending an option that brings in higher fees or promotes their own firm’s funds, according to the department. A fiduciary under Labor Department rules must act in the best interest of the worker in the retirement plan.

“This current rule simply is not working,” said Assistant Labor Secretary Phyllis Borzi in a conference call today.

Those giving advice on an investment would be considered a fiduciary under the rule, Borzi said. “If all they are doing is selling their product then they aren’t going to be a fiduciary,” she said. Employers generally have been held accountable for ensuring participants in 401(k) plans are given advice and investment choices in their best interest.

The regulation would classify advisers as fiduciaries even if they don’t provide advice on a regular basis. The measure would apply to employer-sponsored retirement plans and individual retirement accounts, according to the department. A comment period will last until Jan. 20, 2011, Borzi said.

“We are reviewing the proposal,” said Rachel McTague, spokeswoman for the Investment Company Institute, a Washington- based mutual-fund trade group.

$3 Trillion

An estimated 72 million participants have 401(k)-type retirement plans with assets totaling about $3 trillion, according to the Labor Department.

Last week the Labor Department announced regulations that will require 401(k) plan providers to provide investors information on administrative and investment fees charged to their accounts in their in quarterly statements by Jan. 1, 2012.

Boston-based Fidelity Investments, Vanguard Group Inc. of Valley Forge, Pennsylvania, and Baltimore-based T. Rowe Price Group Inc. are among the largest providers of 401(k) plans, according to Morningstar Inc., a Chicago-based research firm.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net.

Technorati Tags: , , ,