New Labor Department 401(k) advice rules set to come out soon

The Labor Department is likely to issue new rules governing investment advice given to 401(k) plan participants by the end of this month, Assistant Labor Secretary Phyllis Borzi said today.
“We’re hoping that by the end of February it will be out,” she said of the new rules, which are currently under review by the Office of Management and Budget.
Ms. Borzi would not comment on what the new rules would look like, other than to say they “will be much more faithful to the statutory provision than the one that we saw on Jan. 21, 2009.” She referred to rules issued by the Bush administration just as President Obama was taking office. The administration and some Democrats in Congress criticized those rules as violating provisions in the Pension Protection Act of 2006 because the old rules would have allowed advisers associated with brokerage firms and mutual funds to provide investment advice to plan participants.
The new rules are “a much more streamlined version,” she said.
Ms. Borzi made the comments to reporters after she spoke to a conference this morning sponsored by the National Institute on Retirement Security, which primarily represents public and union pension and health care plans.
In her talk to NIRS, she emphasized that the Labor and Treasury department are looking for ways to entice companies and retirees to take at least some of their pensions through annuities, which provide lifetime income. DOL and Treasury yesterday announced a Request for Information yesterday on using annuities in retirement plans. The RFI was published today in the Federal Register. The public has 90 days to comment.
DOL and Treasury are trying to find out why companies are reluctant to offer annuities in their pension plans, as well as why there is a low rate of participation in annuity plans by workers who are offered that option in their pension plans.
“We understand that some of the reasons may have to do with cost, with the desire not to tie up their money, with concern about the solvency of the annuity carrier,” she said, referring to both plan participants and plan sponsors.
Partial annuities, in which part of the proceeds of a pension could be used by buy annuities, are being considered as a way to make them more attractive to plan participants, Ms. Borzi said. “There is a whole school of thought that thinks that the way that you do this is to encourage people,” she said. Another possibility is allowing employees to have “trial annuities,” typically for two years, before enrolling them into permanent annuities.
Once comments are received, several options could be pursued, Ms. Borzi said. New regulations could be issued or congressional legislation could be requested, she said.
She cautioned that the Obama administration is not likely to waive fiduciary rules required of employers under the Employee Retiree Income Security Act of 1974. “The fiduciary duty of a plan sponsor under ERISA to prudently elect and monitor service providers with respect to the plan isn’t going to be waived on my watch,” she pledged.
“On the other hand there are things that could be done to make things easier,” she said. She listed education programs for participants, better disclosures, and the possibility of providing information on benefit statements showing participants what they would get in lifetime income under an annuity.
The Labor Department is also looking at reducing employers’ liability exposure, including adopting hybrid pension programs that combine some features of defined-benefit plans with those of a defined-contribution plan.
But Ms. Borzi was critical of the “explosion” of executive compensation and deferred compensation plans that have come into being in recent years for company managers as defined-benefit plans have waned.
“As long as they can get compensation in all these other ways … these are headaches” that hamper efforts to keep qualified pension plans, she said. “Once Congress pushed all the decision makers out of the defined-benefit plan, there was nobody left who cared about keeping those plans going.”