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Legal Landmines for Employee Benefit Plan Sponsors During Bad Economic Times

Legal Landmines for Employee Benefit Plan Sponsors During Bad Economic Times

Employee Benefit Plan Review

September 17, 2009

This latest delay follows the introduction by Representative Rob Andrews (D-NJ), chair of the Health, Employment, Labor, and Pensions Subcommittee of the House Committee on Education and Labor, of the “Conflicted Investment Advice Prohibition Act of 2009.”

Andrews’ bill would eliminate Section 408(g) of ERISA and instead require that any investment adviser hired to provide investment advice either to a participant-directed plan or to its participants must qualify as an “independent investment adviser.”

The bill would retain the current structure that permits advisory programs to be provided either through a fee-based approach or through the use of a computer model. However, the bill imposes new restrictions on these programs that go above and beyond current rules.

Other recently introduced legislation is focused on increasing the transparency of fees associated with 401(k) Plans. On April 21, 2009, George Miller (D-CA), chair of the House Education and Labor Committee (HELP Committee), reintroduced the “401(k) Fair Disclosure for Retirement Security Act of 2009,” which is nearly identical to the version of the legislation that was approved by the HELP Committee in April 2008.

According to Chairman Miller, among other things, the proposal would:

(1) require service provider disclosures to employers broken into four categories (plan administration and recordkeeping, transaction fees, investment management fees, and other fees) including disclosure of potential conflicts of interest,

(2) require standardized disclosures to participants regarding investment options, investment option performance, and fees associated with each investment option, and

(3) condition limited employer liability for participant directed investments under Section 404© of ERISA on the use of at least one index fund in a plan’s investment lineup.

Ten Tips for Engaging Employees

Prior to the reintroduction of Representative Miller’s proposal, Senators Tom Harkin (D-IA) and Herb Kohl (D-WI) reintroduced their fee disclosure legislation on February 10, 2009, “The Harkin/Kohl Defined Contribution Fee Disclosure Act of 2009.”

We also anticipate that House Ways and Means Committee member Richard Neal (D-MA) will reintroduce his fee disclosure proposal from 2008 sometime in the near future.


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