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Close the Investment Advice Gap

Workers today have more control than ever over their retirement savings.  They are shortchanged, however, by outdated federal laws that deny them access to employer-provided professional investment advice that can help them make the most of their savings.  We owe it to America's workers to modernize these laws and prevent this unintended consequence.

Earlier this year, I introduced a bill to accomplish that goal – the Retirement Security Advice Act (H.R. 4747).  This bipartisan legislation, which passed the Employer-Employee Relations Subcommittee (EER) on a voice vote in July, would help to close the growing “advice gap” many workers face in investing their retirement savings by allowing employers to provide workers with access to professional investment advice.  Currently, outdated federal restrictions written before 401(k) plans had even been invented deny millions of workers access to top-quality investment advice. 

Under current law, it is easier for employers to offer pet insurance and emergency babysitting services than it is for them to offer their workers a qualified investment advisor who can walk them through some of the most important decisions of their lives.  This is clearly not what the authors of the law intended.

The Retirement Security Advice Act is the product of months of bipartisan retirement security hearings in the EER Subcommittee aimed at updating the 1974 Employee Retirement Income Security Act (ERISA), the principal federal law governing employee pensions and other benefits, to reflect the opportunities of America’s new economy.

When ERISA was enacted 25 years ago, defined benefit plans, which do not allow workers themselves to invest their retirement dollars, were by far the predominant form of employee pension.  But since then, the number of workers covered by defined contribution plans, which allow workers to invest their savings and hold onto any gains from those investments, has increased 250 percent, from 12 to 42 million.  The explosive growth of defined contribution plans has led to new opportunities for workers but also created a growing advice gap, leaving employees with the responsibility for investment decisions that many are ill-equipped to make on their own. 

Wealthier Americans can contend with the advice gap by hiring an investment advisor.  But few middle-income families can afford such a luxury on their own.  As a result, most employees have little choice but to sort through today’s maze of investment information without the benefit of professional advice. 

Employees and employers agree there is an obvious solution to this problem: allow employers to provide their employees with access to quality investment advice.  The Retirement Security Advice Act would clarify existing federal law to give employers the green light to provide their employees with access to high-quality investment advice.  Employers would be permitted to provide their employees with access to investment advice from registered investment advisors, provided there is full disclosure concerning any potential conflicts.  Safeguards would remain that would shield employees against abuse, and advice would have to be provided by a “fiduciary-adviser” who would be personally liable for any failure to act solely in the interest of the worker.

The more educated investors are, the better they will be able to deal with investment risks, make the choices that best serve their long term needs, and maximize the gain from their hard-earned retirement dollars.

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