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Close the Investment Advice Gap for U.S. Workers

Enron workers may be the victims of criminal wrongdoing. But we already know they're the victims of outdated federal pension laws.

In February, as legislators and investigators sifted through the rubble of what was once the Enron Corporation, President Bush called on Congress to pass legislation to renew the rattled confidence of American workers in the nation's pension system. A key component of such reform, the President said, should be modernizing outdated pension laws to create greater parity between rank-and-file workers and senior company managers in terms of the options available to them for protecting their retirement savings.

"If it's okay for the sailor," the President noted, "it ought to be okay for the captain."

The President was right on target. That's why he's made clear that any meaningful pension reform legislation passed by Congress must include measures to close the investment advice gap between rank-and-file workers and their counterparts in upper management.

What exactly is the "advice gap?" Most wealthy individuals and senior executives can easily hire their own professional investment adviser to warn them when they've got too many eggs in one basket, but few working families can afford such a luxury. Many employers would like to give their workers access to investment advice as an employee benefit. But outdated federal law, enacted more than a quarter century ago before the 401(k) had even been invented, unintentionally allows employers to be sued for doing so, effectively barring most U.S. companies from arming their workers with such tools.

The result of this flaw is that millions of rank-and-file workers today simply have to fend for themselves, with little or no access to quality investment advice that can help them manage their 401(k) plans.

This fundamental inequality escaped popular scrutiny for years but was suddenly catapulted into view by the Enron collapse. Enron's employees had numerous opportunities to sell their company stock and move their retirement savings into safer investments, but they had no access to professional investment advice through their job. How many Enron workers might have been able to preserve their savings if someone had simply been there to warn them that they needed to diversify?

Outdated federal laws have created "haves" and "have-nots" in the workplace when it comes to investment advice. At Enron, the haves were able to preserve their retirement nest eggs. The have-nots, by contrast, lost it all.

The advice gap represents the single most urgent issue for Congress to address as it moves to renew worker confidence in the pension system in the wake of Enron's fall.

Long before the Enron collapse, the House Committee on Education and the Workforce began a bipartisan process aimed at modernizing the 1974 Employee Retirement Income Security Act (ERISA), the principal federal law governing employee pension plans. The world today is much different than it was when ERISA was enacted. Before the birth of the 401(k), few could have predicted workers would one day have such direct control over their retirement savings. Thus, few could have foreseen the importance of structuring the law to ensure that employers could provide workers with access to investment advice.

Last November, the House took the first step toward closing the advice gap by passing the Retirement Security Advice Act with significant bipartisan support, and we passed it again this month as part of the Pension Security Act, based on President Bush's 401(k) reform proposal.

The bill would update ERISA to encourage employers to provide workers with access to advice but would also include new safeguards to protect workers. The bill includes important disclosure requirements and new fiduciary protections to ensure that workers receive advice that is solely in their best interest. Under the bill, an employer that hires an advisory firm cannot have a financial interest in the adviser, and the advice given cannot benefit the employer.

These are significant protections. President Bush has endorsed the measure and made it a central component of his pension reform package. The Departments of Labor, Treasury, and Commerce, along with a broad array of employers and employees, have endorsed the bill.

Despite this substantial support, the Senate has refused to act on the measure - and is instead considering an alternative proposal that offers false hope to workers and would actually discourage employers from providing investment advice benefits to their employees. The proposal, offered by Sens. Jeff Bingaman (D-NM) and Edward Kennedy (D-MA), would prohibit employers from hiring investment professionals who are best positioned to provide high quality advisory services. It would significantly increase the cost and administrative burden required of employers to provide advice benefits.

As a former small businessman and employer, I know few employers would provide investment advice for workers under the Bingaman-Kennedy approach. Instead of opening the doors to security and advice for millions of workers, it would leave millions in the same situation they're in now - with no advice at all. It would tear the heart out of meaningful pension reform.

President Bush has called on the Senate to follow the House in passing the Retirement Security Advice Act. Closing the advice gap is a vital step Congress must take to renew confidence in the pension system and help working families prepare for a safe, secure retirement. Let's make sure that we take that step in the weeks ahead - not a step backwards.

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