Compliance January 18, 2009

Miller, Andrews Threaten to Block Advice Regulation

With the ink barely dry on the Department of Labor’s final regulations on investment advice, two Democratic Congressmen have promised to block it.
Reported by
Congressman George Miller (D-California), the chairman of the House Education and Labor Committee, and Congressman Rob Andrews (D-New Jersey), issued the following statement:
“We are disappointed that the Bush administration moved forward to enact a new regulation that will make it harder for workers to receive fair and honest advice when making key financial decisions about their futures.
“With just a few hours to go, the Bush administration is still scrambling to give Wall Street a last-minute payback. Today’s regulation will allow financial services companies to reap windfall profits at the expense of workers and tips the scales towards special interests by opening the door to conflicts of interest among the very consultants purporting to offer unbiased investment advice. At a time when Americans are rightly concerned over their financial future, it’s unfortunate that the Labor Department is using its time to give special interests paybacks rather than working to actually help workers.
“Repeat” Performance
The statement was a near verbatim repeat of Miller’s statement when the Labor Department issued the initial proposal in August (see Miller Slams DoL Advice Proposal), when he called the proposal “nothing less than a boon for Wall Street and corporate executives” and urged the DoL to “immediately withdraw these harmful proposals.’
Obviously, the Labor Department didn’t listen to Congressman Miller in August. In fact, for the DoL, the final regulation announced Friday (see DoL Finalizes Rules on Investment Advice) simply served to implement the statutory exemption for investment advice added to the Employee Retirement Income Security Act (ERISA) by the Pension Protection Act (PPA), including general guidance on the exemption’s requirements, including computer model certification and disclosures by fiduciaries.
On the other hand, this time these Congressmen have something that may well work in their favor – something alluded to in the final sentence of their statement; “As we transition to a new administration, we will use every tool at our disposal to block implementation of this harmful regulation.’
IMHO January 17, 2009

IMHO: “Focus″ Group

A couple of weeks back, I got an e-mail.
Reported by

 

The email was from Robert Powell, who writes on personal finance for MarketWatch. In it, he asked an interesting question: specifically, what, in my opinion, were the top five retirement priorities that the Obama Administration should focus on?

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Now, that’s a more complicated question than you might think at first glance. For instance, if you were to ask me what ONE thing should be dealt with, I could probably pull something hugely critical out of the air. Not that it wouldn’t be hard to come up with just one thing—but there’s a certain clarity to that process. However, once you get going, it’s harder than one might think to keep the list to five. Furthermore, there are LOTS of little things that you know would make the system better, but if you can only come up with five—and five for presidential-level involvement, no less—well, you also tend to focus on the big picture.

In any event, on this Inauguration Day, here’s my list (1):
(1) Focus on expanding coverage with the ACTIVE involvement of employers.
Everybody realizes that it is a problem that only about half of working Americans have access to a workplace retirement savings plan, and candidate Obama has talked about a mandatory payroll IRA. However, in my experience, while that may make it easier for more workers to save (they would be auto-enrolled, but could opt out), it still will be problematic for the employer to set that up for all workers, only to dump them in a retail-priced IRA. That’s better than a poke in the eye with a sharp stick, but they’d be MUCH better served, IMHO, by getting the benefits of institutional pricing/fiduciary oversight that come with an employer-sponsored program.
Additionally, I think the creation of these alternatives to workplace programs will encourage employers that currently offer these plans to “step aside”—and let the government-sanctioned approach take over.
By the way—getting employers involved will mean that the government will need to spend some time understanding why more employers don’t offer these programs, and it will mean that they have to understand that there is a difference between making it easIER to offer these plans, and making it truly EASY to do so. How about an “auto-enrollment’ program that also makes it easy for plan sponsors to do the right thing?
(2) Shore up Social Security.
It’s not only the third leg of that vaunted three-legged stool, it now represents about half of most retirees’ income (the shocking thing is how little income it is for that percentage). The future solution, whatever it is, needs to be based on a solid foundation. This is the place to start.
(3) Establish some kind of national retirement policy.
Pensions were never as widely available, or as “lucrative,” as people sometimes mythologize them, certainly not in the private sector. As for 401(k)s, they were never designed to provide a single—or even a primary—source of retirement income. Social Security has “morphed” well beyond its original design and no longer accurately reflects the demographic realities of the nation. Let’s admit it: The “three-legged stool” is a rationalization, not a reality.
We need a plan—a blueprint, a roadmap—rather than the “necessity is the mother of invention” approach we have stumbled along with these past 50 years. I find it ironic that we regularly disparage participants for not developing a plan for retirement financing—when we, as a society, suffer from the same “it will work out somehow” perspective.
That plan needs to articulate what we as a nation expect our obligations—both personally, and as a society—to be. But, whatever plan we develop may—and should, IMHO—need to consider different solutions for varying generations of our society. Social Security may well have to be the primary solution for those over 55, but why should we limit ourselves to that for someone who has just entered the workforce?
(4) Help the free market fix health-care costs.
Several studies have documented the impact of health-care costs on retirement savings. Personally, I don’t think a government-based solution fixes the “cost” problem, and it may well “break” the access those with health insurance currently enjoy. But you don’t want people to have to drain their retirement savings for one extended stay in the hospital.
(5) Imbed financial education in the elementary school curriculum—and further.
As the father of three, I can tell you that, if kids were exposed to even half as much education about finances and the markets as they are classes on drugs and sex education, we’d all be much better served—and much better prepared to take responsibility for our financial futures, both pre- and post-retirement.
And, ultimately, isn’t that the soundest solution of all?
(1)The MarketWatch column (I wasn’t the only contributor) is online HERE

«