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Ever since the Pension Protection Act of 2006 (PPA) provided guidance for employers wanting to give 401(k) plan participants access to investment advice, the number of employers contracting with third-party investment advisers to provide those services has been increasing.
For instance, SHRM's 2008
Employee Benefits survey report found that 40 percent of SHRM members provide individual investment advice as an employee benefit, up from 20 percent in 2004. Many organizations now also offer retirement planning services (38 percent) and general courses on financial planning (23 percent). Meanwhile, the 2008
401(k) Benchmarking Survey by Deloitte Consulting and the International Foundation of Employee Benefit Plans pegged the proportion of employers providing access to employee- or employer-paid individualized financial counseling or investment advice services even higher, at 51 percent.
While the growing prevalence of investment advice is mostly good news for retirement plan participants, it creates challenges for employers. After all, as the market for investment advice grows and more players enter that market, it becomes that much harder for retirement plan sponsors to fulfill their fiduciary responsibility and choose the right adviser on behalf of plan participants.
Not every investment adviser has the necessary experience with 401(k) plans in general, with plans of a particular size, or even with providing high-quality services, however. Some even turn out to be perpetrators of investment scams (see box, below).
Guard Employees Against Early Retirement Scams
The Financial Industry Regulatory Authority (FINRA), a self-regulatory group, has two online resources to help evaluate financial advisers offering retirement planning workshops.
Help Your Employees Achieve Their Retirement Dream: Tips for Spotting Early Retirement Scams offers tips for employers on how to evaluate the financial professionals involved in early retirement seminars and seminar materials such as invitations, slides, handouts and scripts.
Early Retirement Seminars 101: Smart Tips for Spotting Retirement Scams is intended to alert employees to the pitfalls of early retirement schemes that may target them. "After helping employees lay the groundwork for financial independence in retirement through company-sponsored plans, companies don't want to unwittingly help scamsters lure their employees into an early, and financially perilous, retirement," said FINRA CEO Mary L. Schapiro, a member of the President's Advisory Council on Financial Literacy. "While many third-party seminars offer solid information, others—especially those that promote early retirement—may include misleading, even fraudulent promises of big financial returns and the dream of a comfortable, but ultimately unsustainable, retirement lifestyle." Employers should, in particular, ensure that managers do not allow—without proper vetting and approval from HR—company offices or meeting rooms to be used by financial advisers seeking to sign up employees as investment clients. Monitoring the posting of solicitations at the worksite should also be a high priority.
Making the Choice
To separate the wheat from the chaff and choose an investment adviser that meets participants needs, consider the following steps.
A U.S. Department of Labor
Field Assistance Bulletin provides additional guidance on evaluating investment advisers. Also, the SEC has answers to frequently asked questions posted in its web page
Investment Advisers: What You Need to Know Before Choosing One.
Most 401(k) Investment Advice Is General, SHRM Poll Finds,
SHRM Online Benefits Discipline, September 2010
DOL Issues New Proposed Rule on Investment Advice,
SHRM Online Benefits Discipline, February 2010
Joanne Sammer is a New Jersey-based business and financial writer. Her articles have appeared in a number of publications, including HR Magazine, Business Finance, Consulting, Compliance Week
and Treasury & Risk Management.
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