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The <I>TSC</I> Streetside Chat: Rep. John Boehner of Ohio

The Republican congressman says less regulation would help employers tell workers more about 401(k) plans.
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One key preventative measure could have saved thousands of Enronundefined workers from losing their retirement savings overnight as the energy giant collapsed, says Rep. John Boehner (R., Ohio).Boehner, chairman of the House Education and the Workforce Committee, is the sponsor of the Retirement Security Advice Act. The bill encourages employers to provide more 401(k) investment advice in their plans by eliminating many of the liabilities they now face by providing such advice. The congressman says the bill, which passed the House in November (280-144), should give a "green light" for employers to provide better advice by clarifying "arcane and highly complex" laws governing 401(k)s.

Would the Retirement Security Advice Act bill eliminate


liabilities that employers now face, should they provide investment advice to employees that proves wrong?


Absolutely not. Under the bill, employers will remain responsible under ERISA

The 1974 Employee Retirement Income Security Act for the prudent selection and periodic review of any investment adviser. If they breach that fiduciary duty, they will be held liable by the Labor Department. Under current law, employers are discouraged from providing this benefit because liability issues are ambiguous and employers may be held liable for specific advice.

There is a significant "advice gap" right now between wealthy individuals and rank-and-file workers. Wealthier Americans can hire an investment adviser to warn them when they have too many eggs in one basket. But most working families cannot afford such a luxury. My bill helps rank-and-file workers get the type of quality investment advice they need, want and deserve.

What about blatant conflicts of interest? The way ERISA works now, a mutual fund in a 401(k) plan can provide investment "education," or, through a neutral third party, "advice" specific to an individual investor. Who's to say the "education" might not steer someone into funds with high fees or poor performance -- or that "third-party" advice itself might be tainted since the advice-giver itself is funded by certain funds in a plan?


Along with existing protections already in current law, the bill authorizes the Department of Labor to seek both criminal and civil penalties if an adviser breaches their fiduciary duty to provide quality advice solely in the interest of the worker.

The current system that simply allows basic education is completely inadequate, and most employers are discouraged from offering investment advice to their workers because of an outdated federal law. So workers end up with no advice at all and have to fend for themselves.

The only advice some workers can get right now is from Bob at the coffee shop.

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According to your bill, then, employers wouldn't be


absolved of all legal liabilities for offering 401(k) advice. Can you give a scenario where an employer would still be "on the hook"?


Let me give you an example. An adviser could not advise a participant to invest in a mutual fund just because the adviser receives a bigger commission on the fund. If they do so, the adviser is violating their fiduciary duty, and the Department of Labor is authorized to file suit against the adviser and seek both criminal and civil penalties in such a case. Moreover, the participant could file a civil suit against the adviser to recover damages as well.

'The only advice some workers can get right now is from Bob at the coffee shop.'

Rather than trying to argue the point as to whether an employer providing education or advice in a 401(k) plan should be absolved of all, or some, liabilities, or whether there might be any impropriety to that advice, wouldn't it be much easier just to require participants in a 401(k) plan to obtain education or advice from a truly neutral outside source?


I have spent a large portion of my years here in Congress fighting "Washington-knows-best" federal government solutions for every problem. Mandating that employers provide this benefit is not the best approach and is likely to just convince them to get out of the business altogether -- which benefits no one. Investors want the freedom to build their own retirement nest eggs, but they also need and want access to investment advice.

Unfortunately, the individuals and companies who are best-positioned to provide workers with quality advice are prohibited from doing so under current law, and that is what my bill is all about. ... My bill gives employers the green light to help their employees ... with the tools they need to protect their retirement savings.

What do you say about stock option/stock matching plans in 401(k)s and pensions, such as Enron's, where employees are "locked out" of selling company stock, and all the while top brass can handle their portfolio freely?


As chairman of the House Education and the Workforce Committee, I certainly have a keen interest in learning all the facts about the Enron collapse. One of the most tragic aspects of the Enron situation was the huge loss in retirement savings suffered by the company's employees. That is why we will be holding hearings on this subject in February.

While the ongoing investigations will reveal the extent to which Enron's employees may have been the victims of criminal wrongdoing or neglect, it is certainly already evident that Enron's employees are

also the victims of an outdated federal law that continues to needlessly deny rank-and-file workers access to quality investment advisers ... who would have warned them in advance that they needed to diversify their investment portfolio.

'My bill gives employers the green light to help their employees ... with the tools they need to protect their retirement savings.'

Arthur Andersen's CEO Joseph Berardino maintains that a failure of Enron's business model and stock valuation is a separate issue from alleged improprieties in its balance sheet. Care to comment, congressman?


The House Financial Services Committee has jurisdiction over federal law about accounting standards and procedures, so I will defer to them on this question. I know Chairman Michael Oxley (R., Ohio) very well, and I know his committee is conducting its own thorough investigation of Enron's financial statements and accounting practices.

Do you think Wall Street analysts themselves were remiss in their duties for not detecting cracks in Enron's surface?


No one involved in this situation seems to have fully anticipated it ahead of time. That is why we need all the facts, and investigations now under way will help determine what the facts really are.

What do you think should happen to Arthur Andersen and Enron executives?


Formal investigations by the Justice Department, the


, the Labor Department, and the appropriate congressional committees are under way to uncover the facts about the Enron situation. If Enron ... violated existing law, then the appropriate parties should be held accountable to the fullest extent of the law, and I am confident they will be.