It has been a busy year in Washington with stimulus, cap and trade and health care dominating the headlines. Behind the scenes, it has also been a busy year for proposals that will affect how employers manage their retirement plans. Currently, there is pending legislation in Washington regarding participant level investment advice and the way advisors are compensated for this advice. Under the Pension Protection Act of 2006, it was OK for plan sponsors to allow advisors to provide this service for participants as long as the person providing the advice was being paid a level fee regardless of the participant investment selection or was using a certified computer model to develop the participant’s investment allocation. Under the proposed regulations, affiliates or employees of the advisor will also be required to receive level compensation regardless of the investment option that is chosen. In addition, compensation must now be level for advisors using any certified computer model to provide advice. These proposals will affect advisors who are employees of broker-dealers and offering these services, possibly requiring a change in the way this service is provided. This in turn may cause plan sponsors to see an adjustment in the fees charged by their advisors. Based on these developments, we are recommending that plan sponsors meet with their advisors to review their employee onboarding and enrollment processes. A review of their advisory service agreement and fee arrangement is also warranted in light of these new proposals.
