The 401(k) plan has had a rough ride over the past year, and it doesn't look like it will get smoother anytime soon. Indeed, the skirmish between Congress and the Department of Labor over what kind of advice-if any-should be given to investors in these plans heated up again in November and spilled over into the new year.

When I started writing a book on the 401(k) plan at the end of 2008, the global financial structure was falling apart. The 401(k) plan seemed merely a blip on the screen. By the beginning of 2009, though, the dwindling retirement funds of American taxpayers loomed large on the screen. The media focused first on how they wronged investors, then focused on advisors and then on the government. Now more recently, the question has finally come up of whether we should even bother with 401(k)s at all.

The October 9 cover story in Time magazine answered in the negative: "Why It's Time to Retire the 401(k) Plan." "The ugly truth," Time wrote, "is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves." Time pointed out that from the end of 2007 to March 2009, the average 401(k) balance fell 31%.

Everyone agrees that 401(k) participants had a miserable experience in 2008. But there is little agreement on a solution. One group, which seems to be growing, believes that giving participants one-on-one advice sessions with a financial advisor might be the answer. But who should that advisor be? Interestingly, the argument revolves around the same issue that has split the financial advisory community for more than two decades: the difference between objective advice and advice with a conflict of interest.

Here's a recap: The Pension Protection Act of 2006 encouraged plan sponsors to hire financial consultants to work with 401(k) participants but left open the question about what kind of advice is suitable. The Department of Labor did not issue guidelines on this law until January 2009, just before President Obama took office. DOL said that brokers and reps affiliated with financial service providers would be permitted to offer this financial advice.

Almost immediately, Rep. Rob Andrews, a New Jersey Democrat who heads the House Education and Labor Committee, roused opposition to the DOL ruling, which was scheduled to take effect last spring. "During a time where American workers have already lost $2 trillion in assets due to last year's market downturn, exposing their hard-earned retirement savings to great risk by allowing advisers to offer them conflicted advice is irresponsible and imprudent," he said at a March committee hearing. The DOL ruling, he suggested, would make millions of Americans vulnerable to the Bernard Madoffs of the world.

He introduced the Conflicted Investment Advice Prohibition Act of 2009, which would repeal the Labor Department's ruling update of the 2006 pension law. The new bill would permit only independent investment advisors or those who do not receive compensation based on the investments they recommend to work directly with 401(k) participants.

To see what's at stake here, we need only look at the 2009 annual "Trends and Experience in 401(k) Plans" report, published by Hewitt Associates, the Lincolnshire, Ill.-based employee benefits and consulting company. Hewitt reported that 50% of plans offer investment advisory services to employees, up from 40% in 2007. Of these, 29% offer one-on-one counseling, Hewitt said, up from 22% in 2007 and 19% in 2005.

Andrews' committee went on to pass a broader bill that included the provision that only independent investment advisors would qualify to offer individual 401(k) advice. "We think that investment advisors should only have one interest in mind, and that is the individual," Andrews said. The Pension Protection Act of 2006 would have to be changed to accommodate these provisions, he added. "It will take statutory and regulatory change to create the goal of qualified independent investment advice affordable to every investor." Investment News, which covered the twists and turns in this important issue, reported that those advisors who would qualify as "independent" under the rule make up only about 5% of more than 200,000 retail advisors and registered reps in the U.S.

Critics charged that limiting the pool of acceptable advisors to those whose compensation was not determined by the advice they gave would mean that many fearful Americans would not be able to get sorely needed investment advice.

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