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House Passes Bill on Pension Law Changes

The measure adds a provision that allows companies to offer employees advice on retirement investments.

May 15, 2003|From Reuters

The House on Wednesday approved changes in pension laws that sponsors said would provide workers advice on investing retirement assets, and give them more control over the money.

Critics poured scorn on the bill, saying it was a sop to Wall Street brokerages penalized recently for conflicts of interest involving stock analysts. They said it would allow similar conflicts in the management of retirement funds.

The House voted 271 to 157 to pass the measure, which is backed by the White House. But its fate is uncertain in the Senate, which is more closely divided on party lines and where the Finance Committee has yet to take up pension legislation.

Supporters said the House action was an overdue response to the debacle faced by workers at firms such as Enron Corp., where employees lost more than $1 billion in retirement assets, much of it in company stock, as Enron collapsed in 2001.

Rep. John A. Boehner (R-Ohio), a sponsor of the bill, said the provision allowing companies to offer their employees professional advice about retirement investments was badly needed by some 60 million Americans with 401(k) plans.

Right now, "the only place they can get investment advice is from Bob at the coffee shop," Boehner said.

But critics, most of them Democrats, blasted the bill for allowing the advice to come from the same financial services firms that provide the mutual funds for a company's 401(k) plan, so long as this is disclosed to employees.

Rep. George Miller (D-Martinez) said this opened up retirement monies to the same potential conflicts of interest revealed in the Wall Street scandal, in which brokerage analysts allegedly touted stocks solely to curry favor with the subject companies -- to attract fee-rich investment banking business, for example.

"That [investment] advice is going to come from the very same people that just had an out-of-court settlement of $1.4 billion because they lied to their clients," Miller said.

Firms expected to benefit include such giants as Citigroup Inc., Merrill Lynch & Co. and Morgan Stanley.

The bill also would give companies the option of allowing workers who have been with a firm at least three years to sell company stock in their 401(k) plans. Enron required its workers to hold company stock they received in matching company contributions until they were at least 50 years old.

But critics said that because the provision is discretionary, employers still would not be forced to let workers sell the stock. "Enron wouldn't have allowed it, so nothing would have changed" even if the bill had been law, said Rep. Robert T. Matsui (D-Sacramento).

The House passed the same bill a year ago, but the issue stalled in the Senate, where Democrats said the measure wasn't robust enough but failed to pass their own version.

House Democrats quoted New York Atty. Gen. Eliot Spitzer, who spearheaded the Wall Street analyst probe, as saying the bill would create a "loophole" putting Wall Street's interests ahead of those of workers.

But sponsors and the Bush administration rejected this argument. "I think it's a little bit of a red herring," said Ann Combs, assistant secretary for the employee benefits security administration in the Labor Department.

The pension bill includes protections to make clear that a financial services firm giving investment advice is a "fiduciary" that is legally responsible for the advice, Combs said.

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