[Congressional Record Volume 148, Number 29 (Thursday, March 14, 2002)]
[Senate]
[Pages S1929-S1930]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
RETIREMENT SECURITY ADVICE ACT OF 2002
Mr. BOND. Mr. President, today I am adding my name as a co-sponsor of
the Retirement Security Advice Act of 2002, S. 1978, introduced by my
good friend from Arkansas, Senator Tim Hutchinson. I do so, and submit
this statement for the Record, because the bill holds important
implications for small businesses in this country and the millions of
Americans they employ.
In 1996, we created the Savings Incentive Match Plans for Employees
SIMPLE, as a pension-plan option for small firms in this country. The
goal was a simple one: provide a pension plan with low administrative
costs for employers so they can offer pension benefits to encourage
employees to save for their retirement. I am pleased that these plans
have become quite popular, and together with the other pension
simplifications and improvements enacted in the last five years, they
have contributed to better access to pension benefits by small
businesses and their employees.
Greater retirement savings, however, have raised new and complex
issues for many employees who have seen their pension accounts grow
substantially. As the Ranking Member of the Committee on Small Business
and Entrepreneurship, I have heard many constituents raise difficult
questions in this area: What are appropriate investments for my
personal circumstances and risk tolerance? Should I buy stocks, bonds,
annuities, or something
[[Page S1930]]
else? How should I diversify my investments? When should I modify my
investment mix? And so on.
The importance of these questions has increased substantially in
light of recent high-profile business failures and more generally
because of the economic downtown. Gone are the days of the momentum
market where any dollar invested seemed to grow with little effort or
risk.
The return to more cautious investing has left employees who
participate in employer-sponsored pension plans in a real dilemma, hire
an outside investment advisor or go it alone in most cases. Why?
Current pension rules effectively preclude most employers from offering
investment advice to their employees. In fact, recent estimates are
that only about 16 percent of participants have access to investment
advice through their pension plan. In today's complex investment
environment that is simply too little help for employees who are trying
to manage their retirement security.
Senator Hutchinson's bill addresses this situation in a responsible
way. For most businesses, and particularly small firms, the logical
place to look for an investment advisor would be the company that
manages the plan's investment options or an affiliated firm. Under
Senator Hutchinson's bill that option would now be available, opening
the door for countless businesses to offer this important benefit at a
low cost to their employees who participate in the company's pension
plan. In addition, by allowing more businesses to offer investment-
advice benefits, the bill creates an opportunity for increased
competition among investment advisors, which can lead to better advice
products and lower costs overall.
Senator Hutchinson's bill, however, does not simply change the rules
to help the business community. It also includes critical protections
for the plan participants. Investment advisors must satisfy strict
requirements concerning their qualifications, and they must disclose on
a regular basis all their business relationships, fees, and potential
conflicts of interest directly to the participants. In addition, and
arguably most importantly, the investment advisor must assume fiduciary
liability for the investment advice it renders to the employee
participants in the plan. In short, if the investment advisor does not
act solely in the interest of the participant, it will be liable for
damages resulting from the breach of its fiduciary duty. Together, the
bill's provisions provide substantive safeguards to protect the
interests of the plan participants who take advantage of the new
investment-advice benefit.
Some have contended that a better alternative is to force small
businesses to engage an independent third party to provide investment
advice. I disagree. The result would simply be the same as under
current law. Cost is a real issue for small businesses seeking to offer
benefits like pension plans and related investment advice, hence, the
genesis of the SIMPLE pension plan. As under the current rules, if the
only option is a costly outside advisor, the small firm will not offer
the investment-advice benefit. As a result, we would not move the ball
even a yard further, employees would still be left to their own devices
to figure out the complex world of investing or they would have to seek
out and hire their own advisor, which few have the wherewithal to do.
More to the point, nothing under the Hutchinson bill prevents a
business from engaging an independent advisor if the employer deems
that the best alternative. The standard under the Hutchinson bill for
selecting the investment advisor is prudence; the same criteria that
the employer must exercise under current law when selecting the company
that manages the pension plan and its investment options. If a prudent
person would not hire or retain the investment advisor, then under the
Hutchinson bill, the employer should not do so either or face liability
for breach of fiduciary duty. Again, additional protection for the plan
participants.
In my assessment, investment advice is an increasingly important
benefit that employees want and need. Moreover, small businesses in
particular need the flexibility to offer benefits that keep them
competitive with big companies as they seek to hire and retain the very
best employees possible. And when we talk about small business, we are
not dealing with an insignificant employer in this country. In fact,
according to Small Business Administration data, small businesses
represent 99 percent of all employers and provide about 75 percent of
the net new jobs in this country.
The Retirement Security Advice Act provides a carefully balanced and
responsible solution to this situation. Most importantly, it provides a
solution that employers will actually use to offer the investment
advice sought by their employees who struggle to put money aside in the
hopes of having a nest egg that someday will provide them with a
comfortable retirement. I am pleased to co-sponsor this bill and look
forward to working with my colleague from Arkansas to see it enacted
into law.
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