The U.S. Government Accountability Office released a report Wednesday saying that employees switching jobs often receive guidance by 401(k) companies to roll their accounts into an IRA, even when that might not be the best course of action. But what does this mean for advisers?

 “The report didn’t show enough about why people make the choices they do,” says Lisa Bleier, managing director of Securities Industry and Financial Markets Association, referring to the rollover into IRAs. “Advisers are just trying to educate folks, they’re not trying to scheme. But we’re taking the comments to heart and will work with regulators.”

She says she spoke to an adviser this morning about how he’s created charts to navigate individuals through the path of choices with a 401(k) when changing jobs. A lot of information is already out there but “we agree the more information, the better,” Bleier says.

 “We should not be tilting the clients one way or the other,” says Kent Mason, partner at Davis & Harman, a Washington-based employee benefits law firm. “In different situations, different measures should be taken.”

Ahead this year

Mason says the GAO also makes very clear that if plan sponsors and advisers have fiduciary liability attached to communications they tend to “pull way back.” In other words, if the U.S. Department of Labor attaches fiduciary liability to 401(k) advising, information for consumers could “dry up completely,” Mason says. The DOL has publicly noted the possibility of extending fiduciary liability to encompass advisers and plan sponsors.

 “It’s a real problem that could hurt the consumers, and also prevent intermediaries like advisers from doing their job,” says Mason. But according the Investment Company Institute, a lobbying organization for the financial services industry, it’s doubtful the DOL will take the GAO’s cautionary report into consideration. An ICI spokesperson said Wednesday that even though GAO was clear about the effects of fiduciary extension to advisers, the group is “schizophrenic” and goes on to essentially endorse it.

 “We remain committed to the distinction between fiduciary advice, on the one hand, and education, on the other, and believe we can provide additional clarity with respect to such important educational activities,” wrote Phyllis C. Borzi, assistant secretary for employee benefits security administration at DOL, in an appendix to the GAO report. A DOL spokesperson did not provide information on when the guidance might be available, or if it will be delayed, but Mason says it’s widely indicated that will be sometime in July.

SIFMA’s Bleier also thinks there’s little hope that DOL retract its intent to extend fiduciary liability to rollover conversations. “We hope some of what they learned … would temper the extent,” she says.

That sentiment seems to echo throughout the industry. “We support exploring the GAO recommendations to make the process easier for participants. At the same time, we also agree with the GAO that any new regulations should not go too far and inadvertently result in limiting investors’ and employers’ access to essential services,” says Greg Burrows, senior vice president of retirement and investor services at The Principal.


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