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Kline Statement: “Retirement Security: The Importance of an Independent Investment Adviser

We’re here this morning to examine an issue that is enormously complex, but based on a principle that is remarkably simple.

Simply put, today, literally billions of dollars of investment savings in participant directed retirement accounts are being managed by individual plan participants. For the laymen in our room, that means that decisions about, say, 401(k) investments that will have consequences five, ten, or thirty years down the road are being made by people like you and me, or a colleague or a neighbor – too often without any sound financial advice on which to base them.

Why has this historically been the case? Well, perhaps for many reasons, not the least of which is the fact that for too long, the ERISA statute – which provides much-needed protections to millions of workers and retirees – stood in the way of workers’ access to this advice. Through so-called “prohibited transaction” requirements in that law, workers were too often unable to access personal, individualized, quality investment advice in the workplace.

That’s why, in 2006, Congress enacted with overwhelming bipartisan support the Pension Protection Act – or PPA. As you may recall, that bill did many things, but of greatest relevance to today’s hearing, it created concrete measures to ensure individual plan participants could have access to the quality investment advice they so desperately needed. Indeed, in some ways, I would argue this provision is even more important today than it was two-and-a-half years ago. Given our current economic downturn and its repercussions on individuals’ retirement savings, the need for quality investment advice is more critical than ever.

In the years following the enactment of the PPA, and as directed under the law, the Department of Labor issued regulations implementing the investment advice provisions of the act. While these final regulations were published in January of this year, the effective date of these regulations has been suspended by the incoming Obama Administration, which announced last Friday they would continue to solicit comment on whether the regulations should move forward, be suspended, or be otherwise modified. I would hope the Department approaches this question in a thoughtful and deliberative manner, and does not simply “go through the motions” to repeal these regulations for political or ill-advised reasons.

I suspect we’ll hear a lot about the Department’s regulations today – both from those who support them and those who will criticize them. I think it is important, however, to have a very clear record of what these regulations are, and what it is not.

Some have attempted to characterize these as last-minute “midnight” regulations, snuck into the Federal Register in the last days of the Bush Administration, without ever having seen the light of day or been given serious scrutiny. Others have characterized these measures as a “giveaway” to the financial services community that will simply fill the coffers of investment advisors who will be free to provide so-called “conflicted” investment advice without fear of sanction. Both of these characterizations are simply, flatly, wrong.

To refute those who claim this regulation was a last-minute attempt to shove through unseen proposals, I would simply look to the record. The Pension Protection Act, including investment advice provisions, was signed into law in August of 2006. Before the end of that year, in December 2006, the Department of Labor published a request for information from all parties, seeking guidance and input as to the shape of regulations under the law.

In August 2008, the Department published proposed regulations, again vetting them for public comment from all stakeholders. Later that year, in October, the Department held a public hearing on the proposed rules, to which interested members of the public were invited to comment on the proposals and recommend change. Finally, and only after this extensive public vetting process, the Department published its final regulations January 21, 2009 in the Federal Register.

Now we can, and I expect we will, debate the wisdom of choices the Department made, or what was included in these final regulations – but to claim they were not given full and open debate and consideration is simply to rewrite history.

To those who claim the regulation is a parting gift to financial services companies, I again say a check of the facts is in order. As we will hear today, these regulations are highly protective of participants, indeed, imposing ERISA fiduciary duties – some of the strictest under law – on investment advice providers. As testimony will reflect, many of the policy choices made by the Department are decidedly pro-participant and protective in scope. I hope that in our debate today, and going forward, we focus on these facts and stay on that “higher ground.”

With that, I am mindful that our witnesses’ time is precious, and I am eager to hear what they have to say. 


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