Labor Dept. eyes reports of advisers exploiting retirees

Asks whether some are prodding workers to transfer 401(k) assets into high-fee funds in IRAs

Oct 10, 2010 @ 12:01 am

By Mark Schoeff Jr.

The Labor Department is reviewing concerns raised about advisers hired by companies to advise workers about retirement decisions taking advantage of employees when they convert 401(k) money into individual retirement accounts.

“We've gotten a lot of questions from [Capitol] Hill about the communications around what information people are given at the time they're ready to take the distribution,” Phyllis Borzi, assistant secretary of labor and head of the Employee Benefits Security Administration, said in an interview following congressional testimony Thursday.

The questions mostly focus on potential conflicts of interest when exiting workers seek advice on whether to transfer their 401(k) money into an IRA, she said.

“We're looking into it,” Ms. Borzi said. “I don't know what we're going to do with the information.”

The agency is receiving in-quiries as to whether conflicts crop up when financial advisers encourage departing workers to choose the rollover option, Ms. Borzi said.

Another question is, do conflicts occur when an adviser offers suggestions about what particular fund departing employees should put their 401(k) money into?

“[If] the advice is to move it to funds that have much higher fees ... there are potential conflicts of interest there,” Ms. Borzi said. During her testimony before the Senate Health, Education, Labor and Pensions Committee, she said: “This question of disclosure is really important.”

Sen. Tom Harkin, D-Iowa, chairman of the Senate labor panel, called the hearing to highlight what he called weaknesses in the retirement system. One of his priorities is to explore the conversion of 401(k) plans into IRAs.

At Thursday's hearing, Mr. Harkin asked Ms. Borzi to gather data on how many rollovers occur and how often they are “forced.” He suggested that companies promote 401(k) rollovers in order to reduce costs.

“I don't think too many people realize it,” Mr. Harkin said in an interview after the hearing. “This is something we're trying to bring to light.”

Mr. Harkin also voiced concern about the extent to which people are borrowing against their 401(k) plans, putting their nest eggs at risk.

“We need to get a handle on this and how much it's growing,” Mr. Harkin said.

The hearing, titled “The Wobbly Stool: Retirement (In)security in America,” was designed to place a congressional spotlight on retirement issues. In addition to Ms. Borzi, two experts — Ross Eisenbrey, vice president of the Economic Policy Institute, and Jack VanDerhei, research director at the Employee Benefit Research Institute — and a Virginia home health care worker outlined the challenges that Americans face as they try to finance a retirement that maintains their working-age quality of life.

The meeting complemented an effort by the group Retirement USA called “Wake Up, Washington” that is slated to run through Oct. 15. The program involves postings on blogs and social-networking websites such as Facebook and Twitter, as well as a compilation of individual stories of retirement challenges in an online compilation at

Retirement USA has pegged the nation's “retirement income deficit” at $6.6 trillion, a figure that represents the value difference between retirement savings and what people need to retire.

On Thursday, EBRI released its own study, which puts the retirement income deficit at $4.6 trillion if Social Security is factored in. Without it, the institute claims that the retirement gap is closer to $8.5 trillion.

During the hearing, witnesses analyzed various obstacles to building retirement savings — from the decline of defined-benefit pension plans, to the financial crisis that took a huge chunk out of 401(k) plans, to the recent recession that made it difficult for middle-income Americans to meet monthly expenses, let alone save for retirement.

“The retirement system in America is putting a lot of people at risk,” Mr. Harkin said. “We have to take some action to shore it up.”

E-mail Mark Schoeff Jr. at


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