By Lisa Shidler
November 6, 2006
CHICAGO - Advisers are bracing for the possibility that lawmakers might get another chance to make changes to the Pension Protection Act of 2006.
The pension law already has been signed by President Bush, but industry leaders fear that if the political landscape changes in Congress following the midterm elections, it might lead Democrats to push for changes to the law.
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They could do that through a so-called technical-corrections bill, which often is passed after major legislation to fix typographical errors and to make sure that legislation comes out as intended. As such bills make their way through Congress, however, they sometimes pick up amendments that represent more substantive changes to what originally was passed.
"Certainly, part of what is happening is, everyone is waiting to see what happens with the elections," said David Wray, president of the Profit Sharing/401(k) Council of America in Chicago. "The real conversation about technical corrections will take place after the election. What's technical to one person isn't to someone else. A lot of people see the technical-corrections act as another bite at the apple."
Michael E. Kitces, an adviser and director of financial planning with Pinnacle Advisory Group Inc. of Columbia, Md., said, "A lot of what was in the Pension Protection Act was what we'd call Republican core issues."
Some industry leaders suspect that if the Democrats gain control of the House or Senate, they may change a provision of the new law that allows mutual fund companies to offer advice to participants. This was one of the most heavily debated portions of the law.
Changes led by a Democrat- controlled Congress likely would be less favorable to advisers and fund companies, said Fred Reish, managing director of the law firm Reish Luftman Reicher & Cohen in Los Angeles.
The issue of investment advice was controversial, and the language as written is confusing and contradictory, he said.
"The investment advice provisions are poorly crafted, mostly because of fundamental conflicts between the House's position and the Senate's position," Mr. Reish said.
The new law allows fund companies to offer investment advice starting next year. To ensure that the advice is unbiased, it must be based on a computer model or offered by an adviser who charges a flat fee that is not linked to the investment products being recommended.
Where the law gets murky, said Mr. Reish, is in how it relates to the affiliates of the companies offering advice, such as broker-dealers. For example, if an adviser gives advice that results in more money for their broker-dealer, is that advice, in fact, unbiased?
"There are a lot of issues," Mr. Reish said. "It's very confusing."
Although a technical-corrections bill is unlikely to be introduced before the midterm elections, there's little doubt that such a bill eventually will be introduced.
"So far, lawyers have identified hundreds of problems with the bill,'' said Dallas Salisbury, president and chief executive of the Employee Benefit Research Institute in Washington. "Congressional staff have identified things that should have been in the bill and aren't, and things that are in it and shouldn't have been in it."
This is all too common in lengthy legislation, Mr. Wray added.
"When you have a very large tax bill, you realize there are little glitches," he said. "It's very typical. The scope of these technical-corrections bills has been pretty wide and sometimes very narrow. That's where the election could have some impact."
Mr. Wray said that many of the defined contribution changes weren't scheduled to go into effect until Jan. 1, 2008, but the date on the law is Jan. 1, 2007.
He is hopeful that a technical-corrections bill would push back that date to Jan. 1, 2008.
"People are supposed to do things based on the regulations. The Treasury people are scrambling," Mr. Wray said. "We'd like to see all of the effective dates be pushed back to Jan. 1, 2008."