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401(k) Reform Isn't Likely to Happen This Year

The 401(k) reform bills that have been brewing in Washington for the past year will likely be tabled until the 2003 session of Congress.

The House of Representatives had passed a bill containing the White House's recommendations for reforming 401(k)s in April, leaving the decision in the hands of the Senate.

In September, the Investment Company Institute sent a message to Congress, urging it to approve 401(k) plan reforms before lawmakers recess in October.

But it didn't happen. Congress recessed for the November elections early this month, and insiders say that lawmakers are unlikely to pass 401(k) reforms when they convene late this year for a so-called "lame-duck" session.

"The momentum is not sufficient to drive through this legislation in any form during the lame-duck session," said Barry Barbash, a former director of investment management at the SEC and now an attorney with New York-based law firm Shearman & Sterling. "Other matters are more compelling than this one," such as the economy and matters of national security.

An ICI spokesman, nonetheless, said the lobby group remains confident that Congress will act on the reforms before the end of the year. So far, he said, there is no indication that Congress plans to ignore the issue.

The 401(k) reform bills were intended to prevent the kind of retirement plan debacles that unfolded at scandal-ridden Enron. The meltdown got the attention of lawmakers, who, along with President Bush, vowed to help protect workers from losing all of their retirement money.

For months, the front-running ideas for reform had been Rep. John Boehner's (R-Ohio) Pension Security Act, which was approved by the House in April, and includes the White House's recommendations for protecting retirement plans, and a bill sponsored by Sen. Ted Kennedy (D-Mass.), known as the Protecting America's Pensions Act. In addition, a bill sponsored by Sen. Max Baucus (D-Mont.) was passed in the senate finance committee.

But none of the bills got the full attention of the Senate before the recess, prompting an outcry from House Republicans who accused Democrats in the Senate of not moving quickly enough to protect Americans' financial security.

"It would surprise me if the Senate made any move on any pension bill for the rest of this year," said an aid to Rep. Boehner. "They have used a lot of heated rhetoric about the issue, but when it comes to acting on a bill, they have done absolutely nothing.... They don't have a bill."

If no bill moves this year, the aid said that House lawmakers will have to approve new legislation and send it to the Senate again during the 2003 session.

Democrats, meanwhile, said that the Senate has been working to draft a bi-partisan bill, known as the Wise Investments for a Secure Employee Retirement Act. That bill includes protection for whistleblowers within corporations, the right to sell employer stock after three years of working for a company and provisions for independent investment advice. The Kennedy and Baucus bills have apparently been sidelined.

The bill was never approved because Republicans slowed the effort, said Sen. Kennedy's press secretary Jim Manley. "Sen. [Tom] Daschle (D-S.D.) tried to make this a bipartisan exercise," Manley said. "The Republicans in the Senate demonstrated a willingness to filibuster this thing. Floor time never became available."

Whether pension reforms get lawmakers' attention any time in the near term depends on the outcome of the November elections, Manley said. "The question is whether [the Senate] is controlled by Republicans or Democrats," he said. "It's a priority for Democrats, but we'll have to wait and see what November brings."

Some said the reforms stalled simply because Democrats and Republicans couldn't agree on the bills' provisions. Boehner's Pension Security Act, for example, includes a controversial proposal that would allow fund companies to provide 401(k) investors with advice.

In an interview last week, Manley blasted the bill, saying it "does nothing to prevent executives from misleading workers."

And, regarding the advice provision in the House-approved bill, Manley said, "it allows conflicted investment advice" by allowing companies to push their products on investors under the auspices of providing guidance.

"In Washington, to get legislation done, you need a fair amount of consensus," Barbash said. "I think you have the consensus that there is something to be done in the 401(k) arena. I don't know if there's consensus enough as to what to do."