Date of this Version
Federal retirement policy today presents a significant regulatory paradox. Numerous studies have shown that participants in retirement savings plans need retirement planning education and investment advice. Yet they receive materials that are either too basic for participants who are financially sophisticated or too sophisticated for participants who are financially illiterate. Most participants do not receive professional investment advice before they direct the investment of their retirements savings. Why? This situation is the result of regulations and rulings issued by the Department of Labor, the federal agency that interprets and enforces the Employee Retirement Income Security Act of 1974 ("ERISA").
The ultimate goal of ERISA is to promote and protect retirement income security for plan participants. Under today's individual responsibility model of retirement plans, this purpose can best be achieved by providing plan participants with professional assistance, by accountable fiduciaries, in making retirement planning and investment decisions. The Department of Labor's current interpretation of ERISA, originally developed in the context of the employer-controlled defined benefit plan, is ill-suited to today's participant-directed 401(k) plan. This Article invites the Department of Labor to interpret ERISA in a more flexible manner and modernize administrative policy to conform to the reality of participant decision-making under the individual responsibility model.