Look before you leap: 401(k) advising.

• Author: Girard, Jane
• Position: Financial Planning - Brief Article

Just as many employees are wondering if their 401(k)s are really such a sweet deal, the federal government has given employers the green light to provide professional investment advice for their employees. Last year, both the 2001 Tax Act and the Department of Labor made provisions for financial planning for individual investors in 401(k) plans.

LAW CHANGES AND RULINGS

The 2001 Tax Act provision is simple: Qualified retirement planning services are excludable from income. This includes both advice and information about investments.

The Department of Labor ruling is slightly more involved, as it changes the nature of the Employee Retirement Income Security Act and allows third-party advisers for 401(k) plans. In the past, ERISA held employers liable for advice given to employees, even if it was from a third party.

NEW OPPORTUNITY

These recent developments may open a door for CPAs with financial planning experience to offer their services to companies with 401(k) plans. And for consumers, third-party professional advice could help them invest their funds judiciously, if at all.

"The original concept of the 401(k) is to put the choices in the employee's hands," says Ric Rosario, vice president of risk management at CAMICO. "But many 401(k) plans were set up initially with few options for investing. This increased the companies' liability because it limited the employees' investment options. New plans give employees more options, but they also have the potential for more confusion because many employees don't have the expertise to determine what is the best plan for their investment."

IS THERE MONEY IN IT?

According to Mike Eisenberg, a West Los Angeles-based CPA, PFS, who currently advises his individual clients on their 401(k) investments, some cost-benefit analysis is required before leaping in to this expanded practice area. "It's really a matter of determining whether or not you can make money on advising for 401(k) accounts," says Eisenberg.

"If I choose to offer any of this kind of advising, it won't be an across-the-board service. I'll have to evaluate potential clients case-by-case to determine whether it will be a profitable venture on both sides."

Peter Lucier, a Temecula-based CPA, PFS, says a stumbling point may be that "Many companies will want to roll advisory services costs into the general 401(k) administration and pass them on to employees. The pricing has to make sense to everyone."

THINKING ABOUT THE RISK

"CPAs need to...