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Can My 401(k) Plan Sponsor Give Investment Tips?

New rules allow it with conflict-of-interest safeguards

En español | Q. I need advice on how to balance the investments in my 401(k) to maximize value without too much risk. Can I ask the financial company that manages our retirement plan at work to help me with these decisions?

A. Next month, a big change is coming regarding workplace retirement plans. Under a government rule that goes into effect Dec. 27, advisers affiliated with providers of 401(k)-type plans and IRAs, such as Vanguard or T. Rowe Price, will be able to give advice to plan participants who ask for such help.

See also: What's in your retirement portfolio?

Couple reviews finances, Federal rules allow sponsors to hire advisers to help 401K participants

New rules allow plan sponsors to hire advisers to help participants choose investments. — Photo by Corbis

Previously, this could only be done by independent outside advisers, out of concern that the sponsor's own staff would tend to push investments that would yield them the highest fees.

Under the new rules, sponsor-affiliated advisers will be allowed to collect fees for investments they recommend if one of the following two conditions is met to avoid conflict of interest:

  •  Their compensation is not affected by the advice they give. Any fees they collect must be the same no matter what the investment.
  • The advice they offer is based on a computer model that has been certified as unbiased by an independent third party.

Under the rules, the advisers must also take into account an investor's age, life expectancy, target retirement age, risk tolerance and other factors.

The Labor Department announced the change in October, saying it would make advice more widely available to retirement plan participants, helping them avoid investment mistakes. However, it's up to employers and plan providers to decide whether to implement the rule.

Sponsors will have a fiduciary duty — meaning they must act in your best interests, not theirs — in choosing and monitoring their investment advisers.

You may also like: Do the math for retirement. >>

Carole Fleck is a senior editor at the AARP Bulletin.

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