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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 8/27/10

August 30
09:03 2010

Welcome to the first weekly Fiduciary News Trending Topics. Each Monday, we’ll give you a quick synopsis of the major news events and trends impacting ERISA plan sponsors, 401k fiduciaries and those in the business of supporting 1020805_25983300_Trending_Topics_2010.08.27_stock_xchng_royalty_free_300these fine folks.

Fiduciary News Lead Story:

New White Paper Reveals 3 Greatest Fiduciary Liability Threats to 401k Plan Sponsors,” (Fiduciary News, August 23, 2010).  The current economic setting only heightens fiduciary liability. Last year, the DOL logged more than 4.5 corrected violations per business day. With aggressive litigators using technology to sniff out these violators and others, what’s a 401k plan sponsor to do?

Industry News Abuzz with 12b-1 Fees:

There’s a major battle going on in the pages of the financial news media pitting the brokers against the advisers. Take a look at these headlines and see if you can determine the direction things are going.

Will 12(b)-1 plan fizzle without champion?” (Investment News, August 22, 2010) There’s a growing concern the departure of Buddy Donahue from the SEC may take the oomph out of the effort to address the 12b-1 issue.
12b-1 Reform Could Hit American Funds and Others Hard in the 401k Biz,” (, August 20, 2010) In revisiting the “R share dilemma,” (addressed in the earlier Fiduciary News article “SEC’s 12(b)-1 Proposal: Does It Actually Increase 401k Fiduciary Liability?”) Mutual Fund Wire reveals how mutual fund companies and insurance companies might be able to skirt the SEC’s proposed 12b-1 fix (but alludes to a potential DOL fix).
Will the SEC’s 12(b)-1 plan smack Legg Mason?” (Investment News, August 26, 2010) The article is in full tiny violin mode as it paints a sorrowful picture of the potential damage the SEC’s proposed reform will do to your favorite large financial services firm. Have a box of hankies nearby before reading.

This Just in on Target Date Comments – Y-A-W-N!:

TDFs are looking more and more like a solution looking for a problem. With Vanguard announcing a 60-year TDF – What? Pure equity funds aren’t long-term enough? – Based on last week’s news stories, it appears this fad might be fading fast.

SEC’s target date proposal met with raging indifference,” (Investment News, August 20, 2010) To date, the SEC received only 21 comments on TDFs as opposed to nearly 1,700 on the fiduciary standard, so you can’t blame the dog days of summer.
Debating Target-Date Funds’ Tricky Labels,” (Wall Street Journal, August 24, 2010) Here’s a possible reason why no one’s commented – maybe it’s the inconsistency in TDFs. We’re talking about the disconnect between the promise and the performance. Of course, anyone who lived through the debacle of New York State’s first attempt to offer 529 college savings plans.
Lawmakers Respond to SEC Proposed Rules for Target-Date Funds,” (PlanSponsor, August 24, 2010) It turns out one of the comment letters came from a group of Senators. Uh, didn’t they already get their chance?
SEC’s Target Date Fund Proposal Garners Little Response,” (Investment Advisor, August 24, 2010) Final tally at the end of the comment period: 44 comments. Maybe the SEC ought to defer this and focus on one thing at a time.

The Real War:

There’s a major battle going on in the pages of the financial news media pitting the brokers against the advisers – Wait! Didn’t we just see this? Hold on to you hats. This ain’t a battle. This is a war!

Financial advisers, brokers in fiduciary-study rumble,” (Investment News, August 22, 2010) “It’s about my business model!” “No, it’s about my business model!” What about the beneficiary – the client – isn’t that what being a fiduciary is really all about Charlie Brown? Can’t wait to see how Solomon – er, the regulators – mess this one up.

Major Plan Sponsor Moves and News:

What are other plan sponsors and fiduciaries doing with their plans? And how are participants responding?

DC plans shouldn’t classify participant loans as investments – FASB,” (Pensions & Investments, August 19, 2010) Well, this will make a who lot of people look poorer – but hopefully make them wiser.
Fidelity: Majority of 401k Participants Show Steady Savings,” (Financial Planning, August 23, 2010) On the heals of the P&I story above, Fidelity warns too many participants are taking out too many hardship loans.
Schwab 401k clients boost advice, cut back on match,” (Pensions & Investments, August 24, 2010) This data is for Schwab clients only but echoes earlier Fidelity statements.
Corporate DB plans get ‘wake-up call’ on investment risk,” (Pensions & Investments, August 25, 2010) This ticking time bomb has existed for quite some time. Was Caterpillar thinking this? (see below)
Caterpillar Moving More Workers to 401k,” (Plan Sponsor, August 26, 2010) The trend started in the mid-1980’s with smaller firms. If Caterpillar means anything, it could signal the recession has taken its toll on larger firms and they’ve finally wizened and thrown in the pension towel. Will governments be far behind?
Do 401ks need safer investment options?” (CBS MarketWatch, August 27, 2010) Perhaps a counterpoint to the Caterpillar move, this may portend a contrarian indicator for bonds or worse. Remember all those studies that suggested too many 401k investors were too conservative? Ah, the good old days when things made sense.

Wisdom from Some of Our Favorite Blogs:

fi360 Blog: Fiduciary Links: Everyone could use a little advice
Chicago Financial Planner: Is This a Good Investment?
The 401(k) Fiduciary Advice Blog: 5 Reasons NOT to Tap Into Your 401(k)
401kBasics: Do You Have Funds In Your Forfeiture Account?
401kBasics: Keep the Course: Is Your Employer Misusing Your 401k Contributions?
fi360 Blog: How to write an effective comment letter to the SEC

Hot Tips from Popular Web Resources:

FreeErisa: Paychex Again Ranks Among Top 401(k) Recordkeepers In U.S. Free Glossary of Terms Available from

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

1 Comment

  1. Ross Marino
    Ross Marino August 31, 06:27

    Excellent summary! Great job on your first Trending Topics.

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