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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 9/3/10

September 06
15:16 2010

Welcome to 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 these fine folks. If you 1020805_25983300_Trending_Topics_2010.09.03_stock_xchng_royalty_free_300smile when you read these entertaining snippets, well, that’s the idea.

Fiduciary News Lead Story:

Exclusive Interview: PlanSponsor’s Nevin Adams Says Plan Sponsors not Focused on Same Issues as Advisers & Regulators ‘Too Few 401k Plans’ Annuities ‘Not Viable’,” (Fiduciary News, August 31, 2010).  Nevin Adams, Editor-in-Chief of PlanSponsor magazine, leaves no doubt how he feels about things: “I wish we’d spend a tenth of the time we spend indoctrinating our kids about drug use and sex helping them understand the basics of money and investing.” And that was a more tame example.

Target Date Troubles – Humpty Dumpty sat on a wall…:

Last week saw more trials and tribulations for what is fast becoming the Edsel of the mutual fund industry. Has your office started a pool yet to guess the date when the DOL – which created this whole fad in 2006 – throws in the towel and removes these irreparably misleading products from the list of 401k default options?

Target Date Funds to SEC: Yes on More Disclosure, No on Changing Names,” (Financial Planning, August 27, 2010) “Yeah, sure” (wink! wink!) “we’ll run TDFs like a duck” (wink! wink!) “We’ll even tell people everything they want to know about the duck.” (wink! wink!) But, heck, no! Don’t ask us to call it a “Duck!”
Target-date fund proposals miss the mark,” (CBS MarketWatch, August 29, 2010)  Chuck Jaffe once again provides his usual common sense bluntness. Fighting the already “too many chefs spoil the broth” damage to TDF’s, Jaffe offers a more “Goal-Oriented Target” (our term) approach. It’s such a good idea it’s almost guaranteed to fall on deaf ears.
Target date turnover troubles big firms,” (Investment News, August 29, 2010) BrightScope reveals TDFs – and names names – with turnover rates far above average – a red alert for those expecting a somewhat stable investment portfolio they can hold on to for 30 years.

12(b)-1 Troubles – Cry Me a River:

“Gambling?! There’s gambling going on in this establishment?” “You’re winnings, sir.” “Oh, thank you.” After 30 years at the teat of investors, the financial industry complains it might have to bill the client directly.

Most to lose with 12(b)-1 reform? AllianceBernstein, Franklin Templeton, Waddell & Reed,” (Investment News, August 30, 2010) Warning: this title is misleading. The funds aren’t losing money on this. These funds will have to just figure out another way to pay distributors what they’re already paying distributors. Of course, that’s if the funds decide to retain the same distribution model and not force the broker-dealers to charge their own fees.
Proposed SEC Rules Could Cost Fund Firms Millions,” (Wall Street & Technology, August 31, 2010) Is it possible some promotional firm sent out a talking points memo? At least this story makes it clear the funds might not actually lose money – but you have to read the fine print to see that.
Whom Will 12b-1 Reform Hit the Hardest?” (, August 31, 2010) Just in case you didn’t believe the first two articles, here’s another. Actually, it’s a good synopsis of the Investment News story. In this article, you won’t miss the conclusion of the original: 12b-1 reform will hit broker-dealers much harder than mutual funds.

Fiduciary Standard Troubles – Pay no attention to the man behind the curtain:

As the various PR machines crank up to take this debate directly to the public, will those “in the know” merely chuckle at the blatant opportunism or fear the worse given the ultimate gullibility of mankind?

SEC Wants Your Opinion,” (Wall Street Journal, August 29, 2010) The opening sentence says it all: “Do you know the difference between a broker and an investment adviser – and whether both have your best financial interests at heart?”
US Broker Group Weighs In On Fiduciary Standard,” (Wall Street Journal, August 30, 2010) This “behind the paywall” article exposes the basic misunderstanding within the fiduciary debate. Brokers, with all due respect, are not advisers, anymore than your supermarket cashier is a chef. That’s the difference. Plain and simple. Now stop confusing people.
Why We Need The Fiduciary Standard,” (Retirement Income Journal, September 1, 2010) Here’s a reason why paywalls can crush your ultimate aim. In writing an opinion piece on public policy, you want to expose your opinion to as many people as possible. Making your words private defeats the purpose. This piece, by industry veteran Bob Veres, starts off with his usual compelling élan. But that’s as far as I got before I moved on.
Advisor Groups Spar Over Fiduciary Solution,” (Financial Planning, August 31, 2010) This is the “must read” article of the bunch. It baldly states what’s going on – a war between the FINRA self-regulated model of the brokerage industry and the SEC regulated business model of the adviser industry. Make some popcorn, sit back and enjoy the show.
Industry groups weigh in — and then some — on fiduciary provision,” (Investment News, September 1, 2010) The final score: more than 2500 to 46. That’s how many comments came into the SEC regarding the fiduciary standard vs. comments on Target Date Funds – and TDFs had a 60-day comment period vs. the 30-day period for the fiduciary standard. Here’s the difference: The industry has only had less than a handful of years to figure out how to make money on TDFs, but it’s had almost two generations to do so on the suitability standard. Lesson: Always look where the bread is buttered.
Financial Industry To SEC: No Fiduciary Standard, Please,” (Financial Advisor, September 1, 2010) With 19% of the precincts counted, Financial Advisor had declared “No Fiduciary Standard” to be the winner. Hopefully, the SEC is looking for: a) more than a mere vote; and b) some logic to support its eventual decision. Truth be told, how much credibility does the industry have – either way – in having a say on how it’s regulated. Shouldn’t that best be determined by fair and impartial judges?
Fiduciary standard’s biggest critic? Insurance agents,” (Investment News, September 2, 2010) Direct from the cable TV handbook of rhetoric: if you’re argument’s too weak, just shout louder. Yeah, that might work. Of the nearly 2700 comments, 426 were form letters. Almost 240 of those form letters came from the insurance industry, which, says Mercer Bullard, founder of Fund Democracy LLC , “doesn’t want to disclose conflicts of industry.”

401k Troubles – Right in time for the next market rally:

It’s often said when your barber starts giving you stock ideas, it’s time to sell. Likewise, when the media starts telling you “it’s all over,” maybe it’s time to buy. OK, OK.  Maybe the news is mixed – at best.

Could investors fleeing stocks become a lost generation?” (, September 2, 2010) While not strictly a 401k story, USA Today does promote the general feeling we saw last week. Despite this general stock market malaise, the article does admit 60% of 401ks are still invested in stocks, albeit down from 70% prior to the crash. Given retirement goals, that normal is still probably too low.
10 Signs Your 401k Plan is Garbage,” (DailyFinance, August 28, 2010) Keep in mind, this is the kind of article plan participants read. #4 on the list: “The plan adviser is not a ‘real’ fiduciary.” Despite a reference to somewhat archaic academics in the opening paragraph, the list is actually quite good.
America’s Retirement Problem: Should We Ditch 401k Plans?” (Ideas in Action, September 2, 2010) This is a 26 minute news panel video that explores the ups and downs of 401k plans and possible government responses.
Three Alternatives to Raiding Your 401k,” (Wall Street Journal, August 29, 2010) Another piece directed towards participants. It ought to be read in conjunction with the two 401k loan articles in last week’s Trending Topics.
Employers promoting 401k plans despite downturn,” (Arizona Central, August 27, 2010) Arizona seems to receive a lot of bad press lately, but here’s some good news.
Study: Boomer Retirement Plans Hold Steady,” (Financial Advisor, August 28, 2010) Charles Schwab reports 54% of the those between 50 and 60 say they still plan to retire when they originally intended – without saying when they originally intended.
DC participants want more advice, planning help,” (Pensions & Investments, August 31, 2010) In yet another industry report, 60% of the plan participants want more advice. It doesn’t say if this was the same group in the Schwab report that assumed their retirement plans remained unchanged.
Most 401k Participants Ignore 2Q Volatility,” (Financial Planning, September 2, 2010) Still another industry survey cites only 4% of Mass Mutual participants (the company services more than one million) made changes in the second quarter and, what’s more, the average participant beat the market by more than 8% in the same quarter. That’s the good news. The bad news is they beat because they were too conservatively invested (see the USA Today story above). “However, at some point too much safety can be dangerous,” says the article.

ERISA Fee Disclosure Update:

Comments Endorse Fee Disclosure Flexibility Additional Compliance Time,” (, September 2, 2010) The popular magazine reviews some of the 44 comments received by the DOL regarding pending fee-disclosure rule. While many have positive things to say about the spirit of the rule, they continue to ask for greater regulatory flexibility and more time to comply – but you already knew that from the title of the article..

Major Plan Sponsor Moves and News:

What are other plan sponsors and fiduciaries doing with their plans? And how are participants responding? The latest in legal proceedings involving plan sponsors and fiduciaries.

That pension? You might have to pay it back,” (The Orange County Register, August 27, 2010) No, this isn’t about California asking state employees to give back their rich pensions (like that would ever happen). This story details a real-life example of what happens to a retiree when his former employer discovers an error in his monthly pension payment. A very interesting – and sad – read.
Ford settles stock suit; will offer financial advice to 150,000 retirees, employees,” (The Detroit News, August 30, 2010) Here’s what happens when you force your employees to carry your company stock in their retirement plan – and the stock tanks (even if the rest of the market also drops). Truth is, Ford got off easy.
Court Dismisses BofA Stock Drop Case,” (, August 30, 2010) Another company stock case. Did Bank of America have better lawyers than Ford? Or was the judge correct in not holding them liable for the actions of companies they bought? You decide.
WaMu to Settle Stock Drop Suits for 49M,” (, September 1, 2010) If Ford was a win (or lose) and Bank of America as a lose (or win), then Washington Mutual was a draw as the sides settle out of court.
401k Participant at Fault in Account Withdrawal Dispute,” (, September 2, 2010) Move along. Nothing to see here. Just a messy divorce case.
Court Finds Plan Trustee Could not Act on Knowledge of Breaches,” (, September 2, 2010) This case appears most significant of all, as the DOL felt incumbent to side with the plaintiffs. It’s all about who knew what when and precisely at what moment the statute of limitations start.

Wisdom from Some of Our Favorite Blogs:

It’s Your Money: The Only Thing Worse Than Not Telling 401k Participants How Much to Save to Hit the “Retirement Bullseye” is Offering Reckless Target Date Funds
fi360 Blog: Major commenting periods drawing to a close
401kBasics: Plan Sponsor Quick Tips: Get Acquainted With Your Plan Documents
Chicago Financial Planner: Consider a Solo 401k
The 401k Fiduciary Advice Blog: (Podcast) 401k Participant Advice Best Practices on Talk 401k with Don Davidson

Hot Tips from Popular Web Resources: Trends in Workplace Retirement Education
Profit Sharing/401k Council of America ( 401k Day 2010 Home
JDSupra: The Top Ten Major Misconceptions Plan Sponsors Have About Retirement Plans
Society for Human Resource Management ( “401k Investment Education and Advice Organizations Are Providing to Plan Participants

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


  1. Robert Huebscher
    Robert Huebscher September 07, 10:40

    Here is an article we just published on 12b-1:

    I enjoy your service.

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