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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/22/10

October 25
08:49 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 1020805_25983300_Trending_Topics_2010.10.22_stock_xchng_royalty_free_300those in the business of supporting these fine folks. If you smile when you read these entertaining snippets, well, that’s the idea.

Fiduciary News Lead Story:

Exclusive Interview with Yale’s Daylian Cain: Just a Sugar Pill? Disclosure’s ‘Ah-Ha!’ Moment,” (Fiduciary News, October 18, 2010). For years we’ve seen government relying on disclosure to indemnify manufacturers, service providers and business in general. It turns out, as revealed by several academic studies, disclosure only really helps two parties – the regulators and the industry being regulated. Not only can disclosure not help consumers, it can actually hurt them in some very well documented ways. Yale’s Daylian, a leading researcher in the field, Cain took time from his business schedule to talk to Fiduciary News. What he says might just surprise you – and it may be quite relevant in light of the busy DOL’s last two weeks.

DOL’s New 401k Fee Rule:

The current four letter scapegoat de jour – “fees” – takes a licking but keeps on ticking. The whole charade brings up so many well worn clichés: “You get what you pay for.” “Cheap at half the price.” “If a fee falls disclosed in the forest, will an investor read it?” It’s clear the regulators haven’t been paying attention to research in the field of behavior economics like that reported in the week’s lead story in Fiduciary News (see above).

New DOL rules broaden DC plan disclosures,” (Pensions & Investments, October 14, 2010) I know, this should be listed in last week’s Trending Topics, but we included it here in case you forgot the original story.
Chuck Jaffe: New 401k fee rule won’t help,” (MarketWatch, October 17, 2010) Jaffe nails the underlying truth behind the DOL’s new requirement for more fee disclosure with this line: “You can sum up this information in four words: ‘Low costs are good.’” This strategy, unfortunately, only works when comparing apples to apples. Last we saw, Rule 404(c) requires at least 3 fruits with substantially different objectives.
Low-expense 401(k) can trump a high match from employer,” (Dallas Morning News, October 17, 2010) Here’s an example of the ol’ “apples-to-oranges” comparison. In the 19thst century, some might simply say you can manipulate statistics to say anything you want them to. It’s a shame a major media outlet like the Dallas Morning News doesn’t vet their business articles better. They could have easily read the January 2010 Fiduciary News article showing better performance in the last decade more than trumped any cost advantage low fee funds might have. Come to think of it, why would we expect the Dallas Morning News to make any more of an effort than the DOL does? century, some might have referred to it as a “snake oil” pitch. In the 21
Small Business Bill, DOL Fee Rule, Roth IRAs Are Top Issues at ASPPA Annual,” (Advisor One, October 19, 2010) There’s a snippet about the new DOL Fee Rule buried deep in this article that might cause the 401k plan fiduciary to shutter: “The rule, [Brian] Graff [executive director and CEO of American Society of Pension Professionals & Actuaries’] said, “imposes significant liability on plan sponsors.” We’d like to know more, but it appears we’ll have to search elsewhere for more of Mr. Graff’s thinking.
Morningstar Calls for a ‘Sweeping Overhaul of Fund Expense Ratios’,” (, October 21, 2010) Honestly, this has more to do with the SEC’s desire to reform 12b-1, but Morningstar’s take on it shows exactly what’s wrong with the current discussion on fees. As reported by Fiduciary News in May 2010, some fees matter and some fees shouldn’t matter to plan sponsors. By focusing on mutual expense ratios (in fact, suggesting the SEC rename expense ratio categories), Morningstar is asking the SEC to take its eye off the ball. The real issue of 12b-1 fees is, not disclosure, but the conflict-of-interest they pose, which nicely seques into our next Trending Topic.

DOL Redefines Fiduciary:

While the SEC fiddles, the DOL seizes the microphone and actually says what’s needed to be said. With the first major change in definition in more than 30 years, the DOL hopes to align ERISA with the practical reality of today’s marketplace. The DOL expects the fireworks to fly on this one with the usual “you’ve gone too far” versus “you haven’t gone far enough” debate. We’ll see.

Fiduciary? Not a fiduciary? Labor Dept. to update definition,” (Investment News, October 19, 2010) Investment News wins the award for being the first to publish the DOL’s intentions (even though anyone attending the American Society of Pension Professionals and Actuaries’ annual conference in National Harbor, Md. would have heard Phyllis Borzi, assistant Labor secretary for the Employee Benefits Security Administration, make the pronouncement). This article contains a lot of teases of impending DOL rulings.
Labor Department to broaden fiduciary classification,” (Pensions & Investments, October 21, 2010) This article contains a fairly comprehensive breakdown of the DOL’s proposed rule. The link to the actual DOL Rule is busted in the article, so use the one directly below.
Actual text of the Proposed Rule, (Department of Labor, October 22, 2010) This wasn’t available on the actual release date.
DOL Broadens Fiduciary Net,” (, October 21, 2010) This article offers a more interesting commentary as it explains the detail of the proposed rule. Read it and compare it to the Pensions & Investments piece.
Labor Department Rule Expands Adviser Responsibility for 401k Plans,” (Bloomberg, October 21, 2010) For those of you who grew up on Sesame Street and prefer their news in small, easily digestible chunks (although even “chunk” sounds too big), this is the article you want to read.

The Stealth Pension Crisis:

Call it “The Revenge of the Baby Boomers.” This ticking time bomb may spell the difference between the states that lead the nation in this century versus those that drag us down. Seriously, this is a “sins of the fathers are the sins of the sons” moment – the kind that can often lead to a major national schism. If you thought the Federal bailout of the banks upset middle America, wait until you see what happens in flyover country when the Feds announce they’re going to bail out these bankrupt coastal states.

Raising Contributions not the Solution to CAs Pension Funding Crisis,” (, October 19, 2010) I you live in California, it appears it might make sense to move out. Hint: Don’t move to New York.
PBGC Assumes Pension Liability for Bakery Workers,” (, October 19, 2010) Here’s proof the pension problem, though mostly in the public arena, also infects the private world, too.
California Pension Liabilities May Exceed Tax Revenues,” (Institutional Investor, October 2010) Here’s the terrible reality for those who didn’t believe the first story: “To retain their promises to retirees, CalPERS, CalSTRS and the University of California Retirement System may have combined liabilities of over 5.5 times the state’s annual tax revenue by fiscal 2012.” Kinda makes you wonder if CalPERS should be paying more attention to their own business rather than playing the activist role in the public companies they invest in.
Schwarzenegger signs Calif. pension reform,” (, October 20, 2010) “‘Pension debt has become the silent thief of our treasury,’ Schwarzenegger said in a written statement. ‘With this reform we will put California on the road to fiscal health.’”  Hmm, somehow “the Rollbacker” doesn’t sound as catchy as “the Terminator.”

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.

Mercer Drops Investment Consulting Advisory Service for Public DBs,” (, October 8, 2010)
Journal Communications freezes DB plan, enhances 401k,” (Pensions & Investments, October 15, 2010)
How too many mutual funds can be a mistake,” (CNBC, October 19, 2010)
Alternative investments for the Fiduciary,” (Investment News, October 21, 2010)
More 401k savers take loans Robert Powell,” (MarketWatch, October 21, 2010)

Wisdom from Some of Our Favorite Blogs:

Chicago Financial Planner: Financial Advisor Credentials401kBasics: Plan Sponsor Quick Tips: Qualified Default Investment Alternativesfi360 Blog: Fiduciary Links: Defending diversification and asset allocationThe 401(k) Fiduciary Advice Blog: BeManaged October Research Newsletter – Asset Class Correlations and Your PortfolioBNA Pension and Benefits Blog: The Revolution Will Not Be Televised: Reading the New DOL Fee RegulationBrightScope Blog: Reviewing the DOL’s Final Rule on Participant Fee Disclosure

Hot Tips from Popular Web Resources:

Life and Health Insurance News: Producers say 12b-1 Draft Promotes Short-Term Thinking
National Conference of State Legislatures: 2010 Pension and Retirement Enacted Legislation
DOL Fact Sheet: Final Rule to Improve Transparency of Fees and Expenses to Workers in 401(k)-Type Retirement Plans
Ballard Spahr Legal Alert: DOL Issues Long-Awaited Disclosure Regulations for Plans that Permit Participant-Directed Investment Features

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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