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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 11/12/10

November 15
00:24 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_2010.11.12_stock_xchng_royalty_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:

Will 401k Plan Sponsors Wonder: Doth the 12b-1 Industry Protest Too Much?” (Fiduciary News, November 9, 2010). Was a major financial professional organization covering up some important data in their comment letter to the SEC? Or is the industry’s 401k defense of 12b-1 fees much ado about nothing? This article sparked intensive debate in several LinkedIn groups.

Fiduciary – There’s no place like home, or, in this case, the House:

It’s a bit of a stretch, but some feel the Tea Party Rebellion that led to the Republican takeover of the House may put the long debated and generally desired fiduciary standard at risk.

Will the Republican Wave Rock the Fiduciary Debate?” (Financial Planning, November 7, 2010) This article spells it out in plain English: “on the list of priorities for Republicans, the standard may not make the top 10 or top 20.”
Financial Industry Wants ‘Fair Game’ to Result from Reform,” (Financial Planning, November 8, 2010) Industry insider applauds the movement to reform, saying it’s needed. What he doesn’t say is what he means by reform.
SIFMA changing its tune on fiduciary standard: Critics,” (Investment News, November 11, 2010) Here’s the definite must read of the list. It’s the snap-back to SIFMA’s turnaround, of which some say was inspired by the election returns. The reaction is pointed and accusatory. This could get ugly, folks.

Pensions – Not in Kansas anymore:

For several weeks, the media has been featuring public employee pension problems in the bigger states. The issue now seems to be moving to the heartland.

Big city pension changes coming,” (Cincinnati Enquirer, November 6, 2010) “Sweeping changes that could slash the generous – and, for taxpayers, costly – retirement benefits of former Cincinnati city employees and future retirees appear to be on the way at City Hall” begins this article. The story talks about “pension spiking” – an issue that occurs in other states. Of course, the situation can be resolved with a sufficient cash infusion – but guess whose cash will be infused?
Pension crisis extends far beyond Pittsburgh,” (Pittsburgh Tribune-Review, November 8, 2010) “According to a Pennsylvania Employee Retirement Commission report, 27 Pennsylvania municipalities have public pensions containing less than 50 cents for every dollar owed” starts this piece. Again, the reporter raises the idea of a cash infusion riding in like the cavalry, but, alas, the reality of economics makes it unlikely.

ETFs, Bonds and Mutual Funds, oh my!:

By odd coincidence, about a week after Fiduciary News published “Top 10 Reasons 401k Plan Sponsors Fear ETFs Not Ready For Primetime,” (November 1, 2010) and ETF Innovations: Good (or Bad) for ERISA Plan Sponsors? (November 4, 2010), a major report came out questioning the  risk of ETFs.

ETFs Riskier to Markets Than Rapid Trading, Study Says,” (Financial Advisor, November 9, 2010) This exhaustive report found itself the subject of a CNBC profile and rattled the ETF market. Underlying the basic economics of the study was the underreported indictment of indexing.
Report Villianizing ETFs Is Lambasted,” (, November 10, 2010) With ETFs representing nearly a trillion dollars in assets, you couldn’t expect the industry to keep quiet after the release of such a damaging report. Indeed, ETF proponents sought – and received – equal time on CNBC. The hosts were not amused.
ETFs Shunned By Many 401k Plans,” (Financial Advisor, August 4, 2010) For some reason, Financial Advisor decided to regurgitate two older articles on the subject of ETFs. This one summarizes what many in the 401k industry have been saying for years.
New ETFs Mimic Individual Bonds,” (Financial Advisor, October 14, 2010) The second reissued article reminded folks of the recent news on an ETF that appears to have solved a old problem with pooled bond portfolios (i.e., they act like stocks not bonds). The above report, which cited bonds in particular as a potential problem, may have taken some of the sheen off this new ETF product.
U.S. bonds may no longer be a safe haven,” (Reuters, November 9, 2010) Just when you thought it was safe to go back into the water, here we have a story questioning the free part of this classic risk-free investment.
Putnam sees absolute-return mutual funds taking off,” (Reuters, November 9, 2010) In the meantime, mutual fund giant Putnam’s new product – an alternative to Target Date Funds – appears to be doing well, but…
Curse of the Mutual Fund Giants,” (, November 9, 2010) Apparently, bigger isn’t better in the mutual fund world. Apparently, mutual fund investors are catching on to Statman’s 1987 research.
Do mutual funds pose risk to U.S.? Debate rages on,” (Investment News, November 10, 2010) The old fogeys in the industry might think this a ridiculous question, but the underlying investment structure has changed so much since those old fogeys were young fogeys that regulators need to honestly look at this issue.

12b-1 – A Horse of a Different Color:

Fallout continues from the end of the comment period, with industry advocates doing the usual advocating.

ICI Tears Into 12b-1 Proposal,” (, November 8, 2010)  A good article that covers the entire ICI letter, not just the portion pertaining to 401k plans.
Side Effects Could Hamper Fund Sales Charge Proposal,” (Financial Planning, November 5, 2010) This is one of the articles referenced in the lead story for Fiduciary News. It covers comments from BlackRock.
12b-1 proposal makes SEC ‘rate maker’: ICI,” (Investment News, November 5, 2010) Unfortunately, this article merely repeats the statements of the ICI and BlackRock without offering any alternative commentary.
FSI Says 12b-1 Rule Change Will Confuse Investors, Be Ineffective,” (Advisor One, November 5, 2010) Yet another industry group chimes in on the urgent need to continue the use of 12b-1 fees.

Fees – Only bad witches are ugly:

It’s been said before – some fees matter and some fees don’t. Will anyone ever figure this out?

Understanding 401k fees,” (Vanguard Blog, November 9, 2010) Normally we wouldn’t include a vendor’s piece, but this one – surprising fair and balanced considering its source – does an excellent job surveying the issue of 401k fees.
2010 PLANSPONSOR DC Survey: Surprising Number of Employers Still Unsure How Much Their 401(k) Plans Cost,” (FreeErisa, November 11, 2010) This is a sneak preview of a survey whose full results will be published on November 15, 2010.
Hidden 401k Plan Fees to be Disclosed,” (, November 12, 2010) Here’s a great way to see how the mass media views the 401k industry. Ironically, a major portion of this piece is devoted to explaining how the new DOL Fee Disclosure rule requires 12b-1 fees to be fully disclosed and reported as if they were asset-based fees.

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.

New regs forcing ‘401k dabblers’ out of market: Expert,” (Investment News, November 8, 2010)
401k Asset Flows Swing over to Equities in October,” (, November 8, 2010)
6 Strategies for Funding Your 401k,” (, November 8, 2010)
Can’t 401k reps and record keepers get along?” (Investment News, November 9, 2010)
Former CEO Ordered to Restore 57K to 401k Participants,” (, November 9, 2010)
Older Workers Losing Faith in 401ks,” (, November 5, 2010)
Micron to restore, enhance 401k match,” (Pensions & Investments, November 9, 2010)
Liability Management Trumps Style Boxes, Risk Tolerance,” (Financial Advisor, November 10, 2010)
401k balances rose with markets in Q3: Fidelity,” (Reuters, November 11, 2010)
A 401k Provider Helps Fund Firms Track Flows,” (The, November 10, 2010)
Hardly a ‘Lost Decade’: Pre-Retirees Double 401k Balances,” (Financial Planning, November 11, 2010)
As Retirement Income Symposium Ends, Speech on Benchmarking Gets Advisors Buzzing,” (Advisor One, November 11, 2010)
Fidelity Investments® Reports Pre-Retirees Doubled Their Average 401k Account Balance Over Past 10 Years,” (, November 11, 2010)
The 401k pays off for a lucky few,” (MarketWatch, November 11, 2010)
Recalling ‘Pension Destruction Act,’ and Introducing Obama Retirement Bond,” (Advisor One, November 12, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: Rules Around Safe Harbor Plansfi360 Blog: Fiduciary Links: Republican-led House and SIFMA study put focus on regulatorsThe 401k Fiduciary Advice Blog: Are You an Investor or a Collector?401kBasics: Keep The Course: Required Minimum Distributions (RMDs)Chicago Financial Planner: Five Common 401(k) Plan Mistakes

Hot Tips from Popular Web Resources:

Cypen & Cypen Newsletter: New Hampshire High Court Upholds Pension Divestment
Profit Sharing/401k Council of America: 401k and the Election
Warner Norcross & Judd LLP: Avoid Fiduciary Liability When Choosing the Class of 401k Funds

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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