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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 11/5/10

November 08
12:10 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_2010.11.05_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:

ETF Innovations: Good (or Bad) for ERISA Plan Sponsors?” (Fiduciary News, November 4, 2010). These popular product have become more accessible even as they are evolving. What’s that mean to retirement plan sponsors? Industry experts – both service providers and plan trustees – offer their views in this transcript from last month’s Art of Indexing Summit.

401k Investments – Of All the Gin Joints in All the World…:

Wow. It appears what investment a 401k participant picks just isn’t worth its salt. And this as the market approaches a top. What would they be writing about when the market bottoms? Maybe if we just stuck to plain vanilla and forget about all these new-fangled jobbers we’ll all live happier.

Target-Date Funds: Return Money Plus Inflation,” (MarketWatch, November 1, 2010) Ron Surz talks to the Wall Street Journal about how the fund companies’ interests may not be aligned with investors’ interests. It turns out one size doesn’t fit all. Said Surz, not investing in Target Date Funds “would be one option.”
Not all advisers enamored of ETFs,” (Investment News, October 31, 2010) If you don’t believe ETFs represent the wild west of investing, you must read this article. The story starts with an ETF manager who asked an investor to NOT invest in his ETF because the ETF was too illiquid. And that’s just one of the problems outlined in this story. More importantly, the article does offer some solutions.
4 Reasons ETFs Aren’t as Cool as You Think,” (USNews, November 2, 2010) If the above story or last week’s Fiduciary News article “Top 10 Reasons 401k Plan Sponsors Fear ETFs Not Ready For Primetime” to burdensome, this layman’s list is a handy quick read.
Why Annuity Swaps Often Backfire,” (Wall Street Journal, November 2, 2010) This time the author’s sites are on annuities, another popular alternative investment touted for 401k plans. We can sum up the article with this excerpt: “newer annuities could come with higher fees, expenses and more restrictions, resulting in a smaller guaranteed payout.” After all, those “guaranteed” 6% returns can’t all be true, can they?
What to ask before buying an annuity,” (FreeErisa, November 2, 2010) Of course, if you insist on purchasing an annuity, then read this article to get an exhaustive list of great questions you must ask the provider.
SEC target-date fund proposals: Well-intended but need work,” (Vanguard, November 2, 2010) It would be interesting to see if Fidelity agrees with this. Remember, an article written by a vendor is not normally included, but this one – from a leading and sometimes controversial service provider – bears reading if merely to begin the debate.

Fiduciary – Play it, Sam:

Others have suggested the definition of insanity is continuing to try something that is a proven failure. In the winding road to redefining fiduciary – which the DOL bravely took a stab at a couple of weeks ago, there’s a growing fear the SEC will bow to the brokerage industry.

What the Uniform Fiduciary Standard Will Not Be,” (Advisor One, October 27, 2010) Knut Rostad lays out an excellently argued point of how the sausage may be getting tainted even as it’s being made. Apparently, certain (interested) parties (i.e., SIFMA) appear to either have not learned or are purposely ignoring the lessons of the failure of disclosure. Rostad clearly worries these (interested) parties may unduly influence the SEC. Definitely a must read for anyone interested in the issue of the fiduciary standard.
SIFMA: Flawed fiduciary duty could smack investors,” (Investment News, November 2, 2010) There’s no way of telling if this article is SIFMA’s response to Rostad, but it might be. A spokesman for the Consumer Federation of America calls out SIFMA for trying to change the topic by bringing up their study on commissions. Nice, balanced article.

Pensions – I was Misinformed:

Ponzi schemes are still Ponzi schemes, even if the government legalizes, promotes and participates in them.

Pensions under fire,” (Press Democrat, October 30, 2010) A sad story from a retired California state worker (again). The article calls it “pension envy.” Perhaps Madhoff should have used that defense.
VRS gives warning to assembly on pension funding,” (Richmond Times-Dispatch, October 29, 2010) A sad story for Virginia public employees. The fund gap is expected to be $2 billion this year.
DB Plans See Deficits Decrease in October,” (, November 2, 2010) Here’s some good news (?) – private pension plans decreased their deficit by $56 billion. Let’s see, that still leaves a $373 billion shortfall. Who’s going to be on the hook for this?
New Congress means little pension action ahead,” (Pensions & Investments, November 3, 2010) With the new House majority promising to hold back funding on pension bailouts, this article writes hopefully of gridlock.

12b-1 – Round Up the Usual Suspects:

In a sneak preview of the coming week’s trending topics, the tip of the iceberg appeared towards the end of the week. It seems some folks don’t like the SEC proposal to actually enforce the original intent of 12b-1 fees. Bet you can’t guess you they are.

Groups Say SEC Rule 12b-2 Should not Interfere with Payment for Services,” (, November 3, 2010) Apparently, the American Society of Pension Professionals & Actuaries (ASPPA) and the Council of Independent Recordkeepers (CIKR) are concerned the SEC’s proposal will have an impact in the way they get paid for their services. Um, isn’t that the whole point?
ASPPA, Spark to SEC: Dump your 12(b)-1 proposal,” (Investment News, November 4, 2010) I guess we can add the Spark Institute to the list. Apparently, small (less than $5 million) plans will be hurt if they have to pay 50bps out of the investments of the plan directly instead of paying 50bps out of the plan’s investments.

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.

Plumbing Company Owner Guilty of 401k Plan Theft,” (, November 1, 2010)
No 401k Match Changes Planned,” (, November 1, 2010)
What Do Retirement Plans Need In Order to Work?” (Money Management Executive, November 1, 2010)
And the Next Mortal Threat to Wall Street Is…” (Wall Street Journal, November 1, 2010)
Will Your 401k Plan Survive?” (Wall Street Journal, November 2, 2010)
Republicans to zero in on regulators, not the regulated,” (Investment News, November 3, 2010)
Half of Americans Have Assets in Old 401k,” (, November 3, 2010)
One Man’s Story of the Origins of ERISA (Part 3),” (Morningstar Advisor, November 4, 2010)
Ex-Wife Entitled to 401k Account Balance,” (, November 4, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: Abandoned Plans
fi360 Blog: Fiduciary Links: Some things to think about on emerging markets investing
The 401(k) Fiduciary Advice Blog: 2011 IRS Contributions Limits for Your 401k/403b
401kBasics: Keep The Course: How Much Money Can I Put In My 401k Plan?
ERISA Lawyer Blog: Third Circuit Holds That A Beneficiary’s Decision To Retire Is Not The Detrimental Reliance Needed To Establish A Claim For Breach Of Fiduciary Duty Under ERISA

Hot Tips from Popular Web Resources:

Employee Benefits Institute of America: Plan Administrator Must Pay Maximum Penalty for Delay in Providing Requested SPD
FreeErisa: Profit Sharing/401k Council of America Asks: Are You Thankful for Your 401k?
Employee Benefits Advisory: Department of Labor Issues Proposed Rule Broadening Types of Investment Advice Giving Rise to Fiduciary Status
Reish & Reicher: Excessive 401k Plan Fees and Costs Case Goes to Trial
McGuireWoods LLP: Proposed DOL Regulations Expand Definition of ‘Fiduciary’ Related to Investment Advice

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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