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

December 13
08:57 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_2010.12.10_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:

401k 2.0 – A Proposal,” (Fiduciary News, December 6, 2010). One of the most controversial articles ever posted by Fiduciary News, it’s worth reading just for the readers’ comments, some of which frankly expose problems with the IRA market outside the umbrella of ERISA.

All Sorts of Funds:

Target Date Funds, ETFs, Index vs. Passive – it’s all here folks! This panoply of pieces may suggest we’re getting back to normal – writing about ideas, not news.

Proposed New Rules for Target-Date Funds,” (New York Times, December 6, 2010) A columnist tries to sort out the details (and differences) of the competing proposals between the SEC and the DOL. Then it asks readers to submit their ideas to the SEC.
Fund Categories Reflect the Industry’s Evolution,” (Wall Street Journal, December 6, 2010) An interesting overview of Morningstar’s increasing Balkanization of the mutual fund industry. Doesn’t ask the obvious question: Is category specialization helping or hurting regular investors?
Target-date fund disclosures miss the point,” (MarketWatch, December 5, 2010) Chuck Jaffe blasts the regulators, primarily because they didn’t make the “to” or “through” aspect of TDFs more clear.
Special Report: What did you do in the ETF war, daddy?” (Reuters, December 3, 2010) Mostly about the coming war between BlackRock’s iShares and Vanguard’s ETFs. Nominal mention of the downside of ETFs and appears to contain a lot of stale information. This historical overview is good, though.
Why You Should Kiss Your $1-Per-Share Money Market Fund Goodbye,” (CBS MoneyWatch, December 3, 2010) Did you know that 9 out of the top 10 money market funds received Federal money during the credit crisis. The article explains just how close we were to Armageddon two years ago.
Betting on Unpopular Funds,” (Wall Street Journal, December 6, 2010) New twist on the old contrarian style of investing based on the old reversion-to-the-mean adage.
ETFs: The Revenge of Active Management?” (SmartMoney, December 6, 2010) Don’t be fooled by the title – this article has a negative bias on active management; thus, damaging its credibility.
Target-Date Funds for People Approaching Retirement Age Have Big Variations in Their Stock Exposure,” (Wall Street Journal, December 6, 2010) Pretty much another hit piece on target date funds explaining a problem we’ve all heard too much about without offering a viable solution.
Industry execs laud latest target-date proposal,” (Pensions & Investments, December 2, 2010) If the wolf likes the idea the sheep should start worrying.

Fiduciary – Changing the Landscape In Mid-Game:

Just a continuing drip, drip, drip in what’s going to be a long chess match between regulators, the industry and Congress. Notice who’s left out of this equation – the customers.

Brokers Could Face New Requirement to Put Clients’ Interests First,” (Wall Street Journal, December 6, 2010) A relatively hard hitting piece that honesty takes on a significant portion of the Journal’s subscribers. Of course, that makes it all the more important.

Fees – The End of the Beginning?:

If it’s possible the pendulum is swinging too far the other way, we may be entering that zone.

J.P. Morgan launches share class with no 12b-1 fees,” (Investment News, December 6, 2010) Perhaps the marketplace is getting ahead of the SEC on this. Here’s the greatest line in the story: “Though the R6 shares won’t have any 12b-1 or shareholder servicing fees, they will have an investment advisory fee and other fund expenses.” As if the writer expects the funds to not have these fees? What? Are mutual fund companies supposed to donate their services?
To Cut 401k Costs Look at Investment Expenses,” (, December 3, 2010) The article actually raises a very interesting question – but never asks it directly: Why should larger plans receive preferred “institutional” expense ratios while smaller plans pay retail expense ratios? The economics of the mutual fund industry, once predicated on treating all shareholders equally, seems to have changed. This issue has the potential to pit small plans against big plans. Not that that’s a bad thing.
Investment fees represent bulk of plan fees,” (Retirement Income Journal, December 2, 2010) A different take on the same source used in the above article (the 11th Edition of the 401k Averages Book). One thing to be careful about in analyzing this data: expense ratios are an issue only within different share classes of the same fund, not necessarily between different funds. In the latter case, better performance can more than make up for any difference in expense ratios.

Bonds – The Beginning of the End?:

Pop goes the bubble!

Abreast of the Market: Bond Rally Begins to Flag,” (Wall Street Journal, December 6, 2010) Folks have been warning of the air coming out of the bond bubble for two years now. Thanks to QE2, it’s finally beginning to happen.
CNBC’s Fast Money: All Clear? Bond Funds Post First Outflow in 2 Years,” (CNBC, December 3, 2010) The article suggests this might be a bullish sign for equities.

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 Ways to Protect Your 401k,” (Wall Street Journal, December 4, 2010)
Supremes Mull Pension Deception,” (CFO, December 3, 2010)
Employer 401k Match a Strong Motivator,” (American Banker, December 7, 2010)
Senate Mulls Stronger Oversight of Pension Benefit Guaranty Corp.,” (Advisor One, December 2, 2010)
Lax 401k Contributions Push Average Retirement Age to 73,” (Advisor One, December 2, 2010)
Stepped Up 401k Contributions Come Amid Optimism,” (, December 8, 2010)
US Supreme Court Appears Split On Janus Securities Case,” (Wall Street Journal, December 7, 2010)
RETIREMENT: Auto-IRA bill moves to subcommittee,” (Investment News, December 9, 2010)
Americans Putting More Into 401k Plans,” (Financial Planning, December 9, 2010)
Court Sides with Ameriprise in Excessive Fee Case,” (Mutual Fund Wire, December 10, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: Required Statement Disclosures
401kBasics: Keep the Course: Importance of Diversification
fi360 Blog: House Rules
fi360 Blog: Fiduciary Links: Take the fiduciary standard survey for advisors
The 401k Fiduciary Advice Blog: BeManaged December Market Research Newsletter – Domestic Stocks Flat in November

Hot Tips from Popular Web Resources:

Knowledge@Wharton: Broken Promises: Can the World’s Stressed-out Pension Plans Be Rescued?Knowledge@Wharton: An End to the ‘Golden Years’: Increasing Longevity Changes the Work-leisure EquationFreeErisa: 401k Contributions Rise Along with Concerns over Future of Social SecurityFreeErisa: Plan Size Influences 401k Plan Fees

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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