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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 12/17/10

December 20
00:35 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_2010.12.17_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: Mike Alfred Provides Insight into BrightScope’s 2nd Annual List of the Top 30 401k Plans,” (Fiduciary News, December 14, 2010). Why do smaller 401k plans often not rank as high as larger plans? Should mutual funds give fee breaks to large plans only? What can your plan do to increase its BrightScope rating? See what BrightScope’s Mike Alfred says. It may just surprise you.

Bonds – Pop! Goes the Weasel:

The long awaited bond crash appears to have begun. Aside from the obvious near-term benefits to equities, what does this reversion to the mean portend? Will it usher in the next overreaction?

Investors sell bonds and buy stocks, betting on better economy in 2011,” (Los Angeles Times, December 11, 2010) Tom Petruno takes a layman’s look at the bond market and its implications in a growing economy. The good news for bulls: it appears he’s still muted in terms of stocks and, if that skepticism reflects the broader range of investors, it means the market has to rise more before they let loose their cash.
Is the Bond Bubble Bursting?” (Wall Street Journal, December 10, 2010) Brett Arends uses his column for a more sophisticated view and one with a little bit more worry than Petruno. Whereas the LA Times story focused on the half-full side of the equation (bond prices are falling because we’re expected a better economy), Arends looks at things from mostly a half-empty perspective (bond prices are falling because the government is turning our economy into a mess). If you’re anxious enough already, don’t read it. But if you think folks you need to work with are anxious, you better read it – just to prepare yourself.

401k vs. Pension – Pay Me Now or Pay Me Later?

Are you old enough to remember that Fram oil filter commercial? In either case, the lesson of that cliché continues to ring true regarding pension plans. And to think, some people seriously considered requiring 401k plans to offer an annuity option.

Our already broken pension system is being destroyed,” (Investment News, December 12, 2010) This hard-hitting piece socks misguided policy wonks who want to curtail 401k contributions right between the eyes by citing actual statistics from countries with greater success in their 401k style programs.
Nevada Switch to 401k Style Pension Adds $1.2 Billion Cost, Study Says,” (Bloomberg, December 16, 2010) Here’s an article that states the obvious – in the short-term it costs money to convert a DB plan to a DC plan – but doesn’t ask or answer the obvious: What are the long-term costs of not acting today.

ETFs – A True Game Changer or Just Another Product?

Mutual funds changed the investment industry by packaging managed portfolios into chewable chunks for smaller investors. Today, even larger investors (sometimes for the wrong reasons) can have portfolios of mutual funds instead of individual securities. That’s a game changer. It’s still unclear whether ETFs will lead to a similar paradigm shift, but we’ll wait to find out.

Where Are Those Active ETFs?” (SmartMoney, December 13, 2010) ETFs cannot seriously challenge the domain of mutual funds until managers can comfortably use them for actively managed portfolios. With only 10% of the current ETF markets, these active managers appear to be wading, not jumping, into the ETF universe. After the bad experience with Target Date Funds, that might not be a bad idea.

Fiduciary – The Old Bait and Switch:

Times appear to be getting desperate for those against a universal fiduciary standard. Fortunately for them, they’ve got a big lobbying group behind them. Meanwhile, smaller advisers live life grandly every day providing smaller clients with services compatible with the fiduciary standard.

Study Provides Ammunition For Financial Advisors,” (Financial Adviser, December 15, 2010) T. Rowe Price study shows investor overreactions can hurt, which is a bad thing. T. Rowe Price thinks adviser can use this study to help prevent investors from overreacting, which is a good thing. December 15th must have been a slow news day.
Can Using An Advisor Really Improve the Bottom Line?” (Financial Planning, December 13, 2010) ING produced a study, based on self-reported data to an ING web-site, that seems to suggest talking to a financial professional greatly increases one’s chances for an improved financial situation. Perhaps they should do a study that shows talking to a doctor greatly increases one’s chances for improved health or – how about this one – a study that shows talking to a lawyer greatly increases one’s chances for winning a court case. Correction, December 13th must have been the slow news day.
Fiduciary-duty bad news for less affluent clients: NAIFA,” (Investment News, December 17, 2010) Apparently NAIFA, a group representing brokers, claims investors with less than $100,000 won’t be able to receive advice if advisers are required to adhere to a fiduciary standard. Or could it be that brokers represented by NAIFA might lose business to other advisers who currently serve clients with less than $100,000? Wait! Maybe those weren’t any slow news days at all. Maybe it was all part of a broader publicity campaign to thwart efforts to wean brokers off the suitability standard and require them to adopt the same fiduciary standard all registered investment advisers must take. Come to think of it, take another look at the previous headlines. Notice it’s “advisor” with an “o,” not “adviser” with an “e.” Only the “e” “adviser” is registered with the SEC. Editors notice these sorts of things.

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 Worries for 401k Investors,” (SmartMoney, December 13, 2010)
Investment Firm Ordered to Restore $1M to Union Pension Fund,” (PLANSPONSOR, December 13, 2010)
Court Dismisses Remaining State Street Stock Drop Claim,” (PLANSPONSOR, December 13, 2010)
73% of 403b plans maintain employer matches since 2007,” (Pensions & Investments, December 13, 2010)
11 Retirement Resolutions for 2011,” (US News and World Report, December 13, 2010)
403b Sponsors Could Improve on Investment and Plan Monitoring,” (PLANSPONSOR, December 14, 2010)
403b Plans Surviving the Economic and Regulatory Climate,” (PLANSPONSOR, December 14, 2010)
403b Sponsors Have Room for Improvement,” (Plan Adviser, December 15, 2010)
401k changes give savers a brighter future,” (MarketWatch, December 14, 2010)
Flight to Equities in 401ks Continues in November,” (PLANSPONSOR, December 16, 2010)
Suspended 401k Matches are Returning,” (PLANSPONSOR, December 17, 2010)
Company Stock 401k Holdings Fell Off in 2009,” (PLANSPONSOR, December 17, 2010)
Could You Retire Without Social Security?” (Wall Street Journal, December 17, 2010)

Wisdom from Some of Our Favorite Blogs:

401kBasics: Plan Sponsor Quick Tips: The 401(k) Glossary
fi360 Blog: Fiduciary Links: What your clients are reading (or should be)
401kBasics: Keep The Course: The 401(k) Glossary–For Participants
Boston ERISA Law Blog: Derivatives + No Transparency = Fiduciary Breach?
ERISA Lawyer Blog: Eighth Circuit Rules That Plaintiff Did Not State A Claim Of Imprudent Investment Based On Actions Concerning Employer’s Product

Hot Tips from Popular Web Resources:

FreeErisa: Fitch: U.S. State and Local Government Pensions: One Size Does Not Fit All

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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