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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 4/15/11

April 18
00:30 2011

1020805_25983300_Trending_Topics_2011.04.15_stock_xchng_royalty_free_300Welcome 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 those in the business of supporting these fine folks. If you smile when you read these entertaining snippets, well, that’s the idea. If you think we’re missing something important, then please let us know.

Fiduciary News Lead Story:
Fiduciary Standard: Backdoor Solution to 401k Plan Sponsors’ 12b-1 Problem?” (Fiduciary News, April 14, 2011). On the one hand SEC Chairman Shapiro wants to “put the client first.” On the other hand, she delays addressing a conflict of interest research has shown to hurt investors. Is there a method to this madness?

Pension Passion – Forever Hooked:
Just as it looks like every agrees rehab is the best course of action, a vocal user takes another hit.
California City Is ‘Ground Zero’ on Costs of Pensions,” (BusinessWeek, April 8, 2011) Costa Mesa’s unions will probably fight concessions necessary to reduce the city’s pension liabilities. “We’re $134 million short,” said a councilman. “If you’re going in the wrong direction, you have to stop.”
Detroit budget crisis: Workers face big blow to benefits,” (Detroit Free Press, April 10, 2011) Reality sinks in at the Motor City as it cuts backs on retirement plan funding. So far, no massive demonstrations.
State teachers unions push bad scheme to let school districts float bonds to pay pension obligations,” (New York Daily News, April 11, 2011) Apparently these teachers are business teachers. Here’s the basic idea: We’ve maxed out our credit cards, so let’s get another one.
Pensions May Now Struggle With Lump-Sum Payments,” (Wall Street Journal, April 12, 2011) The stock market is up and pensions continue to have problems. Not in the article but worth asking – would pensions survive another shock in the markets?
The role of public DC plans in the debate on public DB reform,” (Pensions & Investments, April 14, 2011) Keith Overly, the executive director of Ohio Deferred Compensation, talks about general and Ohio specific matters. Overly sides with public unions on the need to provide annuitized retirement payments via pensions rather than placing the responsibility for retirement savings on the individual employee.

Mutual Fund Menu – Time for a Diet?:
“Historic results cannot guarantee future results.” Translated: “The only thing we learn from history is we cannot learn from history.”
Hidden Risks in Target-Date Funds,” (Wall Street Journal, April 9, 2011) Just as bonds are poised to drop precipitously, TDFs move increase their holdings in them. When will they ever learn?
The Puzzle—and Promise—of ‘Absolute Return’ Mutual Funds,” (BusinessWeek, April 12, 2011) Folks pretty much attribute “Beware of Greeks bearing gifts” to Virgil. If the Roman epic writer were around today, he’d probably say “Beware of Funds bearing derivatives.”
Index-Based, Target-Date Funds Prove Popular,” (Wall Street Journal, April 14, 2011) …which begs the question, if everybody else jumped off a cliff, should you jump off a cliff? According to the article, low fees, not investment fundamentals, are driving investment decisions. Can’t wait to see this one hit the fan.
Did 401k Reform Help?” (SmartMoney, April 14, 2011) Although the title – and the bulk of the article – deals with the success or failure of the Pension Protection Act of 2006, the last three paragraphs slam Target Date Funds (and explains why they are so “popular”). Of course, the article’s rant against the DOL’s exclusion of money market and stable value funds from its list of default options totally destroys the credibility of the story.

Investing Eggs – Avoid the Broken Shells:
It seems like the more complicated you make things, the more likely they are to break. If there’s ever been a perfect poster child for the KISS (Keep It Simple, Stupid!) method, this might be it.
Common Sense: The Asset-Allocation Fallacy,” (Wall Street Journal, April 9, 2011) “Like so many aspects of investing, simplicity is appealing but rarely effective.” This article takes on just one aspect of asset allocation – the age-based calculation that suggests the percentage of bonds you own should be equal to your age. It would have been easier just to explain the fallacy of asset allocation in general.

Fiduciary Standard – Always a Basket of Possibilities:
Lady MacBeth doth protest too much, giving reporters a greater reason to search for nefarious strategies.
The Secret Battle to Save Arbitration,” (Advisor One, April 12, 2011) Bob Clark comes up with another reason to be suspicious of FINRA. Is it possible a uniform fiduciary standard would obviate the use of brokerage arbitration panels and leave clients with the opportunity to seek remediation through courts?

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.
Why CFOs care about employee retirement,” (BenefitsPro, April 11, 2011)
How financial stress costs sponsors and their plan,” (BenefitsPro, April 12, 2011)
Employees Want Control of Retirement Assets, Expect Guidance,” (Advisor One, April 4, 2011)
One-third of retirees unsure of retirement age,” (BenefitsPro, April 12, 2011)
Four retirement plan tax mistakes to avoid,” (The Sun News, April 10, 2011)
The Rising Price of Retirement,” (BusinessWeek, April 12, 2011)
Will your 401k survive the death of American capitalism?” (BenefitsPro, April 14, 2011)
Administrator Busted for Bogus Retirement Plans Scam,” (PLANSPONSOR, April 14, 2011)

Wisdom from Some of Our Favorite Blogs: Benchmark Your 401k
Employee Benefit News: Making sense of plan participant fee disclosure rules
fi360 Blog: Fiduciary Links: To be or not to be independent
ERISA Lawyer Blog: Seventh Circuit Rules That Investment In Employer Stock Resulted In A Breach of Fiduciary Duty Under ERISA And Liability For Damages
BNA Pension and Benefits Blog: Recent 7th Circuit Decision for Defined Contribution Plan Fiduciaries to Watch
fi360 Blog: Practice 3.1: Implement with sound and consistent due diligence

Hot Tips from Popular Web Resources:
Knowledge@Wharton: Incentive or Gift? How Perception of Employee Stock Options Affects Performance

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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