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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 4/22/11

April 25
00:30 2011

1020805_25983300_Trending_Topics_2011.04.22_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:
What 401k Plan Sponsors Might Expect from Proposed Fiduciary Rules” (Fiduciary News, April 19, 2011). It might surprise you to discover the industry’s loudest complaints against the fiduciary standard might also be the strongest arguments for the fiduciary standard. We look at the three biggest issues and how they might really affect 401k plan sponsors.

Mutual Funds/ETFs – A Week of Celebrating “What-Ifs”:
Are ETFs a ticking time bomb or the Holy Grail of investing? It may take a generation to find the true answer and, by then, it’ll be too late for most of today’s retirement investors to have done anything about it. And what’s a discussion about ETFs without revisiting the age-old passive vs. active debate?
How ETFs Have Reshaped Investing,” (Wall Street Journal, April 18, 2011) It’s more than making it easier for investors to create model portfolios based on asset index funds. Don Phillips says it also appeals to our sense of gambling, which is a bad thing. He says, while regs have prevented a repeat of the tech-heavy mutual funds we saw just before the bubble crashed in 2000, ETFs are more exotic and exist in a wild-west type environment. In addition, ETFs may also impact the manner in which the underlying securities are traded. Is this good or bad for the market?
Why ETFs Lag Their Indexes,” (Wall Street Journal, April, 18, 2011) This goes well beyond tracking error. It turns out ETFs – particularly those investing in foreign country stocks – act more like closed end funds rather than open end funds. Investors can get stuck paying a premium (or a discount).
Bond ETFs Offer Investors an Increasing Number of Choices,” (Wall Street Journal, April, 18, 2011) The good news: It’s easier to mimic the maturity date of a bond with and ETF as opposed to a mutual fund. The bad news: It’s still an ETF and can carry the inherent liquidity risk.
Investors are pulling out of managed funds in increasing numbers,” (Boston Globe, April 17, 2011) This article falls for the classic snapshot-in-time anomaly. It also cites a biased source. Still, facts don’t lie and it appears investors are leaving better performing actively managed funds for poorer performing index funds. Attribute this to the power of sales and marketing. Pity the suckers who pay a higher expense ratio and also receive a higher return. How do you spell “opportunity cost.”
Actively Managed ETFs Haven’t Gained Much Traction Yet,” (Wall Street Journal, April, 18, 2011) Here’s proof it’s all about index investing, not about ETFs. Well, as we said above, it’s really about sales and marketing. Face it, there’s a huge marketing effort behind index funds. There’s nothing similar promoting actively managed funds.

The Fiduciary Standard – The King is Dead! Long Live the King!:
Alas, poor fiduciary standard! We knew it, dearest readers: A concept of infinite ease, of most excellent sincerity: it hath borne us on its back a thousand times; and now, how abhorred by the industry it is! Regulators rim at it. They have hung their lips and kissed the idea off. Where be their ideals now? Their standards? their ethics? their conflicts-of-interest, that were wont to set the table on a roar? Not here now, they mock with their own grinning? quite down-fallen? Now get they to their lobbyist’s chamber, and tell her, let her paint an inch thick, to this 12b-1 she must come; make her laugh at that.
Writing a new fiduciary formula: Creating a retirement education policy statement will help employers fulfill their fiduciary obligations,” (Employee Benefit News, April 19, 2011) A recent survey shows 401k investors don’t know the difference between investment advice and investment education. Why is this important? Because the 2006 Pension Protection Act and the DOL’s new fiduciary rule means 401k plan sponsors and fiduciaries are on the hook. The article doesn’t say it, but education might represent the next evolution in the 401k/403b advice market.
Time to update ERISA fiduciary rule,” (Pensions & Investments, April 18, 2011) Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration, pens this opinion piece. Spoiler alert: Fiduciary fans salivating over this one might be disappointed to read Borzi believes it’s still OK for the DOL to provide exemptions for certain prohibited transactions. That sound you hear is the semi roaring through Borzi exemption hole.
Administration big: Single fiduciary standard needed,” (Investment News, April 19, 2011) Warning: If you’re a fan of the fiduciary standard don’t read this article. Although it looks like it might be good news, it’s really exposing the ineptitude of the administration. Ironically, disclosing the SEC is independent from the administration and therefore off limits in terms of partisan politics, he nonetheless goes ahead and makes a blatantly partisan statement. The SEC is already dealing with partisan strain within its own ranks. It doesn’t help that the administration is stoking the fire in Congress.
Glenn Beck reveals fiduciary standard dilemma,” (BenefitsPro, April 20, 2011) How do we know when Glenn Beck crosses the line between reporting a news story on gold and selling gold? Some, including, apparently from the above, Phyllis Borzi, advocate we can resolve this with disclosure, but academic studies show disclosure doesn’t work. It’s become increasing hard to imagine any “compromise” would meet the objective of the fiduciary standard. Perhaps the time has come for the end of dual registration.

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.
How to help small business owners plan for retirement,” (BenefitsPro, April 18, 2011)
Retirement Plan Market on the Upswing,” (, April 15, 2011)
SPARK Finds DC Participants Paying Attention,” (, April 15, 2011)
Range Between High and Low Plan Costs Moderate for Most 401k Plans,” (, April 18, 2011)
2010 a record year for 401k plan assets, says SPARK,” (Pensions & Investments, April 15, 2011)
401k assets hit record level,” (BenefitsPro, April 19, 2011)
U.S. 401k Pool Eclipses $3 Trillion,” (Financial Planning, April 18, 2011)
Range in 401k total plan costs is moderate,” (BenefitsPro, April 20, 2011)
Fiduciaries Showing no Compliance with 404c Breached Duties,” (, April 21, 2011)

Wisdom from Some of Our Favorite Blogs:
401kBasics: Plan Sponsor Quick Tips: Selecting an Auditor For Your Plan
fi360 Blog: Fiduciary Links: Australia sets a good fiduciary example
fi360 Blog: “The price of reform is a small one compared to the cost of crisis”
Chicago Financial Planner: Are Target Date Funds On Target for You?

Hot Tips from Popular Web Resources:
CCH: Plan sponsors favor limited scope investment advisors over investment managers, survey finds

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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