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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 4/8/11

April 11
00:55 2011

1020805_25983300_Trending_Topics_2011.04.08_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.

Fiduciary News Lead Story:

DOL Transcript Shows a True Fiduciary Friend as Phyllis Borzi Brooks No Bull” (Fiduciary News, April 6, 2011). Several early reports suggested the DOL appeared ready to compromise their fiduciary principles by harmonizing with other agencies. The transcript reveals a surprising reality.

Mutual Funds – Remember Them?:

There’s still the most popular form of investing in 401k plans and IRAs, issues concerning mutual funds have not found their way into the news lately – until this past week.

Target-date funds change tactics to survive,” (MarketWatch, April 4, 2011)  Ever consistent, TDFs find themselves late to the party once again, this time by shifting their portfolios to old time (as in “olde tyme” as in “generations ago” as in “ancient”) asset allocation strategies based on a pretty much academically disproved theory one thought to be modern. Alas, TDFs never had the chance to even jump the shark.
Fund Ratings Focus More on the Securities in a Portfolio,” (Wall Street Journal, April 4, 2011) This is ironic. The best way to analyze mutual funds has always been to analyze the underlying securities that make up their portfolios. Trouble is, reliable up-to-date data isn’t available (even with today’s quarterly filings, which are usual two-months old when uploaded to the SEC). Here’s the irony: To annual mutual funds this way you really have to be good at analyzing stocks. And those folks don’t invest in mutual funds, they invest in stocks.
Even Good Funds Lose Fans as Investors Embrace ETFs,” (Wall Street Journal, April 4, 2011) With ETFs we’re beginning to see the power of marketing over the power of performance. When the Damocles Sword of the fiduciary standard finally falls, there will be you-know-what to pay.
Mutual-Fund Performance Numbers May Tell You Less Than You Might Think,” (Wall Street Journal, March 4, 2011) This story relates to the second one above. And it’s more than about performance funds. It talks about categorization (although it doesn’t explain why Morningstar has a greater problem with this than Lipper). Oddly, it claims only a fund’s expense ratio can be fairly compared across different mutual funds. This is clearly incorrect.
For fund investors, timing is everything,” (MarketWatch, April 4, 2011) This idea was also mentioned in the Wall Street Journal article immediately above. Investors, who often chase – or are encouraged to chase – a different flavor of mutual fund de jour, don’t experience the same returns that the funds they invest in do. Why? Investors buy high and sell low. Another great article by Chuck Jaffe.
The truth about mutual fund fees,” (BenefitsPro, April 7, 2011) Didn’t understand why you can’t compare mutual fund expense ratios? This article explains it.

Pensions – The Tide Keeps Rolling In…:

…and washing away defined contribution plans. The world (and the American government) seems now to be on the verge of understanding what American businesses understood in the early 1980’s.

Public employee pension changes coming,” (Florida Today, April 5, 2011) Florida becomes just the latest states to lift the burden of the state off the taxpayers’ shoulders.
Pension Plan Funding Ratio Inches up in March,” (, April 5, 2011) Really, read this and see if you can avoid thinking “dinosaur.” It’s OK to have pity.
Sponsor Contributions Drive up Pension Funding,” (, April 7, 2011) Translated: Laggin returns require sponsors to pony up.
A special report on pensions: A nudge and a wink,” (The Economist, April 7, 2011) Fooled you! In Britain, 401k plans are grouped with pensions. This article is all about auto-enrollment (or, as they say in Australia, “compulsion”). It’s long but good.
A special report on pensions: Over to you,” (The Economist, April 7, 2011) Here we learn of some of the common mistake employees make as the world transitions away from defined benefit to defined contribution.

Fiduciary – How Many More Children Must Suffer?:

As the fiduciary standard flounders in a floppy sweat over at the SEC, the DOL seems to earnestly move towards protecting the retirement of the children’s parents.

The Sophistication Argument and Other Myths About Brokers, and Fiduciary,” (Advisor One, April 5, 2011) This line says it all: “…brokers are currently required by law to use their training, experience and sophistication on behalf of their firms…” Where does that leave the clients?
SEC sees fiduciary standards late in 2011-SIFMA,” (Reuters, April 7, 2011) It seems like the SEC has enough time to consider changing the Reg D laws and ruin almost a century of tried and true American Capitalism, but they don’t have enough time (or funding) to do whatever needs to be done to stop the bleeding when it comes to 12b-1 fees. At least they’re promising to do something with fiduciary standards by the end of the year.

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.

Court Won’t Hit Participants for ERISA Lawyers Fees,” (, April 4, 2011)
Columbus based Hoosier Foot & Ankle Owner Ordered to Restore 401k,” (WCSI 101AM, April 4, 2011)
89% of 401k Investors Want Allocation Help,” (Financial Planning, April 5, 2011)
What if My 401k Plan Is Lousy?” (, April 6, 2011)
Poll reveals baby boomers’ retirement fears,” (BenefitsPro, April 7, 2011)
Bucket strategies for retirement will stick around,” (MarketWatch, April 7, 2011)

Wisdom from Some of Our Favorite Blogs:

fi360 Blog: Fiduciary Links: One more week for comment on DOL’s fiduciary definition regulation
401kBasics: Plan Sponsor Quick Tips: Reviewing Annual Nondiscrimination Testing Results
fi360 Blog: FINRA’s Back Door Regulation of Fiduciaries
The 401k Fiduciary Advice Blog: Survey Reveals 89% of 401k Investors Want Asset Allocation Help

Hot Tips from Popular Web Resources:

Yglesias: Mutual Fund Fee Ratio
Employee Benefit News: 3 Problems With Automated 401k Plans
Towers Watson: Impact of the Financial Crisis on Retirement Plans Through 2008
Proskauer: The ERISA Litigation Newsletter

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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