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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 5/6/11

May 09
00:38 2011

1020805_25983300_Trending_Topics_2011.05.06_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:
5 Criteria 401k Plan Sponsors Must Consider Before Hiring an ERISA Attorney,” (Fiduciary News, May 3, 2011). The consequences of choosing the wrong ERISA attorney can prove catastrophic. What are the most important criteria 401k plan sponsors should use when selecting an ERISA attorney?

ETFs – Another Brick in the Wall:
We’re seeing an increasing number of articles implying ETFs may be “too hot” to handle for the everyday investor – and maybe even the everyday professional adviser. Will it take another Flash Crash to put some governors on these things?
Leveraged ETFs: Easily Accessible, Not Necessarily Appropriate,” (Wall Street Journal, May 2, 2011) Unlike their Reg D predecessors, it’s more difficult to prevent unsophisticated investors from getting into something they probably shouldn’t.

Fiduciary – Po-tay-to, Po-tah-to; To-may-to, To-mah-to:
“Let’s call the whole thing off” – or at least that’s what some are saying as they finally realize there is a difference between an “advis-er” and an “advis-or.”
Tougher 401k rules seen as ‘full employment act’ for RIAs,” (InvestmentNews, May 2, 2011) Oddly, for all the talk of the new definition of fiduciary, this is the first article that really explores the practical aspects. The bottom-line: There’s already a service provider who fully complies – with no complaints – with the DOLs proposed new definition of fiduciary and with full fee disclosure – your local neighborhood Registered Investment Adviser.
Are retirement advisors disappearing?” (BenefitsPro, May 3, 2011) This is what we mean. Notice the term “advisors” is spelled “-ors” not “-ers.” This homonym just adds to the confusion of “is it a broker or is it a ‘Registered Investment Adviser’?” This article talks about the disappearance of brokers.

Fees – the Damocles Sword Swings Precariously:
With the SEC now officially conceding they have to get the job done sooner rather than later, and the DOL charging full steam ahead, will investors finally get the protection they need?
SEC to Consider Caps on Mutual-Fund Fees,” (Wall Street Journal, April 30, 2011) This is spillover from the previous week where SEC Commissioner Elisse Walter says, once it’s done with Dodd-Frank in July, it will move “full force” on the 12b-1 issue.
A Sense of Disclosure: New 401k rules pose a challenge for small and midsize companies,” (CFO Magazine, May 1, 2011) Not only do plan sponsors have to start reporting these fees, they have to determine if those fees are “reasonable.”
Fidelity exec on 12b-1 cap: Advisers will still get paid,” (InvestmentNews, May 5, 2011) Read between the lines here. The brokerage industry is starting to crack. Of course advisers will still get paid – they always have been. The question is, “how will advisors get paid?” (Notice the difference in spelling, something the editors of InvestmentNews did not.)
SEC’s Schapiro: Agency Will Turn to Fiduciary, Harmonization, 12b-1 After July 21,” (Advisor One, May 6, 2011) Guess that makes it official, right? After spending most of the year holding these issues hostage in a faux budget debate, the SEC Chairman verbally confirms what underlings were saying the past couple of weeks.
ICI GMM: Schapiro Addresses 12b-1 Issues,” (Mutual Fund Wire, May 6, 2011) Same story as above only with less detail (unless you want to subscribe).

Investments – Still trying to fit a Square Peg in a Round Hole:
Some writers don’t see it’s not 2009 anymore and the hysteria surrounding the so-called “collapse” of the 401k concept proved nothing more than a passing fad. Here are two articles. One realizes the folly, while the other continues to grasp at straws.
Retirement Income? Annuities Come Up Short,” (Wall Street Journal, April 29, 2011) And to think, lobbyists had almost convinced Congress and regulators to make these monsters mandatory options in 401k plans based on the theory behind them. Sure, as the article states, they work in theory. But, mix in a bit of reality (i.e., inflation and high fees) and you have a classic product that serves the salesman much more than the buyer.
5 ways to make 401k plans more like pensions,” (Reuters, May 6, 2011) Here’s an idea. Take a perfectly good self-funding retirement mechanism and alter it to mimic a proven Ponzi scheme, only without the demographics that at least get you a large base at the bottom of the pyramid. /sarcasm This article takes the worries of about a quarter of the population who probably don’t know how to invest properly in the first place and recreates a system to produce a pension façade over a 401k plan. Look and the five points and see how many years of advancements in portfolio management we throw by the wayside just to respond to a knee-jerk reaction.

Pensions – The World’s Tiniest Violin:
Are we fast approaching the point where “I told you so” transitions into “Let’s move on”?
States’ Pension, Health Care Funding Shortfalls Top $1 Trillion,” (Advisor One, May 2, 2011) Don’t think this issue is going away. Even Massachusetts (i.e., all Democrat controlled) has done a Wisconsin and cut the bargaining rights of public unions. The article profiles the Pew study, which shows for the first time that pension liabilities have surpassed health care/non-pension liabilities.

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.
Many companies that dumped their 401k matching contributions are rethinking that cost-cutting move,” (CFO Magazine, May 2, 2011)
Court Rejects 404c Defense in Certifying Stock Drop Suit Class,” (, May 6, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: fi360 Conference week is here!
Boston ERISA Law Blog: Extrapolating From Employer Stock Drop Cases to Other Types of Investment Losses
fi360 Blog: 2011 fi360 Conference, Day 1
fi360 Blog: fi360 Conference, Day 2

Hot Tips from Popular Web Resources:
The Center for Due Diligence: Participant Advice: Plan Sponsor Liability & Responsibility

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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