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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 6/17/11

June 20
00:03 2011

1020805_25983300_Trending_Topics_2011.06.17_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:
Does Pending Appeal Decision Doom 401k Plan Sponsors?” (Fiduciary News, June 14, 2011). Many 401k plan sponsors aren’t aware of fee creep and how it exposes them to greater fiduciary liability. One plan’s ignorance cost it nearly a half million dollars in personal damages. Now the DOL is siding with the plaintiff on the appeal of the case.

Compliance – Knock, Knock, Knock…:
This isn’t the start of a joke, it’s either the beginning of an opportunity or an ominous sign.
Retirement Planners Beware: DOL, IRS Beefing Up Enforcement,” (Advisor One, June 14, 2011) A DOL spokesman says 77% of all 401k plans are out of compliance “in some form.” The DOL hired 997 people in 2009, with 70% of them assigned to the enforcement division. Meanwhile, by the end of 2010, the IRS had compiled a target list of plan sponsors. Can you hear the sound of the deficit gap closing soon?
Top 10 reasons every 401k needs an updated investment policy statement,” (BenefitsPro, June 16, 2011) Here’s a Letterman-like approach to selling the advantages of having an investment policy statement.

Fiduciary – Beta was the better product, but VHS won the war:
Face it, the awful truth of the world is a better marketing plan more often trumps a better product. That’s what’s been happening when it comes to the fiduciary standard. For two long fiduciaries ignored the warning signs as non-fiduciaries redefined the fiduciary business. Now, not only clients are confused, but so are the regulators. Having won their precious territory, the non-fiduciaries are fighting hard to keep it. In fact, it looks like they’re fighting harder – and with more success – than the fiduciaries.
New fiduciary definition widens the net,” (, June 14, 2011) This op-ed from a Washington lobbyist expresses concern that the DOL’s new definition of fiduciary might cause “routine” sales presentations to be deemed fiduciary advice. Rather than a concern, this is the entire point. The author correctly states the new definition will make DOL enforcement easier, but it will also make it easier for 401k Plan Sponsors to identify who’s a fiduciary. Studies show confusion is rampant and, by applying a “looks like a duck, walks like a duck and talks like a duck” standard, by adopting the definition, the DOL will level the playing field for all participants.
Clients confused about standards – and don’t really care: Report,” (InvestmentNews, June 16, 2011) The good news: this report confirms why regulators must level the playing field and implement a uniform fiduciary standard. The bad news: nobody cares; thus making it a convenient political target. That nobody cares means those in favor of a uniform fiduciary standard have lost the marketing argument. Will they take their duty home and quit, or will they stand up for what’s right and keep fighting. Only your hairdresser knows for sure.

Fees – Is that a large fee in your pocket or are you just excited to see me?:
How about both? The regulators used to be concerned about these sorts of things. Back then, investors were, too. Today, if the regulators aren’t concerned, why should investors be concerned?
Fund firms on 401k fee disclosure deadline: More time, please,” (InvestmentNews, June 13, 2011) Just can’t get this picture of Bugs Bunny out of my head? You know the one. It when, after the cop yells “Open up or we’re a’comin’ in!” that Bugs says, “Just a minute, officer. I’ll be right there to open the door as soon as I get done powdering my nose.” In the meantime, he’s flushing all the evidence down the toilet.
Funds of funds also funds of fees,” (InvestmentNews, June 14, 2011) Surprise, someone finally is telling it like it is. The “fund of funds” idea used to be illegal, probably precisely for this reason. Yet someone packaged together a product that sounded like a hedge fund and got it approved. Performance, needless to say, has been mediocre. This particular article only picks on commodities funds, but the same warning can potentially be applied to other funds of funds with similar cost structures (like certain target date funds).

Investments – A Major Story in the Midst of a lot of Noise:
We’ve seen an increasing number of stories concerning 401k and retirement investments in the last few weeks. Besides the usual claptrap about ETFs and the dribble-drabble about income products, we find a story that just plain irks the index cultists. It may be the start of the pendulum swinging back towards active management.
A good time to review 401k options,” (InvestmentNews, June 12, 2011) With more companies returning to matching employee contributions, this article outlines 4 additional strategies to boost participation.
Arnott’s index — dubbed ‘witchcraft’ by Bogle — now besting Vanguard,” (InvestmentNews, June 13, 2011) To everything, turn, turn, turn. There is a season, turn, turn, turn. And it looks like the current season belongs to active managers. Even though Arnott calls his fund an index fund, it’s really a black box built on active management rules.
Guidance imminent on 401k income products,” (InvestmentNews, June 14, 2011) This is great news for all those investors who lost money because the government prematurely endorsed target date funds. Now they can lose money in another untested investment vehicle (and the government has promised not to limit these vehicles to annuities).
Supreme Court Ruling Hands Janus, Mutual Fund Industry Big Win,” (Advisor One, June 15, 2011) It’s not as big a victory as it would seem. According to another report in the Wall Street Journal, this was a “double-dipping” lawsuit. The plaintiff has already won a judgment against the Fund company and now was going after the adviser. It looks like the Supreme Court is saying shareholders can’t go after the underlying advisers. It doesn’t appear to be saying fund companies can’t be going after advisers.
Creeping In On The Mutual Fund In 401k Investments – The ETF,” (Forbes, June 14, 2011) This story plays off of BrightScope’s new listing of the top 10 ETFs in 401k plans. It rightly positions ETFs as a “camel’s nose under the tent” type of story. All top ten ETFs were index funds.
ETFs Slowly Moving Into 401k Plans,” (, June 15, 2011) This article also highlights BrightScope’s listing of the top ETFs in 401k plans. It correctly cites most ETFs are index funds, although it doesn’t say whether index funds are losing business to ETFs (which is what you might expect).

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.
Retirement Plans Make Comeback, With Limits,” (MarketWatch, June 14, 2011)
Advisors to Congress: Don’t Axe Retirement Plan Tax Benefits to Cut Deficit,” (Advisor One, June 14, 2011)
Automatic for the people: Fund firms back digital statements as default for retirement plans,” (InvestmentNews, June 14, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Disputing the “cost” of fiduciary
401kBasics: Plan Sponsor Quick Tips: Operating Your Plan Correctly
Boston ERISA Law Blog: Fiduciary Liability: Risks and Insurance
ERISA Lawyer Blog: ERISA-DOL Advises That Ability Of Party In Interest To Negotiate A Wrap Contract For A Stable Value Fund Does Not Make The QPAM Exemption Inapplicable
fi360 Blog: Philanthropy; an Inspired Process: How values conversations can change your relationships

Hot Tips from Popular Web Resources:
Pension Research Council: Trading in 401k Plans during the Financial Crisis

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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