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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 7/01/11

July 05
00:04 2011

1020805_25983300_Trending_Topics_2011.07.01_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:

Ex-Employees Who Don’t Rollover – Will 401k Fees Increase Plan Sponsor Liability?” (Fiduciary News, June 28, 2011). Unfortunately, 401k plan sponsors cannot serve two masters – the existing employees and the former employees. A somewhat controversial topic, this article explains why.

Compliance – Regressing toward the mean:
As summer begins to set in, things get a little smoother and relaxed.
Being prepared, available and proactive leads to a better audit experience for employers says auditor,” (Employee Benefit News, June 15, 2011) Here’s a good punch list for 401k plan sponsors as provided by a CPA who is his firm’s practice leader in audits of defined contribution pension plans such as 401(k) and profit-sharing plans.
DOL Launches Site for Feedback on Regulations,” (, June 28, 2011) Here’s your chance to speak directly to compliance regulators – but be warned, you must come prepared with empirical evidence to support any idea you suggest.

Fiduciary – SEC punts while DOL kicks you-know-what: Who didn’t see this coming? Has there ever been a more misplayed gambit than the one SEC Chair Mary Shapiro pulled last January? She tells a miserly Congress already suspicious of regulators to either fork over the dough or else the SEC won’t be able to regulate. That’s like telling the Republicans they can have their cake and eat it, too. Meanwhile, the DOL’s Phyllis Borzi plays it steady and may actually accomplish something. “
SEC Official: Fiduciary Rule ‘Likely’ This Year, but Not Harmonization,” (Advisor One, June 27, 2011) It looks like the SEC is backing down. It’ll be interesting to see what they end up calling “fiduciary” and if the DOL comes up with a different answer.
DOL plugs a yawning gap in ERISA rules,” (InvestmentNews, June 27, 2011) Blaine Aikin spells out just how unlevel the playing field is and how the DOL is poised to make the world a fairer place for honest fiduciaries, ERISA plan sponsors and employees.
DOL’s Borzi Fights Critics of Proposed Fiduciary Rule,” (Advisor One, June 28, 2011) Take note of the marked difference in backbone when comparing the DOL’s Phyllis Borzi to the SEC’s Mary Shapiro. Here’s hoping her tough talk is backed up by tough action.
Some Shots in the Arm for a True Fiduciary Standard?” (Advisor One, June 28, 2011) A hopeful piece with a different interpretation on the SEC’s comment about delinking harmonization.

Fees – Same old, same old:
Again, all we see is an article about expense ratios, not compliance fees, recordkeeping fees, audit fees and, well, you get the drift.
401k expense ratios down — except for bond funds,” (InvestmentNews, June 29, 2011) Just a little, from 74 bps to 71 bps for stock funds, unchanged for bond funds. More surprisingly, 19% of the plans are still using funds with 12b-1 fees. What planet are those plan sponsors on?

Investments – Oh the weather outside is frightful…:
Investments, to paraphrase Mark Twain, are like the weather – everybody talks about them but nobody does anything about them. They’re always good for an easy op-ed piece and, even when the article tries to be factual, it flounders because investing isn’t a science, it’s too often a religion.
Some 401k plans offer lifelong income options,” (USATODAY, June 27, 2011) Don’t let the title of this article fool you. Although a good portion of the first part reads like an insurance company press release, the author at least did the minimal due diligence to cite the problems with annuities (i.e., no guarantees if the insurance company goes bankrupt, not having enough money to annuitize in the first place and the hidden fees, just to name a few). Still, the fact an article like this made it this far into the mainstream media shows you two things: 1) The industry promotional campaign is running at full steam; and, 2) the lure of a “riskless” stream of income has attracted the interest of lay readers.
Index Funds That Do What They Should,” (, June 23, 2011) As indexers try to tweak their products, there’s a question whether they should continue to be called indexes. Note, in order for a firm to offer an actively traded ETF, it needs to quantify its portfolio selection process. In other words, it needs to make up portfolio management rules in a manner similar to an index. Will these new actively managed ETFs be called index funds? That might be a good idea from a marketing standpoint.
State regulators aren’t nuts about souped-up ETFs,” (InvestmentNews, June 27, 2011) The rocket scientists on Wall Street might be creating a Frankenstein too complex for everyday investors – including many 401k investors.
Still too much cycle in life cycle funds, study finds,” (InvestmentNews, June 28, 2011) Before there was the Target Date Fund Fad there was the Lifecycle Fund Fad. Too bad for Lifecycle Fund providers that their fad didn’t peak in 2006, or else they might have been the default option instead of the Target Date Funds. No matter. It’s the same result.
Why John Locke Would Have Loved ETFs,” (Forbes, June 27, 2011) The editors at Forbes must be slipping. This has to be one of the worst articles ever seen in the venerable magazine. Besides making a rather contorted reference to John Locke (we won’t even go there), the author commits the classic ETF error of comparing apples to oranges when he compares index ETFs to actively managed mutual funds. This is a shame because he could have easily made his case be comparing index ETFs with index mutual funds. Instead, he exposes himself to the error of looking only at fees that are already reflected in the portfolio’s performance. Worse, according to Yahoo, one of the “low cost” index ETFs he uses has a 3-year annual return of less than 1% whereas one of the “high cost” actively managed funds has a 3-year return of nearly 3%. The ETF doesn’t have a record during the entire “Lost Decade” (when the index yielded negative returns over a ten-year period but actively managed funds general made money). In this case, it appears you get what you pay for.
Government’s ETF warning is meaningless,” (MarketWatch, June 30, 2011) Chuck Jaffe hits this one out of the park with a quasi-humorous story saying a warning about ETFs has all the potency of a warning saying riding a roller coaster might cause serious injury.

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 401k plan sponsors should say ‘buh-bye’ to former employees,” (BenefitsPro, June 30, 2011)
Study: Too Many Choices Impair 401k Decisions,” (On Wall Street, June 28, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: In support of the DOL expanded definition of fiduciary
401kBasics: Plan Sponsor Quick Tips: Understanding the Form 5500
fi360 Blog: Have you looked at your investment committee lately?
401kBasics: Keep The Course: Commonly Asked Questions-Why Am I Not Allowed To Take A 401k Loan?
The 401k Fiduciary Advice Blog: 2011 Dalbar Study Finds That Investors are Still Their Own Worth Enemy
Boston ERISA Law Blog: Owning Your Advice

Hot Tips from Popular Web Resources:
Investment Company Institute: The U.S. Retirement Market, First Quarter 2011 (PDF)

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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