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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 8/19/11

August 22
00:45 2011

1020805_25983300_Trending_Topics_2011.08.19_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:
7 Deadly Sins Every ERISA Fiduciary Must Avoid: The 2nd Deadly Sin – The Joy of ‘Risk’” (Fiduciary News, August 9, 2011). To really understand investment risk, we must first discover how risk management first evolved. This is the first in a series of five articles on one of the Seven Deadly Sins of Professional Money Managers.

Compliance – On second thought…:
The DOL seems to honestly understand they’ve let too many horses get away from them. Let’s hope it’s not too late to start closing some of those barn doors.
Trouble Ahead for Multi-Employer Retirement Plans?” (CFO, August 18, 2011) It appears MEPs have been skirting the spirit of ERISA. The DOL plans to close that loophole. A must read for any plan sponsor or fiduciary of a plan in an MEP.

Fiduciary – Stupid is as stupid does…:
It doesn’t matter what side of the DOL’s fiduciary debate writer’s fall in, it’s surprising how inane and even ignorant they’re arguments can be. Ironically, the biggest firestorm came as a result of a piece penned by a proponent of the fiduciary standard – and the most vitriolic responses came from those on his side!
Department of Labor fiduciary rule: Major unintended consequences,” (The Hill, August 11, 2011) This is really a position paper, not an article. It’s a fun read if you are intellectually disciplined.
Bipartisan Support in Washington for 401k Skimming,” (Forbes, August 14, 2011) Why not? They’re getting their piece of the action.
The Mutual Fund Merry-Go-Round,” (New York Times, August 15, 2011) David F. Swensen, chief investment officer at Yale University – one of the college endowments hit hardest by the 2008-2009 crash, so hard, in fact, the University had to stopped all new building – comes out with one of the most uninformed and misguided articles in support of the fiduciary standard. It’s so bad, it’s ugly. It’s so ugly, it probably has convinced a few supporters of the fiduciary standard to withdraw their support strictly out of the potential embarrassment of being associated with this Ivy league miscreant. Remember, Swenson once bragged his “market-beating” investment prowess could not be duplicated by mere mortals, so the rest of us should invest only in index funds. Ironically, he lambasts the entire adviser industry, throwing the honest fiduciaries into the same pool as the brokers. One wonders, did the Times have is business editors vet this?
‘One Size Fits All’ Doesn’t Fit Today’s Fund Investors,” (Investment Company Institute, August 16, 2011) The ICI embarrasses Swensen (see above) but skewering his argument and agreeing with him at the same time.
Where Yale CIO’s fiduciary argument went wrong,” (BenefitsPro, August 18, 2011) If you liked the comments attached above to Swensen’s article, you’ll love this piece.

Fees – Slowly he turned…:
The DOL’s new fee disclosure requirement might be a good idea, but it’s effective date appears to be going at the speed of a slow boat to China – or is it a delayed Amtrak to Niagara Falls?
Revealing the true cost of retirement: Additional 401k fee disclosures coming next year,” (The Republic, August 17, 2011) From the heartland of America we get a very good and very comprehensive summary of the DOL’s new fee disclosure requirements. Unfortunately, as the article states, the DOL keeps delaying the effective date of this rule. Right now, it looks like – maybe? – June of 2012. At least that gives us six months before the meteor hits.

Investments – The sky is falling!:
Maybe it’s the down market, but we’ve got more than the usual stories on investments, including another piece that references a piece from above.
Is it time to give up on stocks in your 401k?” (MarketWatch, August 16, 2011) Two words of warning on this article: 1) Past performance does not guarantee future results; and 2) “Sliding towards market timing.”
Did the “Lost Decade” Scar Younger Investors?” (SmartMoney, August 16, 2011) Tries to answer the question: Why do Gen Xers throw their 401k money into equities but shun them with their taxable investments?
The False Siren of Income Yield,” (DCPI Weekly Exchange, August 17, 2011) A concise explanation of why investors should be more concerned with total return than income yield.
Don’t be afraid to offer income solutions,” (BenefitsPro, August 18, 2011) The article correctly states the fiduciary liabilities that accrue should plan sponsors offer annuities in their 401k plans, but then references a report from the The Institutional Retirement Income Council (IRIC). The piece quotes the report’s author William Charyk, a partner at Arent Fox, who’s firm profile indicates he specializes in tax law but doesn’t indicate he specializes in ERISA or fiduciary law. Still, Charyk feels comfortable refuting what many others feel. Of course, according to its web-site, “the mission of the IRIC is to facilitate the culture shift of defined contribution plans from supplemental savings plans to programs that provide retirement security.” And by retirement security, they mean defined contribution plans “were generally never intended to provide guaranteed lifetime income.” Oh, and who’s listed as their “founding sponsor” but Prudential Financial, the firm that offers “a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services.” Wait, did they say “annuities?” Oh! (wink, wink) Say no more.
Why the SEC shouldn’t push index funds,” (Reuters, August 18, 2011) Another hit piece on Swensen’s article (see above).

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 Manage Your 401k Through Market Down Swings,” (Forbes, August 11, 2011)
Ordinary investors leave stocks, stay in 401k plans,” (Miami Herald, August 12, 2011)
Pre-retirees Are Concerned But They Aren’t Panicking,” (Investment News, August 14, 2011)
Most Workers Would Save Nothing Without A 401k: Fidelity,” (Investment News, August 14, 2011)
401k Nation: Road To Retirement Gets Rockier,” (NPR, August 15, 2011)
Most Stock Drop Cases Involve 401k Plans,” (PLANSPONSOR, August 17, 2011)
DOL Files Brief in SunTrust Stock Drop Case,” (PLANSPONSOR, August 17, 2011)
Selling Burns 401k Investors Who Dumped Stocks, Fidelity Says,” (Businessweek, August 18, 2011)
TPAs Influence One-Third of 401k Assets,” (, August 18, 2011)

Wisdom from Some of Our Favorite Blogs:
The Trust Advisor Blog: Estate Planners Hit with Malpractice Suit by Philly Developer over Madoff Losses
Chicago Financial Planner: Balanced Funds – The Right Balance for You?
fi360 Blog: Fiduciary Links: Using ETFs
fi360 Blog: Court decision a reminder that plan document procedures are to be followed
Chicago Financial Planner: Investing Before and During Retirement

Hot Tips from Popular Web Resources:
Butler Snow: The Importance of Understanding and Monitoring Retirement Plan Fees and Expenses
McDermott, Will & Emery: DOL Further Delays Service Provider and Participant Fee Disclosure Deadlines

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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