What do you think of our site upgrade?
Hosting an industry conference? Ask us about including it in this ticker?

Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/14/11

October 17
00:24 2011

1020805_25983300_Trending_Topics_2011.10.14_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. But, note this well, we avoid press releases masquerading as news stories (even though they might be reported by journalists) as well as mass media pabulum that merely mouths investment myths and mistakes.

Fiduciary News Lead Story:
Study Reveals Five Factors That Help Lower 401k Fees” (Fiduciary News, October 11, 2011). The ICI comes out with a study that makes lowering fees look easy, but what’s the catch?

Compliance – Back to the Future:
Really? Are you serious? It’s like the lesson we learned 40 years ago (that took at least 40 years to learn in themselves) are collectively being forgotten. Do so many people really believe government is the answer, or are they just too plain lazy to figure out the solution – and do the work – themselves?
Are Democrats Eyeing 401ks, IRAs for Tax Hit?” (Investors Business Daily, October 12, 2011) Although this is a three week old story that the article doesn’t add anything new to, the significance is the this the first mass media publication to tell the news this bluntly.

Fiduciary – A Plain as the Nose on Your Face:
It’s not like we don’t need some government oversight. It makes sense for the government to inspect beef so we can trust the hamburgers we eat. After all, we’re not all experts in bacteriology. It makes sense for the government to inspect drugs so we can trust the medicine we take. After all, we’re not all experts in biochemical engineering. Why not extend this same oversight courtesy to investment advice? After all, do we really think everyone has the experience to safely choose sophisticated financial instruments and the experience to separate marketing savvy from investment reality?
A fiduciary standard is good, old-fashioned common sense,” (InvestmentNews, October 9, 2011) The Chief Executive of the CFP trumpets his organizations support for the fiduciary standard since 2007. He also explains how there’s “clear and persuasive evidence that a fiduciary standard can be applied across business and compensation models.” There’s the rub. The fact is, the CFP standard of “fiduciary care” does allow for prohibited transactions “with disclosure.” In the true world of fiduciary care (i.e., the world of trusts and trust law), self-dealing transactions remain prohibited.
Why Investors Should Care About The Fiduciary Standard,” (Forbes, October 12, 2011) Forbes picked this up from the web-site listed below. This is an article written in a manner even a layman can understand. It points out an example using real money. It then turns from the costs of the suitability standard in the broker world to the even greater costs incurred by using annuities in the insurance world. Coincidentally – or not – these are the two loudest opponents of the universal fiduciary standard.

Fees – Here Before You Know It:
Spring, a time when young – and not so young – fiduciary’s fancy turns to baseball, amore and… fees! It’s not too late to start thinking about how life will change for plan sponsors, plan participants and 401k service providers when the trees next bud.
Coming in six months: A focus on 401k fees,” (BenefitsPro, October 13, 2011) A quick overview of what will be happening.

Investments – Let the Silly Season Begin:
Let’s see, five years ago the government was (rightfully) concerned 401k investors were investing too heavily in fixed income products that produced too little returns over the long-term for those 401k investors. As a result, it passed the 2006 Pension Protection Act to encourage 401k investors to choose long-term investments. Today, the government is setting up guidelines meant to encourage 401k investors to choose lower performing investment products for their long-term needs. Hmmm, how are those TDF’s working for ya? Well, at least we don’t see investors going back to the academically discredited “socially responsible” portfolios. Oops. Spoke too soon.
Treasury Set to Issue Lifetime Income Guidance; DOL to Follow,” (AdvisorOne, October 6, 2011) This all sounds good on paper but has the ultimate effect of going back to the future. Eventually, we’ll see retirees overpaying for income and vendors all too willing to increase the risk, institutionalizing the liability that once may have been limited to individuals.
Target-date fund popularity grows, PSCA says,” (Pensions & Investments, October 11, 2011) Chock full of statistics, what this article fails to mention is the ultimate power of a regulatory blessing versus a proven investment track record.
Target-date funds to expand to 48% of defined contribution market by 2020,” (Employee Benefit News, October 11, 2011) The article correctly states this is because they are the de facto default option (as opposed to the other two default option. On the other hand, the author brings up an interesting point. If the DOL were to adopt measures that would allow plan sponsors to offer annuities within the plan without carrying plan sponsor liability throughout the lifetime of the participant, those options might take money away from TDFs. Of course, what the author doesn’t also say is this growth expectation assumes target date funds do not get replaced by “target goal funds,” do not fail to perform as advertised and do not get removed from the default option list.
401k Plans Get Responsible,” (, October 11, 2011) This is similar to an article that appeared last week in a different publication and seems to have been brought about by a report from BrightScope. This article appears to focus on the drawbacks of socially responsible investing. Remember, the purpose of a retirement plan is to provide funds for the beneficiary upon retirement, not to make a political statement. Still, the DOL does allow as certain small percentage of “risky” investments (which socially responsible investing would fall under). What that percentage is exactly is best answered by someone familiar with case law.

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.
Retirees less dependent on 401k Plans, survey says,” (Pensions & Investments, October 10, 2011)
HOME Act Eases 401k Access for Mortgage Payments,” (, October 10, 2011)
Workers Say 401k Plans Inadequate For Retirement,” (Financial Adviser Magazine, October 10, 2011)
Avoid Retirement Clutter,” (, October 12, 2011)
51% of Plan Participants Question Traditional Retirement Savings,” (Financial Planning, October 11, 2011)
Retirement plans aren’t out of reach for small biz,” (BenefitsPro, October 13, 2011)
DC plan participation rates level off, EBRI says,” (Pensions & Investments, October 13, 2011)
Three open enrollment communication tips,” (BenefitsPro, October 14, 2011)
Retirement plan participation rates ‘level off’ due to downturn,” (BenefitsPro, October 14, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Bogle, Roper and a regulatory summary highlight this week’s links

Hot Tips from Popular Web Resources:
Wealthfront Blog: Why Investors Should Care About The Fiduciary Standard
EBSA News Release: US Labor Department seeks to recover more than $436,000 for 2 employee benefit plans of Columbus, Ohio-based Clark Graphics

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Only registered users can comment. Login is sponsored by…

Order Your 401k Fiduciary Solutions book today!

Vote in our Poll


The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.