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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/28/11

October 31
00:16 2011

1020805_25983300_Trending_Topics_2011.10.28_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:
Overdiversification and the 401k Investor – Too Many Stocks Spoil the Portfolio” (Fiduciary News, October 27, 2011). This article, the third in a series of five addressing the “7 Deadly Sins Every ERISA Fiduciary Must Avoid: The 4th Deadly Sin – Overdiversification,” offers some practical advice to 401k investors that relies on real world results rather than just on academic studies, which were cited in “A Trip Down Memory Lane – Revisiting Portfolio Optimization.”

Compliance – As easy as pie!:
One of the most difficult tasks for a 401k plan sponsor is complying with the myriad of rules all the regulators are so pleased to offer. Worse, this task offers the least usefulness when it comes to the true corporate mission of the plan sponsor’s company.
Top 10 checklists for every 401k plan sponsor,” (BenefitsPro, October 27, 2011) Would that compliance would be this easy?

Fiduciary – Nearer to Thee:
For those convinced the DOL folded in September, you may be in for a surprise.
DOL’s Borzi: Retirement Fiduciary Re-Proposal Out Early Next Year,” (AdvisorOne, October 25, 2011) We should expect something close to the beginning of the year. Not only that, expect revenue sharing to be addressed. Could make for an interesting January.
Labor probe seen clarifying fiduciary rule,” (Reuters, October 25, 2011) Here’s an interesting theory: Government proposes a rule; A certain group of salesmen complain it’s “unfair”; Government withdraws proposal; Government investigates salesmen. All to make a better rule. Believe it – or else!
DOL’s Borzi: Retirement fiduciary re-proposal out early next year,” (BenefitsPro, October 26, 2011) He the big news is what Borzi said on the “seller’s exemption.” She’s acknowledges selling a product is one thing, but selling a product wrap around advice is another. She wants to address this latter scenario.

Fees – The noose tightens:
Let’s see what happens if we shine a little sunshine on your 401k plan.
Spotlight on 401k fees may help many saving for retirement,” (St. Louis Dispatch, October 26, 2011) Although it takes as its premise the BrightScope press release from several weeks ago, this article is really about the Amerprise lawsuit, with in interview of the lawyer involved. Interestingly, this is the same law firm that initiated similar suits against General Dynamics and Caterpillar.
Labor Department, SEC coordinate on participant 401k fee disclosures,” (InvestmentNews, October 28, 2011) You might want to consult your SEC counsel before basing anything on a headline (or even the content of the article). Apparently, the author reaches this conclusion based on a no-action letter from the SEC, and we all know what the SEC warns about basing your decision on someone else’s no-action letter.

Investments – Unleash the hounds!:
The big news dealt with the new DOL rule on personal investment advice. It could be a prelude to the fiduciary rule. Or it could be much ado about nothing.
Benartzi Says 401k Success Hinges on Improving Access, Removing 3 Obstacles: CFDD 2011,” (Advisor One, October 21, 2011) Interia. Loss Aversion. Myopia. If 401k plan sponsors can minimize these three obstacles, Benartzi would sleep much better. So would 401k investors.
Retirement Calculators Threaten Your 401k Plan,” (ETF Guide, October 23, 2011) Normally, this wouldn’t qualify for the Investments category, but, despite a compelling title, this article is more about investments and, in particular, using ETFs instead of mutual funds. The article, however, really doesn’t offer a compelling argument for using ETFs over mutual funds (it’s really an apples and oranges thing, which the article ignores). Worse, the article doesn’t even do a good job of proving its titular thesis. Most would probably agree internet-based retirement calculators may mislead investors, but the author fails to follow-through in his argument on the subject. Instead, he digresses into meaningless statistics in hopes to prove ETFs offer something of significance over mutual funds.
DOL issues final rule on 401k investment advice exemptions,” (Pensions & Investments, October 24, 2011) This is mostly just a repeat of the DOL’s press release.
DOL Issues Rule On Personalized Advice For 401k Plans, IRA Plans,” (Financial Advisor, October 24, 2011) This lengthy article focuses on Phyllis Borzi’s presser on the matter and a bit of counterpoint from an ERISA attorney.
More 401k plans, IRAs may offer investing advice,” (MarketWatch, October 24, 2011) This is the most comprehensive article on the subject.
Despite complaints, Labor Dept. nixes additional fees for 401k advisers,” (InvestmentNews, October 24, 2011) The big news from this article is Phyllis Borzi said it only pertains to fiduciaries.
DOL issues investment advice rule,” (BenefitsPro, October 25, 2011) This article specifically states providers offering advice to the plan will now be allowed to advice participants.
Terrance Odean on How Regret Drives Investor Behavior,” (AdvisorOne, October 24, 2011) This is all about the “disposition effect” – the tendency to only sell winners and hold onto losers. This is a problem experienced more often by 401k plans offering too many options.
New DOL reg won’t change how large companies offer advice,” (BenefitsPro, October 27, 2011) It looks like big mutual fund firms will continue to rely on independent third party providers to handle participant advice within plans.
Retirement Planning Is A Hands-On Process, Expert Says,” (Financial Advisor, October 25, 2011) This goes hand-in-hand with the DOL’s new Investment Advice Rule.
More Savers to Get 401k Investment Advice,” (, October 27, 2011) The layman’s version of what the DOL did this week.
The Four Companies That Control the 147 Companies That Own Everything,” (Forbes, October 26, 2011) Just in time for Halloween, this spooky article suggests all those favorite actively managed funds are really index funds in disguise. This goes a long way to explaining their underperformance.

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.
An Employee Lawsuit Highlights 401k Fees Issue,” (, October 23, 2011)
Workers Come Out Winners Even After 401k Lawsuits Are Losers,” (Wall Street Journal, October 24, 2011)
How to become a retirement plan governance resource,” (BenefitsPro, October 25, 2011)
Unretirement Index shows retirement confidence at 4-year low,” (BenefitsPro, October 25, 2011)
Advice can benefit 401k participants,” (Detroit Free Press, October 27, 2011)
The pension problem too big to ignore,” (BenefitsPro, October 28, 2011)
1 in 5 expect to retire before age 65,” (BenefitsPro, October 25, 2011)
ICI survey: Few 401k plan participants cut, end contributions, (Pensions & Investments, October 27, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Occupy Wall Street makes sense to long-time lobbyist
401kBasics: Plan Sponsor Quick Tips: COLA Increases for 2012
Boston ERISA Law Blog: Some Notes From the Real World on the Practical Realities of Fee Disclosure
fi360 Blog: Coming Soon To a Theatre near You: The Latest Adventures in Fiduciary Advice – If you are any kind of Star Trek (Original Series and latest movie) fan, you’ve got to read this!
Retirement Plan Blog: The other union benefit crisis: multiemployer (Taft-Hartley) plans
The Trust Advisor Blog: Trust Experts Say Judge Made “Bad Law” in Landmark Asset Protection Case

Hot Tips from Popular Web Resources:
TheStreet: Rethink Retirement Plans for New 401k Laws
Ascensus, Inc.: Analysis of DOL Final Investment Advice Regulations (PDF)

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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