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Fiduciary News Trending Topics for ERISA Plan Sponsors: Week Ending 10/7/11

October 10
00:29 2011

1020805_25983300_Trending_Topics_2011.10.07_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:
Tips 401k Plan Sponsors Can Use to Help Employees Avoid Risk Aversion” (Fiduciary News, September 27, 2011). It turns out less is more when it comes to portfolio reporting, despite the regulator’s infatuation with transparency.

Compliance – Money is the root of all poor decisions:
It’s funny what a little recession will do if put in the hands of the wrong politicians. If we going any further back to the future regarding our collective economic illiteracy we’ll definitely end up in the depression.
Will Congress balance budget on backs of future retirees?” (BenefitsPro, October 5, 2011) Senate Democrats seriously consider cutting retirement-oriented salary deferrals or scrapping our 401k/IRA private retirement system altogether. As the article asks, where’s AARP when we need them?
Experts: Tax reforms won’t improve retirement security,” (BenefitsPro, October 5, 2011) It didn’t take long for the grown-ups to show up and re-explain Newton’s Third Law.

Fiduciary – The Gift of the Magi:
The DOL seems to be spinning an ironic web of poetic justice as it gives the brokerage community exactly what it asks for.
IRA Fee Practices Remain Under the Microscope at DOL,” (Financial Planning, September 28, 2011) A warning shot across the bow.
Fiduciary rules would complicate retail investment business,” (BenefitsPro, September 28, 2011) This is a restatement of previous arguments, to which the previous response has been, “Isn’t that the whole point?”
Brokerages may have to change business practices: DOL,” (Reuters, October 3, 2011) Phyllis Borzi comes out swinging bringing to mind the classic warning “be careful what you ask for.” No more subtleties here, she’s blunt. Brokers need to change their business model. It’s not about commissions (which the industry has loudly been arguing) it’s about revenue-sharing (the dirty little secret the industry has kept hidden in the closet). The DOL intends to continue to allow commissions, but not revenue-sharing. Furthermore, the much sought-for “cost analysis” won’t just include the cost increases brokers might face, but the “financial impact of ‘conflicted advice’ among other things.” Whoa!
Borzi to AdvisorOne: Fiduciary Reproposal Will Include IRAs,” (AdvisorOne, October 3, 2011) More Borzi, this time promising IRAs will be included in the new Fiduciary Rule. She shuns the idea brokers can’t get commissions, stating the DOL currently allows exemptions for certain products. One thing that’s not clear – are these commissions for brokerage activity (which would be OK) or for advisory activity (which would normally be considered a prohibited transaction)?
DOL sticks to guns on expansion of fiduciary definition to retirement plans on a commission-based model,” (Financial Planning, October 4, 2011) More bad news for brokers as Michael Davis, Deputy Assistant Secretary told member of the Financial Services Institute at their annual advocacy meeting “We are not in the business of trying to constrain investment advice. Our concern is with conflicts. We think that is a different issue than investment advice in the broad sense. I know there are people who disagree, and we’ll welcome the debate because that’s what we’re after. We’re not trying to shut down the investment advice marketplace.”
DOL Eyes IRA Exemptions to Fiduciary Rule on Revenue Sharing, Principal Trades,” (AdvisorOne, October 4, 2011) Ignore the middle part of this article as it is a repeat of the previous day’s article. The important parts are the beginning, where we can see the DOL allowing the camel’s nose under the tent and the end, where, in terms of 401k plans, we can see the camel is now in the tent.

Fees – A New Hope:
Wait! You mean I actually have to do something extra to earn the extra fee? That’s not what they told us in the boiler room!
IRA Fee Practices Remain Under the Microscope at DOL,” (Financial Planning, September 28, 2011) The brokerage industry might have opened a hornet’s nest without knowing it. Even if the DOL does end up allowing exemptions, the associated disclosures might just kill the sale.
Retirement plans: Value for service,” (BenefitsPro, October 5, 2011) The author offers a very intriguing thought: it’s not just the amount of the fee, it’s the level of the service. He further proposes a simple extrapolation may justify higher fees from those who act as a fiduciary.

Investments – Throwing out the bathwater, not the baby:
There’s a lot of snake oil when it comes to investments, and it’s usually found on the hands of the salesman, not the portfolio manager. We see some of that this week.
401k Sponsors Look to Sustainable, SRI Investing,” (Financial Planning, September 28, 2011) Here’s a big issue in journalism: If a survey supports an issue advocated by one of the survey’s sponsors, is it news or is it advertising? This is just such an example. Is it any surprise a survey by Mercer and the U.S. SIF Foundation – a group that used to operate under the name “Social Investment Forum Foundation” (wink, wink, nod, nod, say no more) finds that 84% of the plans surveyed believed sustainable and socially responsible investing will either stay steady or grow in the next five years? Of course, since the survey also shows these plan sponsors know little about this type of investing, the survey sponsors suggest an appropriate conclusion is “more education is needed.” Again, is this news or advertising?
2 kinds of participant investment styles, says AllianceBernstein,” (Pensions & Investments, September 30, 2011) There are “actives” and “accidental.” Pretty good read for all plan fiduciaries.
Why The Bear Market May Be Good For Your 401k,” (NPR, October 4, 2011) Bottom-line: For long term investors, it’s all about the dollar-cost averaging advantage of 401k plans.
Is Active Management Dead,” (Institutional Investor, September 29, 2011) New research seems to fly in the face of the marketing efforts of index fund salesman. Actually, this “new” research only confirms old research. This particular article is short on performance data but heavy on statistics jargon. Maybe not the best for those looking an easy read.
How to glide along toward retirement with target-date funds,” (The Washington Post, October 5, 2011) This article represents a layman’s review of target-date funds. It’s simplistic, but it’s important for the plan fiduciary to understand how the mass media “educates” participants when it comes to investment choices.

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.
Ameriprise workers sue over company’s own 401k funds,” (InvestmentNews, September 29, 2011)
Auto enrollment drives 401k participation to 78 percent overall according to principal financial analysis,” (Financial Planning, October 4, 2011)
Make 401k plans a vault, not an ATM,” (Employee Benefit News, October 1, 2011)
That retirement calculator is lying to you and your clients,” (InvestmentNews, October 4, 2011)
Retirees less dependent on 401k plans, survey says,” (Pensions & Investments, October 5, 2011)
Are you angry enough to sue over your 401k?” (The Biz Beat, October 5, 2011)
Employee lawsuit alleges financial firm pushed them to expensive 401k funds,” (Employee Benefit News, October 6, 2011)
That 401k loan may cost more than you realize,” (MarketWatch, October 6, 2011)
Fred Reish and Bruce Ashton Make Case for Benefits of Multiple Employer Plans,” (PRNews Wire, September 29, 2011)
Participants confident of their choices, not the economy,” (Pensions & Investments, September 29, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Proxy voting a powerful, yet under-utilized tool for fiduciaries
fi360 Blog: NASAA Sweep is Wake Up Call for IA Fiduciaries
Boston ERISA Law Blog: Loomis, Hecker, Tibble and the Evolution of Excessive Fee Claims
Chicago Financial Planner: Client Interests Shouldn’t Come First?
ERISA Lawyer Blog: Fifth Circuit Rules That A Fiduciary Breached Its Duties By Failing To Provide Plan Documents and a Rollover Election Form To A Participant
Retirement Plan Blog: Meet the “ERISA Account,” the newcomer to the small 401k plan scene

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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