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

November 14
00:19 2011

1020805_25983300_Trending_Topics_2011.11.11_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:
10 Questions the DOL Wants 401k Plan Sponsors to Ask Their Investment Consultant” (Fiduciary News, November 8, 2011). In 2005, the DOL published a list of ten questions it felt 401k plan sponsors needed to ask their adviser. How many of these questions matter today?

Compliance – If it ain’t broke…:
Trouble is, the government’s broke, and that might be causing folks to looking into fixing what ain’t broke. If only Washington was as disciplined as the more astute 401k investor. Of course, the fact we’ve used that qualifier suggests why we keep voting politicians without any financial regimen.
Time to raise the retirement age,” (BenefitsPro, November 10, 2011) It’s not a regulation yet, but would it be a big deal to ratify what may become a practical reality?
Lack of tax incentives would derail 401k market: Report,” (BenefitsPro, November 10, 2011) The article discusses a recently released report that, quite frankly, states the obvious: Removing a tax incentive will change behavior in a predictable way.
Deficit Tax Proposals Would Radically Change 401k Plans: EBRI,” (AdvisorOne, November 11, 2011) Right on the heels of the above report comes this piece of news: Washington is actually seriously considering reducing retirement plan tax incentives. This idea first came up in September but was considered almost laughable at the time because proposals seemed to suggest we return to the pension era. Now, with pressure on the deficit reduction plan, politicians appear to be taking these proposals seriously.

Fiduciary – What was it that Dante wrote?:
In Dante’s Inferno, he assigned the hypocrites to the lowest level of H-E-double-toothpicks. This week we’re delighted to introduce several candidates for this esteemed “award.”
Lawmakers, adviser groups gird for another fiduciary-rule battle with DOL,” (InvestmentNews, November 7, 2011) Once again, political lobbying rears its ugly head. Once again, all the big money comes from the broker/insurance side opposed to the fiduciary rule. This time, though, it’s Barney Frank and the Democrats leading the charge. Wait? Barney Frank? Wasn’t he the one who… oh, just forget it.
Probe of high-profile 401k fiduciary advocate could cost advisers business,” (InvestmentNews, November 10, 2011) Actually, this is more a “Madoff” problem than a fiduciary problem, so it’s more likely to spell trouble for bundled service providers, especially within a multi-employer framework, than for independent advisers working in an unbundled environment. What it also says is caveat emptor – once “fiduciary” catches on as a sales tool, don’t believe everything that’s said. Plan sponsors will still need to undertake the appropriate due diligence.

Fees – If a tree falls in the forest…:
All these new disclosures will likely have one immediate and inarguable effect – they mean the death of many trees. Now, if only we can get those horses to drink the water we’re leading them to.
Breakaway 401k Plans: New fee disclosure regulations will create opportunities for advisors,” (Investment Advisor Magazine, November 2011) The drip, drip, drip continues as writers continue to warn smaller 401k plans for a surprise come April 2012.
Backlash over 401k fees could be brewing,” (BenefitsPro, November 9, 2011) Or not. The article tells of an example of an early roll-out of the upcoming April 2012 fee disclosure requirement that has generated little response. It could be no one will read the disclosures. Not that that’s ever happened before.

Investments – A Classic Behavioral Problem:
Overconfidence represents one of the most abused fallacies in behavioral economics. People don’t “need” personal advice because they don’t want to pay for something they feel they can do for themselves, despite hoards of evidence showing they’re coming up short. At the same time, TDFs, a product of dubious distinction, have been successfully marketed to both plan sponsors and 401k investors in a manner that reinforces this overconfidence.
Thanks but No Thanks on 401k Advice,” (Wall Street Journal, November 7, 2011) According to the sub-head “An increasing number of plans offer outside help, typically for a fee. So far, most participants aren’t buying in.” This despite surveys showing 401k investors benefit from such personalized advice. Worse, even when they use that advice, the article says too many don’t give enough personal information to make that advice meaningful. The article contains lots of detailed information on current providers of personalized advice.
Use of ‘target-date’ funds grows in 401k plans,” (Los Angeles Times, November 7, 2011) This article repeats earlier reports citing the growing use of TDFs and goes on to say, contrary to other reports, people are generally satisfied with them.
Survey Finds Most Investors Understand Target Date Funds,” (, November 7, 2011) Here’s much more detail regarding the survey referenced by the LA Times above.
Most Investors Understand Target-Date Funds,” (Financial Advisor, November 7, 2011) Whoops! Spoke too soon. It turns out too many of them still think TDFs will provide guaranteed income for retirement.
Target Date Funds: Not So Bad After All?” (Registered Rep, November 10, 2011) Be prepared to respect the question mark in the title if you choose to read this article. TDFs may be here to stay, but it doesn’t mean the problems have gone away.
The stealthy sin of too many 401k investors,” (BenefitsPro, November 10, 2011) Hmm, maybe this explains the main problem with a lot of TDFs.

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.
Employees Becoming More Self-Reliant in Retirement Planning,” (AdvisorOne, November 1, 2011)
NY Mets Owners Settle 401k Lawsuit,” (, November 3, 2011)
The Boss is Not Watching Your 401k,” (SmartMoney, November 10, 2011)
YRC Worldwide settles 401k plan lawsuits for $6.5 million,” (Kansas City Star, November 10, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Managing fees a big concern for service providers
The Trust Advisor Blog: DOL, SEC Mount New Effort to Rid Industry of 401k Fee Abuses and Overcharging
fi360 Blog: Practice 4.2: Monitor changes of investment advisors and managers

Hot Tips from Popular Web Resources:
Pension Rights Center: Retirement Heist: Overlooked Causes of the Retirement Crisis
Economic Policy Institute: The myth of early retirement
EBRI: Tax Reform Options: Promoting Retirement Security
AARP Bulletin: Can 401k Work Plan Sponsor Give Investment Tips

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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