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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 12/9/11

December 12
00:19 2011

1020805_25983300_Trending_Topics_2011.12.12_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.

FiduciaryNews Lead Story:
Should 401k Plan Sponsors Sell Their Souls for One-Stop-Shopping?” (Fiduciary News, December 6, 2011). Are the purported lower fees of bundling real, or are they a figment of some marketing department’s imagination? Worse, are bundled services really a fiduciary trap? In either case, plan sponsors and 401k investors might be in for a big surprise come April.

Compliance – For Every Action…:
What to Expect When Your Plan is Audited,” (, December 8, 2011) This is a great overview of not only what to expect, but what materials to prepare prior to an audit. It also list several items that might trigger an audit.

Fiduciary – Some Big News and Some Bad News:
“Fiduciary.” Say it slow with a slight Italian accent and it almost sound mystical, or even down-right religious. Alas, what the court’s hath wrought, the regulators shall taketh away.
GOP to DOL: Go easy on IRAs, OK?” (InvestmentNews, December 5, 2011) We’d repeat the mantra “follow the money” but the audacity of the lobbyists knows no bounds – they’re quoted right in the very article!
Walmart, Merrill Lynch Agree To Pay $13.5 Million To Settle 401k Fiduciary Lawsuit,” (Forbes, December 5, 2011) This one’s about the higher fees caused by investment conflicts of interest. Of interest, Merrill Lynch paid $10 million of the total settlement. Apparently, Forbes earlier exposed the fact the broker placed the Walmart plan in higher fee mutual funds. The plaintiffs alleged Merrill Lynch got “kick-backs” in exchange for placing funds in the plan.
Walmart, Merrill Lynch settle class-action suit accusing them of breaching fiduciary duty,” (On Wall Street, December 8, 2011) Much shorter than the above story but with a quote from Walmart saying they’ll remove the high cost funds.
New fiduciary rule likely to look a lot like the old one,” (InvestmentNews, December 8, 2011) This one’s about the SEC, not the DOL. Blame the editor for not knowing the DOL is working on the “Fiduciary Rule” and the SEC is working on the “Fiduciary Standard.” Anyways, looks like the SEC is gonna cave and leave us with “Fiduciary Lite.” Final Score: Industry Lobbyists: All the Money – Investing Public: Zero.
Reaction to Schapiro Comments on Fiduciary Rule Are Quick and Varied,” (AdvisorOne, December 9, 2011) All three sides represented here – the pro-fiduciary, the pro-broker and the fence-sitting wishy-washy broker enabler. Most telling is the broker’s comment saying the intention is to allow fiduciaries to sell proprietary products. Swoosh! There goes 9 centuries of trust law.

Fees – All Pigs are Equal…:
There’s a question now if the DOL’s new Fee Disclosure Rule will actually require disclosure of all fees. For direct bill service providers like independent recordkeepers, TPAs and fiduciary consultants, it’s clear we’ll see those disclosures. But most of the hidden fees lay in the investment options. For mutual funds, there won’t be anywhere to hide, but for insurance companies – some of the biggest bundled providers – the answer to disclosure is less than clear.
Lifting the Lid on 401k Fees,” (CFO Magazine, December 1, 2011) Here’s the warning coming from this article: Plan sponsors won’t be able to hide fees in the fine print of employee statements anymore, so they need to prepare themselves for a backlash.
Fee disclosure will change defined contribution game,” (Financial Planning, December 5, 2011) Interesting interview with a couple of industry consultants who paint several interesting scenarios plan sponsors should be prepared for.
Fees for 401k plans will be revealed in 2012,” (MarketWatch, December 7, 2011) This is a pretty thorough article that features to insightful conclusions: 1) Not all fee disclosures are the same and some digging may still be required; and, 2) Man does not live by fees alone – investors will still need to focus on performance benchmarks instead of placing too much emphasis on fees.
The soon-to-be not-so-hidden secrets of bundled 401k service providers,” (BenefitsPro, December 8, 2011) This article’s conclusion might have inadvertently revealed to trial attorneys how to trawl for their next big cash cow.
Stern Advice: Companies shake up 401k plans, cut fees,” (Reuters, December 8, 2011) Two-thirds of 401k plans in 2010 changed their line-up as opposed to only 20% in 2009. The trend is towards lowering the number of options and tightening up fees.

Investments – Time for a New Champion:
OK, so we’re all in agreement Target Date Funds were never all they were intended to be. So, rather than focusing on the flawed decision making process that led to the canonization of TDFs, let’s just blame the product and use the same process to deify yet another tired product. And for more excitement, let’s pick one where we can’t really find the true fees.
Are Target Date Funds the ‘Single Product Solution’?” (AdviserOne, December 6, 2011) Unfortunately, the article merely spouts out growth statistics for TDFs without giving a clear and honest reason for that growth – it’s not coming from investor demand but from an aggressive marketing push.
401k plans opt out of Uncle Sam,” (BenefitsPro, December 7, 2011) With the specter of higher inflation and rising interest rates looming on the horizon, is it really a surprise to learn more 401k plans are reducing their exposure to bonds?
401k plans add lifetime-income options,” (MarketWatch, December 7, 2011) With the less than successful results of TDFs, are annuities the new “ultimate option” for 401k plans? This lengthy article revisits the pros and cons for those who have forgotten.
Companies trim investment choices in 401k plans,” (MarketWatch, December 7, 2011) Wow! MarketWatch must be an avid reader of FiduciaryNews as this is the second article in one day that features a topic previously covered by us. Still, a good read as they’ve added additional sources.
Advisers wary of target date funds that use exotic strategies,” (InvestmentNews, December 8, 2011) The worst of ETFs can now be found in TDFs. Caveat Emptor.
Investors Not so Bad at Picking Active Funds After All,” (Registered Rep, December 9, 2011) A new study confirms award-winning controversial 2005 research report showing the active vs. passive debate may not be as one-sided as we’ve been led to believe.

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.
Act is having a positive effect on 401k plans,” (Employee Benefit News, December 5, 2011)
4 tips for successful retirement enrollment,” (BenefitsPro, December 5, 2011)
Companies restoring 401k matches,” (BenefitsPro, December 5, 2011)
Just keep working: the new retirement strategy,” (BenefitsPro, December 7, 2011)
Why people don’t buy 401k advice,” (BenefitsPro, December 7, 2011)
Longevity must be figured into any retirement plan,” (BenefitsPro, December 8, 2011)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Asset allocation for volatile markets
fi360 Blog: Howdy Neighbor! Welcome to the ’40 Act

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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