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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 2/10/12

February 13
00:37 2012

1020805_25983300_Trending_Topics_2012.02.13_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:
Due Diligence has New Vanguard “Low-Cost” Product Opening to Mixed Reviews,” (Fiduciary News, February 7, 2012). Industry pros rate Vanguard’s new entry into the 401k product realm, with comments from Vanguard itself. Lesson: Always read the fine print. If it’s too good to be true, it usually is.

Compliance – Heads or Tails?:
Every coin has two sides. The same is true of the dual DOL/IRS announcements. On one hand, the IRS announcement certainly plays into the hands of a particular industry. On the other hand, the DOL has maintained a blunt sternness that may well doom the long practices of that same industry.
New 401k policies are a mixed bag,” (Reuters, February 2, 2012) This quote from the article says it all: “insurance companies will probably be the most excited about it.” The actual article contains a typo (the “i” in “companies” is missing), but you can ignore that as the bulk of the story is chock full of juicy truth.
DOL tells employers when they must fire advisors to 401k plans,” (RIABiz, February 10, 2012) This was the “gotcha” of the press conference. Funny it took nearly a week to earn a headline.

Fiduciary – “Kill the Pension” Redux:
Remember when government policy decisions in the early 1980’s effectively killed pension plans? The industry survived by adapting to the new 401k model. We could be heading for an incredible feeling of déjà vu.
Did the DOL just kill revenue sharing?” (BenefitsPro, February 10, 2012) Bundled service providers will read this and weep.

Fees – Know Thyself:
The Oracle at Delphi once told this to Socrates, and he proceeded to have himself martyred just to make this point. How many innocent advisers will be martyred by incredulous 401k plan sponsors just for delivering the (honest) bad news? From the surveys, it looks like these plan sponsors are heading for an awful surprise. And there’s no way the bulk of them take the blame themselves. So, who’s gonna be sacrificed?
Deloitte: 401k sponsors think plan fees are competitive,” (Pensions & Investments, February 6, 2012) Four out of Five 401k plan sponsors rate their plan fees as “competitive.” Did their Dentists approve? Or was it their vendors telling them their fees were “competitive”? Guess it all depends on what the meaning of “competitive” is. Once we get some real benchmarking data (after we’ve had a couple of years of fee disclosures), then we’ll see what 401k plan sponsors really think.
10 important changes in final fee disclosure rule,” (BenefitsPro, February 7, 2012) The most important thing here is that, other than deferring implementation for 3 months, the DOL did not cave into industry demands as many had hoped or feared.
401k Fees Disclosure Rule May Spur Additional Creative Charges,” (International Business Times, February 6, 2012) A foreigners view of the goings on at the DOL. And it’s pretty harsh on the industry.
Plan Sponsors Must be Aware of Changes In 408b(2) Final Rule,” (PLANSPONSOR.com, February 6, 2012)  The article quotes legal experts on the implications of the new rule to 401k plan sponsors.
Fee disclosures could make it harder on small, midsize plan sponsors,” (BenefitsPro, February 7, 2012) This is actually a good article, although the title might be a little misleading. According to the story, plans that haven’t shopped their fees recently might be in for some sticker shock once they see what they’re really paying. These will tend to be smaller plans, and once they see the impact of fee creep, the might get alarmed. In addition, smaller plans don’t have the internal expertise to scrutinize the fee reports they will be getting, so they’re at the mercy of their vendors and, usually, that means the recordkeeper. Since many small plans are in bundled arrangements, that means the captive recordkeeper won’t necessarily expose fees clearly like an independent recordkeeper would.

Investments – Green with Envy:
Sure, the government can mandate car makers produce things like the Chevy Volt, but reports are folks just aren’t buying either the cars or the slick ads meant to create a demand for them. When it all comes out in the wash, the longevity annuity may end up as the latest Edsel of the financial industry.
Economists Love ’Em, Clients Hate ’Em,” (Financial Advisor, February 1, 2012) Perhaps what we have here is a failure to communicate – similar to the time academics told us of this wonderful idea called “Modern Portfolio Theory” that would answer every question we ever had about investing. Trouble is, the real human world (i.e., the world of psychology as opposed to the world of physics) doesn’t work the way all those math formulae say it should. The sooner regulators understood this, the longer they’ll wait to act on “new” theories pushed by a self-serving industry.
Looks Like We Really Can Blame ETFs After All,” (Wall Street Journal, February 3, 2012) Interesting data suggesting ETF investing does move the markets – and may be a predictor of when active managers outperform the indexes.
Annuities make the move into retirement plans,” (BenefitsPro, February 3, 2012) This article is basically a restatement of the IRS statement, but in an easier-to-understand manner.
Should You Annuitize Your 401k?” (Wall Street Journal, February 6, 2012) This is a good article that reviews the practical implementations of the IRS annuity announcement.
With interest rates low, do annuities make sense?” (MarketWatch, February 6, 2012) The title says it all.
Issue with 401k fund is subpar performance, not expenses,” (The Daily Breeze, February 3, 2012) This is one of those typical “ask the expert” advice columns that appear in oh-so-many newspapers. We don’t usually post these things, but we had to post this one – if only to show why we don’t usually post these things. Read the first question and answer. After making a compelling case the problem with the target date fund in question is with fund performance, not expenses, the author corrected compares the fund in question to similar target date funds with lower expense ratios. But then he makes the leap of the non sequitor by advising the reader to switch to lower cost index funds. Wait, didn’t he just say it was about performance, not expenses? And didn’t the investor pick a target date fund so she could “set it and forget it”? This is the problem, folks. It’s too easy for unsophisticated investors to accidentally double-count fund expenses.
The Annuity Puzzle,” (AdvisorOne, February 7, 2012) This article highlights a new paper published by some well-known names in the area of behavioral finance. It pretty much summarizes the paper, which is less research and more a curated recap of other people’s research. While it does do a good job of explaining why people don’t buy annuities, it fails to correct the premise that people are better off with annuities. Truth be told, many investors don’t care if they don’t have any money when they’re 85 years old. In fact, a trust attorney might say that’s the whole objective.

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.
BofA Merrill Lynch Sees Increased 401k Savings in Q4 and 2011,” (On Wall Street, February 3, 2012)
3 in 4 401k plan participants positive in 2011, analysis shows,” (Pensions & Investments, February 6, 2012)
DOL Sues Company for Failure to Remit Contributions,” (PLANSPONSOR.com, February 7, 2012)
Deloitte survey finds vast majority of 401k plan sponsors not confident about employees retirement planning,” (Financial Planning, February 8, 2012)
EBRI finds rapid growth of target-date fund usage among 20-somethings,” (Employee Benefit News, February 8, 2012)
Fidelity says investors 401k balances increased 8 percent in fourth quarter,” (Financial Planning, February 9, 2012)
Boomers turn home equity into 401k funds,” (MarketWatch, February 9, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Finally, final 408(b)(2) rule released
Boston ERISA Law Blog: The ERISA Decision of the Year?
fi360 Blog: A Novel Way to Promote the Fiduciary Standard

Hot Tips from Popular Web Resources:
E is for ERISA: 401k Fee Disclosure Deadlines Extended Three Months; Other Changes Made in Final Regulations Under ERISA 408(b)(2)
Mercer Select: 2nd Circuit should rehear 401k ‘stock drop’ cases, Labor Department argues
TheStreet: Future of Retirement: Surprisingly Optimistic
Walters Kluwer: CFTC’s business conduct rules do not conflict with ERISA’s fiduciary regulations, says Borzi

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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