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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 2/17/12

February 21
00:02 2012

1020805_25983300_Trending_Topics_2012.02.21_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:
Why 401k Plan Sponsors and Investors Lack Cupidity for the Annuity,” (Fiduciary News, February 14, 2012). When the IRS press conference leaves reporters with unanswered questions, reporters turn to industry pros to get a better view of the issue. Check out their insights.

Compliance – What? You Thought It was Your Money?:
Once again, Washington is eying balancing its budget on the backs of retirees.
Congress eyes retirement-plan tax benefits,” (MarketWatch, February 13, 2012) Even though this article is new, the story is from last summer. It’s still an important story. Never forget.
401k tax deferral has up to $70 billion annual price tag,” (Pensions & Investments, February 15, 2012) Sure, but this is only the front-end cost. It’ll be more interesting when they calculate the back-end savings (i.e., reduced corporate costs due to the removal pension liability; ergo, more taxes; and, reduced need for Social Security et al; ergo, reduced government spending).
Presidential budget attacks small 401k plans, ASPPA claims,” (BenefitsPro, February 14, 2012) According to the article, this is “bad policy based on bad math.” The proposed budget, which not expected to even be considered in the Senate, severely limits those making more than $250K from contributing to retirement plans. Source claim this will hurt workers in small businesses by taking away a major incentive for owners to start retirement plans.
Retirement Officials Blast Obama Budget Proposal,” (AdvisorOne, February 13, 2012) More piling on. The proposed requirement is for all employers with more than 10 people to offer a retirement plan.
Score one for the little guy; Obama’s budget proposal bonks big guys, helps planless savers,” (InvestmentNews, February 14, 2012) Yet another take. This article is not as positive as the title indicates. It says, essentially, high wage earners will be double-taxed on their retirement savings and small company employees will be forced to take a chunk out of their paycheck for retirement investment.
Congressional resolution backs 401k tax deduction,” (Pensions & Investments, February 16, 2012) The Republicans thwart the actions of the Democrats.

Fiduciary – Advocates Take Off the Gloves:
A series of hard-hitting pieces appeared this week in a variety of publications, albeit the closest we got to the mainstream media was Forbes. In the meantime, the DOL, perhaps emboldened by its successful launch of the Fee Disclosure Guidelines, prepares for the granddaddy of them all – the IRA fiduciary.
‘How Do I Know You Won’t Steal My Money?’” (Journal for Financial Planning, February 2012) A plaintive appeal for the adoption of a uniform fiduciary standard from an investment adviser who has practiced as a fiduciary for decades.
To Restore Consumer Confidence, Make Every Advice Giver a Fiduciary,” (AdvisorOne, February 16, 2012) Paul H. Auslander, CFP, President of the Financial Planning Association, presents a surprisingly blunt advocacy for a standard not everyone in his industry wants to embrace.
Who’s On The Hook For Decisions Made In Your 401k?” (Forbes, February 2, 2012) Simply a fantastic article every plan sponsor should read. It exposes both the reason why plan sponsors aren’t motivated as much as they should be by their fiduciary liability and why that fiduciary liability is greater than they think.
DOL Sets Feb. 24 Deadline on Fiduciary IRA Request,” (AdvisorOne, February 16, 2012) An increasingly tough-minded DOL issues a “put-up or shut-up” deadline for a recalcitrant industry.
Another snafu in DOL’s plan to update fiduciary standard,” (InvestmentNews, February 17, 2012) Apparently the deadline gives some folks only one day to respond.

Fees – Yeah, but…:
As predicted six months ago, 401k fees have suddenly become a hot topic. Trouble is, even experienced reporters are misinterpreting what the DOL is asking. There’s a story in that…
Here’s A Big Secret About Your 401k,” (Forbes, February 10, 2012) The premise of the article is interesting. It goes like this: The 5 year delay cost investors billions of dollars. Well, that might be a stretch because it’s not clear how many 401k plans qualify in the “Overpaying” category. There are certainly many, especially for plans in the $5-20MM range that still have legacy vendor systems since their smaller days. What is shameful about the article is, again, its focus on mutual fund expense ratios as fees. This coming from a magazine as sophisticated as Forbes. You would have thought their editors might have been smart enough to catch this.
Fee disclosures could put the squeeze on 401k fund firms,” (InvestmentNews, February 13, 2012) Another article suggesting bundled service providers may be a thing of the past.
New Disclosure Rules Shine Spotlight on 401k Fees,” (, February 15, 2012) An interview with David Wray, president of the Plan Sponsor Council of America on this matter and other trends in the 401k industry.

Investments – A New Favorite Whipping Boy Arrives:
Despite the by now familiar complaint about Target-Date Funds, it looks as though the much-maligned annuity has replace the TDF atop the mantel of disrespect. Did the IRS move too fast?
Target-date funds get mixed reviews as too aggressive even though most are enrolled in one,” (Employee Benefit News, February 9, 2012) Maybe it’s just that people like to complain. Some say too hot, some say too cold. Some say TDFs are too aggressive, some say TDFs are too conservative. What no one is saying is that they’re “just right.” Perhaps one day Goldilocks will invest in them.
Feds’ 401k Annuity Proposals: Baby Steps,” (CFO Magazine, February 10, 2012) While the article lauds the proposal for its intent, it criticizes the solution as incomplete. Again, the unresolved issues of savings and liability keep rearing their ugly heads.
In New Year, Being More Active Is Thus Far Good (Financial) Advice,” (Wall Street Journal, February 14, 2012) A good article, but the author quotes S&P as stating most funds trailed the S&P during the “Lost Decade.” Yet, the original WSJ article on it (and the Lipper Data) suggest the opposite was true. Here’s the link to a story that references the WSJ article: Does the “Lost Decade” Signal the End of Passive Investing? Perhaps it’s to rely on Lipper, an independent source, rather than the S&P for these sorts of facts.
Annuities in 401k Plans: 5 Concerns,” (, February 15, 2012) Roger Wohlner gives 5 reasons why what looks good on paper might not fly in practice.
Are annuities the high-speed rail of retirement plans?” (BenefitsPro, February 16, 2012) For many, annuities are a bridge to nowhere, but throw enough PAC money at it and they build the bridge anyway.
Why Variable Annuities Have No Place in Your 401k Plan,” (Forbes, February 17, 2012) Although off target a bit since the IRS was talking about fixed annuities, the article does present three reasons against variable annuities.

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.
Investment savings rose slightly in 2011,” (BenefitsPro, February 10, 2012)
If You Plan to Make It to 100, Plan Very Well,” (Wall Street Journal, February 12, 2012)
401k participants play it cool with transfers in January,” (Pensions & Investments, February 17, 2012)
Younger investors are reluctant to make new IRA contributions,” (Employee Benefit News, February 13, 2012)
Read The Memo From Pepsi’s HR Department Cutting 401k Benefits,” (Business Insider, February 14, 2012)
GM Moves 19,000 to 401k From Pensions,” (Bloomberg, February 15, 2012)
GM to freeze DB plan of salaried workers hired before 2001,” (Pensions & Investments, February 15, 2012)
Lack of financial literacy can hurt retirement,” (Reuters, February 16, 2012)
Workers looking for jobs past retirement,” (BenefitsPro, February 17, 2012)
Top 20 TIPS Funds in 401k Plans: BrightScope,” (AdvisorOne, February 17, 2012)
Survey Finds Retirement May Be a Thing of the Past,” (, February 16, 2012)
VRS sets stage for expansion of 401k-style contribution plans,” (The News & Advance, February 17, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: On professionalism and the AICPA code of conduct
fi360 Blog: Practice 4.3: Control best execution, soft dollars, and proxy voting

Hot Tips from Popular Web Resources:
JDSupra: Why you Shouldn’t Hire your Friends or Family as your Retirement Plan’s Financial Advisor

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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