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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 2/3/12

February 06
00:07 2012

1020805_25983300_Trending_Topics_2012.02.06_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:
Exclusive Interview with Ron Rhoades: Revenue Sharing – Two Hats are Worse than One,” (Fiduciary News, January 31, 2012). The adage you can’t serve two masters is as old as the Bible. So why are 401k plan sponsors making this mistake and why is the DOL allowing them to do so?

Compliance – They’re Heeere!:
The DOL announced its new Fee Disclosure guidelines. At the same time, the IRS announced it will allow products (annuities) with a history of hidden fees in retirement plans. Not only that, but the IRS will give them favorable treatment. It’s amazing what PAC money can buy nowadays.
As 401k turns 30, let’s make it better,” (, February 1, 2012) The author asks for a 401k/pension plan hybrid and – voila! – the next day the IRS delivers.
401k fee disclosure rules clarified, deadline delayed,” (BenefitsPro, February 2, 2012) The key takeaways are the implementation date is now July 1, 2012, not April Fool’s Day, and providers will have to report both direct and indirect income.
Direct, indirect fee information required under final DC disclosure rules,” (Pensions & Investments, February 2, 2012) Vendors will now have to identify what fees go with what services, even if they “don’t charge a fee” for those services.
DOL Releases Long-Awaited 401k Fee Disclosure Rule,” (AdvisorOne, February 2, 2012) This story also contains details about the IRS ruling to allow annuities in retirement plans. Watch for the law of unintended consequences slamming full speed into the bridge abutment on this one.
Treasury Eases Rules On Offering Annuities In Retirement Plans,” (Financial Advisor, February 2, 2012) Shh! Listen carefully. The sound you hear is the sound of irony dripping from this story. In the same announcement the DOL states it’s getting tough on fees, the IRS is opening the door of trillions of dollars of innocent retirement assets to some of the highest fee products in the industry. With no protection. Go figure.
U.S. requires 401k plan clarity on fees,” (Reuters, February 2, 2012) This article adds some insight from industry experts. It also mentions the penalty for failure to comply – plan sponsors must fire the offending service provider.
Treasury Easing Rules on Annuities for Retirement Plans,” (Businessweek, February 2, 2012) The article is fairly hard hitting and honest. It says “Employers have been reluctant to adopt annuities in retirement plans they sponsor because of concern that fees are too high and that they would be held liable for their choice of insurers. Americans have resisted buying the insurance because they don’t want to lock up their assets.” It then backs these statement up with quotes from industry pros.
New rules to bring annuities to 401k plans, IRAs,” (MarketWatch, February 2, 2012) This article is a little more forgiving of the problems introduced with adding annuities to the list and reads more like a press release from the White House than an objective report.

Fiduciary – Bipartisan Agreement:
Odd, they didn’t do anything about it on their watch, but two former SEC Chairmen – one from a Republican administration and one from a Democrat administration both agree we need a fiduciary standard. Just goes to show you how much the current Chair mucked up things.
Breach of fiduciary duty still No.1 investor charge,” (InvestmentNews, January 30, 2012) It’s been said before. The consumer won’t care about the fiduciary standard until after the lawyers discover what a big deal it can be.
At Bogle Event, Musings on Profit Motive, Fiduciary Responsibility,” (AdvisorOne, January 31, 2012) Bogle’s opening remarks state “there’s a crying need for a fiduciary standard.” Ironic given Vanguard’s new 401k product relies on revenue to lower fees.
Now, Dems iffy about universal fiduciary duty,” (InvestmentNews, January 31, 2012) Apparently they don’t want to impede the investor’s ability to receive investment advice, proving once again political don’t know the difference between objective analysis and selling products. But, don’t worry. There’s a PAC for that.
At Bogle Event, Former SEC Chairmen Agree on Fiduciary Standard—With Caveats,” (AdvisorOne, January 31, 2012) Here’s the real headline: Former SEC Chairmen – both Republican and Democrat – agree on fiduciary standard. The caveat comes from the leader of SIMFA, who believes in the fiduciary standard as long as it’s “revenue neutral.” That’s like outlawing bank robbing as long as it’s “withdrawal neutral.”
Fiduciary Standard Should Match Reality of Market, Pitt Says,” (Businessweek, February 1, 2012) Former SEC Chair (and Republican) Harvey Pitt says regulations need to catch up to the market reality. If clients think they’re getting investment advice from brokers, then brokers need to be held to the same fiduciary standard as registered investment advisers.
FSI Preps IRA Data for Labor Department on Fiduciary Issue,” (Financial Planning, February 2, 2012) After all the complaining, the industry coughs up the goods.
Three conflicts of interest 401k sponsors must avoid,” (BenefitsPro, February 3, 2012) More on the problems with revenue sharing.

Fees – Teachers never stop teaching:
Even before the DOL acted, a group of professional groups announced the model disclosure form for 403b plans. It’s a good model, one the DOL may take notice of.
401k Plans Step Into the Sunshine,” (Wall Street Journal, January 31, 2012) It’s amazing how such a knowledgeable paper can still make a naïve mistake. Although about the DOL’s new Fee Disclosure Rule, the authors continue to make the mistake of leading with mutual fund expense ratios, not the underlying administrative costs. Perhaps it’s time does another story on this topic.
403b Transparency Taskforce Launches Model Disclosure Form,” (, February 1, 2012) A group of non-profit industry groups gets the jump on the DOL with guidelines for 403b plans. One thing of note here, in these guidelines, fees do not include mutual fund expense ratios (although they remain in the DOL model charts incorporated in a portion of these guidelines).
New tool to clearly disclose 403b fees,” (, January 31, 2012) The layman’s version of the previous story.
New tool exposes public school 403b fees,” (BenefitsPro, February 1, 2012) This article also contains a video interview.
New 401k Fee Rules Will Give More Power To Clients,” (FA Retirement, February 1, 2012) This assumes a) the vendors won’t aggressively justify their fees; and, b) plan sponsors believe their lying eyes. Individually, each is a lot to ask for and, together, both may be insurmountable.
Unraveling the mystery of 401k disclosures,” (MarketWatch, February 2, 2012) Robert Powell gets to the heart of the issue. Just because fee information is newly disclosed doesn’t mean 401k plan participants with read it. Just because 401k plan participants read the newly fee disclosed information doesn’t mean they’ll understand it. Just because 401k plan participants read and understand the newly disclosed fee information doesn’t mean they believe they can do anything about it.

Investments – If the pros don’t get it…:
…how do we expect regular folks to understand? Whether failing to invest in the long term, buying into legal Ponzi schemes, fumbling over confusing products that don’t perform as promised or repeating the same old tired mantra long ago disproven, old habits die hard.
Stable-value funds are shaky 401k options,” (MarketWatch, January 29, 2012) Chuck Jaffe rediscovers a problem supposedly solved by the 2006 PPA has resurfaced.
Are Pension Forecasts Way Too Sunny?” (MarketWatch, January 27, 2012) Despite the title, this article is really about investments. In particular, it’s about the dangers of a balanced portfolio. It’s interesting because it’s counter-intuitive and also makes obvious sense. In the end, it’s why pensions are never going to be a long-term answer because, no matter how sincere, they will devolve into Ponzi Schemes.
The logic of target-date attribution using a consensus glidepath,” (Pensions & Investments, January 27, 2012) This article is intended for 401k plan sponsors. It takes a complex subject and makes it more complex. I’m sure the author knows exactly what he’s writing about. The typical 401k plan sponsor will likely turn the page by the middle of the second paragraph – if they even bother to look at the story.
Yale’s Swensen Says Index Funds Best Plan For Most Investors,” (FA Retirement, January 31, 2012) Proving, once again, just because you’re employed by a leading university doesn’t mean you’ve got the academic background (or even have read the results of studies published by that university’s top-shelf researchers). Swensen continues to take an elitist approach on this topic and the fact this speech was given at the Bogle Forum makes one question whether he’s on Vanguard’s payroll, too.

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.
What Should You Do With Your 401k?” (Wall Street Journal, January 29, 2012)
Four retirement plan features employers need to emphasize,” (BenefitsPro, January 27, 2012)
More employers skeptical about workers’ retirement preparedness,” (Pensions & Investments, January 25, 2012)
New York mayor backs governor’s pension overhaul,” (Pensions & Investments, January 27, 2012)
American Airlines to drop DB pension plans,” (Pensions & Investments, February 1, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: 403b Compliance Summit Report a must read for all retirement plan professionals
fi360 Blog: Should advisors have an education policy statement?
Boston ERISA Law Blog: Fee Disclosure, the Wall Street Journal, and the Value of Regulation
BeManaged: The Surprising Paradox of Choice in 401k Plans

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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