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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 4/6/12

April 09
00:34 2012

Welcome to FiduciaryNews.com 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:
4 Easy Steps 401k Plan Sponsors Can Take to Insure a Well-Documented Investment Due Diligence Process,” (FiduciaryNews.com, April 3, 2012). 401k Plan Sponsors often see due diligence as a burden. It needn’t be. This is the first installment of a three part series that includes The Ten Commandments of Selecting a Mutual Fund as a 401k Option and The Checklist for the Ideal 401k Investment Due Diligence Process.

Compliance – Politics and Investing Don’t Mix:
No, we’re not talking about the newly signed STOCK Act preventing federal elected officials from profiting on insider information. We’re talking about the whole idea of a bunch of lawyers listening to a bunch of accountants, none of whom had the requisite experience (unless, of course, you want to include the lobbyist thugs hired by the industry).
Pension reform: the key to California’s budget problems?” (BenefitsPro, March 30, 2012) Based on the doings in other states (even New York, for crying out loud), if this isn’t obvious then what is? Of course, as if on cue – natch analogy for Hollywood-types – CALpers comes out with a study that purports to show a 401k-style doesn’t save much moola. CALpers, which manages the state pension plan, stands to lose from any reform.
The BIG Fix,” (Financial Planning, April 1, 2012) Several industry experts speak out on how to improve the 401k.
Retirement: Salvaging a failed pension plan,” (Chicago Tribune, April 3, 2012) While lawmakers lambast the theoretical problems of 401k plans, real pension plans are dropping like flies all around them.
Obama Budget Would Eliminate IRA Benefits for Upper Middle Class,” (AdvisorOne, April 4, 2012) It’s going nowhere, but it’s probably a warning, since Paul Ryan’s budget had a similar provision. Removing the tax deduction for retirement savings plans for incomes above $200K (single) and $250K (married) will discourage small businesses (indeed, any business not organized as a C-Corp) from creating those retirement plans.
Plan Sponsors Should Not Delay Preparing for 404(a)5,” (PLANSPONSOR.com, April 6, 2012) With all the attention being paid to getting service providers to disclose their fears, this article speculates 401k plan sponsors may be forgetting to address the other dropping shoe – providing that information to plan participants.

Fiduciary – On Second Thought…:
Apparently we don’t need to save the brokerage model of investment advice after all. A new study confirms what we already knew – investors are better off when no conflict exists. Period.
Defining ‘Fiduciary’ In Three Dimensions,” (Financial Advisor, March 2012) The three dimensions are legal-regulatory, process-behavior and principles-attitudes. If you like math, you’ll like this article.
Fiduciary advocates urge SEC not to reinvent wheel,” (InvestmentNews, April 1, 2012) A carry-over story from last week, this updated version contains a quote from SIMFA. It doesn’t change the bottom-line. We are in the process of defining fiduciary down.
Fiduciary Standard Doesn’t Raise Costs: Study,” (InvestmentNews, April 1, 2012) Just as we were ready to throw in the towel, Texas Tech University offers more empirical proof the claims of the brokerage industry have no basis.
DOL’s Secret Fiduciary Fix Offers BDs Big Opportunity,” (AdvisorOne, April 3, 2012) First of all, the title is misleading, not because it isn’t true, but because it evokes something other than what the article addresses. The “fix” is really how brokers can use the Investment Advice Rule to overcome the fact they are not acting as a fiduciary. The “secret” is because it’s a strategy not many want to admit to.
Analysis: Fiduciary standard can cover brokers too,” (InvestmentNews, April, 3, 2012) As reported last week, supposed proponents of the Fiduciary Standard decided to declare it is now OK for fiduciaries to engage in what for centuries have been considered prohibited self-dealing transactions. The author of this opinion piece believes this is a valuable compromise. Purists see it as “Dumbing Fiduciary Down.”
Fidelity violated fiduciary duties to retirement plan participants and plan itself,” (Employee Benefit News, April 5, 2012) Fidelity doesn’t think this is a big deal. This is a big deal.
SIFMA: Stance on fiduciary standard has been distorted,” (InvestmentNews, April 6, 2012) Actually, no. SIMFA’s stance has been crystal clear since the beginning, agree to the “fiduciary standard” but distort the definition of fiduciary standard. It’s not about “client choice.” If the client wants to choose the investment, that’s fine. That’s called the brokerage standard. If the client wants to choose the person who chooses the investments, that’s the fiduciary standard. Plain and simple. No exemptions. No smoke and mirrors.

Fees – Sign of Spring:
Fee, fee, everywhere a fee/Hiding out from the fiduciary soakin’ up my wealth/Pay this, don’t pay that, can’t you pay the fee!
401k disclosure doesn’t go far enough,” (InvestmentNews, April 1, 2012) An otherwise interesting article marred by a mathematically inane final sentence: “Expenses, contributions and performance all contribute to long-term returns. And all else being equal, low fees get you to retirement quicker.” Of course, all things being equal changing any one of the three contributors more favorably will get you to retirement quicker.
Understand Your Retirement-Plan Fees,” (Wall Street Journal, April 5, 2012) A fairly balanced article that focuses on real fees as opposed to the usual tripe about mutual fund expense ratios. It ends with very good advice: Fees are only part of the equation. Performance counts, too.
4/01k Fools Day,” (BenefitsPro, April 5, 2012) A look at how illogical media statements on fees can be.

Investments – More April Foolishness!:
The business of investing used to be a hallowed enterprise carried out by boring, eccentric and honest math wizards sitting around cherry tables in rich paneled rooms. Now it’s nothing more than a series of auto ads brought to you by your favorite local dealer. Ah, if only we could go back to the future.
Pension Funds Making Alternative Bets Struggle to Keep Up,” (New York Times, April 1, 2012) Seriously? This isn’t an April Fools’ joke? This just shows the dangers of moving 401k assets in self-directed IRAs that can buy in these alternative “investments.”
Retirees Boost Their Financial Risk With Gold,” (AdvisorOne, March 30, 2012) Although the article uses a strained Star Trek reference (“abandon ship!”), it should have used the obvious Lost in Space reference (“Danger! Danger, Will Robinson!”). In either case, it says what the New York Times Article didn’t.
Investors, Advisors at Odds Over Management Fees and Costs for Mutual Funds and ETFs,” (On Wall Street, April 3, 2012) Here we go again. Those you don’t pay attention to history are condemned to repeat it. It looks like the “active vs. passive” debate is resurfacing thanks to the apples-and-oranges comparison between ETFs and mutual funds. ETFs, being mostly passive vehicles, naturally consume lesser management fees. Now, let’s randomly pick a snapshot in time and – voila! – we have “evidence” indicting the entire active management culture. How many times must we repeat this “passive is just an investment style, and the performance of investment styles moves in cycles.”
SEC Study Suggests More Disclosures Needed For Target-Date Funds,” (Financial Planning, April 4, 2012) Once again, it’s all about the year. It is date of retirement or date of death?
‘Target’ of Target-Date Funds Confuses Investors, SEC Finds,” (AdvisorOne, April 4, 2012) Similar to the above article, but with a bullet list of key points and the important SEC call to action.
Companies Look For Ways to Make ETFs Fit in 401k Plans,” (Wall Street Journal, April 5, 2012) This article espouses the theory that ETFs will become more popular once fee disclosure hits because ETFs are less expensive. This, or course, is a misleading because ETFs are generally index funds and it’s not clear they’re cheaper than the cheapest index mutual funds. One thing might be true: It might be easier to hide fees in ETFs than in mutual funds.

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.
The 401k: Americans ‘just not prepared’ to manage their own retirement funds,” (The Washington Post, April 3, 2012)
Many Investors, Especially Younger Earners, Neglect IRAs,” (Financial Planning, April 4, 2012)
Top 4 trends in 401k participation,” (BenefitsPro, April 4, 2012)
Boomers really are retiring, after all: MetLife study,” (BenefitsPro, April 4, 2012)
Firm’s Mismanagement Cost Its 401k Plan Participants $35.2 Million, Judge Says,” (Financial Advisor, April 4, 2012)
Most Retire Before They Think They Will,” (Financial Advisor, April 4, 2012)
ICI: Change not a constant for DC participants’ investments,” (Pensions & Investments, April 4, 2012)
4% solution for retirement doesn’t fit all,” (MarketWatch, April 5, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Suggestions for a more financially literate investing publicfi360 Blog: A changing of the fiduciary guardERISA Lawyer Blog: Second Circuit Rules That Plaintiff’s Claim Is Preempted By ERISA, Since It Arises Out Of A Pension Plan And Not A Separate Employment AgreementThe Pension Protection Act Blog: FedEx’s 401k and Misclassification of Employees as Independent ContractorsBe Managed: Video – Illustrating the Difference – Brokers vs. FiduciaryThe Trust Advisor: A Few Things to Ask Your Financial AdviserBoston ERISA Law Blog: Structural Impediments to Breach of Fiduciary Duty Claims

Hot Tips from Popular Web Resources:
Dorsey & Whitney: The Importance of “a Deliberative Process”: Missouri Federal Court Finds Plan Fiduciaries Liable for Breach of Fiduciary Duty in Tussey v. ABB Inc.

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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