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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 7/20/12

July 23
00:03 2012

Welcome to 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. Lead Story:
7 Low or No-Cost Ways to Increase 401k Participation,” (, July 17, 2012). While matching does provide a modest incentive, there are cheaper and more effective ways to get employees to save more in their 401k plans.

Compliance – Singin’ those Pension Fund Blues:
This is no longer “drip, drip, drip” but more of a gusher.
Mercer reports S&P 1500 aggregate pension deficit grows $59 billion in 2012,” (Employee Benefit News, July 16, 2012) Until the economy starts to expand, this just ain’t gonna get better.
Largest public pension fund earns dismal 1 percent,” (BenefitsPro, July 16, 2012) That would be the California retirement plan. And it gets worse. Over the last 5 years, the plan has barely broke even, with a total return of only 0.01%. It’s tough to do worse than a bank savings account, but those thought leaders in California have apparently figured out a way to do it.
New York City Retirement Systems’ preliminary return at 1.7%,” (Pensions & Investments, July 17, 2012) More bad news for public employees.
Record $355B Pension Underfunding for S&P 500 Companies,” (Barrons, July 18, 2012) As the article says, “Companies are continuing the trend of moving away from pension obligations and into 401 types of investments as they shift the responsibility of retirement away from the corporation and over to the individual.”
DOL to offer tool to help plan sponsors seek fiduciary relief,” (BenefitsPro, July 19, 2012) This is for 401k plan sponsors to use if they feel their service provider has not provided the required fee disclosure. Remember, if the service provider fails to provide fee disclosure, the 401k service is legally obligated to fire that service provider or face penalties.
Pennsylvania joins movement to overhaul public pensions,” (Employee Benefit News, July 19, 2012) States are facing the awful dilemma of paying for pensions or paying for vital services.
Public Pensions Are About To Look Less Healthy,” (NPR, July 20, 2012) And this is using that old traditional return assumption of 8%. Imagine how bad things will look once they go down to 5%.

Fiduciary – Come Together:
It’s always good to hear (or read) the voice of reason.
FINRA’s New Suitability Rule Edges Closer to ‘Fiduciary’: NAPFA Chairman,” (AdvisorOne, July 16, 2012) An excellent interview with Ron Rhoades, who slices and dices FINRA’s new rule in a way that all will appreciate.

Fees – The Most Sincerest Form of Flattery:
Amazingly, the dearth of articles on fees this week – was everyone on vacation? – had us searching deep into our media files. We were pleasantly surprised to find this.
How efficient is the 401k system,” (October Three, July 11, 2012) Normally we wouldn’t post a blog in this section, but since it appears they lifted a quote directly from our June 5th, 2012 story “Second Look at Headline Grabbing 401k Fee Survey Reveals Major Questions” (originally) without proper attribution, we decided to make a game of it. From our days of reading CFA texts, we’re pretty sure financial publications can be quoted liberally as long as the source is indicated. We, in fact, are highly complimented when other writers quote from our articles, as long as they attribute it properly and/or link back to the original story. At least that’s what we’ve told the author of this piece, who gratefully added the attribution.

Investments – Odds and Ends:
Oh these lazy days of summer sure spring some interesting stories.
Day-trading for retirement dollars,” (BenefitsPro, July 18, 2012) The author explains this is perhaps the all-time worst strategy for employees, although many are tempted by some of the meager returns they’ve seen in their plans (see the California and New York City retirement plan stories above).
BrightScope: Institutional target-date fund fees fall 3 basis points,” (Pensions & Investments, July 17, 2012) That’s the (marginally) good news. The bad news is that more TDFs are looking to “alternative investments.” Sounds like a train wreck waiting to happen.
Advisers reject NBA retirement plan,” (InvestmentNews, July 18, 2012) Notice the “er” as in “adviser” in this headline as opposed to “or” as in “advisor.” That single vowel often denotes the difference between  fiduciary and a broker. In this case, these investment fiduciaries rejected the proposal to throw most of the retirement money into annuities. The NBA wanted to do that because, despite getting paid a lot, too many former NBA players end up destitute. The fiduciaries didn’t want to do that because, based on the large salaries of NBA players, they could afford to self-endow in a far less costly way than by buying annuity products. The question wasn’t about getting players to save more, that’s automatic. It was about how to invest those savings.
Are ETFs the right thing for a 401k?” (BenefitsPro, July 19, 2012) Here are the problems: transaction costs, day-trading and too narrowly defined asset classes. All these might be mitigated, but it’s still the wild west out there and 401k investors should be especially wary before dipping their toes in these still-relatively new investment products.

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.
Americans borrow heavily from 401k plans but loan defaults are up,” (Los Angeles Times, July 16, 2012)
Study identifies major flaw with 401k plans,” (CBS News, July 16, 2012)
How to Fix Your Company’s 401k,” (Inc. Magazine, July 18, 2012)
3 ways to solve the biggest 401k problem,” (BenefitsPro, July 19, 2012)
Employer to Pay 500K for Failing to Monitor TPA,” (, July 19, 2012)
Investors reveal confusion dominates retirement decisions,” (Employee Benefit Adviser, July 19, 2012)
Employer match not strong motivator for 401k enrollment,” (Employee Benefit Adviser, July 19, 2012)
Nearly Two-Thirds Of Unemployed Americans With A 401(k) Reaching Into Retirement Savings: Report,” (Huffington Post, July 19, 2012)
No Jargon, Please: Think 401k Investors Know What ‘Fund’ Means? Think Again,” (AdvisorOne, July 19, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Disaster recovery and financial literacy are two areas where advisors can do more for investors

Hot Tips from Popular Web Resources:
National Bureau of Economic Research: Matching Contributions and Savings Outcomes: A Behavioral Economics Perspective
Plan Sponsor Council of America: Another Fee Article: Another Distortion
EBSA News Release: US Labor Department action results in order to restore half a million dollars to worker retirement plans sponsored by Columbus, Ohio-based company
Wolters Kluwer: Early retirees’ fraudulent misrepresentation claims time-barred by ERISA’s three-year period for fiduciary breach

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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