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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 7/27/12

July 30
00:22 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.

FiduciaryNews Lead Story:
The Best Investment Advice 401k Investors Will Ever Receive,” (, July 24, 2012). Here’s a win-win idea for both 401k investors and their fiduciaries.

Compliance – The Beginning of the End for Public Pension Plans?:
That constant drip, drip, dripping sound you hear is the not so gentle tick, tick, ticking of the time bomb known as the public Ponzi Sch… – er – public pension plans.
Public pension promises called unrealistic,” (Employee Benefit News, July 25, 2012) These plans assume a return of 8% and have been barely returning 1%. Something’s about to crack.
Pension reform seeks pension funding stabilization, higher PBGC premiums,” (Employee Benefit News, July 27, 2012) Good overview of new law.
Harkin Retirement System Proposal Gets Mixed Reviews,” (, July 27, 2012) Let’s see, take a trillion dollar industry and create a government conglomerate to cover people not currently customers to that industry. Health care? No, it’s Senator Tom Harkin’s brilliant idea for solving the retirement “crisis.” Apparently he forgot Social Security was already set up in the 1930’s. How’s that workin’ out for ya?
Maryland State Retirement returns 0.36% for 12 months,” (Pensions & Investments, July 27, 2012) Maybe the continuing awful track record for state public pension plans is responsible for the lack of excitement in Harkin’s State retirement pension plan.

Fiduciary – Oh, Yeah, About That…:
As the talk of fiduciary standard dies down, perhaps those opposed to it are hoping the “out of sight, out of mind” strategy might work. Not if the DOL has its way.
Self-directed accounts in peril,” (InvestmentNews, July 27, 2012) Self-directed 401k accounts that permit employees to choose from a platform of thousands of mutual funds might fall victim to the DOL’s recent statement concerning 401k plan sponsor fiduciary liability as it relates to the new fee disclosure rule. This does not appear to apply to self-directed accounts that are managed portfolios of stocks and bonds, only to those involving mutual fund platforms.

Fees – Truth Can No Longer Hide:
But it doesn’t mean you can’t do the ol’ Dipsy Doodle and flim-flam your way into misdirecting 401k plan sponsors. It’s like an incumbent with a bad record trying to fool voters by assassinating the character of his opponent. Here’s the problem with that strategy: Sooner or later, the truth seeps out.
One More 401k Expense – Trading Costs,” (SmartMoney, July 23, 2012) Ah, silly season returns with another really bad piece of reporting. This piece perpetuates the continuing myth that the cost of trading stocks counts as a “cost” on par with any other service provider fee. Like the mutual fund’s expense ratio, trading costs are already embedded in the performance of the fund – they are not fees that are added on top of that performance. This article ends with the classic faux pas claiming index funds must be better because they have lesser trading costs. That’s like telling that little pig the stick house is better than the brick house because it’s less expensive.
401k fee disclosure leading to plan conversion activity,” (InvestmentNews, July 25, 2012) This was to be expected, but it’ll take a year or so before all the dust settles.

Investments – “I’m not stupid, of course fruit and vegetables are the best for me…”:
“…but I’ll buy three fried snacks because they’re more convenient.” What if we bought food the same way we bought investments? Wait! We do!
DOL probes JPMorgan Chase & Co. stable value fund over possible ERISA breach,” (Employee Benefit News, July 24, 2012) Apparently the bank did not disclose mortgage securities holdings. This lack of (required) disclosure has long been a problem with common trust funds and stable value funds in particular.
401k Investors Seeking Diversification,” (AdvisorOne, July 26, 2012) Fully a third of all 401k investors have selected a single professionally managed asset allocation fund for their retirement investments.
Target-date mutual funds stumble in second quarter,” (LA Times, July 26, 2012) And yet, inflows continue unabated.
Which field goal kicker would you hire to manage your 401k?” (BenefitsPro, July 26, 2012) An excellent (and timely) sports analogy that might help every investor, not just 401k investors.
Equities Lose 401k Participant Assets in June,” (, July 27, 2012) Retirement crisis? We guess everyone already has all the money they need to retire, including enough to cover future inflation? Why else would they do the equivalent of stuffing it into a mattress?

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.
Why 401k Plans Finally Work,” (, July 23, 2012)
Common Mistakes Plan Sponsors Should Avoid,” (, July 24, 2012)
DC Plan Participants Stay the Course,” (Bank Investment Consultant, July 26, 2012)
401k Loans Spike in Summer,” (, July 27, 2012)

Wisdom from Some of Our Favorite Blogs:
The Chicago Financial Planner: Bond Funds Safe Haven or Risky Asset? – An Updatefi360 Blog: Fiduciary Links: Proposed bill would weaken municipal advisor regulationThe Pension Protection Act Blog: Fixing a 408(b)(2) Fee Disclosure FailureThe Chicago Financial Planner: Financial Planning Really Does Make a DifferenceBoston ERISA Law Blog: Heads I Win, Tails You Lose: The Privileged Position of Traditional Banks in ERISA Litigation

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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