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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 8/24/12

August 27
00:16 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:
Yale Study: A Few Extra Words Can Make a Major Difference for 401k Investors,” (, August 21, 2012). Employees base their decisions – both good and bad – on even the smallest cues, and that only increases 401k plan sponsor fiduciary liability.

Compliance – Step 1: First Admit You Have a Problem:
If all these great minds agree we can’t continue to support the pension plan concept, and they’re even able to prove why using elementary level mathematics, why can’t we do anything about it? Here’s the simple answer: NIMBY. In other words, everyone agrees we need to fix things until they discover they’re part of the problem. Then they want it to be an SEP (a.k.a. “Somebody Else’s Problem”).
Critics say floating NAV would sink money funds as retirement vehicles,” (InvestmentNews, August 21, 2012) This is spot on, as changing the nature of money funds would alter their purpose and how they fit within investors’ objectives.
Controversy Over Brokerage Windows Is Focus of Drinker Biddle Debate,” (AdvisorOne, August 17, 2012) Here’s a good overview of what Fred Reish and company said in their recent conference call.
Turning Your 401k Into a Pension: The DC-to-DB Rollover,” (AdvisorOne, August 20, 2012) Here’s something for those who prefer to zig while others zag, although a more appropriate metaphor might refer to “swimming upstream.” In either case, enter these waters are your own risk.
Illinois punts on public pensions,” (Employee Benefit News, August 20, 2012) The car is speeding towards the bridge abutment but the politicians are too afraid of upsetting their constituencies. Perhaps what is bad for Illinois will be good for the rest of the nation. Actually, it’s a race between Illinois and California to see who crashes first.
Why traditional pension plans are disappearing,” (Philadelphia Inquirer, August 26, 2012) This is a fair and balanced article that assumes the reader knows something about corporate accounting. For a more entertaining twist, read the comments. Some people would seem to prefer to believe in the existence of flying monkeys rather than the stark reality of a thing called “math.”

Fiduciary – When is Compromise…:
…just a compromise, and when is it caving in? This is a question that has risen to the forefront of nearly all avenues of political discourse, so why not the fiduciary standard debate?
Top Industry Players Urge Regulators to Enact Fiduciary Standard Soon,” (Trusts and Estates, August 22, 2012) They all agree the fiduciary standard is the next best thing, but is Washington listening?
Fiduciary Rule Could Be Years Away: Industry Experts,” (AdvisorOne, August 22, 2012) Knut Rostad says it’ll be a few years before the regulators catch up to what he believes will ultimately be determined by the market.
Re-elect Ron Rhoades,” (BenefitsPro, August 23, 2012) This is in the realm of “the punishment should fit the crime” and what happens when it doesn’t.
Single fiduciary standard from SEC, DOL would create multiple problems, says consultancy,” (InvestmentNews, August 24, 2012) The issue being the SEC and the DOL were formed and are guided by a different set of laws. For them each to have the same fiduciary standard would require one of them to go beyond or violate the letter of those laws.
USI Advisors of Glastonbury, Conn., agrees to pay $1.27 million to 13 defined benefit pension plans following US Labor Department investigation,” (EBSA News Release, August 23, 2012) For those wondering, here’s an example of an RIA getting into trouble for recommending funds with 12b-1 fees.

Fees – And Now the Good Part Starts:
Getting 408(b)(2) implemented was just the beginning. Now comes the part where every starts talking about it and using it for their own best interests. As we have seen before, caveat emptor.
New 401k statements disclose management fees,” (USATODAY, August 19, 2012) The good news is this article correctly advises 401k investors to look beyond fees and consider (shudder!) fund performance, too. The bad news is that this vital tidbit is buried deep in the body of this article towards the very end, meaning most of the people who need to read this will have probably already turned the page. Hmm, perhaps this is appropriate for an article about 401k fee disclosure.
Drilling Down On 401k Fees,” (FinancialAdvisor, August 24, 2012) This is a story about a product – something we normally avoid – but we wanted to highlight it as a warning. This product takes an overly simplistic view on fees, something the DOL has warned against. Unfortunately, it’s being marketed to the same demographic that always seems to fall prey to too-easy-to-believe schemes. Who knows? Maybe this time it’s different.

Investments – Don’t Look Now, But…:
Yes, yes, yes, as we just read in the article immediately above, index based investment products (both mutual funds and ETFs) should have the lowest investment management fees. How many times, however, must the DOL say you cannot look at investment fees without looking at investment performance?
Target-date investors get more low-cost options,” (USATODAY, August 18, 2012) Another piece of evidence for the argument that the mass media suffers from financial illiteracy. In this story, the author touts these new “low-cost” options as having two varieties – those composed of index funds and those composed of ETFs. Apparently the author doesn’t know they’re basically the same thing (for now, see below), even though he admits it later on in the piece. Oh, well, as a co-worker said, “Our only hope is that no one reads USA Today anymore.”
It’s Good to Be Active, But in an ETF?” (US News and World Report, August 21, 2012) In a surprisingly well researched and well written article, we see, at least in the short term, actively managed ETFs are beating index fund ETFs. This includes the higher management fees, too, folks; thus, showing the importance of looking at the bottom-line investment performance, not just the expense ratio. More importantly, those in the know will conclude something more significant from this article: with the advent of more actively managed ETFs, not only is the “low cost” selling point going away, but so is the “transparency” argument. This is beginning to apply even to index fund ETFs. In fact, it appears they are evolving into, shall we say it, closed-end 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.
Olivia Mitchell, Kent Smetters, Others Reveal Holes in Retirement Advice,” (AdvisorOne, August 17, 2012)
Auto-enrollment, active management keys to 401k success,” (BenefitsPro, August 21, 2012)
Are America’s financial fortunes changing?” (BenefitsPro, August 23, 2012)
DOL lawsuit alleges misuse of two retirement funds,” (Employee Benefit Adviser, August 23, 2012)
Retirement plan sponsors facing new challenges in 2012,” (BenefitsPro, August 24, 2012)
Common Mistakes Pre-Retirees Make,” (Wall Street Journal, August 25, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: With 404(a)(5) deadline looming, DOL backs off brokerage window stanceThe Chicago Financial Planner: Life Insurance – You Probably Need ItERISA Litigation & Benefits Blog: DOL’s Focus on Brokerage Windows Implicates Hecker v. Deere PrecedentThe Pension Protection Act Blog: 404(a)(5) Fee Disclosure: When Participant Means All Employees

Hot Tips from Popular Web Resources:
National Bureau of Economic Research: Designing Pension Plans for the Twenty-First Century

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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