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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 8/31/12

September 04
00:04 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:
Why the Fiduciary Standard Can’t Live in Harmony,” (, August 28, 2012). Is the call for “harmonizing” the SEC and DOL versions of the fiduciary standard merely a ruse to thwart the entire effort?

Compliance – Is There Anyone Out There?:
Read it an weep, folks.
California governor, Democratic legislators agree on pension changes,” (Pensions & Investments, August 29, 2012) This will cap pensions for new hires at either $110K or $130K depending on whether or not the person is eligible for Social Security. It doesn’t change anything for existing hires. Naturally, the unions have complained. Perhaps they’d rather rearrange the deck chairs in a different way?
Pension investment strategy in light of new law,” (Pensions & Investments, August 29, 2012) File this under “More Fun with Math!” Apparently companies can now use a lower discount number. Yipee! This will lower their accounting liability and give the appearance of greater (taxable) profits while at the same time doing nothing to take the “Ponzi” out of the pension scheme.

Fiduciary – It’s a Wonder McCartney hasn’t written a song about this:
This week saw further discussion on the interesting suggestion by fi360 – can the SEC and the DOL even speak on the same legal page?
After bow-out, peers rally behind Rhoades,” (InvestmentNews, August 26, 2012) The title says it all. The article adds nothing more and appears to be a rehash of a previously published article.
Harmonizing DOL, SEC Fiduciary Rules Forces a Stark Choice, fi360 Warns Lawmakers,” (AdvisorOne, August 27, 2012) And the DOL inscrutably vows to stay the course.
The fiduciary standard show must go on,” (BenefitsPro, August 29, 2012) In a nutshell: “Don’t let perfection become the enemy of the good.”

Fees – Eastwooding Fee Disclosure:
With the documents playing the part of Client and the chair being unoccupied by the 401k participant.
Most Americans clueless about fee disclosure,” (BenefitsPro, August 27, 2012) We’ll just ignore the obvious comment (you know, the one about not needing the “about fee disclosure” part of the headline) and just say we told you so.
New 401k fee disclosures call for new strategies,” (Reuters, August 28, 2012) It’s important for every 401k plan sponsor to read this article, not for the accuracy of the information it contains, but for its inaccuracy. This story reflects the meme of the popular press regarding 401k fees and, as such, will be the most likely way 401k participants will become “educated” on their plan. Aside from the confusing misuse of the term “expense ratio,” it again offers the false conclusion lower cost index funds may be the way for participants to go.
Focus shifts to Nov. 14 participant-level fee statements,” (BenefitsPro, August 28, 2012) Rats! That means we’ll have to put up with more stories like these. What’ll people get fed up with first: This theme or Election ads?
New regulations to make 401k quarterly statements even longer,” (Pittsburgh Post-Gazette, August 28, 2012) First they want full disclosure, then they complain the statements are too long. What does it matter? They never read them anyway.
The cold, hard truth of 401k fee disclosure,” (BenefitsPro, August 29, 2012) Here’s a quite different take on the impact of the new participant fee disclosures – those that do read them will be underwhelmed. Because the fees will be listed in terms of dollars, far too many 401k investors will discover the annual fees they are paying amount nothing more than the equivalent of a fast food meal – if that. “What’s the big deal?” they’ll shrug. The big deal is, if that’s your total annual fees, then you’re probably not saving enough in your 401k!
Five things to remember about participant fee disclosure,” (BenefitsPro, August 31, 2012) You know those annoying “Top Ten” lists that require you to go to a different page for every single one of the items listed? This is one of them.
401k fee disclosures: Don’t run to the exit,” (MarketWatch, August 31, 2012) Robert Powell hits the nail on the head when he tells participants not to overreact when they first see the fees they’ve been paying. After all, maybe they’re getting what they’re paying for.
New disclosures give workers a better look at 401k fees,” (St. Louis Post-Dispatch, August 31, 2012) The article starts out fine, pointing out that most 401k investors incorrectly think their 401k plan is free. But then it goes on to quote a financial planner who think more investors will switch to “low-cost” index funds without explaining the risks of doing that or repeating the DOL’s warning about assessing fees without also looking at performance.

Investments – Should we even be talking about this?:
It used to be investments were the sizzle that sold the steak of retirement planning. It turns out their only the vehicle to surreptitiously suck dollars from savings accounts.
Asset Allocation Is Overrated in Retirement Plans: Putnam,” (AdvisorOne, August 24, 2012) Not for nothing, but we ran a story on a suspiciously similar Wharton study sponsored by the Pension Research Council a couple of weeks ago (“New Study Reveals Three 401k Strategies More Important than Asset Allocation,”, August 14, 2012). This article purports to highlight a “white paper” by Putnam (we looked at it – it looks like a promotional brochure) that – Surprise! Surprise! – makes it appear Putnam discovered the same things the Wharton researchers discovered. Coincidence or astute marketing?
Flawed 401k Plan Structures to Blame for Systemic Failure,” (Forbes, August 29, 2012) Here’s what’s so great about this article: 1) It highlights problems at big firms – the kind we normally think are immune from such terrible concepts like “bundling” and “conflict-of-interest”; 2) The problems it discusses don’t get a lot of airtime but they can be especially damaging, especially since they occur at big firms; and 3) the author names names. Even though these problems have little to do with actual investments, they are all delivered through the investment platform. And that, Charlie Brown, is what conflict-of-interest is all about.

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.
401k Participant Transfer Activity Low in July,” (PLANADVISER, August 27, 2012)
Despite disclosures, workers lack understanding of DC plans, IRAs,” (Insurance & Financial Advisor, August 27, 2012)
Working to Age 70 Still Not Enough for Many,” (, August 31, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Preserving the fiduciary history and legislative intent of IAA and ERISAThe Chicago Financial Planner: Cramer Thinks Most 401k Plans Stink – Do They?fi360 Blog: An assessment or audit can be a good thingThe Chicago Financial Planner: Friday Finance Links – August 31, 2012

Hot Tips from Popular Web Resources:
Dental Economics: More rules and administrative procedures for your 401k – There is a way out!McKay Hochman Company, Inc.: Designated Investment Alternative (DIA) Definition

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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