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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 9/21/12

September 24
00:07 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 Stories:
The Whole Truth: What the Fiduciary Duty of Good Faith Means to Investors,” (, September 18, 2012). A fiduciary must reveal everything, both the good and the bad.
Why Nobody Likes Stinky Pete: What Conflict-of-Interest Means to Investors,” (, September 20, 2012). Some prospectors will sell you out for an ounce of gold.

Compliance – We Hate to Say “We Told You So,” But…:
Look. Every financial adviser worth whatever letters of certification they have behind their name knows this. It’s one of the fundamental axioms of retirement planning advice. “Take the money and run.” So, when these opinionators pontificate from their Ivy-covered towers saying such inane things like “you’ll lose the advantage of institutional rates if you pull your money out of your former employers plan,” you’ve got to wonder where they’re coming from. Sure there are some advantages to institutional purchasing power, but there are also disadvantages to have your retirement money institutionalized. And in the worst case scenario, you lose bug time and you have no control over it. At least if you take the money out and lose it, it’s nobody else’s fault but your own.
New Retirement Plan Proposals Should Include Everyone,” (, September 17, 2012) Before you get too upset, this is really about solving everyone’s retirement problem, not just those who aren’t in retirement plans.
Kodak not reinstating pension lump sums this year,” (Democrat and Chronicle, September 17, 2012) Bad news for all those Kodak retirees who decided against taking a lump sum pre-bankruptcy all on account of a good payout from their stable value option. As the former blue chip company writhes in its final death throes, pensioners seem destined to fall into the clutches of the PBGC and get only a fraction of what they should have. Folks, this is a classic lesson: When you leave the company, take your money with you. Even better, if the company wants to give you a lump sum on your retirement assets, take it.
Pension settlements announced by Sears, New York Times,” (BenefitsPro, September 19, 2012) Two more major firms seek to reduce DB liabilities by offering employees a lump-sum payout. If the Kodak story is any help, it’s probably best to take the money and run.
What’s happening with GM’s pensions?” (MarketWatch, September 19, 2012) Here’s an author who doesn’t believe in taking lump sum payouts. He says it’s because individuals have to pay higher fees than institutions. He should read the Kodak story. Sometimes you get what you pay for.
California might offer retirement plan to private workers,” (Pensions & Investments, September 19, 2012) Good news about this idea: It’s a form of automatic enrollment that still allows an “opt-out” and doesn’t require the company to put money in. The bad news: One form of this idea has the California Retirement system manage the assets. Better idea: Why not just allow workers to create portable personal IRAs?

Fiduciary – Father Knows Best:
Gee, what made them miss this obvious title? This is a great article, especially if you’re a Romney fan. But, really, all this is old news and has been advocated by behavioral finance research for more than a decade. When will the politicians and regulators catch up? Oh, wait! We forgot. The industry is entrenched. Read the article.
The 401k Plan’s ‘Father’ Wants to Hit Reset,” (US News and World Report, September 18, 2012) OK, so this one could have gone into any of these categories. But you don’t get much more ‘fiduciary’ than if you’re the father of something (or mother, for that matter). ‘Dad’ Ted Benna has a lot to say, and, if you don’t think it’s full of wisdom, than you might just might be full of something else. (Actually, he does get one thing wrong. He says the investment adviser industry didn’t take off until the 401k market blossomed in the 1980’s. Technically, the RIA industry began with the 1940 Act, but it really mushroomed in the 1970’s as boutique RIAs swept assets away from the stultifying dinosaurs in the trust department of various banks. But we’ll that story for another day.)

Fees – The Magic Wand Waves:
You had it in you all along, all you need is to click your heel three times and say, “408(b)(2)…408(b)(2)…”
What we can learn from Tussey v. ABB Inc.,” (BenefitsPro, September 17, 2012) This is an old story, but it’s worth revisiting. It explains all the wrong moves a plan sponsor can make in order to breach its fiduciary duty in the name of saving few bucks.
DOL Sets Up Online Tool for Fiduciary Relief Under 408(b)(2),” (AdvisorOne, September 18, 2012) Sometimes it’s easier to enforce a new rule than an old rule. This is why. With 408(b)(2), 401k plan sponsors are now on the hook for inadequate fee service provider disclosure. The DOL is serious about enforcing this. They’re removing all excuses for not reporting a failure to comply with this rule.
Employee Benefits Security Administration announces launch of 401k fee disclosure resource website,” (EBSA News Release, September 19, 2012) According to the release, the new site “offers information on disclosures that, for the first time, will help workers with 401(k)-type retirement plans see what they are paying to invest their savings. It also includes new tips and tools on making smart retirement investment decisions.”

Investments – Wait ‘til You Father Comes Home:
Well, one out of three ain’t bad. These main stream media guys need to really have a sit-down with Ted Benna. BTW, he didn’t say “target-date funds,” he said “targeted maturity funds” – a subtle but important distinction given the poor track record of the “popular” (read: “heavily promoted, high profit”) target-date funds. Don’t know what “targeted maturity funds” are? Think back to the way traditional profit sharing plans were invested. They weren’t funds of funds, they were balanced portfolios of individual stocks and bonds that were adjusted over time to reflect the changing demographics of the beneficiaries. In other words, “no-brainer investment decisions.”
PSCA: More than two-thirds of DC plans offer target-date funds,” (Pensions & Investments, September 17, 2012) Ah, the power of marketing! Interesting stat: bigger plans (more than 5,000 employees) are more likely to offer TDFs vs. smaller plans (less than 50 employees). Who says there’s safety in numbers?
How to get better returns from your 401k,” (CBS News, September 21, 2012) They still write articles like this? This is what the NFL would call a “throwback.” It even contains a gratuitous MPT-inspired suggested asset allocation.
Retirement Savings Tips Every Millennial Should Know,” (TheStreet, September 21, 2012) Now, this is more like. See here the difference between old style media (like the CBS article above) using stale and outdated tropes versus this more modern media talking about things that count.

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.
Employer match not a strong motivator for 401k enrollment,” (Employee Benefit News, September 15, 2012)
Retirement savers feeling better about their jobs,” (BenefitsPro, September 18, 2012)
How to Make a Popular Plan a Successful Plan,” (, September 18, 2012)
Baby Boomers spend more on education, kids than retirement,” (BenefitsPro, September 20, 2012)
U.S. retirement assets down 2.6% in Q2, Fed data show,” (Pensions & Investments, September 20, 2012)
Access to Retirement Plans Varies in Private Sector,” (, September 21, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Under-the-radar bill could benefit fiduciary rulemakingThe Trust Advisor: Two New DOL Fee Disclosure Websites

Hot Tips from Popular Web Resources:
National Center for Policy Analysis: Pension Woe Mounts As States Forsake ReformRIABiz: RIAs join move to right a 401k wrong: Lopsided plan expenses

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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