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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 11/16/12

November 19
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:
A How-To Guide: Investing Using the Total Return Method or the Assigned Asset Method,” (, November 13, 2012). In music, you start at the very beginning. With investment goals, you start at the very end.

Compliance – Balancing the Budget on the Backs of Retirees:
It hardly seems fair. You work all your life playing by a certain set of rules. And then, just when it’s your turn to come to bat, they change those rules. There’s only one way out. Get rich. Get filthy stinking rich. Oh, wait. They changed those rules, too.
Study: Pensions not a panacea,” (MarketWatch, November 13, 2012) When asked, people tend to want a sure thing, especially if they think they’re not paying for it. So what’s new? Hasn’t that ploy been used by dictators since the dawn of man? Well apparently, a recent survey suggests workers want guaranteed pensions. Who doesn’t? The question is: Who pays for those pensions? As we’re finding out at the state level, bottomless pensions are not realistic. Private companies found this out a generation ago. On top of this, a recent ICI research paper reveals pensions didn’t produce the broad benefits so many believe they did and accounted for only 8% of a retiree’s income needs. Ouch. Reality hurts.
The Fight for Retirement Plan Tax Advantages,” (, November 16, 2012) Round and round she goes, where she stops, nobody knows… It seems like all your favorite tax deductions are on the table, from mortgages to IRAs to company retirement plans to, well, you get the picture. How does it feel to be part of the superwealthy? Well, look at the bright side. At least somebody’s getting a free phone out of the deal. And at least you’re not a farmer who stands to lose a lifetime of work because the land he farms is more valuable than the crop he harvests.

Fiduciary – What’s that About Angels Dancing on the Head of a Pin?:
Let’s just get the thing done. And keep it simple. And not rely on disclosure. It should be as plain as the trust law from which it’s derived: no self-dealing transactions. If you’re a fiduciary, you cannot get any compensation as a result of placing client assets into an investment. No commissions. No 12b-1 fees. No revenue-sharing. End of story.
Should Advisors Have to Disclose All Pressures to Maximize Revenues?” (AdvisorOne, November 13, 2012) Bob Clark takes a rare view opposing Ron Rhoades on compensation disclosure. Ron feels it’s important for brokers to disclosure their revenues based on potential conflicts of interest surrounding selling securities. In other words, it’s good for clients to know if the securities brokers put in their accounts also pay the brokers. Bob says what’s good for the gander is good for the goose and, if brokers disclosure compensation, than so should RIA’s (who, thanks to their fiduciary duty, don’t have the same conflict of interest when it comes to purchasing securities). Bob thinks such disclosure is going too far. Hmm, Bob, Ron,… Ron, Bob,… who to choose? We’ll go with Ron on this, because Bob seems to be too clever by half. It’s not about high fees (that’s what Bob appears to be basing his argument on), it’s about conflicts of interest (that’s what Ron is basing his argument on).
Lunch encounter: Chance meeting convinces Aikin fidush change on the way,” (InvestmentNews, November 16, 2012) fi360’s Blaine Aikin says it’s happening. After bumping in the DOL’s Phyllis Borzi, he expects, now more than ever, the regulator will go ahead with its much anticipated new definition of fiduciary – and that it might even extend to advisers covering IRA plans. Cool.

Fees – The Law of Unintended Consequences:
Sure, now they tell us. It’s not as easy getting true fee information from all investment products. Solution? Require all investment products used in ERISA plans to follow the same accounting regs as the most regulated investment product – mutual funds. It doesn’t mean you can’t have common trust funds, annuities, etc…, it just means either they follow the same accounting rules and regulatory disclosures as mutual funds or they limit themselves to non-retirement accounts.
Stable-value-fund fee data elusive despite DOL regs,” (InvestmentNews, November 11, 2012) Despite the opening statement in the article, this is not news. We’ve known for some time how difficult it was to obtain fee information on stable value funds – or for any common trust fund (CTF), for that matter. It has to do with the nature of their governing regulations which, quite different from Registered Investment Companies, allow CTFs to charge different rates to different underlying trusts and, in general, create a lower cost expense structure (although that’s no guarantee the sponsoring bank will take advantage of it).
Nov. 14 fee disclosure deadline hits plan sponsors,” (BenefitsPro, November 14, 2012) Shh! Listen. Do you hear that? It’s the sound of crickets chirping. According to the article, fee disclosure has been “much ado about nothing.”

Investments – Back to the Future:
Can a world that accepts the concept of Boomerang Kids ever believe folks should have the responsibility for making their own choices and living with the consequences? Maybe placing the yoke of fiduciary responsibility on the shoulders of the plan sponsor has been the wrong approach. Maybe the idea of a “Super-IRA” – where the employer merely defers and matches salary to and the employee has the responsibility to set up and maintain – is the ultimate solution. It would seem to save a lot in administrative costs and, in an economy that requires more, not less, focus, it might avoid another unneeded distraction. And let’s not even get started on the inability to understand investor behavior.
Plan Sponsors Must Prioritize Market Risks,” (, November 12, 2012) It’s all about reinvestment risk folks. And while that is certainly true, the article implies addressing it should be on the shoulders of the plan sponsor. Many think this is the responsibility of the investor, not the plan sponsor. But it follows that plan sponsors have a fiduciary duty to educate investors to avoid misunderstanding their investments, and knowing what reinvestment risk is and how to avoid is important.
Investors Behaving Irrationally,” (, November 12, 2012) For those still wedded to Modern Portfolio Theory, this article gives you a dose of reality with actual, real-life statistics. Face it, if human beings could act like emotionless machines when it comes to decision making, then we would have need for computers.
A 401k That Promises Income for Life,” (New York Times, November 13, 2012) Unless your insurance company goes belly up. And it probably won’t be enough income for the average 401k investor. And, because of higher fees, it will likely be less total dollars than if you rolled your assets into a personal IRA and simply hired a professional money manager to invest it for you. And it might be worth a lot less if you don’t live long enough. And if you live long enough it doesn’t grow with inflation. And… You get the point. Too bad the naïve New York Times reporter didn’t. How many 401k investors will think this is a panacea when, like the pension plans of old, it will only work for an elite few. Just read the article about the pension panacea myth above.
Riding the Dow to retirement plan ruin,” (BenefitsPro, November 14, 2012) On the heels of exciting reports that 401k plans are hitting all-time highs comes the post-election (post-apocalyptic?) sell-off of the markets. Actually, it’s not “post” election as the Dow has lost 1,000 points over the last three weeks, only one of which that can be classified as “post.” Of course, that’s when the bulk of that grand was lost. Anyways, will this sell-off discourage employees from saving in their 401k?
The secret to retirement success?” (BenefitsPro, November 14, 2012) We start at the very end, not at the beginning.

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.
One-Third Unsure of Ability to Retire,” (, November 12, 2012)
10 things 401k plans won’t tell you,” (MarketWatch, November 9, 2012)
Retirement Planning for the Next Four Years Under President Obama,” (AdvisorOne, November 13, 2012)
DOL Slams Ivy Asset Management in $210 Million Madoff Settlement,” (AdvisorOne, November 13, 2012)
Surprise! 401k plans rode out the Great Recession just fine,” (InvestmentNews, November 14, 2012)
What 30 years of 401k mistakes teach us,” (MarketWatch, November 16, 2012)
401k Participants Less Active in October,” (, November 16, 2012)
The Price of Retirement Confidence,” (, November 16, 2012)

Wisdom from Some of Our Favorite Blogs:
The Chicago Financial Planner: Mutual Funds-B Shares
fi360 Blog: Addressing Conflicts of Interest and Risk Governance
The Chicago Financial Planner: Friday Finance Links November 16, 2012

Hot Tips from Popular Web Resources:
Motley Fool: Good News About Your 401k

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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