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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 11/30/12

December 03
00:44 2012

Welcome to FiduciaryNews.com 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:
Will Fiscal Cliff Deal Harm 401k Investors?” (FiduciaryNews.com, November 27, 2012). Either way, messing with the tax code will hurt current and future retirees.

Compliance – Attack the 401k!:
You can pay me now, or you can pay me later. If we reduce retirement savings today, future retirees will have greater need for government benefits. Maybe that’s the idea. Don’t decrease government spending, but increase government dependency. That way the ruling class can effectively bribe the voters. Didn’t De Tocqueville warn us about that eventuality?
Study Questions Tax Breaks’ Effect on Retirement Savings,” (New York Times, November 25, 2012) Given the lack of credibility of the reporting in the New York Times on these issues, it’s tough to tell the study’s real significance without reading the actual study. On the face of it, it’s not telling us something we don’t already know. Earlier European studies (this one uses data from Denmark) show, like this study, automatic deferrals increase employee contribution rates. However, this may have more to do with the relatively small impact on tax savings and/or the lack of income for low income earnings. The article brings up the question but fails to answer it.
The 401k Is a $240 Billion Waste,” (The Atlantic, November 26, 2012) A repeat of the above. All we can say is something that rhymes with “brain-dead.”
ASPPA Launches Save My 401k Campaign,” (PLANSPONSOR.com, November 26, 2012) The industry takes on Washington.
No need for new DC plan,” (Pensions & Investments, November 26, 2012) Or is there? Senator Tom Larkin suggests a pension/401k hybrid where the risk is shared among employees of different companies and the companies have no fiduciary risk. Sounds too good to be true… and a little bit more complicated than 401k 2.0 that was first proposed on December 7, 2010.
Fiscal Cliff: Why Congress Might Have to Mess with the 401k,” (Time, November 28, 2012) The scariest part of this article: They’re talking about going after ROTH plans.
Will fiscal cliff resolution kill 401k plans?” (BenefitsPro, November 28, 2012) In 1986, tax reform reduced defined contribution reductions by 70% and killed off a number of plans. Are we doomed to repeat history?

Fiduciary – What, me worry?:
Surprisingly, no one had anything of import to say about this subject this week. Go figure.

Fees – What Planet are You On?:
Truth be told, fee disclosure is merely a means to an end, a veritable stepping stone to slowly rebuilding the foundation of the 401k. We have the technology. We can make it easier, faster, stronger. We can make it better than it was before… But not if we kill it (see above).
New 401k rules get some good results,” (MarketWatch, November 28, 2012) This is a muddled article whose content contradicts its headline. Worse, it’s (again) focusing only on mutual fund costs, not the real costs of operating plans.

Investments – Back to the Future:
There was a time when companies gave employees a bonus at the end of the year. The bonus was based on a percentage of each employee’s salary. It was placed into a special trust and the entire portfolio was managed as a single portfolio based on the demographics of the employees. It was called a profit sharing plan. Apparently, many employees (and companies) have realized they’re just amateurs and can’t do as well as professionals. That’s why we’re increasingly seeing the return of single portfolio “managed” options in 401k plans, whether as default options or as discretionary options.
Managed Portfolios and Your 401k,” (USNews.com, November 27, 2012) This article introduces to the mainstream press a theme the industry has been emphasizing for some time now. It’s about 401k menu options moving away from the Morningstar style-box categories towards multi-cap managed funds. As the author states, studies show employees have done a poor job trying to do-it-themselves, so many plan sponsors are returning to the old-style professionally managed portfolios and reducing the overall menu options.
Employees Trust Financial Advice from Employers,” (PLANSPONSOR.com, November 29, 2012) Hmm, this might be scary for plan sponsors who probably don’t know any more about giving financial advice than their employees. If the employees are looking for advice from their plan sponsor, and the plan sponsor (rightfully) doesn’t want to incur the fiduciary liability for providing such advice, we can only quote Marvin the melancholy robot from Hitchhiker’s Guide to the Galaxy: This will all end in tears.

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.
Surprise! 401k plans rode out the Great Recession just fine,” (InvestmentNews, November 15, 2012)
The real reason unions are targeting Wal-Mart,” (Washington Examiner, November 27, 2012)
Pre-Retirees Unprepared for Retirement: LIMRA,” (Financial Planning, November 27, 2012)
How Plan Sponsors Select Advisers,” (PLANSPONSOR.com, November 29, 2012)
Verizon management retirees sue to stop pension buyout,” (Pensions & Investments, November 29, 2012)
DOL Sues Trustee for Purchasing Overvalued Stock,” (PLANSPONSOR.com, November 29, 2012)
American workers cast their votes for retirement security,” (BenefitsPro, November 30, 2012)

Wisdom from Some of Our Favorite Blogs:
fi360 Blog: Fiduciary Links: Some Thoughts on Chairman Schapiro’s Tenure |
The Chicago Financial Planner: Mutual Fund Expenses – 5 cost saving strategies |
ERISA Lawyer Blog: DOL Provides Relief For Employee Benefit Plans Adversely Affected By Hurricane Sandy |
Pozek On Pension: The Hitchhikers Guide to Retirement |
The Chicago Financial Planner: 4 Retirement Savings Steps to Take Now |
ERISA Lawyer Blog: Eighth Circuit Rules That The Employer Cannot Recoup In Mistaken Contributions |
Boston ERISA Law Blog: Cut the Deficit, Not 401k plans |
The Chicago Financial Planner: Friday Finance Links November 30, 2012 |
fi360 Blog: Whither the SEC? |
SmartHR: Fiduciary Liability Can’t Be Erased in Personal Bankruptcy |

Hot Tips from Popular Web Resources:
Financial Services Institute: New FSI Poll: Financial Advisors Weigh in on Fiscal Cliff, Taxes & More |
The Motley Fool: Good News About Your 401k  |

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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