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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 3/22/13

March 25
00:03 2013

1020805_25983300_Trending_Topics_2013.03.25_stock_xchng_royalty_free_300Welcome 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:
Anticipating the Bond Bubble Burst: Protecting Your 401k Plan,” (, March 19, 2013). Bonds and bond funds alike suffer from rising interest rates, but bonds are protected in ways bond funds are not. Does the typical 401k investor know that?

Compliance – The times they are achangin’:
Just caught the high school version of Evita this weekend. Why a high school would perform such a depressing play is a question bets left for another day. But the story of Eva Peron reminds us how easy it is for an autocratic ruler – even an unelected on – to become beloved by the masses: Give them other peoples’ money. Remember that as you read the articles below and consider this: Aren’t you glad you saved for retirement? So are those who will eventually get your dollars. Hope you enjoy your chump change.
Big names litter road to pension disaster,” (Chicago Sun-Times, March 16, 2013) More fall-out from last week’s SEC charges against the great state of Illinois. This time the writing is from a local source. It’s fun to see who they blame – someone already in jail – and who they don’t. We’ll let you read it and decide for yourself.
Senators’ SEAL Act Would Ease 401k Loan Paybacks,” (AdvisorOne, March 19, 2013) The idea is to make it easier to pay loans back by not penalizing employees who have loans and want to rollover their assets from their old company plan. This is good. A better idea would make it even harder to take out loans. Investment portfolios, like people, cannot serve two masters. Either your retirement plan is tied exclusively to your retirement goal, or it isn’t.
Harkin: Law Stopping Pre-Retirement Outflows From 401k Plans Could Pass,” (Financial Advisor, March 20, 2013) Ask and ye shall receive!
401k loans usually not taken out frivolously, lawmakers told,” (InvestmentNews, March 20, 2013) OK, maybe it was a bit premature to get too excited about the previous article.
Feds: Detroit pension fund trustee pocketed basket of cash, trips for him and mistress,” (Detroit Free Press, March 20, 2013) Public employee unions. You gotta love ‘em. “What?” you ask? “What’s ‘love’ got to do with it?” This article answers that question.
Kansas lawmakers end push for 401k-style public pension plan,” (, March 21, 2013) Public employee unions band together to thwart an initiative that had an excellent chance of passing.

Fiduciary – When will they ever learn?:
“Where have all the fiduciaries gone?” If the SEC doesn’t think of the investor first and instead bows to demands of lobbyists, that will be the question America will be asking. After all, if there’s a way to be a “fiduciary” without taking on any of the liability of a fiduciary, who will ever again want to be a fiduciary?
Study Reinforces Importance of Advisers Oversight Role,” (Employee Benefit Adviser, March 19, 2013) This quote says it all: “‘This wouldn’t be happening’ as much if more plans ‘had an fiduciary adviser looking out for them.’”
Former Detroit Pension Fund Trustee Charged for Kickbacks,” (, March 21, 2013) In the strange world in which we live, you’re charged for throwing an innocent birthday party, but no one notices the 12b-1 kickback. The difference is the traditional kickback involves only a one-off payment. The 12b-1 kickback involves a series of ongoing one-off payments and a greater cost in poorer performance, so a variety of academic studies have told us. Both are bad. You only get charged for one of them, ironically, the one that has the lesser impact on the lives of retirees.
Harold Evensky to SEC: Employ the ‘YOU’ Standard in Fiduciary Rule,” (AdvisorOne, March 21, 2013) It’s quite simple. If the investor calls the provider to buy a stock and the provider merely complies, the provider is a broker. If the investor calls the provider and asks for the company’s opinion on a stock, the provider is merely a broker. If the investor calls the provider and asks if he should invest in the stock, as soon as the provider says “yes” or “no,” the provider becomes an adviser and is subject to the fiduciary standard.
Lessons of DOL Fiduciary Enforcement Case Endure,” (Employee Benefit Adviser, March 22, 2013) The DOL fined an adviser firm acting as a fiduciary to more than dozen pensions more than $1.2 million for taking 12b-1 fees and revenue sharing fees on investments it chose to invest in. Oddly, the trustees and plan sponsors of these pension plans were not punished for the failure to have appropriate due diligence procedures in place. Hmm, “Why?” may be an appropriate question to ask the DOL.

Fees – The Sounds of Silence:
Somewhere, Paul and Art are discussing the truth behind 401k fees, but this particular song will never make the top 40. Meanwhile, most of the real fee news is hidden down below in the blogs.

Investments – Cheer up, sleepy Jean:
Sometimes it seems as though most of the folks talking about investments count on an audience of day dream believers. Truth is, any home coming queen knows the best investment strategy is one even a monkey could understand.
What motivates investors more?” (BenefitsPro, March 18, 2013) Some folks prefer to be given a road map with directions. Others prefer to be told merely what landmarks to avoid. In the investing world, some investors respond to the “Do” list, while others react more quickly to the “Don’t” list. Here’s an article that references both for you viewing pleasure.
Ford Seeks More Stability for Employee Pension Plans,” (Employee Benefit News, March 17, 2013) Speaking of “Don’t,” don’t be fooled by the title of this article. It’s really about investing. Amazingly, Ford wants to move towards an 80% bond position in its pension plan. This at a time of historically low interest rates. At least that’s what it appears the article says. You read it and explain to our readers why this is a good/bad idea in the comment section below.
Largest pension fund considers dumping active management,” (InvestmentNews, March 19, 2013) Maybe they just did a bad job picking their active managers. Afterall, in the first decade of the millennium, when passive investing barely broke even, a whole lot (maybe even a majority) of active managers were building up relatively massive gains – and that’s even counting their “high” fees.
How to keep stocks from ruining your retirement,” (MarketWatch, March 20, 2013) There seems to be a popular fad making its rounds through advisor circles. It purports to “prove” the 4% withdrawal assumption is too aggressive. This may or may not be true, but it definitely isn’t true due to the “‘sequence-of-returns’ risk” – a term made popular in the original paper. Sequencing means retirement just as the market begins an extended decline, meaning both your “4%” is declining and your ability to recover it less likely. Unfortunately, there’s a major flaw in the argument. It assumes you remain 100% invested (in variable instruments like stocks and bonds and their ilk) rather than doing the sensible thing and building up two years of cash before you need to take it. It’s the simple things like this common sense approach that we delight in pointing out to the supposed rocket scientists out there who take pride in trying to make life more difficult than it need be.

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.
Post-Crisis Stresses On Pre-Retirees, Retirees Linger,” (Financial Advisor, March 15, 2013)
More than 25 percent of Americans raiding 401k plans to pay bills,” (Arizona Daily Star, March 17, 2013)
Most Clients Don’t Want ‘Vacation Retirements’,” (Financial Advisor, March 18, 2013)
Workers Saving Too Little to Retire,” (Wall Street Journal, March 19, 2013)
Retirement Confidence Still Low Despite Brightening Economy,” (On Wall Street, March 19, 2013)
EBRI: Retirement confident remains at record low,” (Employee Benefit News, March 19, 2013)
Worker’s Retirement Confidence Declines, Says Survey,” (Financial Advisor, March 20, 2013)
3 ways to solve the retirement crisis in the U.S.,” (MarketWatch, March 22, 2013)

Wisdom from Some of Our Favorite Blogs:
The Trust Advisor: Cyprus “Bailout Tax” Poses Big Threat To Offshore Tax Cheats |
fi360: Fiduciary Links: SEC Make it Hard to Read Fiduciary Tea Leaves in Data Request |
Scholarly Financial Planner: Most Courageous: Phyllis Borzi and her EBSA Team |
The Trust Advisor: SEC Digging Into Fund Fees |
Boston ERISA Law Blog: Directors and Officers Liability Meets the Accidental Fiduciary |
The Trust Advisor: Differences Between Stockbrokers, Investment Advisors And Financial Planners |
Fred Reish: Fiduciary Advice and 12b-1 Fees |
Boston ERISA Law Blog: And the Ninth Circuit Swings Away at Tibble v. Edison… |
Scholarly Financial Planner: 12b-1 Fees: RIAs and Registered Representatives Beware |
Pension Risk Matters: Tibble v. Edison and ERISA Fiduciary Breach Issues |
The Chicago Financial Planner: Friday Finance Links March 22, 2013 – Go Marquette Edition |

Hot Tips from Popular Web Resources:
LIMRA and Transamerica Center for Retirement Studies: Managing Investment Responsibilities: Investment Decisions for Plan Fiduciaries (PDF) |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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