FiduciaryNews

FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 4/12/13

April 15
00:03 2013

1020805_25983300_Trending_Topics_2013.04.15_stock_xchng_royalty_free_300Welcome 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:
3 (Bad) Reasons 401k Investors are Over-Cautious,” (FiduciaryNews.com, April 9, 2013). It’s a sad world where the phrase “safety first” has the opposite effect.

Compliance – How Dare You Save More than You Need!:
There’s a problem with 401k plans – but it’s not the one we’re all used to. For years we’ve been under the impression some people don’t save enough. Heck we even had an Act (2006 Pension protection Act) to address this supposed issue. It turns out we’ve all been wrong. It’s not that some people don’t save enough – it’s that some people save too much. The gall of such people, thinking they know how much they’re going to next to live a comfortable retirement. After all, who knows better than Big Brother?
Most DB Plans Remain Underfunded,” (PLANSPONSOR.com, April 8, 2013) Are we really supposed to be surprised by this? There’s a problem with the entire concept of pension plans.
‘Create a Stronger, More Powerful 401k’: Mark Iwry, Senior Adviser to the Treasury Secretary,” (Bloomberg, April 10, 2013) Been there. Done that. Wrote about it in 2010. Here’s the original idea, which is essentially the same thing Iwry has proposed: “401k 2.0 – A Proposal,” (FiduciaryNews.com, December 10, 2010).
EBRI: Retirement savings cap impact will be greater as interest rates rise,” (Pensions & Investments, April 9, 2013) Once again, an ill-conceived plan from Washington ends up hurting the very people it hopes to help.
US Should Mandate Higher 401k Savings: Fidelity Exec,” (Reuters, April 10, 2013) Before all you libertarians get in a snit, he allows for an opt-out provision. At the very least, this focuses on the major issue regarding retirement plans: savings.
Review & Outlook: Now He’s After Your 401k,” (Wall Street Journal, April 12, 2013) Wow. Read this article. It’s hard to believe we live in America and not some European backwater or third world dictatorship. There was a time when no one would ever imagine the American government telling its citizens how to live. Now it’s a given that “government knows best.” The best take on this article: We used to glorify and honor the modest “millionaire next door,” whose frugal, hard-working ethic built both our communities and their wealth. Today, we vilify those same people, as if their thrifty discipline somehow “stole” from the greater masses. Holy Atlas Shrugged, Batman! 

Fiduciary – The Knives are Out:
We’re finally getting to the nitty-gritty of the fiduciary debate. Those showing their true lobbyist colors are, well, showing their true lobbyist colors. Those in a position to call a spade a spade and doing just that. The answer we’re all waiting for: Will PAC money win out over common sense? Said another way, will big business snuff out mom-and-pop providers and the investors they serve?
A Modest Proposal: Prosecute Non-Fiduciaries Using Term ‘Advisor’,” (AdvisorOne, April 8, 2013) This idea is not as far-fetched as it might seem. After all, only those regulated and registered with the Securities and Exchange Commission are permitted to call themselves “advisers.” That’s the reason it’s spelled with an “e” and not an “o” in there.
Conflicts-of-interest cost retirement investors billions,” (BenefitsPro, April 8, 2013) This article flips the anti-fiduciary folks favorite question right on its head. Instead of trying to figure out the theoretical business cost adopting a uniform fiduciary standard will impose on brokers, how about identifying the actual cost to investors the absence of such a provision is already having on investors.
Expected Fiduciary Rules Could Worsen Retirement Crisis, Fidelity Chief Warns,” (Financial Planning, April 11, 2013) Better title: “Industry Lobbyist Complains New DOL Fiduciary Rules Could Make it More Difficult to Sell High Priced Financial Products.” That’s it in a nut shell. The article explains how the lobbyist claims the new rule will cross the line between education and advice, implying the new rule will curtail education. That is simply nonsense.
Ron Rhoades Says Fidelity’s Attack on Fiduciary Standard Unsupported, Ill-Conceived,” (Financial Planning, April 12, 2013) Like a shining knight afar on a hill, Ron Rhoades takes a cavalry-like charge at the nonsense covered in the above article. No, we didn’t tell him what we wrote before he spoke, but we’re on the same page so it’s not surprising our voice is simpatico.

Fees – Time in a Bottle:
It used to be the big debate about 401k plans was whether it made sense from a tax standpoint to save (the answer was usually “yes”). Of course, if they’re going to cap how much you save, well, then, we guess it never really was your money to begin with.
At Tax Time, Check Your 401k Fees,” (USNews.com, April 9, 2013) The premise may be a stretch, (the part about 401k fees and taxes), but the article does provide a good rundown of typical 401k plan fees.

Investments – A Cornucopia of Thoughts:
Investing is like the weather. Everyone talks about it, but they can’t do anything about it. It’s not that they keep talking about it, but people keep listening. That’s why they keep talking about it. Sure, every once and a while there’s a new twist, but it’s pretty much just the same-old, same-old.
A 401k Defense Against Rising Rates,” (Wall Street Journal, April 5, 2013) In praise of stable value funds (remember those?).
Beware of Index Funds That Aren’t,” (Wall Street Journal, April 7, 2013) Don’t you just love the investment industry? No sooner does the mass market confer legitimacy to a word or phrase, than the financial wizards have a product that makes use of that word or phrase. Whether the product is in any way connected to the reality of that word or phrase is another question altogether. Caveat Emptor.
Paper Says Target Date Funds Structurally Unsound,” (PLANSPONSOR.com, April 9, 2013) Target date funds must qualify as the whipping boy of the mutual fund industry – and deservedly so. The ironic thing: A lot of them consist solely of index funds – the most overly ballyhooed product of the mutual fund industry.
Target-Date Fund Rule Revisions Urged by SEC Advisory Committee,” (Bloomberg, April 11, 2013) Apparently, the SEC feels these things contain more risk than regular folks realize, and probably more fees, too. All this, they confidently declare, can simply be addressed by the wave of the magic wand of disclosure. Yeah. Right. Why not (more) simply require a new naming convention that doesn’t tempt the average investor to make a “simple” (and often foolish) decision?
Expense Ratios Continue to Fall,” (MutualFundWire.com, April 11, 2013) Notice how this has been placed in the “Investments” category, not the “Fees” category. If you’ve been paying attention, you know why. BTW, is it surprising that asset-based expense ratios have fallen in the face of rising markets? Many mutual fund costs are fixed, so as net assets rise, the expense ratio falls.

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.
IRA Contributions Continue To Grow,” (Financial Advisor, April 8, 2013)
Wells Fargo 401k Loans Jump 28% as Older Workers Borrow,” (Businessweek, April 11, 2013)
Obama’s ESOP Proposal Poses Concerns,” (PLANSPONSOR.com, April 11, 2013) 

Wisdom from Some of Our Favorite Blogs:
Scholarly Financial Planner: Public Policy Considerations Which Underlie the Imposition of Fiduciary Status |
Retirement Plan Blog: 401k plans: ‘putting the wrong emphasis on the wrong syllable’ |
fi360: Fiduciary Links: GAO Report Brings Attention to IRA Rollovers |
The Trust Advisor: New SEC Fiduciary Duty Standards Loom Large for Financial Service Providers |
The Chicago Financial Planner: 5 Steps to a Lousy Retirement |
Scholarly Financial Planner: Fidelity’s O’Hanley Is Wrong: DOL/EBSA Rulemaking re: Definition of Fiduciary Is Just Common Sense |
The Chicago Financial Planner: Friday Finance Links April 12, 2013 – Feels Like Winter Edition |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

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