FiduciaryNews

Hosting an industry conference? Ask us about including it in this ticker?
What do you think of our site upgrade?

FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 4/5/13

April 08
00:50 2013

1020805_25983300_Trending_Topics_2013.04.08_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:
5 Fiduciary Facts the DOL Wants Every 401k Plan Sponsor to Know,” (FiduciaryNews.com, April 2, 2013). If maintaining fiduciary due diligence were easy, the DOL wouldn’t publish a list like this.

Compliance – Ah, Spring is in the Air…:
… and it’s time for the first pitch. Well, that might be true for baseball, but not for the retirement plan world. In fact, they pitches we’re seeing from Washington sound about the same that we’ve seen before. Perhaps they’re blind to the grim reality happening right now in California. And we’re not referring to Leno’s pending departure, although some of what Washington is throwing out seems like perfect fodder for stand-up comedians.
Stockton bankruptcy sends chilly message to muni bondholders,” (InvestmentNews.com, April 3, 2013) Remember the old story that bond were supposed to get paid first in any bankruptcy? Well, that all changed with the GM bankruptcy as the government placed the desires of the big union bosses ahead of the little old widows who owned GM bonds and left these dear women to fend for themselves, collective victims of a broken promise. It appears the same thing is about to happen to investors silly enough to have trusted Stockton California muni bonds.
Abolish the 401k,” (Salon.com, April 4, 2013) As public pensions continue to force municipalities like Stockton, CA (above) into bankruptcy or into draconian cuts (like California in general), there are still those willing to fight the good fight, like the other of this piece. Despite the real world evidence of the failure of Ponzi-esque pension plans (especially public pension plans), this fellow, who perhaps lives in an alternate dimension, insists it’s really all the 401k plan’s fault. Indeed, he boldly states, we should abolish all defined contribution plans and beef up the greatest Ponzi Scheme of them all – Social Security. No, we’re not kidding. Read if the article if you don’t believe us.
Obama’s Budget Would Cap Romney-Sized Retirement Accounts,” (Financial Advisor, April 5, 2013) Hmm, let’s get this straight. As our Social Security systems heads towards inevitable bankruptcy (no on disagrees with that), we decide to punish those lucky or smart enough to have taken the personal responsibility to not need Social Security. Yep, that sounds like a plan. For our next act, we’ll give healthy people viruses so sick people can at least no they’re no longer alone. What’s that you say about rising health care costs? You’re missing the point. We don’t want people to get better, we just want people to feel better.

Fiduciary – One of these things is not like the others…:
This week presents an instructive lesson on how bad mainstream journalism has become. There are several articles here covering the same subject. Two are from the industry press. The third comes from a media property famous for being famous. You be the judge.
GAO: 401k companies often mislead account holders,” (The Washington Post, April 2, 2013) Here’s yet another example proving why the mass media cannot write informative articles on the retirement industry. It too often falls victim to the self-inflicting wound of hasty generalization. This is a logical fallacy your high school debate teacher always told you to avoid. In this case, the WaPo tries to implicate the entire industry because a few bad eggs may have taken advantage of retirees. By looking only at “average” fees – which tend to skew towards smaller accounts – the author makes the case former employees are better off staying with their plan because they can take advantage of economies of scale. What the author fails to consider are these three critical factors every fiduciary must consider: 1) For some employees, especially those with large cash balances, 401k plans are more expensive than individual management; 2) In nearly all cases, rolling out of a 401k plan leads to true personalized investment management – the kind not really possible in a 401k environment – and one would expect a higher cost to be associated with this individualized service; and 3) Is it fair and in the best interests of those remaining employees to subsidize those who no longer work for the company? This last point is really the fiduciary question. Consider it carefully. And leave the Hollywood gossip to the mass media.
Fewer Equities In 401k Plans, Survey Says,” (Financial Advisor, April 2, 2013) Well, here we are back to 2006, when we saw Congress pass the Pension Protection Act in order to encourage long term retirement investors to allocate more of their retirement portfolio in long term investments. It’s amazing how scared people remain when it comes to equity investing. If you think it’s bad now, wait until we’re in the midst of a market correction.
Does Fiduciary Coverage for 401k Rollovers Lie Ahead?” (AdvisorOne, April 3, 2013) He’s the industry rag counterpoint to the WaPo article above. Notice the difference in the angle. This article is talking about the real concern – conflicts of interest – and not emphasizing an overly generalized statement regarding rolling over IRAs in general.
GAO: Workers hurt when rolling over 401k plans to IRAs,” (InvestmentNews, April 3, 2013) Yet another take from an industry periodical, and, once again, note the difference between this piece and the WaPo piece. Yes, the author mentions the issue, but the author also emphasizes the GAO’s own caution about reading too much into the report. Bottom-line: Something has to be done about the conflict of interest. AND, something has got to be done to make the rollover process more efficient, especially when rolling over into another ERISA plan.
A checklist of 401k fiduciary responsibilities,” (BenefitsPro, April 4, 2013) Sometimes the easiest way to get the answer is to go straight to the horse’s mouth. This article highlights what the DOL explicitly expects.

Fees – Too Low?!:
Before you get too excited, there is some logic in the case being made. Read it with an open mind. Specially, remember what the DOL wants. The Department isn’t asking for the lowest fees, but fees that provide comparable value. What we might be seeing here is a straight-forward example of sometimes you get what you pay for.
Are You Charging Enough for Your Services? Use This Tool to Find Out,” (AdvisorOne, April 4, 2013) This applies mainly to individual accounts, not 401k plans, but the rule of thumb for adviser service fees has traditionally been 1%. Now a new white paper suggests that’s too low. A new white paper, cited in this article, says the real number is more like 2% for accounts under $500K and 1.3% for accounts between $20-25 million. Remember, this is for full, individualized service and customized portfolio management, a far cry for the “advice for the masses” “invest in mutual funds” approach of 401k plans.

Investments – The Great Gulli-Bull Market:
Logic and statistics don’t rule the roost when it comes to markets. No matter how hard they try, all the Sharpe ratios and all the Random Walks can’t put Humpty Dumpty back together again on the Wall Street he once sat on. The reality about markets: It’s about behavior. The markets crave gullibility. They shun predictability.
Barclays U.S. Aggregate Bond Index, Key Bond Index, Gets Bitten,” (Wall Street Journal, April 2, 2013) But, wait! Weren’t we just told index funds were superior to actively managed funds? Oops.
Bad behavior persists in 401k accounts,” (Reuters, April 3, 2013) Surprise! Surprise! Surprise! The stock market is making new highs, but guess who’s been left behind? All those frightened investors who sold low as the market tumbled in 2008/2009. What we have here, folks, seems to be a failure to educate. At what point do Plan Sponsors risk exposing themselves to fiduciary liability for failing to educate?

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.
Roth 401k Conversions: New Rules After Fiscal Cliff Deal,” (Financial Planning, April 1, 2013),
When to begin Social Security? Even advisors aren’t sure,” (BenefitsPro, April 2, 2013)
Type of retirement education determines how much employees save,” (BenefitsPro, April 2, 2013)
Court Finds Officers Not Liable for Plan Contributions,” (PLANSPONSOR.com, April 4, 2013)

Wisdom from Some of Our Favorite Blogs:
Scholarly Financial Planner: IMPORTANT NOTICE: Surprise SEC Temporary Rule Redefines “Fiduciary” |
The Baseline Scenario: Memo to Employers: Stop Wasting Your Employees’ Money |
The Chicago Financial Planner: Protecting Your Savings from the Cost of a Long-Term Care Illness |
fi360: Fiduciary Links: Aikin Comments on Unusual Actions of the SEC & Final Survey Call |
Retirement Plan Blog: IRS releases Final Report for 401k Compliance Check Questionnaire |
The Chicago Financial Planner: Investing Seminars – Should You Attend? |
Retirement Plan Blog: Help! They need somebody: 401k participants setting retirement savings goals |
The Chicago Financial Planner: Friday Finance Links April 5, 2013 – Bachelor Weekend Edition |
Scholarly Financial Planner: Don’t Let Misleading Statements Go Unchallenged … Slice Through Wall Street’s Dense Fog |

Hot Tips from Popular Web Resources:
WealthManagement.com: The New Face of The Fiduciary |

Miss anything? Feel free to add a comment below.

Related Post

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA

Related Articles

0 Comments

No Comments Yet!

There are no comments at the moment, do you want to add one?

Write a comment

Only registered users can comment. Login

FiduciaryNews.com is sponsored by…

Order Your 401k Fiduciary Solutions book today!

Vote in our Poll

Disclaimer

The materials at this web site are maintained for the sole purpose of providing general information about fiduciary law, tax accounting and investments and do not under any circumstances constitute legal, accounting or investment advice. You should not act or refrain from acting based on these materials without first obtaining the advice of an appropriate professional. Please carefully read the terms and conditions for using this site. This website contains links to third-party websites. We are not responsible for, and make no representations or endorsements with respect to, third-party websites, or with respect to any information, products or services that may be provided by or through such websites.