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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 8/30/13

September 03
00:03 2013

1020805_25983300_Trending_Topics_2013.09.03_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:
Do Common Benchmarks Mislead the 401k Fiduciary?” (, August 27, 2013). Regulators tend to focus on the measurable, not the meaningful. What may or may not have relevance in the court of law speaks volumes in the court of common sense.

Compliance – In this corner…:
…we have, weighing in at 300 million+ strong, the history and the time-tested tradition of the Federal government. It’s opponent: powered by the tax-supported coffers of millions of unsuspecting citizens, the various municipal public employee unions and their captive legislatures. These two exemplars of government largess will soon be going at it – mano e mano – live, in a courtroom in Washington, D.C., to determine the ultimate destination of our country: A country where the pure, unadulterated freedom of personal responsibility reigns, or one where we shackle our unborn children of tomorrow to never-ending servitude to literally pay for our fiscally irresponsible sins of today.
Feeling the pension pain in California,” (BenefitsPro, August 26, 2013) As lame as last year’s reform was (it didn’t even solve the basic financial problem), the public unions have protested it and gotten the Obama administration to back them. Can you hear Detroit knocking?
Saving retirement,” (BenefitsPro, August 26, 2013) There’s a term called “compartmentalization” which, in effect, means “the left hand doesn’t know what the right hand is doing.” At the same time this publication published the above article detailing the train wreck of public pension plans, it publishes this story. Using last week’s anti-401k talking points, the author “knowingly” claims the 401k is a train wreck and, ignoring the realities of the headlines, paints pensions as the Utopian retirement plan. Utopia. They used to call Lenin’s promise a Utopian vision… Do we have to connect the dots for you?
Savings Cap Could Impact More Than Previously Believed,” (, August 27, 2013) And this surprises who? Not that we’re wearing those little tin foil hats and complaining about black helicopters, but… Doesn’t it seem like a lot of these policies – health care, retirement, traditional employee benefits – will have the impact of stripping the average workers ability to fend for himself. And when you can’t fend for yourself, who you gonna call? Well, we’d like to say “GuvBusters” but far too member of the sheeple will just call on the government. Hello Medieval Times, we sure missed you!
San Bernardino, California, gets bankruptcy protection,” (Reuters, August 28, 2013) This is now the second California city to qualify (Stockton was the first). Can Detroit be far behind? And if this works, how many other cities will take this path? What will this do to the municipal market? How many former public employee workers who “retired” in their 40s and 50s will have to go back to work?
CalPERS Comments on Bankruptcy Ruling,” (, August 30, 2013) So it’s come down to this (are you listening Detroit) – can state law overrule federal law when it comes to filing for bankruptcy. The union wants to see its hard earned lobbyist money come to something and is cheering for its special bankruptcy exemption bought-and-sold courtesy of the State legislature take precedence over long-standing federal bankruptcy provisions. The bad news, the judge sided with the Feds. The good news, the Feds already bypassed federal bankruptcy law in favor of unions in the auto company bailouts. Stay tuned.

Fiduciary – A rose is a rose is a rose…:
Call it something else, and it would still smell as sweet. We can redefine the word “fiduciary,” but we can never change what it means to serve solely in the client’s best interest. Even if the client doesn’t know what his best interest is.
T. Rowe bans 1,300 airline workers from trading 401k accounts,” (InvestmentNews, August 27, 2013) It might appear this should have been placed in the investments category, but this is really about trading en masse and the fiduciary obligation on the part of the mutual fund company on behalf of the other shareholders. The article stretches this fiduciary obligation to plan sponsors on behalf of the renegade traders, but why is this any different than allowing employees to trade daily?
What’s ‘Fee Only’? CFP Board and NAPFA Diverge,” (ThinkAdvisor, August 28, 2013) Another great piece by Bob Clark. The example he uses here is instructive for those considering letting the camel’s nose under the tent when it comes to the fiduciary standard.
The Odd, Mixed Messages From FINRA on Risk Tolerance and Suitability,” (ThinkAdvisor, August 29, 2013) FINRA is going in a direction that further separates the suitability standard from the fiduciary standard. Apparently, the self-regulatory body wants to adopt risk language similar to that recently adopted by Britain (and, again, explain why we should be following any European based recommendation when it comes to investments and capital markets). This would codify what academic researchers agree is exactly the wrong way to incorporate risk assessment into investment behavior.
Disaster Recovery Plans Part of Fiduciary Duty, SEC Says,” (ThinkAdvisor, August 29, 2013) Interesting. We know it’s a different jurisdiction, but this would seem to go beyond the “letter of the law” requirements of ERISA. And if this is accepted (as well it should be), what about other common sense fiduciary matters that aren’t explicit stated in ERISA?

Fees – Going beyond those terribly high fees:
At the very least, we hope 408(b)(2) rids the 401k market of the scourge of 2%+ fees (and we’re not including the mutual fund expense ratio. Beyond that, though, we hope the current focus of doesn’t take the plan sponsors’ eyes off the ball of what the retirement plan is really intended to address: retirement readiness.
Fees, performance not the best 401k benchmarks,” (BenefitsPro, August 28, 2013) If you don’t know what the phrase “scoreboard” means, you probably won’t get the point. (“Scoreboard” is what the player from the winning teams tells the player from the loses team when that losing player claims his team performed better.) When it comes time to retire, employees won’t care about fees, performance or any other interim metric. All they’ll want to know is can they retire comfortably, a.k.a., “scoreboard.”

Investments – Time to get Pro-“Active”?:
Rising interest rates, a frothy market without the benefit of a fundamental backbone and an administration that is blind to the nation’s employment problem (witness the McDonald’s “strike” where workers in entry level jobs that shouldn’t be in entry level jobs are complaining they’re getting paid like entry level workers), can we be on the edge of a true “stock picker’s” market?
Time is ripe for active investing,” (InvestmentNews, August 25, 2013) Interesting, but this is the second article like this appear in the last week. Do we see a trend coming?
Interest Rate Hike Would Catch Most Americans Off Guard,” (ThinkAdvisor, August 26, 2013) News Item: A major brokerage firm only now discovers most of its clients aren’t prepared for what will happen when interest rates rise. Go figure. This has been the longest “early warning” signal (dating from at least 2009) and writers have been writing about it ad naseum. Only now Edward Jones finds out?
Freedom from choice?” (BenefitsPro, August 29, 2013) Although the article focuses on target date funds, it does group lifestyle and balanced funds in the same category. The idea is to reduce the number of options so employees aren’t unduly burdened by a cornucopia of choices. We have seen the future of 401k plans and it includes a no-choice/limited-choice tier or two occupied by these types of funds.
Indexing in DC Plans Rises Sharply,” (, August 29, 2013) Before you get too excited, bear in mind this is from a Vanguard study looking only at Vanguard clients from 2004 to 2012. Back in 2004, few 401k plans had index funds. To give you a sense of why contrarian investing is so successful, many 401k plans began offering index funds precisely at the wrong time (in the first decade of the new millennium, actively managed funds far outperformed index funds).

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.
Rethinking retirement planning, (InvestmentNews, August 25, 2013)
Investors Seeking Help With 401k Retirement Plans, Says New Schwab Survey,” (Financial Planning, August 26, 2013)
Time’s running out to start a new Safe Harbor 401k plan for 2013,” (Employee Benefit Adviser, August 26, 2013)
Mastering the Social Security Timing Game,” (ThinkAdvisor, August 26, 2013)
Meeting the retirement income challenge,” (Employee Benefit News, August 26, 2013)
How to Help Your Clients Overcome Participant Obstacles to Retirement Readiness,” (Employee Benefit Adviser, August 26, 2013)
TDAI’s New Ad Campaign Winks at Fiduciary,” (ThinkAdvisor, August 27, 2013)
The Search For Missing 401k Money,” (Forbes, August 27, 2013)
How to Take Control of Your 401k,” (, August 27, 2013)
What happens when you save 1 percent more,” (BenefitsPro, August 28, 2013)
DOL Gets Judgment to Restore Employee Contributions,” (, August 28, 2013)
USEC Freezes DB Plan,” (, August 28, 2013)
Be Leery of These Financial Products,” (, August 28, 2013)
Want to Retire on Less Than $1,200 a Month? Try Living Abroad,” (ThinkAdvisor, August 29, 2013)
Olivia Mitchell: You Might Live to 100. Will Your Money?” (ThinkAdvisor, August 29, 2013)
Court Dismisses Lawsuit against BlackRock,” (, August 29, 2013)
How Retirees Are Faring Post Crash,” (, August 29, 2013)
Plan Sponsorship and Participation Are Growing,” (, August 30, 2013)

Wisdom from Some of Our Favorite Blogs:
fi360: Fiduciary Links: How to address clients who are withholding information |
Boston ERISA Law Blog: A State of the Art ERISA Benefits Decision from the First Circuit: Gross v Sun Life |
The Chicago Financial Planner: Are Best Mutual Fund Lists a Good Investing Tool? |
The Trusted Advisor: What Financial Planners Don’t Get About Retirement |
ERISA Lawyer Blog: Eighth Circuit Rules That Plaintiffs’ Claims Under ERISA To Prevent The Plan From Decreasing and Recouping Excess Benefit Payments Fail |
fi360: Trustworthy Advice & Individual Investors–What Do Advisors Have to Say About the Fiduciary Standard? |
Squared Away Blog: Financially Mismatched Couples at Risk |
The Chicago Financial Planner: Choosing A Financial Advisor? – Ask These 6 Questions | “How Much Would You Pay?” |

Hot Tips from Popular Web Resources:
NAPA Net: Participant Fee Equalization: Silver Bullet or Flash in the Pan? |
NAPA Net: The Long Haul |
NAPA Net: T Rowe Bans Some AA Plan Participants from Fund Trading |
NAPA Net: Private Lobbyists in 20 States Get Public Pensions |
NAPA Net: Inside a DOL Audit |
ebri: Retirement Plan Sponsorship, Participation Grows Post-Recession |
NAPA Net: Case of the Week: What is the Maximum Amount a Self-employed Person Can Contribute to an Owner-only 401k Plan? |
NAPA Net: Proprietary TDFs: Good, Bad or Just Right? |
NAPA Net: Question of the Week: Median DC Account Balance at Age 65 |
ebri: Are 401k Tax Preferences Upside Down? |
NAPA Net: Some Pensions Embrace Riskier Assets |
NAPA Net: Higher Education Deferral Rates Top 13% |
NAPA Net: San Bernardino Bankruptcy May Proceed |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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