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

December 16
00:02 2013

1020805_25983300_Trending_Topics_2013.12.16_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:
80% Salary Replacement Rule: Origins and Exceptions for 401k Retirement Savers to Consider,” (, December 10, 2013). The Rule dates back to the early years of the Reagan administration and has been updated annually for the past three decades.

Compliance – “Government is not the solution…”:
If there’s anything we’ve learned from folly of public pensions and now the Obamacare rollout, it’s that a huge monolithic government can never compete as efficiently as a series of small individuals making decisions in the capital markets can. So why do people continue to insist we rely on government? Because they never learn from history.
Why Nudging Is Better for You Than Pushing,” (Financial Advisor, December 5, 2013) We won’t use any names to prevent any appearance of partisanship, because this has nothing to do with that. But, it irks us to no end when one group of people imply they deserve the credit for policies put in by another administration.
Don’t Break Our Thriving 401k System, Groups Urge Government, (ThinkAdvisor, December 6, 2013) While an overall good article, the Wharton professor it quotes tends to get a little muddled when she sites growing medical costs as a reason the 401k system make look rosier than it really will be, but then implies the pension system would work better. It’s still the same money. Only the benefits are changing.
The push to save Social Security,” (BenefitsPro, December 9, 2013) Look, the only way to “save” this Ponzi Scheme is to bail it out for the older folks and convert the younger folks to some sort of defined contribution system. This would have been a lot easier had we done it when we could have afforded to in the 1980’s. Of course, it wouldn’t be a problem today if we just had a lot more babies in the 1980’s. But that is the Achilles’ Heel of all Ponzi Schemes, isn’t it?
Public pension cuts seem here to stay,” (BenefitsPro, December 11, 2013) A rather interesting look at how the financial infrastructure seems to be accepting public pension cuts. One might question whether the government was “breaking its promise” to retirees, but one might also question the culpability of those same ex-employees in abetting a government that was heading for a fiscal bridge abutment. Either way, those retirees lose. Same as those Enron retirees. Same as those Global Crossing retirees. Same as those Kodak retirees. Ad infinitum. Ad nauseum.
Senators Stress Advisors Role in Retirement Planning,” (Financial Planning, December 12, 2013) And yet, not a word on the importance of the role of “Advisers” in retirement planning. I guess we know with the industry lobbying money is going.

Fiduciary – “… it’s the problem.”:
For those looking for the government to bestow its blessing on the fiduciary standard – beware what you wish for. Many advocates for the fiduciary standard have begun to have their doubts about government intervention. Perhaps it’s better to make the case directly to the open markets.
6 things every employer should know about fiduciary liability,” (BenefitsPro, December 6, 2013) A nice run-down of the basics.
Bogle: Apply fiduciary duty to anyone ‘touching other people’s money’,” (InvestmentNews, December 10, 2013) A snow-bound Bogle tells a snowed-in Washington crowd that the financial industry must put the clients first. The SEC participant says it will be difficult not to accommodate the brokerage folks. The astute reporter notes it is these same brokerage folks who have all the money for lobbying. There you go.
Advocates Fret Over Weakened Fiduciary Standard,” (Financial Planning, December 11, 2013) What’s interesting isn’t the headline – which everyone already knew about – but the very creative solutions offered by some of the speakers at this Washington event honoring this year’s winner of the Tamar Frankel prize.
B-D Fiduciary Role Bad For Advisors, Attorney Says,” (Financial Advisor, December 11, 2013) Interesting headline and quite appropriate, too. Too bad it only applies to about 40% of the article. The remainder is some confusing blather about what some guy calls “fiduciary capitalism.” Nice phrase. Less interesting than the practical implications of a watered down definition of fiduciary.

Fees – Fee Disclosure Rule Hits Wrong Target:
Funny thing about good intentions – they usually have unexpected consequences. Well, the consequence of “defining fees down” was expected by leading thinkers, who long warned the DOL’s Fee Disclosure Rule would initiate a “race to mediocrity.” It’ll be a shame if that’s what this all leads to.
401k fee disclosures still misunderstood, ignored by workers,” (InvestmentNews, December 12, 2013) And this surprises who? Even less surprising – fee disclosure has been a gold mine for vendors looking for ways to attract more business. Unfortunately, this may set off the price war long feared by Fred Reish and others. The question is, at what point does commodity pricing change the very nature of a 401k plan (i.e., by removing “frills” such as employee education, fiduciary services, etc…)

Investments – The Power of the Freudian Slip:
One man’s slip of the tongue reveals the real problem of an industry favorite, while another tries to redirect our focus in analyzing investments.
Vanguard s Bogle: Index Funds Have Gone Too Far,” (Financial Planning, December 9, 2013) Translation: “I don’t like all these ETFs copying my idea and taking money from me.” Still, Bogle, perhaps unknowingly, touches on the truth. See “3 Reasons to Outlaw Index Investing Right Now (and One Selfish Reason Not To) in 5 Acts” if you want to discover that truth.
To Catch ‘Do Nothing’ 401k Investors, Focus on Greed,” (ThinkAdvisor, December 9, 2013) Although a bit convoluted in its righting, this article appears to be on track for its revelation of a truly novel way for investors to measure – uh, shall we say – “things.” (We told you it was convoluted.) Essentially an attack on target date funds, it suggests 401k participants calculate the performance of the target funds and compare that to the performance of the (presumably, actively managed) all equity funds offered by the plan. Then he asks the investor to determine the difference between the two and compare that to any fees. Interesting.

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 Owners Staying on Top of Retirement Planning,” (Think Advisor, December 3, 2013)
Is age 70 the new 65 for retirement?” (InvestmentNews, December 8, 2013)
Joe ‘Ripp’-ed over Time Inc. 401k cuts,” (New York Post, December 10, 2013)
What Pre-Retirees Fear Most and Talk About Least,” (MainStreet, December 10, 2013)
How to Adopt Good Retirement Habits,” (, December 10, 2013)
Advisors must educate clients about 401k tax implications,” (BenefitsPro, December 11, 2013)
Older Participants Not Prepared for Retirement,” (PLANSPONSOR, December 12, 2013)
IRS Clarifies Roth InPlan Rollover Rules,” (PLANSPONSOR, December 12, 2013)

Wisdom from Some of Our Favorite Blogs:
fi360: Fiduciary Links: When great minds speak |
The Chicago Financial Planner: You Received a Pink Slip and Separation Agreement – Now What? |
Frugal Fiduciary: Retirement Crisis Denial or Not? |
Scholarly Financial Planner: The SEC’s Failures, the Fiduciary Standard, and the Role of a Fiduciary Oath for Consumers and Professionals |
Boston ERISA Law Blog: Sprint(ing) Right to Federal Court to Protect Plans Against Preempted State Action |
The Chicago Financial Planner: Retirement Readiness: The Only Statistic That Matters | “Keep” Sakes |

Hot Tips from Popular Web Resources:
NAPA Net: Supreme Court to Address How Inherited IRAs are Treated in Bankruptcy |
NAPA Net: Morningstar Estimates the True Cost of Retirement |
NAPA Net: Connecting the Dots |
NAPA Net: Budget Deal Raises Federal Workers’ Pension Contributions |
NAPA Net: Washington Update: Tax Reform Fades |
NAPA Net: Revenue Sharing: Uneven Impact and Uneven Payout? |
ebri: Which States Have the Highest #Retirement Plan Participation? |
ebri: More Saving—Not Spending—That #Retirement Plan Distribution |
NAPA Net: China Jumps into 401k Market |
NAPA Net: IRAs Fueled by Rollovers from Employer Plans |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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