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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 6/27/14

June 30
00:20 2014

1020805_25983300_Trending_Topics_2014.06.30_stock_xchng_royalty_free_300Welcome to FiduciaryNews 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:
How (and Why) the 401k Fiduciary Should Act to Increase Employee Deferral Rates,” (, June 24, 2014). This is the first of a series of four articles that answer such questions as: What’s the average employee deferral rate? What’s the ideal deferral rate? And, what are 10 incredibly easy ways to increase employee 401k deferral rates?

Compliance – Whoops! There it is!:
Dot and the i’s and cross those t’s or face the wrath of the IRS. Fortunately, you’re only one hard drive crash away from saying with a wink, “fuhgeddaboutit.”
5 tips to establish an internal controls system for 401k plan compliance,” (Employee Benefit News, June 23, 2014) Sure, it’s a common sense list, but nobody ever died from too much common sense. It’s a pretty good rundown of what you need to know if you’re a plan sponsor.
Is There a Retirement Crisis?” (National Affairs, Summer 2014 issue) This incredibly long piece is packed with information, but be sure to bring your partisan spectacles just to be safe.
Thousands of 401k plans fail nondiscrimination test,” (BenefitsPro, June 24, 2014) Oops! As a result, the IRS removes $800 million from tax-deferrals and adds the same to the taxable rolls.
States With the Most Corrective Distributions,” (PLANSPONSOR, June 24, 2014) Here it is by state.

Fiduciary – New! Improved! Just like before!:
Plan sponsors may treat fiduciary liability like an ostrich with its head in the stand. Still, it won’t go away. Better to face it with the courage of a classic hero and move to reduce it. In the meantime, the SEC’s snail pace will continue to foist that liability onto plan sponsors as opposed to their non-RIA advisors.
Understanding fiduciary protection from retirement providers,” (Employee Benefit Adviser, June 19, 2014) Here’s another fine list for plan sponsors. It doesn’t promise everything, but it’s informative.
‘New Round’ of Fiduciary Feedback May Be Needed: SEC Markets Chief,” (ThinkAdviser, June 26, 2014) The claim is the “benefits” will need to exceed the “costs.”

Fees – Who Dat?:
“Fees, we don’t know no stinkin’ fees.” This could be the tag line for a 401k spoof on The Treasure of the Sierra Madre. Seriously, is this really any more comforting than saying their collective hard drives crashed?
Majority Of Advisors Don’t Know Their Own Fees, Survey Says,” (Financial Advisor, June 20, 2014) This is scary. If they don’t know their fees, how do we expect their clients to know? But you wanna know what’s scarier? The actual fees. These advisors think they’re “only” charging 1.5% when they’re really charging 1.83% What’s 30 basis points between friends when it’s the 1.5% number that should shock you.
DOL fee-disclosure guide upsetting DC record keepers,” (Pensions & Investments, June 23, 2014) They don’t want to make a simple disclosure, says it takes too much work. So, who should do the extra work? The plan sponsor/participant or the service provider?
Target Date Fund Fees Decrease,” (PLANSPONSOR, June 27, 2014) The good news is the expense ratio of these investment Edsels are going down. The bad news is that doesn’t really matter. What really matters is how these funds are managed and what returns they produce.
Making Sure Plan Fees Are Reasonable,” (PLANSPONSOR, June 27, 2014) This is only one of several items on the checklist for plan sponsors provided in this article.

Investments – The best definition of insanity is…:
… repeating something that has failed and expecting a different result. Well, what fails for investing often works for selling, and, in the end, is that what their game is ultimately about?
Expect More ETFs In 401k Plans,” (Financial Advisor, June 20, 2014) This is actually interesting. Only 1% of 401k plans have ETFs, so, sure, we can expect more. What’s interesting is that 54% of 401k plans have mutual funds. So, we should expect more of them, too. What’s more interesting is this. The ETF trend is really being pushed. But there’s a counter trend. Let me explain. The ETF trend is an Modern Portfolio Theory focused trend. The counter is a Goal-Oriented Target (i.e, non-MPT) focused trend. What happens when these conflicting trends meet?
Help Participants Be Better Investors,” (PLANSPONSOR, June 23, 2014) Here’s the continuing saga of redefining risk readers have been reading about for almost five years now. It’s good to see others confirming what we’ve already said.
The one asset class every investor needs,” (MarketWatch, June 23, 2014) Don’t be fooled by the title. This article is really just for experienced pros. They need to read it to see if they agree with it. The smarter ones will ask more questions before just accepting the data as presented.
401k plans face ‘crisis,’ says Nobelist Merton,” (MarketWatch, June 24, 2014) Here’s the best line in the article: “Employers, he says, should begin by asking employees not about their tolerance for investment risk, but about their expectations for income needs in retirement.” That’s from Nobel laureate and MIT finance professor Robert C. Merton. Does this sound familiar? Not only is it the basis of Goal-Oriented Targeting, it can be used by all through’s new Retirement Readiness Calculator (coming soon). Based on academic research in behavioral finance (q.v., “The Illusion of Wealth”) this tool avoids all talk of risk and focuses solely on the income needs of the retirement investor.
ESOP fiduciaries not entitled to presumption of prudence,” (Employee Benefit News, June 26, 2014) This is bad news for all plan sponsors who’ve placed company stock in their 401k plan. On the other hand, to the extent this discourages employees from placing their retirement savings in their company stock, that’s good for them (q.v., Color Tile, Global Crossing, En-Ron, etc…)
Investors Want ETFs in 401k Plans,” (, June 26, 2014) Apparently they believe it’s cheaper to buy an index fund through an ETF than through Vanguard or Fidelity.

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.
Seek financial advice before tapping into 401k nest egg,” (Employee Benefit Adviser, June 20, 2014)
Gens X and Y Educators Need Education About Retirement,” (PLANSPONSOR, June 23, 2014)
Millennials Prefer Roth IRAs (and Boomers Should, too): T. Rowe Price,” (ThinkAdviser, June 23, 2014)
The Impact of Leakage on 401k Accumulations,” (PLANSPONSOR, June 23, 2014)
Investors Regret Paying Off Debt with a 401k Loan,” (MainStreet, June 24, 2104)
Linking Student Debt and Retirement Savings,” (PLANSPONSOR, June 24, 2014)
Using Your 401k to Start a Small Business: Tuesday’s Retirement Scan,” (On Wall Street, June 24, 2014)
Forget about deferrals. Let’s talk contributions,” (BenefitsPro, June 25, 2014)
Small Firm 401k Plans Favor Professionally Managed Investments,” (PLANSPONSOR, June 25, 2014)
Supreme Court ruling helps 401k plaintiffs,” (MarketWatch, June 25, 2014)
5 Considerations Before Your Clients Downsize in Retirement,” (On Wall Street, June 25, 2014)
Create a Personal Spending Plan for a More Secure Retirement,” (US News, June 27, 2014)
6 tricks to make the best retirement decisions,” (MarketWatch, June 27, 2014)

Wisdom from Some of Our Favorite Blogs:
Scholarly Financial Planner: Discover the Power of a Gratitude Journal |
ERISA Lawyer Blog: Seventh Circuit Agrees With A Majority Of The Circuits And Holds That Funds In A Pension Plan Lose Anti-Assignment/Anti-Alienation Protection After Being Paid Out By The Plan |
fi360: Fiduciary Links: Is an adviser self-regulator a fait accompli? |
Scholarly Financial Planner: Fiduciary Rulemaking: Does the SEC Chair Have the Courage to Defeat Wall Street’s Undue Influence? |
Fiduciary Matters Blog: Supreme Court Rejects the Moench Presumption – Vacates and Remands Fifth Third Case |
Proskauer’s ERISA Practice Center Blog: SCOTUS Says No Presumption of Prudence In ERISA Stock Drop Cases |
The Chicago Financial Planner: 401k Loans by the Numbers |
Behavior Gap Newsletter: Why We Don’t Act on What We Know |
The Trust Advisor: How to Make a Million After Age 70 | “Free” Money? |

Hot Tips from Popular Web Resources:
NAPA Net: 401k Plans Far From Failed Experiment, Says EBRI |
NAPA Net: Reynolds: Auto Features Are Solution for Retirement Readiness |
NAPA Net: ‘Short’ Changed? |
NAPA Net: Bogle Stirs the Pot |
NAPA Net: High Court: Moench No More |
NAPA Net: Dumb Money vs. Smart Money |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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