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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 7/4/14

July 07
00:08 2014

1020805_25983300_Trending_Topics_2014.07.07_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,” (FiduciaryNews.com, 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 – If I Close My Eyes It Will Go Away:
There’s a reason why math is important. You can’t argue with math. The numbers are the numbers. Two plus two never will equal five. Apparently, our nation scores low on its collective math literacy.
Interest in Defined-Benefit Grows Among Small Business Owners,” (On Wall Street, July 1, 2014) That’s because you can save so much more – and more quickly, too. But it only works for very small (e.g., one-person) shops.
1.5 Million Workers Facing Severely Underfunded Pension,” (On Wall Street, July 1, 2014) And this is why it only works in small shops.
Dumb and happy about their retirements?” (BenefitsPro, July 2, 2014) This is an eye-opening article about government workers, who apparently are living in a world where government pensions are not underfunded, municipalities are not going bankrupt and taxes bases are being squeezed to the point of revolt. Their command of the dire facts of their own retirement is astonishing. More astonishing, though, is that they are running our governments. This begs the obvious question: What other facts are they ignoring in order to fit their worldview?
Regulatory Scrutiny Mounts for Retirement Advisors,” (On Wall Street, July 3, 2014) Again, this is about the fiduciary standard, although the only thing mentioned in the article is the suitability standard. Perhaps it’s time for a list of guidelines.

Fiduciary – Danger, Delay and Dress Down:
We need a Fiduciary Standard. We have a Fiduciary Standard. We can enforce the Fiduciary Standard we have. We don’t need a new Fiduciary Standard.
Pitfalls Of The 401k Rollover,” (Forbes, July 2, 2014) This is an excellent article covering all the key points, including the paradoxical reality that the best option for former employees (taking full control of your own assets by rolling them over) is also the most ripe for being taken advantage of.
White House to Kill Labor Department Fiduciary Regulation,” (On Wall Street, July 2, 2014) Even a lot of proponents believe no regulation is better than compromised regulation.
SEC fines Missouri RIA for breach of fiduciary duty,” (InvestmentNews, July 3, 2014) Come to think of it, maybe the SEC is on to something here. Rather than worry about proposing some sort of watered down fiduciary standard, why not enforce what’s already on the books? In this case, we have a dual registered RIA that engaged in conflict-of-interest activities without proper disclosure. That said, it’s hard to understand how telling someone you might be cheating them permits you to go ahead and cheat them, but that’s government thinking for you.

Fees – We Hardly Knew Ya:
If you think we’re a nation of math illiterates, and fees are just a practical example of math, then why should we be surprised that we’re also a nation of fee illiterates – and that includes people who should know better.
Target-Date Funds: Fees Continue to Fall While Flexibility Powers Performance,” (MainStreet, July 2, 2014) First, what the author believes are fees really is only the fund expense ratio. Second, the expense ratios are falling primarily because the underlying funds of the TDFs that are comprised of other funds (a so called “fund of funds” – a practice that was illegal not too long ago) have seen their expense ratios go down. None of this, however, changes the fundamental problems with TDFs.
Perceived Expense Stops Many from Seeking Advice,” (PLANSPONSOR, July 2, 2014) And it’s mainstream articles with headlines like you see above that are part of the problem.

Investments – People Who Really Know Math…:
Are in a position to best protect people that don’t know math… or are in a position to best take advantage of people who don’t know math. Here’s the million dollar (for somebody, at least) question: How does someone who doesn’t know math tell the difference between the two?
Annuities In U.S. Retirement Plans Get Boost From U.S. Treasury,” (Bloomberg, July 1, 2014) Retirement investors can now buy annuities in their retirement plans that don’t begin to payout until ages 80-85, well past the average life expectancy of the typical American. The insurance industry rejoices. The rest think back to a time when annuities were specifically prohibited from being purchased by retirement plans – and all the great reasons why that rule existed.
Has John Bogle forgotten his old neighborhood?” (BenefitsPro, July 2, 2014) The inventor of the index fund drinks the establishment Kool-Aid and forgets the principles of the free market as a result.

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.
Pension Exec: Financial Literacy Not Answer To Retirement Crisis,” (Financial Advisor, June 27, 2014)
How advisers can spur higher retirement savings rates,” (Employee Benefit Adviser, June 27, 2014)
TIAA-CREF Exec: Expenses Shouldn’t Be Only Factor In Rollover Decisions,” (Financial Advisor, June 30, 2014)
Roth or Traditional IRA? A Roth is Almost Always the Right Answer,” (MainStreet, June 30, 2014)
Increasing Participation in 403b Plans,” (PLANSPONSOR, July 1, 2014)
5 Common Mistakes You Make in Your Retirement Planning,” (US News, July 1, 2014)
Public Plans Slower to Adopt Automatic Enrollment,” (PLANSPONSOR, July 1, 2014)
Borrowing From Your 401k Has Some Positive Aspects,” (MainStreet, July 1, 2014)
Your 401k Plan May Provide a False Sense of Security,” (US News, July 2, 2104)
Managing Taxes From Inheritance,” (On Wall Street, July 3, 2014)

Wisdom from Some of Our Favorite Blogs:
ERISA Lawyer Blog: Supreme Court Rules That Presumption Of Prudence Does NOT Apply To ESOP Fiduciaries |
The Chicago Financial Planner: Dangerous Myths About Asset Protection |
Behavior Gap: Expectations, Reality, and the Disappointment Between Them |
Fiduciary Matters Blog: Some Additional Thoughts on Fifth Third v. Dudenhoeffer |
Boston ERISA Law Blog: Why the Supreme Court Got It Right in Fifth Third Bancorp v. Dudenhoeffer |
ebri.org: “Picture” Window |
Squared Away Blog: Financial Savvy Means More 401k Returns |
Behavior Gap Newsletter: Holding Your Memories Accountable |

Hot Tips from Popular Web Resources:
NAPA Net: EBRI Analyzes the Bitter Fruits of Leakage |
NAPA Net: Prepare for Class Action Litigation in Wake of Supreme Court Decision |
NAPA Net: Thousands of 401k Plans Failed Nondiscrimination Tests, Study Shows |
NAPA Net: Treasury Allows Longevity Annuities |
NAPA Net: Record Keepers Concerned About Fiduciary Rule |

Miss anything? Feel free to add a comment below.

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Christopher Carosa, CTFA

Christopher Carosa, CTFA

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