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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 9/26/14

September 29
00:02 2014

1020805_25983300_Trending_Topics_2014.09.29_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:
Exclusive Interview: Knut Rostad says Fiduciary Debate ‘80% Political’; Advocates Out-Lobbied by Wall Street Opponents,” (, September 16, 2014). “If we can’t explain to investors how they benefit from fiduciary advice, frankly, we don’t deserve their confidence, much less their business.”

Compliance – Oops! This Backfired!:
So they release this data that shows how many people have really big IRAs. It’s couched in terms that suggest you should be upset by these people. But, no, the reaction is the exact opposite. It’s “Hey! I want to learn how to do that!” It’s 100% pure unadulterated America Spirit. You gotta love it.
How To Join The 9,000 U.S. Taxpayers With Romney-Sized IRAs,” (PW News, September 17, 2014) This is a lesson policy-makers should learn. When this data came out, the folks in Washington reacted with the usual class-warfare mentality. Some people see this news and get jealous, seeking retribution for “unfairness.” (Isn’t there a bible story precisely about this?) Others, like this article shows, see this news and envision the greater opportunities for all. There’s a reason why business tycoons were once called trailblazers. They once showed the rest of us the path to riches. Too often today, opportunistic politicians would before to close that path forever instead of clearing it for everyone.
Lots of testimony, much dissent on retirement fixes,” (BenefitsPro, September 23, 2014) This is a great article highlighting the key points of last week’s Congressional testimony. Read all about the famous heads invited to speak, and then connect the dots to discover their own vested interests. Of course they don’t agree on much, which, at this point, hopefully slows down the process to change what ain’t broke. Interestingly, the one thing everyone there seemed to agree with was MEPs in 401k plans. That consensus might be predictive.

Fiduciary – It’s Still There, and It’s Still a Danger for Those Not Paying Attention:
You can take the fiduciary standard away from the service provider, but you can’t take away the fiduciary liability from the plan sponsor. And if the plan sponsor doesn’t know this, that’s just trouble.
The only correct reason to oppose the fiduciary standard,” (BenefitsPro, September 23, 2014) Advocates might not like to admit it, but there is one specific compelling case against adopting a universal Fiduciary Standard. Of course, if opponents used it, they’d be admitting they don’t have the clients’ best interests at heart.
Employer stock plans see growth despite SCOTUS ruling,” (Employee Benefit News, September 24, 2014) From a pure economic perspective, all this means is that plan sponsors see the benefit of using their corporate currency (i.e., company stock) as far exceeding the potential fiduciary liability associated with an ESOP.

Fees – Take Five:
No, that doesn’t mean take 5%. But we’re guessing there are still some who do.

Investments – Are You Nuts?:
It’s so entertaining – and yet, so frustrating – to see the talking heads argue over how many investment advisers can dance on the head of a pin. Oh, to return to the High Middle Ages.
For People Close to Retirement, Target-Date Funds Add Stocks Again,” (Businessweek, September 19, 2014) A surprising long and convoluted article about a  seemingly easy concept – people are delegating their asset allocations to target date funds who are, in turn, placing more of those assets into stocks, perhaps on fears that bond prices will drop as interest rates go up.
Managed accounts emerging on the 401k scene for plan sponsors,” (Investment News, September 21, 2014) As the article correctly points out, there’s a catch – managed accounts increases the fiduciary burden on the plan sponsor. On the other hand, this could be the first step on the route of 401k 2.0.
Morningstar: ETFs Should Be In Your 401k,” (Forbes, September 22, 2014) This article is one of the few that correctly points out 401k plans should use ETFs instead of index funds (as opposed to actively managed funds). For the most part, the only mature ETF products are index products as the managed ETF product is relatively new and untested (in terms of performance and cost). Of course, if index ETFs are cheaper than index funds and produce similar returns, and the issue of unitized accounting has been solved by recordkeepers (this is what caused mutual funds to replace managed portfolios within 401k plans in the 1980s), what’s to say that, in a few years we’ll see the return of managed portfolios as the dominant options in 401k plans? Outside the index context, they are demonstrably less expensive than their mutual fund counterpart, too.
Bogle wants to make your nest egg 65% bigger,” (MarketWatch, September 23, 2014) Bogle in his element, pitching his index funds, using questionable statistics and, in general, coming across as a nice and sincere kinda guy. The author, on the other hand, and in a rare display for a reporter, actually questions some of Bogle’s assumptions. The author left out two important factoids. First, during the first decade of the millennium, actively managed funds probably exceeded index funds by Bogle’s hypothetical 65%. Second, while Bogle is correct to attack broker sold funds with their commissions, load, and hidden fees, he conveniently ignores research that shows direct sold managed funds performed just as well over the long term as the index – and likely with less volatility given they can hold cash during market downturns.
Pensions stick with hedge funds despite CalPERS exodus,” (CNBC, September 23, 2014) Move along. Nothing to see here.
5 Things You Should Know About Risk and Your Investments,” (US News, September 23, 2014) A great reminder to all what risk is – and, more importantly, what it isn’t. Not for those still drunk on MPT kool-aid.

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.
Some Participants View Recordkeeper as Adviser,” (PLANSPONSOR, September 19, 2014)
When You’re Bored Silly in Retirement,” (Time, September 19, 2014)
The problem with automated plans,” (BenefitsPro, September 19, 2014)
Retirement Plan Considerations in Mergers and Acquisitions,” (PLANSPONSOR, September 19, 2014)
Social Security’s Strict Disability Rules,” (Wall Street Journal, September 20, 2014)
New singles majority is bad news for Social Security,” (CNBC, September 20, 2014)
Smart, timely communication on retirement may be key to engaging younger generation,” (Employee Benefit News, September 22, 2014)
How to survive 4 major retirement hazards,” (MarketWatch, September 22, 2014)
5 401k gotchas to avoid,” (US News, September 22, 2014)
How Smart Savers Choose Between a 401k or Roth IRA,” (Time, September 23, 2014)
Why 80 percent of women take Social Security too early,” (CBS News, September 23, 2014)
How to Easily, Significantly Boost Your Retirement Income,” (DailyFinance, September 23, 2014)
J.P. Morgan Strategist Warns Affluent Against Retiring Early,” (Financial Advisor, September 24, 2014)
HSAs: A sneaky way to save more for retirement,” (CNBC, September 25, 2014)
Why aren’t 401k and IRA balances bigger?” (MarketWatch, September 25, 2014)
The No. 1 flaw in America’s biggest 401k plans,” (MarketWatch, September 27, 2014)

Wisdom from Some of Our Favorite Blogs:
Behavior Gap: Hedge Fund: A Term That’s Lost Its Meaning |
ERISA Lawyer Blog: IRS Reminds Us That Errors by IRA Trustees, Issuers and Custodians On Form 5498 May Cause Tax Trouble |
Squared Away Blog: Retirement: a Good State of Mind |
The Trust Advisor: What Do Clients Want? Survey Results with Action Items |
The Trust Advisor: Opinion: How ‘Best Wealth Manager’ Lists Mislead You |
ERISA Lawyer Blog: IRS Talks About Missing Participants Or Beneficiaries |
The Frugal Fiduciary: Vanguard’s John Bogle makes his case for improving 401k plans |
Scholarly Financial Planner: A Simple Solution to Fiduciary Rulemaking at the SEC |
Behavior Gap Newsletter: Free Trading Isn’t Really Free |
Business of Benefits: Myth-Busting the Ratings Allure: Fiduciary Risk From Use of Ratings In Purchase of Lifetime Income Products |
ERISA Lawyer Blog: DOL Requests Information On Brokerage Windows |

Hot Tips from Popular Web Resources:
NAPA Net: Do RMDs Matter? |
NAPA Net: Future of Managed Accounts in DC Plans |
NAPA Net: New Industry Group to Focus on Fee Disclosures |
Motley Fool: Social Security Benefits: The Striking Gap Between Women and Men |
NAPA Net: Sen. Hatch’s Pension Bill Gets Straight A’s |
NAPA Net: ‘Taking’ Chances |
NAPA Net: HNW Couples Collaborate on Key Financial Decisions |
Motley Fool: How Much Should You Save for Retirement? |
NAPA Net: SEC Unlikely to Move on Fiduciary and Fee Initiative |
NAPA Net: Roth IRAs: Helping to ‘Insure’ You Against Longevity |
NAPA Net: The Challenges of Glide Path Optimization |
NAPA Net: Don’t Discourage ERISA-Qualified Plans: Oregon Auto-IRA Recommendation |
NAPA Net: Signature Ready? Signing Authority Triggers ERISA Fiduciary Responsibility |
NAPA Net: 9th Circuit: No Cutback Violation in Eliminating DC to DB Transfer |
Motley Fool: The Secret to Retirement Planning Success |
Kiplinger: Retirees, Watch Out for the State Tax Bite |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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