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5 “Must Read” Articles for the 401k Plan Sponsor and Fiduciary

December 30
00:03 2014

The greatest dread in the world of journalists and newsmakers alike is the week between Christmas and New Years. That’s when the audience either takes a break from day-to-day activities or, in certain industries, works it tail off trying to get 932215_31995597_evergreen_stock_xchng_royalty_free_300that last billable out before the ball drops in Times Square. As a result, their either too distracted or too busy to pay attention to what reporters report and to what news newsmakers make.

So, for a journalist, it’s best to write about a subject that can be read any time of the year. In the field, it’s called “evergreen” content, because its timeliness never expires. And what’s the best way to determine what readers think is “evergreen”? Why, it’s what’s they’ve been reading and reading and reading, in some cases years after the material was original created. They might not be Moby Dick or Gulliver’s Travels, but these articles are classics in their own right. Have you read these already, or are you behind everyone else?

#10:Morningstar Star Ratings: Do They or Don’t They Predict?” – First of all, if you like taking a trip down memory lane of famous advertising slogans, you’re really going to enjoy the first paragraph of this piece. This article is a response to an earlier story asking if mutual fund rating agencies have lost their mojo (the link is in the article). Apparently Morningstar didn’t like the tone of that first article and offered to respond to a second article. This is that response. But it’s not Morningstar’s alone. This article contains citations of relevant studies and historical literature. If you use Morningstar, you better read this one. It may change how you represent your procedures regarding the service.

#9:How Many Investment Options Should 401k Plan Sponsors Offer?” – This is a classic question that leading plan sponsors have been asking (and doing something about) for some time now. This is actually the first in a series of three articles that ultimately answers the titular question. Leading 401k plans have already implemented these suggestions, but the bulk of the industry continues to use last century’s ideas. If you want to bring your plan up to modern times, then read this entire series and start making your plan better. Much better.

#8: “Ex-Employees Who Don’t Rollover – Will 401k Fees Increase Plan Sponsor Liability?” – The popular take on this issue is to see it only from the point of view of the retirement saver. But there’s another side to this equation. The 401k plan sponsor remains on the hook for these former employees. If there’s a problem with the plan or if the plan doesn’t address an important issue a former employee who remains in the plan may have, the employer remains liable. This may not be a risk the employer will want to retain. The article explains all the ins and outs of this important topic. While the article is thorough, the ensuing comments might be just as informative.

#7:A 401k Must Read: Mutual Fund Expense Ratio Myth Busted” – This article caused quite a stir when it first appeared. It’s been a constant favorite ever since. This piece shows precisely why the idea that high expense ratio funds always underperform low expense ratio funds is a total myth. It only works in one situation – choosing between index funds. You can read all about it in the article. But, wait! There’s more! The article contains a series of graphs that put the final nail in the coffin of this myth. Plus, there’s a special bonus that may upset those who’ve been relying on the myth to “prove” index funds are better than active funds.

#6:Is the Fiduciary Liability of Self-Directed Brokerage Options Too Great for 401k Plan Sponsors?” – Several years ago, this title might have been seen as controversial. Today, there’s almost universal acceptance that these types of accounts raise the fiduciary liability bar for 401k plan sponsors. There’s still no consensus on whether that means plans should or should not offer them. It appears that where the bulk of the plan resides in the owner’s account (i.e., usually a smaller plan for a company with only a handful of employees), the liability risk is seen as small, especially if the owner is the only one with a self-directed option. Aye, though, there’s the rub. Once this option is offered, it must be offered broadly. That’s where the fiduciary liability multiplies. It’s grown even more since the DOL required fee disclosure. Read about all the issues in this article. Then make your decision.

The astute reader might have noticed the numbers. They’re counting down but they stop at number 6. Why do you think that is so? Stay tuned for the answer. It will come sooner than you think.

If you’d like to discover other important topics confronting 401k fiduciaries, then you’re invited to explore Mr. Carosa’s book 401(k) Fiduciary Solutions and discover how to solve those hidden traps that often pop up in 401k plans. His forthcoming book Hey! What’s My Number? – How to Improve the Odds You Will Retire In Comfort will be available later this year.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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