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FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 7/5/13

July 08
00:01 2013

1020805_25983300_Trending_Topics_2013.07.08_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:
What Drives a 401k to Work So Well,” (, July 2, 2013). With the advent of the 401k plan, we added two more gears, changing our savings vehicle from a ’72 Pinto to a ’68 Mustang.

Compliance – Big Government = Big Brother = Big Mess:
Even economies of scale reach a point of diminishing returns. At what point will we realize there’s such a thing as dis-economies of scale whose heavy anchor of steep price will drag us down to the murky depths of despair?
Mandatory retirement planning. Will it gain traction?” (BenefitsPro, July 1, 2013) On one hand, this makes sense. On the other hand, don’t we already have this with Social Security? And another thing – this would only “benefit” the employed. At what point will this become yet another “right” that will turn into an unfunded benefit that we all end up paying for. Let’s keep this simple: If you want to retire comfortably, you can, but it’s your responsibility to make it happen, not the governments.
ASPPA defends tax deferrals for retirement savings,” (BenefitsPro, July 1, 2013) Here’s the skinny: 70% of low-income workers with 401k plans save for their retirement; only 5% without 401k plans save. ‘nuf said.
Oregon takes step toward state-run IRAs,” (MarketWatch, July 2, 2013) The governments may pass the rules, but they’ll require businesses to implement them. That is wrong. Just plain wrong. Retirement is not a right, it is a reward. Everyone can have one, if they take the responsibility for doing the right thing.

Fiduciary – Do the Right Thing:
That’s all it’s about. Doing the right thing. Then, why is it so hard? Because it’s not about doing the right thing, it’s about politics. And when you introduce that term, you’re almost guaranteed to do the wrong thing.
Glenn G. Kautt: Tussey v. ABB Impact on Fiduciary Advisors,” (Financial Planning, July 1, 2013) Although this ruling is a year old, it continues to reverberate in the halls of all that is fiduciary.
Harmonization Headache: Thornier Than Fiduciary?” (AdvisorOne, July 1, 2013) Are we really in need of “harmonization”? A broker should do what a broker should do. An adviser should do what and adviser should do? They are two different business models with two different regulatory frameworks. Why harmonize? In fact, why not just say, if you do one, you can’t do the other? That’s what the spirit of “fiduciary” is, after all.
Adviser group tells SEC small investors would be hurt by fiduciary standard,” (InvestmentNews, July 2, 2013) In the same article, the attorney general from Massachusetts refutes that claim. What is clear is this: clients are paying for this service one way or another – either directly or indirectly. Their fees won’t go up, they’ll just come from a different source – a more obvious source. In addition, by coming from an obvious source, they’ll no longer suffer the costs of using advisors who engage in self-dealing. These costs have been documented in academic studies and aren’t merely answers to an industry survey (which is the source of this headline).
Fiduciary obligations and DC plan sponsors,” (BenefitsPro, July 2, 2013) This is nothing more than the three flavors of fiduciary. If you’re new to what it means to be a fiduciary as a plan sponsor, this is essential reader. If you’re an old pro, you’ve read it before.
SEC Gets an Earful From Advisors on Fiduciary Standard,” (AdvisorOne, July 5, 2013) A veritable “Who’s Who” saying “What’s What” when it comes to the SEC’s decision on how to create a uniform fiduciary standard.
SIFMA to SEC: Fiduciary rule would cost a TON,” (InvestmentNews, July 5, 2013) But, hey, they’ll be good sports and go along with a uniform fiduciary standard – as long as it preserves the brokerage business model. Fortunately, we have folks like Barbara Roper defending consumers and telling the SEC, since when does preserving a business model come ahead of protecting investors?

Fees – Even Johnny Depp Couldn’t Save This Flop:
Battlefield Earth. White House Down. The Lone Ranger. These are the flops of the summer of 2013. Only now are we understanding the true nature of the flop of the summer of 2012.
408(b)(2): One year later,” (Employee Benefit Adviser, July 1, 2013) When the DOL’s Fee Disclosure Act went into effect last summer, we posed the question, like a tree falling in an deserted forest, if fees are disclosed and no one reads (or understands them), will anyone care? We think we have our answer now.

Investments – Let’s See How Smart We Aren’t:
Think about this. The Oracle of Delphi, when asked who was the smartest man in the world, replied “Socrates.” This surprised Socrates, who justifying is annoying questioning technique (that we now call the Socratic Method) as a necessity because of his claim to not know the answer. The Oracle replied, to the effect, only the smartest man knows he doesn’t know anything. Now, about that “rational” man theory of investments…
Annuity Puzzle Solved: Don’t Buy Them,” (AdvisorOne, July 2, 2013) Ooooh, the insurance lobby ain’t gonna like this, even if the author recommends most folks buy life insurance instead. Sometimes the crowd speaks the truth faster than the mathematicians can logically prove it.
Target-Date Funds Make Up Larger Share Of Retirement Accounts,” (Financial Advisor, June 2, 2013) In other news, the sun rose in the east and set in the west, night followed day and sex sells. When are we going to stop seeing obvious stories like this? Of course target-date funds make up a larger share of retirement accounts. They’ve been the 401k product de jour for some time now. And if salesmen get paid to sell, the lemmings will undoubtedly follow. Caveat emptor, baby. Caveat emptor.

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.
How to Tell if You Have a Lousy 401k Plan,” (US News and World Report, July 1, 2013)
Age Divides Baby Boomers’ Outlook, Study Says,” (Financial Advisor, July 2, 2013)
Advisors Breed Happier Retirees, Survey Says,” (Financial Advisor, July 2, 2013)
Troubling trend: The raid on retirement accounts,” (BenefitsPro, July 2, 2013)
15 Best 401k Plans in Pro Sports,” (AdvisorOne, July 3, 2013)
Do investors really know what makes the 401k tick?” (BenefitsPro, July 3, 2013)
Mitigating Behavioral Risk Through Plan Design,” (, July 3, 2013)
Millennials Neglect Retirement Planning,” (Financial Planning, July 5, 2013)

Wisdom from Some of Our Favorite Blogs:
fi360: Fiduciary Links: ERISA 3(38) Investment Management Agreement Webinar Announced |
The Chicago Financial Planner: 5 Investing Lessons Learned So Far in 2013 |
Scholarly Financial Planner: Bob Veres Opines Re: A New PROFESSIONAL Organization – What Do You Think? | “Better” Business? |
The Chicago Financial Planner: Don’t Shoot Yourself in the Foot Over 401k Fees |

Hot Tips from Popular Web Resources:
NAPA Net: EBRI: Participants Do Better in DC Plans |
NAPA Net: How Does a Provider Best Demonstrate Value? |
NAPA Net: Inside a DOL Audit |
NAPA Net: Deferral Rate Assumptions in TDFs |

Miss anything? Feel free to add a comment below.

About Author

Christopher Carosa, CTFA

Christopher Carosa, CTFA


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