FiduciaryNews Trending Topics for ERISA Plan Sponsors: Week Ending 9/13/13
Welcome to FiduciaryNews.com 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:
“Fact or Fiction? Slaying the Myth of the 401k Tax Advantage Myth,” (FiduciaryNews.com, September 10, 2013). It’s like winning the lottery. In exchange for getting money you wouldn’t have otherwise received, you’ll have to give some of it to Uncle Sam. Uncle Sam gets more taxes. You get more money. It’s a win-win!
Compliance – If They Lie Here, Will They Lie There?:
We think we own our homes, but we don’t. Heck, one missed tax payment will strip us of our “right” to property, but there are some who believe this is just punishment. But what about eminent domain? One day you’re swaying peacefully on porch swing, the next day the Volgon bulldozers arrive to make way for an important interstellar exit ramp. If they could do that to your home, why can’t they do that to your retirement assets? After all, the needs of the many outweigh the rights of the one, right? We wish we were quoting a joke from Groucho, but, alas, it seems too many have unlearned the false lesson of Karl (and Vladimir – the dead one, not the current one). So, we ask again, do you really own your retirement assets, or do you only think you own your retirement assets?
“Disputing the math in pension obligations,” (BenefitsPro, September 9, 2013) This is the precise beauty of this particular Ponzi scheme. In the end, you can just blame failure on over-optimistic assumptions regarding your assumed rate of return. There’s only one way to truly solve the dilemma of this false promise: make pensions illegal.
“Should Americans Fear Confiscation of Their Retirement Wealth?” (ThinkAdvisor, September 9, 2013) Think it can’t happen? It happened in Poland and Hungary. Now, you might think, “Well, that’s Poland and Hungary and they have a kinda socialist history.” Alas, we have one compound word for you: “ObamaCare.”
Fiduciary – The Heat is On:
We’re getting closer. Trouble is, do we want to get closer, or are we better off living in the grayness of our own certainty? It appears the DOL is about to make some people happy and mad at the same time. Check that, there’s a good chance the DOL is about to make all people happy and mad at the same time. This may not be a bad thing. For one, it guarantees we’ll have something to talk about for a while.
“Borzi: DOL Fiduciary Rule Won’t ‘Outlaw’ Commissions,” (Financial Advisor, September 10, 2013) Don’t fret too quickly on this news. First, it will require disclosure – and that’s the key. Second, the new proposed rule will include the cost of conflicts-of-interest. This cost will be review by the OMB. It’s possible, therefore, that the disclosure accompanying commission might be similar to the Surgeon General’s cigarette disclosure (not that anyone paid attention to that). It’s possible the disclosure could state: “WARNING: Independent peer-reviewed academic studies have concluded investors paying commissions for mutual fund purchases may lose anywhere from 1%-3% per year in investment returns. Over a 30 year period, this can reduce your investment value by anywhere from 25% to 60%.” Can you live with that level of disclosure? Oh, by the way, the proposal will be delayed another few months.
“Wait for it — Labor Department delays fiduciary rule,” (InvestmentNews, September 10, 2013) At least we now know it will cover IRAs, too.
“401k investment advice: Can you trust it?” (MarketWatch, September 10, 2013) This is all about the fiduciary standard and acting in the best interests of the investors. This came from an AARP (i.e., mainstream) study, so that should be a good sign.
“Locking horns over the fiduciary standard,” (BenefitsPro, September 10, 2013) The world will change for brokers, it’s only a matter of time, says the author. Better to be prepared for the likely outcome than enter a new world in total denial.
“65-Year-Old SEC Ruling Shines Clear Light on Fiduciary Standard,” (ThinkAdvisor, September 12, 2013) Knut Rostad brings up a very good history lesson in one of the earliest SEC rulings on the fiduciary standard. In the end, he says, it’s like morality – you can’t legislate it, you can only demonstrate it.
Fees – Tell Us Something We Don’t Know:
The problem with the mainstream press is they suddenly realize the sun rises in the East and sets and in the West and proudly proclaim they made some great discovery. Meanwhile, the farmers wonder all the fuss is about among those city folk. And we wonder why investors are so naïve.
“Fees for 401k retirement plans are higher at small companies,” (L.A. Times, September 9, 2013) This is news? Leave it to the mainstream press to report with amazement a fact that has been chronicled for years by industry benchmarking companies. It would be news if someone came up with a way to do something about it.
“Move over, 401k: IRA fees are what really hurt,” (CNBC, September 9, 2013) Now here is an example of an underreported story – and one worth telling. But, if you’re going to tell it, the least you can do is tell it right. You’d figure more enlightened reporting from CNBC, but what we have is a story with all the credibility of something out of NBC. First, it paints with a broad brush, implying all IRAs pay far more than their 401k kin. In reality, many IRAs will have lower fees and offer greater value compared to comparable 401k plans. Why? Because advice in 401k plans is rarely as individual as advice to IRA plans. In addition, 401k plans require collective investment (usually in mutual funds) while IRA can be invested in individual stocks and bonds. Finally, and this harkens the above article, for small 401ks, IRAs can usually mean lower fees from a pure dollar standpoint. Granted, individual IRAs cannot meet the economies of scale pricing discounts found in very large 401k plans, but most 401k participants are in much smaller plans. That being said, the real point of this story should have been that it’s easier for an IRA to be placed in a non-fiduciary environment, and those conflicts-of-interest cause not only greater fees, but lower performance.
Investments – Why It’s Best to Hire a Hacker to Head Up Your Systems Security Department:
They say there are only two types of people who really know sin – the saints and the sinners. If you want to prevent a bank robbery, hire a veteran bank robber to explain all the ways a thief can break into your bank. This is why hackers make the best computer security experts. If you want to avoid making some of the most obvious dumb mistakes when it comes to investing, hire someone who knows the business.
“Trading Your 401k Account: How Bright Can It Be?” (Wall Street Journal, September 7, 2013) Look, this has been a problem ever since the mutual fund industry took over the 401k business. The idea of switching mutual fund portfolios more than once or twice a year runs contrary to the long-term objective of the retirement plan concept. Since we’re talking about switching mutual fund portfolios, not trading individual stocks and bonds, this so-called “trading” is nothing more than market timing. And we all know where that gets you.
“Your Clients Need Help: 401k Account Trading Newsletters,” (Employee Benefit Adviser, September 11, 2013) The article discusses the downside of the growing trend for 401k investors to follow newsletters instructing them how “best” to “time” the market. Plan sponsors and other fiduciaries should be alarmed by this. Sounds like we’ve got a new item for next employee education meeting.
“Rates of return,” (BenefitsPro, September 11, 2013) The bad news is rising interest rates will kill those bonds you’re investing in. The other bad news is, if historically low rates continue, folks might need more money than they have in order to retire comfortably. Pick your poison.
“4 Reasons to Consider Dumping a Mutual Fund,” (USNews.com, September 11, 2013) Some sound advice from our friend Roger Wohlner that all plan sponsors might want to consider.
“The Retirement Time Bomb No One’s Talking About … Yet,” (ThinkAdvisor, September 12, 2013) Ron Surz is interviewed and explains all the problems inherent in target date funds… in case you forgot.
“The Benefits of Improving Target Date Fund Transparency,” (PLANSPONSOR, September 12, 2013) This is one of those “Emperor’s New Clothes” sort of things. The actual white paper reference in the article tends to get a little self-serving (enough so as to question whether it’s a white paper or a marketing brochure), but the points made are valid. Plan sponsors might be interested in exploring this.
“Is you fund manager on steroids? Why five-year funds are about to more than double,” (MarketWatch.com, September 13, 2013) This article doesn’t mention it, but what it is complaining about is the “snapshot-in-time” anomaly that is an artifact of SEC and DOL mandated performance. Chuck Jaffe brings it up because, as we pass the five year anniversary of the market meltdown, a whole lot of good funds (i.e., one’s that didn’t fall as much as others) will look worse and a whole lot of bad funds (i.e., one’s that fell much more than others) will look better (can anyone say “dead cat bounce”?). This is all due, not to manager abilities (or lack thereof), but solely to the arbitrary notion of calendar dates.
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.
“PepsiCo uses data-driven approach to retirement education,” (Employee Benefit News, September 6, 2013)
“Why Clients Should Replant, Not Retire,” (Financial Planning, September 9, 2013)
“Court Authorizes Restoration of Plan Assets,” (PLANSPONSOR, September 9, 2013)
“CoFiduciaries Ordered to Repay Plan,” (PLANSPONSOR, September 10, 2013)
“How to Test-Drive Your Retirement,” (USNews.com, September 10, 2013)
“Should Retired Clients Keep Life Insurance Policies?” (Financial Planning, September 10, 2013)
“Participants Want Advice in Their Best Interest,” (PLANSPONSOR, September 10, 2013)
“DOL Asks Court to Replace Plan Fiduciaries,” (PLANSPONSOR, September 11, 2013)
“Who’da thunk it? You Really Do Pay More Taxes with 401k Plans,” (BenefitsPro, September 11, 2013)
“Honda Cuts Pensions Moves to a DC Plan,” (PLANSPONSOR, September 11, 2013)
“Roth 401k Plans Give Young Investors a Leg Up,” (Financial Planning, September 12, 2013)
“Living Off a 201k,” (On Wall Street, September 13, 2013)
“DOL Sues to Restore Plan Funds Replace Fiduciaries,” (PLANSPONSOR.com, September 13, 2013)
Wisdom from Some of Our Favorite Blogs:
The Trusted Advisor: Estate Plans Shift Focus to Income Taxes |
Retirement Plan Blog: October 1 deadline approaches for new Safe Harbor 401k plan |
Proskauer’s ERISA Practice Center Blog: Ninth Circuit Allows Bankruptcy Discharge of ERISA Withdrawal Liability |
fi360: Fiduciary Links: Celebrating Fiduciary September |
The Chicago Financial Planner: 5 Reasons to Consider a Solo 401k |
Pension Risk Matters: Gloomy Jobs Outlook and Impact on Retirement Planning |
ERISA Lawyer Blog: Fifth Circuit Holds That Deferred Compensation Arrangements Are Not A Plan Under ERISA |
Boston ERISA Law Blog: Why Jobs are Job 1, to Steal from an Old Ford Ad |
fi360: The Murky Waters of “Fee-Only” Advisors and Commissions |
Pension Risk Matters: Shrinking Job Market and Adverse Impact on Pension System |
The Trust Advisor: Article on Fiduciary Taxes |
The Chicago Financial Planner: Don’t Settle for Suitable Financial Advice |
The Trust Advisor: Did Capitalism Fail? |
Hot Tips from Popular Web Resources:
NAPA Net: Bidding War Coming in 401k Industry? |
NAPA Net: Unmatched Contributions: To Max or Not to Max? |
NAPA Net: DOL Takes Credit for Higher Quality 401k Plans |
NAPA Net: How Much Would You Pay? |
NAPA Net: DOL’s Fiduciary Rule Delayed |
NAPA Net: IRAs Next on the Government’s Menu? |
NAPA Net: AARP Study Highlights Need for Investment Advice Education |
NAPA Net: Bellweather Pension Fund CalPERS Going More Passive? |
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