Viewpoints: Opinion and Commentary
People within and out of the industry speak out on a variety of issues related to 401k's.
Summary: Author writes, "The unpredictable economy of the last five years has sparked many discussions about what, if anything, can be done to ensure guaranteed payouts in retirement plans. Some of the big insurance companies have suggested that putting annuities in 401(k) plans could be the answer and Uncle Sam may be listening too. If so, it’s the wrong answer."
Source: Forbes, February 2012.
Summary: Policymakers generally agree that a broader base and lower rates for the federal income tax would promote fairness and boost economic growth. This base-broadening discussion inevitably raises the question of cutting back on some tax expenditures, including those for 401k plans. This commentary looks at the implications of reducing the 401k tax expenditure.
Source: Smartmoney, February 2012.
One of the hostages of the current stalemate is the SEC's consideration of a rule adopting a uniform fiduciary standard for brokers and investment advisers. Critics argue for a go-slow approach, demanding cost-benefit analyses first. One novel way to break the impasse – admittedly one that is probably too bold a move for an agency under political siege -- is by eliminating the binding pre-dispute arbitration requirement.
Source: FI360.com, February 2012.
Summary: Many small employers have plans that lack target-date funds, mostly because the employer would face higher costs to get a plan with sufficient options to serve every age group on the payroll, while also offering a complete line of funds for the do-it-yourselfers. In those cases, the oversized helpings of stable value are common — and that's a problem.
Source: Marketwatch.com, January 2012.
Summary: While studies have shown that advice does increase the participant's annual return by 3% annually, author sees the use of an investment advice for what it really is and what is should be sold as, liability protection.
Source: The Rosenbaum Law Firm, January 2012.
Summary: Author writes, "It is no secret that I am a critic of the ASPPA...policies of favoring unlimited vendors and noncompetitive, imprudent individual retail annuity products in 403(b) plans and allowing non-fiduciaries to service school employees.... I believe that if ASPPA is truly interested in disclosure - they should follow the guidelines [Michael] Kitces sets out."
Source: Meridian Wealth Management, January 2012.
Summary: Revenue losses attributable to provisions of the tax laws that are designed to support particular activities. A prime example is the provisions that encourage retirement savings. It seems like a good time to understand the nature of these expenditures, determine how the revenue losses are calculated, think about how tax reform could affect the value of these provisions, and speculate how changes might affect participation and contributions in tax-advantaged savings vehicles, particularly 401k plans.
Source: Smartmoney.com, January 2012.
Summary: "The fund companies pay all of the fees for our 401k..." If you're a fiduciary and have ever uttered any variation of that phrase, you might want to ask your plan's adviser about your situation and the risks you are taking.
Source: Smart401k.com, January 2012.
Summary: Will she or won't she? That is now the question many SEC watchers are beginning to ask about SEC Chairman Mary Schapiro's interest in supporting a fiduciary rule in the wake of the agency's latest legal fiasco when the DC circuit court of appeals threw out the Commission's proxy access rule last July.
Source: FI360.com, January 2012.
Summary: Since its introduction 30 years ago, the 401k has evolved in a lot of smart and innovative ways, but still faces many challenges. The author suggests three ideas that could dramatically improve the power of the 401k to help more Americans reach financial freedom by retirement age.
Source: Forbes, December 2011.
Summary: To understand today you have you know about yesterday. It is rarely recognized, but one of the great attributes of the 401k system is its flexibility and capacity for innovation.
Source: The Plan Sponsor Council of America, December 2011.
Summary: It's time for balance in the discussion about whether or not defined contribution plans can provide "adequate" retirement benefits.
Source: Plan Sponsor Council of America, December 2011.
Summary: Amidst all the commentary and lawsuits over excessive fees – or allegedly excessive fees – on 401k investment options comes an article pointing out all that advisors do to earn that money, and raising questions, at least implicitly, as to whether courts and critics are asking the wrong question when they inquire into the reasonableness of fees.
Source: Boston ERISA Law Blog, November 2011.
Summary: Author writes, "Long experience indicates that plan sponsors can't rely on the payroll service/insurance company/brokerage house/or fund company to overcome their deeply embedded conflicts of interest to fix their plans. Those sales entities have little interest and strong disincentives to fiduciary behavior."
Source: Morningstar.com, November 2011.
Summary: The author writes, "Some annuities are bad. Therefore all annuities are bad. That's the deeply flawed logic of a recent Huffington Post article, calling annuities "the biggest financial rip-off on the planet." The article clearly illustrates a lack of understanding of the annuity marketplace and the challenges of generating lifetime retirement income. And it does a major disservice to the public by labeling annuities "toxic" and believing that there's an "annuity scam" being put in place by Congress."
Source: CBS Moneywatch, October 2011.
Summary: Author writes, "On October 5th, ASPPA/NTSAA released their long touted research paper titled 'Protecting Participation: The Impact of Reduced Choice on Participation by School District Employees in 403(b) Plans' along with a special website www.savemy403b.com. This research appears to be the work of their super not-so-secret group Project Albatross (NTSAA Sponsors). What did this long awaited 'study' reveal? Reducing vendor choices - bad; lots of vendor choices - good. What was far more interesting (and quite frankly, odd) was the lack of any actual study or research to back up the conclusions."
Source: The Meridian Blog, October 2011.
Summary: Author writes, "The bottom line here is that a financial advisor who acts as a Fiduciary is required to place the best interests of their clients first. Maybe I'm making this all too simple, but to me the opponents of a Fiduciary Standard for all advisors are saying that the interests of their clients shouldn't (or don't) come first."
Source: Chicago Financial Planner, October 2011.
Summary: Nevin Adams, Editor-in-Chief of Plansponsor magazine, offers some notions about what the next five years will bring in terms of industry trends.
Source: Plansponsor Institute, October 2011.
Summary: If recent regulation trends in the defined contribution industry are any indicator of the future, it should be apparent to any advisor seriously engaged in this business that you need to exercise more control over your destiny. Congress has no idea what you do, and meanwhile critical decisions impacting our industry are being made without the input of the professional retirement plan advisors that serve this market. And that's exactly why NAPA was created—to fill the void, to elevate your presence, and to ensure that your voice is heard and acted on by policymakers.
Source: DCPinstitute.com, September 2011.
Summary: Author writes, "Registered investment advisers from across the country have begun to speak out against this unholy alliance consisting of big banks, brokers and insurance companies on one side and big government on the other. Most feel the immediate impact of the DOL's surprising politically inspired retreat is harmful to retirement investors."
Source: Fiduciarynews.com, September 2011.
Summary: Will increased information availability cause analysis paralysis or better decisions? For Americans who already have good financial habits — low debt, solid portfolio management, good diversification — the increased information and transparency proposed by current legislation should facilitate easier methods to gather data and make decisions. However, the majority of the population may end up suffering from analysis paralysis because of the increased information, instead of making better decisions.
Source: Sungard Blog, September 2011.
Summary: Author writes, "It's bad enough that the media does a poor job of covering 401k plans -- blaming the stock market for account inadequacy rather than the inadequate employer matching contributions -- but academics such as Boston College's Alicia Munnell continue to provide the wrong formula for retirement adequacy."
Source: Retirement Solutions, September 2011.
Summary: The new participant disclosure requirements are to go into effect in 2012. What will be the real outcome of participant disclosure? In the opinion of the author, not much, other than the estimated $375 million that it will cost private industry to comply.
Source: Asset Strategy Consultants, September 2011.
Summary: Amid many signs that the economic recovery is languishing, the U.S. Department of Labor is stubbornly insisting on a proposed Rule measure that experts say would actually reduce the level of retirement savings in America, according to this commentary.
Source: The Hill, September 2011.
Summary: It is harder for non-specialist 401k advisors to compete, something that is not going to change. But, advisors who are skilled at making and nurturing relationships, regardless of whether they wear long-sleeves or short, can continue to be successful in the 401k marketplace.
Source: DCPinstitute.com, August 2011.
Summary: "While it's fun and interesting to look back at what's gone on the past several years – to imagine what might have been, and perhaps to rue what has, it's clear that we've all come a long way over the past five years - and little question that we have an interesting road ahead as well. Here are five things I think we can count on for the next five years."
Source: Plansponsor Institute, August 2011.
Summary: Exchange-Traded Funds are quickly becoming popular in 401k plans. Why you ask? Well, there are three big reasons.
Source: Forbes, August 2011.
Summary: ASPPA applaud Congressional attempts to reduce the deficit, lift the debt ceiling, and balance the budget in a way that secures our nation's future. However, including retirement savings tax deferrals in the same category as permanent deductions and exclusions may put American workers retirement security in jeopardy and not reduce the long-term deficit as expected because the proposal relies on inflated numbers.
Source: ASPPA, July 2011.
Summary: Just as consumers demand to know what they pay for all goods and services, plans sponsors and participants should enjoy the same privilege. Additionally, as fiduciaries, plan sponsors have a legal duty and obligation to determine the reasonableness of plan expenses.
Source: Society for Human Resource Management, July 2011.
Summary: The July 7 Wall Street Journal article suggesting that the decline in the average 401k participant savings rate is the result of companies recently implementing automatic enrollment (AE) misses the bigger picture. It may be a minor contributing factor, but the principal reason for that decline has been the economy.
Source: Profit Sharing/401k Council of America, July 2011.
Summary: The good news, as we all know, is the fiduciary issue is no longer in the policy closet gathering dust. The bad news is that it has become a partisan football where reasoned discussion over its merits is an unwanted stranger. Certainly studies filling an information void should be welcomed by policy makers, and a cost-benefits analysis is certainly lacking in the fiduciary debate. But prematurely assuming the worst -- that a fiduciary standard will displace clients, reduce the number of advisors, and increase cost of services -- is wildly speculative.
Source: Fi360.com, July 2011.
Summary: Like a Damocles Sword, the decision of the U.S. Ninth Circuit Court of Appeals looms precariously over 401k plan sponsors. It could do what the DOL, promoters of the fiduciary standard and far sighted industry experts have long failed to accomplish – get 401k plan sponsors to recognize, and even fear, their increasing fiduciary liability.
Source: Fiduciarynews.com, June 2011.
Summary: The nonpartisan Employee Benefit Research Institute issued a statement today clarifying its research on 401k automatic enrollment as a comment on the July 7, 2011, Wall Street Journal article "401k Law Suppresses Saving for Retirement."
Source: Employee Benefit Research Institute 
, July 2011.
Summary: A July 7 story in the Wall Street Journal makes the assertion that a recently enacted 401k law "suppresses" retirement savings. The assertion rests on faulty data interpretation. Look at the proper numbers, and the truth becomes clear -- the 401k system in fact promotes and increases retirement saving.
Source: Investment Company Institute, July 2011.
Summary: The new 401k fee disclosure laws to start in January will shed some light on the fact that fees have been collected from the worst, most expensive possible source -- from money that could otherwise have been compounding tax free. And perhaps we'll see a version of the Arab spring among 401k investors.
Source: Contra Costa Times, June 2011.
Summary: Like a Damocles Sword, the decision of the U.S. Ninth Circuit Court of Appeals looms precariously over 401k plan sponsors. It could do what the DOL, promoters of the fiduciary standard and far sighted industry experts have long failed to accomplish – get 401k plan sponsors to recognize, and even fear, their increasing fiduciary liability.
Source: Fiduciarynews.com, June 2011.
Summary: Today, the average retirement age for men is 64 and for women, it's 62. But if people continue to retire this early, they are going to face a severe decline in their living standards. The reasons for this decline are twofold.
Source: Smartmoney.com, June 2011.
Summary: Former Secretary of Labor Elaine Chao writes, "American families are losing a shocking $5 billion to $7 billion in retirement savings annually due to [401k loan] defaults. To equip 401k participants with a means of guarding against such defaults, a proposal is being advanced to allow auto-enrollment into loan life and disability insurance or a similar safeguard. This proposal would…provide guaranteed protection to the 20 million Americans with outstanding retirement loans totaling about $241 billion."
Source: Rollcall.com, June 2011.
Summary: Congress's belief that both TDFs and managed accounts are constructed using widely accepted and scientifically developed principles is nothing more than the modern version of Hans Christian Andersen's fairy tale, "The Emperor's New Clothes." In fact, little rigorous work has been done to answer how and why the equity-bond glide path should evolve throughout an investor's lifetime.
Source: Investment Horizons, , May 2011.
Summary: Sometimes Congress means well, but only manages to make matters worse. A few politicians will hear of a problem and swiftly respond with new legislation that may help in some ways, but causes harm in others. This is the case with a new bill, a portion of which seeks to limit Americans' ability to tap into their 401k plans prematurely.
Source: The Atlantic, May 2011.
Summary: The latest information from Fidelity Fund and the Investment Company Institute, combined with a dose of common sense and deductive reasoning, leads us to the conclusion that the Baby Boomers are financially prepared for retirement. We can forget the scare tactics perpetrated by the financial services industry which, naturally, thinks that everyone should save more money and hire them to manage it.
Source: Mercurynews.com, May 2011.
Summary: The Government Accountability Office recently reported its study "Private Pensions: Some Key Features Lead to an Uneven Distribution of Benefits." Unfortunately, the study relied heavily on the Federal Reserve System's 2007 Survey of Consumer Finances to identify characteristics of individuals participating in DC plans. The GAO could have and should have used data from federal income tax filings which is far more accurate.
Source: Profit Sharing/401k Council of America, May 2011.
Summary: In proposing to jettison the current five-part rule, the EBSA would replace it with a new rule that defines a "fiduciary" as anyone who provides "investment advice," which is defined as either (1) "recommendations on investing in, purchasing, holding, or selling securities;" or (2) "recommendations as to the management of securities or other property." But, the proposed EBSA rule doesn't appear to be much better than the current rule in helping rein in the bad conduct it's aimed at curbing.
Source: Morningstar, May 2011.
Summary: Throughout the comment periods for the SEC staff's fiduciary study and the DOL's recent proposal to update the definition of fiduciary, it has been perplexing to hear the increasing rhetoric claiming that expanding fiduciary protections will kill business. Over and over again, we have heard the request for a thorough cost-benefit analysis followed by a summary conclusion that such analysis likely will show that costs outweigh the benefit of fiduciary reform. This leaves one asking, "What exactly is the cost of principles?"
Source: FI360 Blog, April 2011.
Summary: The author writes, "The other funds offered in a 401k normally are a mix of large cap, midcap and small cap, bonds and international funds. The reason for this small, diverse group of funds is to allow people to create an asset allocation model based on the efficient market theory -- which is blatantly false. Understanding the typical investment will help people understand why 401ks are intentionally designed for mediocrity."
Source: Thestreet.com, April 2011.
Summary: New disclosure laws will force the vendors of 401k services to disclose what they are being paid and what they are doing for the money, decisions greatly affecting the nation's $3 trillion worth of 401k money. Better late than never.
Source: Contra Costa Times, April 2011.
Summary: But automation comes with drawbacks that can hurt long-term performance of your retirement portfolio. If you're using default options, it's time to start paying attention — and watch out for these three potential potholes.
Source: Reuters, March 2011.
Summary: How many plan sponsors still have the same providers because that's the way they always have had them? How many plan sponsors have that "if it ain't broke, don't fix it" mentality? If it ain't broke, don't fix it is a cop out. It means we are too lazy to be better. For those who are plan sponsors and plan providers, complacency can be a killer.
Source: The Rosenbaum Law Firm, March 2011.
Summary: In the world of investment professionals, it's often difficult for the 401k plan sponsor to pick out the advisers from the advisors. But, through the frank admission of testimony from an opponent to the DOL's new definition of fiduciary, telling the difference might just have gotten easier.
Source: Fiduciarynews.com, March 2011.
Summary: Current and proposed regulations however can prevent the advisor to a retirement plan from also providing advice to individual participants if that advisor receives compensation from that advice. The Defined Contribution Plan Investment Council urges regulators to review applicable regulations with the ultimate goal to exempt from prohibited transaction status the provision of advice to participants by that plan's advisor(s) at the time of a distributable event.
Source: Defined Contribution Plan Investment Council , March 2011.
Summary: Lately a variety of investment managers and financial services providers have been touting the idea that target-date funds (TDFs) should be managed like defined benefit plans. Typical recommendations include using "best in class" active managers, incorporating more specialized asset classes, or including a variety of alternative investments within TDFs. This commentary discusses the implications and challenges of adopting complex "DBization" strategies within a TDF for both defined contribution plan sponsors and participants.
Source: Vanguard Research and Commentary , March 2011.
Summary: "The 401k plan has failed. At least, that's what an increasing number of articles and pundits would have us believe. It seems to me that unreasonable and unintended expectations have been placed on the plan that derives its name from the only section of the Tax Code that most people know."
Source: Pozek on Pension Blog, March 2011.
Summary: Baby Boomers are waking up to the fact that many of them don't have enough money saved for retirement. So what's the cause of this retirement mess? A popular scapegoat is the 401k plan. But the 401k has little to do with it.
Source: CBS MoneyWatch, February 2011.
Summary: The Wall Street Journal article, "Retiring Baby Boomers Find 401k Plans Fall Short," published over the weekend, seems to blame the tool used to save for retirement rather than the user or provider of the tool itself.
Source: 401khelpcenter.com, February 2011.
Summary: The proposed changes to the current regulations will reduce uncertainty for plan sponsors, participants, beneficiaries, and advisers. More importantly, under the proposal, plan sponsors can be confident that advice provided to plans and participants is unbiased and provided solely for the benefit of the recipient.
Source: Profit Sharing/401k Council of America, February 2011.
Summary: Author writes, "I've seen some provocative headlines before, and sadly, I always fall for the bait and click to read the accompanying article. This morning, I did it again when I saw this headline on Fiduciary News: 'Is the 401k merely a Ponzi scheme?'"
Source: Employee Benefit News, February 2011.
Summary: How many more times are we going to see articles like this, involving great wailing and gnashing of teeth over target date fund performance … in 2008? Sadly, we'll see a lot of these articles until the writers can find a statistic juicier than –41% to sensationalize.
Source: Vanguard Group Blog, February 2011.
Summary: Brokers and advisors who fail to get the needed retirement plan background or surround themselves with the professionals that do, will be at a great disadvantage with the changing times.
Source: The Rosenbaum Law Firm Blog, February 2011.
Summary: Although seeking fiduciary relief and promoting better participant diversification may seem like benefits worth pursuing, about 42% of plans at Vanguard have not yet designated a QDIA. Even more puzzling—about 40% of these non-QDIA plans are already using investments that would qualify as QDIAs, but plan sponsors haven't taken steps to officially designate them as such.
Source: Vanguard Research and Commentary, January 2011.
Summary: Many investors lack financial literacy. Others simply do not have (or want) to take the time to manage their accounts. One answer -- target-date funds. Pick your retirement date, and forget it. Someone else will mange the plan for you. Unfortunately, there is no standard across the various target-date funds as to the significance of the date used in the fund name.
Source: Pension & Benefits Blog, January 2011.
Summary: When it comes to consumer products and food products, we have stringent labeling requirements. It's kind of sad that there were no stringent labeling requirements for target-date funds.
Source: Rosenbaum Law Firm Blog, January 2011.
Summary: A recent court case decision in California threatens to "upset the applecart" with regard to accepted fiduciary practices. Although all but one charge was dismissed, the plaintiffs did score a win that might surprise you. What went wrong for the defendants?
Source: 401khelpcenter.com, October 2010.
Summary: An article recently published in a retirement plan industry journal addressed criticisms of the construction of Target-Date Retirement portfolios that are based on a "through" retirement approach. The term "through" retirement implies that the glide-path, the formula by which the portfolio's asset allocation rebalances over time, carries through retirement to death. This strategy is contrasted by the "to" retirement approach, in which the glide-path is designed to end, or become static, at retirement, as opposed to death. Which is right, retirement or death?
Source: 401khelpcenter.com, April 2010.
Summary: Specialization is the future of the financial services industry. The day of the generalist broker is quickly coming to an end. Complex financial products and legislation have made it difficult if not impossible for one-stop shopping in which a single broker can meet all of a client's personal and professional needs. No where will you find this more evident than in the ERISA plans such as 401k and 403(b).
Source: 401khelpcenter.com, April 2010.
