Participant Fee Equalization: Silver Bullet or Flash in the Pan?

A few providers are offering a service that levelizes fees for all participants and are claiming that this service will become popular and important with plan sponsors. The issue is that participants don’t pay a percentage of their assets like the plan does — they pay based on the revenue sharing in the funds they purchase, commonly through Sub TA or 12(b)(1) fees. So a participant who selects no revenue-sharing funds could pay nothing to subsidize the costs of the plan, leaving others to carry the load.   Read More

Think Tank Proposes to Scrap Current Employer-based Retirement System

The Center for American Progress, a liberal think tank with close ties to the Obama administration, issued a deeply critical report Aug. 20 on the voluntary employer-based private retirement system. The report concludes that the current situation is so bad for individuals that the entire system needs to be dismantled and replaced with a new “collective defined contribution” arrangement.   Read More

Love Letters from Yale

We have recently learned that a Yale Law School professor has sent a letter to thousands of 401(k) plan sponsors. The professor is doing a “study” on the financial impact of plan fees and has identified the employers receiving the letter as sponsoring a “potential high-cost plan.”   Read More

Obama, with Estimated $5 Million Pension, Pushes $3 Million Cap on Retirement Savings

President Obama’s own pension, based on reasonable actuarial assumptions, is worth at least $5 million — 40% more than the small business retirement savings cap proposed in his fiscal year 2014 budget, according to the American Society of Pension Professionals & Actuaries. A statement issued by ASPPA today raises the question: Is the president saying his own pension is a loophole?   Read More

Studies Show Financial Education has Little Impact on Behavior

According to research from academics at the University of Colorado, the University of Virginia and Catholic University, financial education and training has a 0.1% effect on behavior. Analyzing 168 papers and 201 studies, the professors found little correlation between financial education and how people act with knowledge — negating the benefits of extensive education programs.   Read More

Retirement Plan Services Are Not Orange Juice

On April 23rd, PBS ran an episode of its “Frontline” program entitled “The Retirement Gamble,” which it touted as an “eye opening investigation of a financial services industry that may be draining your retirement savings with every passing year.” The core thesis of this documentary — or perhaps more accurately, docu-drama — is that for retirement savers, fees are by far the most important factor to be considered when choosing an investment.   Read More

A World Without Commissions

While there are no proposals to ban commissions in the U.S., under the DOL’s proposed redefinition of fiduciary rule it will be harder for commissioned advisors to work on ERISA plans and IRAs. Other countries, including the Netherlands, the U.K. and India, have taken initiatives that eliminated commissions on some or all products. The result: fewer advisors and arguably less access to advice for many people, especially lower-income investors who need it most.   Read More

President Attacks Tax Incentives for Retirement

The chatter about retirement benefits leading up to President Obama’s State of the Union address was that he will direct the Treasury Department to create a new federal retirement savings vehicle aimed at workers who lack access to a retirement savings plan at work. In fact, the president did mention this new “myRA.” Unfortunately, though, he coupled it with an attack on the tax incentives for retirement savings.   Read More

Massachusetts to Investigate Annual Lump Sum Matches

Reacting to recent news about the practice of companies like AOL and IBM withholding matching contributions until after the end of the year, William F. Galvin, Massachusetts’ secretary of the commonwealth and chief securities regulator, has sent a request to the top 25 401(k) providers about the number of companies that have made the switch, Bloomberg BusinessWeek reports.   Read More

WSJ Hits Providers on Fee Disclosures

In a scathing report on service provider 408(b)(2) disclosures published Tuesday, the Wall Street Journal detailed the problems that plan sponsors have in two key areas: first, understanding the fees disclosed by providers under the new regulations; and second, trying to determine whether they are reasonable. Most employers have questions about their fees after reading their disclosures, according to a survey by ShareBuilder. In fact, some providers have deliberately made their disclosures hard to understand. There is an opportunity for savvy plan advisors to help these befuddled sponsors understand the fees in the somewhat arcane disclosures and then benchmark them against industry averages.   Read More

Obama’s Offer on Fiscal Cliff Would Endanger Small Businesses’ 401(k) Plans

A provision in President Obama’s latest proposal to avoid the pending fiscal cliff would penalize small business owners by subjecting them to double taxation, according to Brian H. Graff, CEO/Executive Director of NAPA and ASPPA. The president’s latest offer to House Speaker John Boehner (R-OH) includes a 28% cap on the current tax benefit for itemized deductions and exclusions (35% for charitable contributions). This means that a small business owner with a marginal tax rate of more than 28% will pay a surcharge on elective deferrals to a 401(k) plan in the year in which the contributions are made — and then pay tax again on the full amount when those contributions are paid out at retirement, Graff explains.   Read More

Hutcheson Sentenced to 17 Years in Prison

The once-prominent retirement plan advisor and trustee who touted fiduciary standards was sentenced to 17 years in prison by a federal judge in Boise, Idaho. In April, Hutcheson was convicted of 17 counts of a wire fraud scheme to steal $5 million of pension funds he oversaw to enrich himself and his family as well as buy a cash-strapped resort. Rejecting Hutcheson’s plea to turn himself in later, the judge stated: “You’re too smart, you’re too devious. You’re going to have to serve your time; you might as well start now.”   Read More

Just Saying You’re a Fiduciary Destroys Trust Instead of Building it

Noted thought leader Michael Kitces makes a very interesting point: Advisors who focus on or lead with the fact that they are fiduciaries can actually destroy trust. Advisors who focus too much on their fiduciary status are making the implied statement that clients can trust them — but trust is earned, not demanded. And bashing other advisors who are not fiduciaries — implying that by definition they are not trustworthy, as Martin Smith did on this week’s “Frontline” program — can create distrust for all advisors and the entire system, argues Kitces.   Read More

Can We Have a Dialogue Based on Actual Facts, Please?

If you’re an active reader of retirement-related stories in newspapers and on the Web, no doubt you’ve noticed quite a few stories in the popular press lately that are quite critical of 401(k) programs. Brian Graff wrote about these stories not long ago, for example. One of the most egregious examples, from Fox Business, was published Feb. 26 — smack in the middle of “America Saves Week,” ironically enough.   Read More

Is it Time to Reevaluate Participant Self-Direction?

When you really think it through, changing the 401(k) investment approach from participant-directed to offering portfolios selected by the plan sponsor or an investment fiduciary has merit. It allows those who are most qualified to make asset selections do what they do best. The participant’s choices get boiled down to just a few important questions: “How much do you need to save?” “Are you aware that your employer is giving you $X for every dollar you contribute?”   Read More

Bidding War Coming in 401(k) Industry?

Whether the industry likes it or not, fees will continue to be front and center as a result of the “love letters” from Yale Law School Prof. Ian Ayres and media scrutiny on the effect of fees, as well as increased regulatory scrutiny. Most experts agree that fees will continue to decline for many service providers, including advisors, but they’re also concerned about the effect on the quantity and quality of services offered.   Read More

AOL Alters 401(k) Match, Then Relents

Participants in AOL’s 401(k) plan learned last week that their employer match would be delivered in a lump sum in the following year instead of per pay period. But the idea was consumed in the firestorm it ignited, and AOL Chairman and CEO Tim Armstrong quickly recanted.   Read More

Raise the RMD Age?

BlackRock’s Chip Castille argues that in light of the new realities of people working longer and retiring later, we should consider raising the required mandatory distribution (RMD) age from 70-1/2 to 75-1/2.   Read More