Email Archives
04-2012
Corporate Executives Suffer Asymmetrical Risk/Reward as ERISA Fiduciaries
Many company executives serving as 401(k) fiduciaries to their corporate retirement plans may not realize that they are suffering from what we call asymmetrical risk/reward. Asymmetrical risk/reward occurs when the incremental legal or personal risk associated with a role or duty far outweighs any incremental reward for performing that duty. In that vein, 401(k) plan fiduciaries are said to have the ultimate thankless job. They receive little, if any, credit when things go well, and all of the blame and potential personal liability if things go wrong. Continue reading
03-2012
Sanders Booze Capital Advisors recently introduced an exciting new retirement plan paradigm – ONE Retirement Plan Program. Now we’ve officially changed our name to reflect this singular focus. Continue reading
01-2012
A common refrain in management circles is that you cannot manage what you cannot measure. If that is true, than Callan’s 2012 Defined Contribution Trends Survey suggests that management of defined contribution plans (e.g., 401(k) plans) is sorely lacking. As reported by Plansponsor.com, here are some of the key results... Read more...
12-2011
Next year will bring significant new fee disclosure regulations and the scrutiny of enhanced fiduciary regulation. These new rules have the potential to greatly alter the 401(k) landscape for plan sponsors, participants, and industry providers. Here are three actions you can take to avoid a participant revolt Read more...
11-2011
In high school and college, it is easy to spot the person or group that is popular. It is sometimes a little more difficult to spot the person that will have the most success. For example, who could have predicted that a drop out from Reed College (Steve Jobs) would end up being one of the most successful American innovators in American history? Easy to see now, but it was not so easy to see in 1972 when Mr. Jobs was returning Coke bottles for food money and sleeping on the floor in friends' dorm rooms. Read more...
10-2011
Occasionally, 401k plans, like almost anything else, become the focus of untested recommendations. While we won't go into a litany of such recommendations that have impacted 401k plans and their sponsors over the years, we have recently heard of a recommendation that we believe should be subjected to further scrutiny.
From what our contacts in the industry tell us, a few consultants have been suggesting that 401k plans need to have something called a participant education policy statement. The idea, as we understand it, is to lay out in some detail a plan for educating plan participants about their 401k plan. We further understand that construction of this policy may cost approximately ten thousand dollars. Read more...
09-2011
Third Circuit joins Seventh and Eighth Circuits in concluding that more fund options reduces the probability of a fiduciary breach with respect to fees.
"Accordingly, we hold the range of investment opinions and the characteristics of those included options - including the risk profiles, investment strategies, and associated fees - are highly relevant and readily ascertainable facts against which the plausibility of claims challenging the overall composition of the plan's mix and range of investment options should be measured." (Renfro v. Unisys, Third Circuit Court of Appeals, August 19, 2011).
In Renfro V. Unisys, plaintiffs made a variety of allegations under ERISA. Some of the more notable allegations are that the fiduciaries breached their duty by selecting and retaining retail mutual funds for the plan. "Specifically, the plaintiffs contend the administrative fees governed by the trust agreement, and the fees associated with each retail mutual fund, are excessive in light of the services rendered as compared to other, less expensive, investment options not included in the plan." In addition, plaintiffs argued that administration fees should not vary with assets and should be paid on a per-participant basis. Read more...
08-2011
A recent whitepaper from Financial Engines entitled "Understanding the Accidental Investor: Baby Boomers on Retirement" provided an insightful analysis of 401k participants' emotions and behaviors when it comes to their retirement. The paper focused on the following four emotions and corresponding behaviors: uncertainty, fear (of poverty), lack of knowledge, and lack of trust. Read more...
07-2011
As we approach mid-year, we thought it would be helpful to provide some action items to plan sponsors that will be receiving 408(b)(2) disclosures this fall. As general background, the 408(b)(2) rules issued by the Department of Labor will require certain service providers to disclose compensation to plan decision-makers. The deadline for the disclosures was originally July 16, 2011; the Department of Labor delayed that until Jan 1, 2012. For an overview of the rules, please visit the Department of Labor's Fact Sheet. Read more...
06-2011
A recent post on the New York Times website by an observant plan participant with a Vanguard plan raises an interesting issue: Why can an investor access lower-cost versions of the same Vanguard fund outside of their plan (or sometimes in their plan but via the self-directed brokerage window) with lower minimums than in the plan itself? Read more...
05-2011
We sometimes refer to the 401k marketplace as being an "asymmetric marketplace". While perhaps not a correct use of the word, it seems to fit in that term much as asymmetric fits in the term "asymmetric warfare". Asymmetric warfare refers to a war between two parties where relative military might differs significantly. In our view, the 401k marketplace is (or has been) an asymmetric marketplace because the relative information between the two parties (401k plan sponsors and 401k vendors) differs significantly. A recent GAO report highlights areas where plan sponsors have not had an informational advantage relative to 401k plan vendors, and even more concerning, may not have realized it. We highlight two more issues selected from a recent GAO report here to help plan sponsors level the playing field. Read more...
04-2011
"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know." - Donald Rumsfeld, Former Secretary of Defense.
We have always been amused, and somewhat horrified, when plan sponsors have told us that their 401(k) plan is "free." In other words, those plan sponsors didn't know what they didn't know. Read more...
03-2011
The 401(k) began life as a supplement to the defined benefit plan. Now, it is the dominant form of retirement plan for most Americans, but there are still many legacy items that inhibit the 401(k)'s potential. Why aren't 401(k) plans structured to maximize participant outcomes? How is it that plan cost structures do not take advantage of the economies of scale that retirement plans can offer? As regulators and litigators alike subject the 401(k) plan to increased scrutiny, the 401(k) plan is due for an upgrade in three key areas: cost structure, investment structure, and governance. Read more...