Earlier this year, Fiduciary News presented a four-part series on the DOL's new mutual fund reporting requirements. These requirements were scheduled to take effect in July, but the effective date has been moved to next April.
Fiduciary News test drove these new compliance procedures using the DOL's own suggested Model Comparison Chart and BrightScope's listing of the top 10 most widely held 401(k) mutual funds. The results astonished our readers in many interesting and intriguing ways.
The US Labor Department (DOL) issued a news release on Oct.14, 2010. The release outlined the DOL's final mutual fund fee disclosure rule to "improve transparency of fees and expenses to workers with 401(k)–type retirement plans."
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Assistant Secretary of Labor for EBSA Phyllis C. Borzi said of the rule, "We are giving workers the tools they need to make the best possible decision about investing the nearly $3 trillion held in their 401(k) type plans. Now they will have information about different investment options to help them make wise decisions."
Fiduciary News began by looking at the chart of comparative performance. In determining what benchmark would be used, it was decided to use both the S&P 500 and the Lipper Peer Group. Morningstar was avoided as their "style-box" grouping does not produce a true "peer" group because it lacks a both Multi-Cap and index categories.
Fiduciary News quickly found the DOL's suggested comparative table in need of improving. In its new and improved model comparative chart, it added both the fund ticker (so it was clear what class of fund the table was referring to) and Lipper ranking (to better assess how the fund compared to its peer group).
Next Fiduciary News took on the comparative fees chart. Here it discovered some potentially misleading results, even after adding comparative Lipper data and additional data columns for 12b-1 fees and both back-end and front-end loads. Without the fund objective and performance data, investors might be tempted to make a decision to go with lower fee funds – even when those lower fee funds perform worse and might be inappropriate.
Lastly, Fiduciary News analyzed the top ten most widely held 401(k) mutual funds. The results surprised us and revealed the incentive of fund distribution models appeared to outweigh any of the criteria the DOL was measuring. Perhaps the DOL's new fiduciary standard might address this.
For details, we encourage you to read the original articles accessible through the links below.
Part I: Introduction: A Fiduciary Test Drive of New DOL Fee Chart Using Top 401k Funds – Here's your chance to see a real example of the new DOL 401k Disclosure Rule in practice. Complete with links to vital DOL documents.
Part II: DOL's New Performance Reporting Requirements: A Boon or a Risk to the 401k Fiduciary? – The DOL's new requirements offer some good and some bad news, leading one to wonder: Do the benefits of the good offset the dangers of the bad? Discover both in this article.
Part III: DOL's New Mutual Fund Fee Disclosures: Will They Mislead 401k Investors? – "What is intended to help participants, may hurt them as their decisions are driven by confusion and data overload." Here's why.
Part IV: Should What DOL's New Regs Reveal about Most Widely Held 401k Mutual Funds Worry Plan Sponsors? – After it's all said and done, the question remains: Do the new DOL mutual fund reporting requirements merely add to the worries of 401k plan sponsors? This article explores those worries.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
