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Hello, all,

 

Here are a couple of links to Morningstar articles relative to many issues often discussed here. These are more specifically about 401(k)s, but many of those plans have faults strikingly similar to those that we 403(b) types suffer. I have often seen comments on this board suggesting that ERISA makes sure all is well in the 401(k) world, but it isn't. Happy reading!

 

 

Conversation with a Fiduciary #1: http://www.advisor.morningstar.com/article...amp;docId=13155

 

Conversation with a Fiduciary #2: http://www.advisor.morningstar.com/article...asp?docId=13469

 

Judy Schneider

 

 

 

 

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Hello, all,

 

Here are a couple of links to Morningstar articles relative to many issues often discussed here. These are more specifically about 401(k)s, but many of those plans have faults strikingly similar to those that we 403(b) types suffer. I have often seen comments on this board suggesting that ERISA makes sure all is well in the 401(k) world, but it isn't. Happy reading!

 

 

Conversation with a Fiduciary #1: http://www.advisor.morningstar.com/article...amp;docId=13155

 

Conversation with a Fiduciary #2: http://www.advisor.morningstar.com/article...asp?docId=13469

 

Judy Schneider

 

Judy: Just completed the reading of #1. Just Great Stuff!!! Morningstar has done a great public service in this regard.

 

Joel

 

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Hello, all,

 

Here are a couple of links to Morningstar articles relative to many issues often discussed here. These are more specifically about 401(k)s, but many of those plans have faults strikingly similar to those that we 403(b) types suffer. I have often seen comments on this board suggesting that ERISA makes sure all is well in the 401(k) world, but it isn't. Happy reading!

 

 

Conversation with a Fiduciary #1: http://www.advisor.morningstar.com/article...amp;docId=13155

 

Conversation with a Fiduciary #2: http://www.advisor.morningstar.com/article...asp?docId=13469

 

Judy Schneider

 

Judy: Just completed the reading of #1. Just Great Stuff!!! Morningstar has done a great public service in this regard.

 

Joel

It's still an improvement over the current 403(b) environment. Suppose I set up a mutual fund that only invests in cucumber farming companies (Why cucumbers? Because I just watched a show on the food channel about pickles and I am guessing that cucumbers have more price volatilitythan pickles and are therefore less appropriate in a retirement plan portfolio.) and I have a 400 bips expense ratio. I am not going to get it into the 401(k) of any rational sponsor, and in the five plans with crazy sponsors with crazy advisors I'm going to get maybe one or two stupid or crazy participants; I have to find a cluster of crazy people who hang around together. But in a 403(b) open-employer-market, all I have to do is find one wacko or idiot. Inherently, the 401(k) model, whether in an ERISA 401(k) or a non-ERISA 401(k), provides greater protections against really bad choices

 

In reading the articles, I felt like I was in my freshman Western Culture course (yes, I'm that old) reading Platonic dialogues. They were designed by Plato to pull readers to a specific result, and so were at a fundamental level not inquiry but argument. I get that same sensation here of being intellectually coerced. Somehow I'm not surprised the author makes a living off of fiduciary duty issues, and I can assure you that if I were the non-Fiduciary in the "dialogue" the articles would read very differently.

 

Next, ERISA has limited applicability to 403(b). Schools can't be subject to ERISA even if they want t be. Nor can governmental charities or church-related employers. And I don't think employers of other 501©(3) organizations are likely to beg to have ERISA apply when there's a pretty straightforward exemption available. In fact, since no trust is ever involved in a 403(b) (other than church plan retirement income accounts that are optional anyway), I think the amount of talking about fiduciary duties in these forums is much higher than is warranted, when the issue is insurance or securities fraud. So my puppy-like desire to chew on the articles is misplaced.

 

I'm no believer in consensus-I try to get the right answer, and Joel is very good at this and thinks the same way. New perspectives are always more productive than old ones, and this is a welcome opener to a very fundamental, and fascinating issue. But, in summary, while the articles are interesting, you should not attach undue significance to them. All is actually pretty well in the 401(k) world, and it's a darn sight better than the 403(b) world, where I might be able to make some real money off of people (who appear here to have enough problems already) by selling some of my cucumber fund shares.

 

Tom Geer

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Hello, all,

 

Here are a couple of links to Morningstar articles relative to many issues often discussed here. These are more specifically about 401(k)s, but many of those plans have faults strikingly similar to those that we 403(b) types suffer. I have often seen comments on this board suggesting that ERISA makes sure all is well in the 401(k) world, but it isn't. Happy reading!

 

 

Conversation with a Fiduciary #1: http://www.advisor.morningstar.com/article...amp;docId=13155

 

Conversation with a Fiduciary #2: http://www.advisor.morningstar.com/article...asp?docId=13469

 

Judy Schneider

 

Judy: Just completed the reading of #1. Just Great Stuff!!! Morningstar has done a great public service in this regard.

 

Joel

It's still an improvement over the current 403(b) environment. Suppose I set up a mutual fund that only invests in cucumber farming companies (Why cucumbers? Because I just watched a show on the food channel about pickles and I am guessing that cucumbers have more price volatilitythan pickles and are therefore less appropriate in a retirement plan portfolio.) and I have a 400 bips expense ratio. I am not going to get it into the 401(k) of any rational sponsor, and in the five plans with crazy sponsors with crazy advisors I'm going to get maybe one or two stupid or crazy participants; I have to find a cluster of crazy people who hang around together. But in a 403(b) open-employer-market, all I have to do is find one wacko or idiot. Inherently, the 401(k) model, whether in an ERISA 401(k) or a non-ERISA 401(k), provides greater protections against really bad choices

 

In reading the articles, I felt like I was in my freshman Western Culture course (yes, I'm that old) reading Platonic dialogues. They were designed by Plato to pull readers to a specific result, and so were at a fundamental level not inquiry but argument. I get that same sensation here of being intellectually coerced. Somehow I'm not surprised the author makes a living off of fiduciary duty issues, and I can assure you that if I were the non-Fiduciary in the "dialogue" the articles would read very differently.

 

Next, ERISA has limited applicability to 403(b). Schools can't be subject to ERISA even if they want t be. Nor can governmental charities or church-related employers. And I don't think employers of other 501©(3) organizations are likely to beg to have ERISA apply when there's a pretty straightforward exemption available. In fact, since no trust is ever involved in a 403(b) (other than church plan retirement income accounts that are optional anyway), I think the amount of talking about fiduciary duties in these forums is much higher than is warranted, when the issue is insurance or securities fraud. So my puppy-like desire to chew on the articles is misplaced.

 

I'm no believer in consensus-I try to get the right answer, and Joel is very good at this and thinks the same way. New perspectives are always more productive than old ones, and this is a welcome opener to a very fundamental, and fascinating issue. But, in summary, while the articles are interesting, you should not attach undue significance to them. All is actually pretty well in the 401(k) world, and it's a darn sight better than the 403(b) world, where I might be able to make some real money off of people (who appear here to have enough problems already) by selling some of my cucumber fund shares.

 

Tom Geer

 

 

Uh, Tom.

 

Those two articles were the most incredible things I have ever read. Have you ever publicly tackled a complex issue like the author did with such skill and precision? This guy deserves praise, not criticism.

 

You are above the subtle jealousy that came out in your response. Give credit when credit is due.

 

Blake

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Hello, all,

 

Here are a couple of links to Morningstar articles relative to many issues often discussed here. These are more specifically about 401(k)s, but many of those plans have faults strikingly similar to those that we 403(b) types suffer. I have often seen comments on this board suggesting that ERISA makes sure all is well in the 401(k) world, but it isn't. Happy reading!

 

 

Conversation with a Fiduciary #1: http://www.advisor.morningstar.com/article...amp;docId=13155

 

Conversation with a Fiduciary #2: http://www.advisor.morningstar.com/article...asp?docId=13469

 

Judy Schneider

 

 

Judy: Just completed the reading of #1. Just Great Stuff!!! Morningstar has done a great public service in this regard.

 

Joel

 

It's still an improvement over the current 403(b) environment. Suppose I set up a mutual fund that only invests in cucumber farming companies (Why cucumbers? Because I just watched a show on the food channel about pickles and I am guessing that cucumbers have more price volatilitythan pickles and are therefore less appropriate in a retirement plan portfolio.) and I have a 400 bips expense ratio. I am not going to get it into the 401(k) of any rational sponsor, and in the five plans with crazy sponsors with crazy advisors I'm going to get maybe one or two stupid or crazy participants; I have to find a cluster of crazy people who hang around together. But in a 403(b) open-employer-market, all I have to do is find one wacko or idiot. Inherently, the 401(k) model, whether in an ERISA 401(k) or a non-ERISA 401(k), provides greater protections against really bad choices

 

In reading the articles, I felt like I was in my freshman Western Culture course (yes, I'm that old) reading Platonic dialogues. They were designed by Plato to pull readers to a specific result, and so were at a fundamental level not inquiry but argument. I get that same sensation here of being intellectually coerced. Somehow I'm not surprised the author makes a living off of fiduciary duty issues, and I can assure you that if I were the non-Fiduciary in the "dialogue" the articles would read very differently.

 

Next, ERISA has limited applicability to 403(b). Schools can't be subject to ERISA even if they want t be. Nor can governmental charities or church-related employers. And I don't think employers of other 501©(3) organizations are likely to beg to have ERISA apply when there's a pretty straightforward exemption available. In fact, since no trust is ever involved in a 403(b) (other than church plan retirement income accounts that are optional anyway), I think the amount of talking about fiduciary duties in these forums is much higher than is warranted, when the issue is insurance or securities fraud. So my puppy-like desire to chew on the articles is misplaced.

 

I'm no believer in consensus-I try to get the right answer, and Joel is very good at this and thinks the same way. New perspectives are always more productive than old ones, and this is a welcome opener to a very fundamental, and fascinating issue. But, in summary, while the articles are interesting, you should not attach undue significance to them. All is actually pretty well in the 401(k) world, and it's a darn sight better than the 403(b) world, where I might be able to make some real money off of people (who appear here to have enough problems already) by selling some of my cucumber fund shares.

 

Tom Geer

 

 

 

Uh, Tom.

 

Those two articles were the most incredible things I have ever read. Have you ever publicly tackled a complex issue like the author did with such skill and precision? This guy deserves praise, not criticism.

 

You are above the subtle jealousy that came out in your response. Give credit when credit is due.

 

Blake

 

They are very well written, far better than I can write, raise interesting and important issues and make many valid points. My basic point was not to overreact or to take their content as definitive. I apologize for any subtle jealousy that may appear.

 

Tom Geer

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Sorry, I am typologically challenged and hit the wrong button there. Any comments on my specific comments? Any items from the articles that should be highlighted? Any agreements or disagreements with the article or me?

 

I think the role of fiduciary duty issues in 403(b) contexts is both interesting and fundamental. The notion that having a written plan means you have to worry about fiduciary duties like a for-profit plan sponsor is a major source of anxiety at the moment, which makes it important. The simple fact of this thread's existence confirms its importance. And I've been wrong before, so any of your thoughts are valued and will be treated and responded to with respect.

 

What do you think of the notion that having a written plan allows the employer to define, and limit, its responsibilities and liabilities where the plan is not subject to ERISA?

 

Tom Geer

 

 

 

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Tom:

 

I appreciate your participation here and find your view(s) to be insightful. I agree that the talk of fiduciary issues in the context of 403(b) sponsors is of limited value given your statement: "Next, ERISA has limited applicability to 403(b). Schools can't be subject to ERISA even if they want t be. Nor can governmental charities or church-related employers"

 

The Article(s):

 

The author Matt Hutcheson is an interesting gentleman. I challenged him on the use of the title "certified independent pension fiduciary " and the claim that his firm G Fiduciary is "a consulting firm for retirement plan sponsors" as noted as a sidebar in his article on the Kiplinger web site:

 

Link:

http://www.kiplinger.com/businessresource/..._401k_fees.html

 

There is NO SUCH THING as a "certified independent pension fiduciary" and the Editor gave him a free pass on that. Certified by whom? Independent of what? This is always a HUGE red flag for me. In the comment section after the article on Kiplinger, Dan Peterson, the President of G Fiduciary, admits that they are not a consulting firm but "an independent plan sponsor". What the heck is that? I don't know. He never responsed to my request for information.

 

I do have to disagree with your comment that "All is actually pretty well in the 401(k) world". I'll have to locate the source, but the last 401(k) survey I read showed that 75% of employers with 401(k) plans of less than $3 million used group variable annuities, while 50% of plans with less than $5 Million used the same funding vehicle.

 

Outside the annuity-based plans, the use of asset-based revenue sharing agreements, R shares with outrageous distribution fees, Plan "Consultants" collecting fees as an RIA-Broker-Dealer-Insurance Agency, and the picture is pretty ugly.

 

Better than the 403(b) market...in my opinion, just a little.

 

Best regards,

 

Jim

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Jim: In visiting the link you provide, I noticed that Hutcheson clarified that he is a "Certified Pension Consultant." To me, it appears that Kiplingers confused the term "Independent Pension Fiduciary" with "Certified Pension Consultant;" both terms that hutcheson frequently uses.

 

I've been following Hutcheson's writings for nearly a decade, and have heard him speak more than once. I have never seen him use the term "Certified Independent Pension Fiduciary" and doubt that was his error. My guess is that Kiplingers simply made a mistake in characterizing him. By the way, there actually is something called a "Qualified Independent Fiduciary" in the IRS code. Might that be what Kiplingers actually meant?

 

In my view, Matthew Hutcheson is one of the most important modern figures in the world of retirement plans. I've heard other well known leaders in the 401(k) industry publicly refer to him that way. If you have ever seen him speak in person, he's absolutely incredible. He is brilliant and cutting edge, and I believe he is properly motivated. I'm a fan and am cheering him on.

 

Jim: Not to beat you over the head with this, but it appears you unintentionally mischaracterized G Fiduciary as being "Hutcheson's" firm. By googling "Matthew D. Hutcheson," it is clear that Hutcheson's firm is Matthew D. Hutcheson, LLC (www.erisa-fiduciary.com). G Fiduciary's website simply states that Hutcheson is the architect and trustee of that particular plan. I gleaned this information in 15 short minutes of following the link you provided.

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Jim: In visiting the link you provide, I noticed that Hutcheson clarified that he is a "Certified Pension Consultant." To me, it appears that Kiplingers confused the term "Independent Pension Fiduciary" with "Certified Pension Consultant;" both terms that hutcheson frequently uses.

 

I've been following Hutcheson's writings for nearly a decade, and have heard him speak more than once. I have never seen him use the term "" and doubt that was his error. My guess is that Kiplingers simply made a mistake in characterizing him. By the way, there actually is something called a "Qualified Independent Fiduciary" in the IRS code. Might that be what Kiplingers actually meant?

 

In my view, Matthew Hutcheson is one of the most important modern figures in the world of retirement plans. I've heard other well known leaders in the 401(k) industry publicly refer to him that way. If you have ever seen him speak in person, he's absolutely incredible. He is brilliant and cutting edge, and I believe he is properly motivated. I'm a fan and am cheering him on.

 

Jim: Not to beat you over the head with this, but it appears you unintentionally mischaracterized G Fiduciary as being "Hutcheson's" firm. By googling "Matthew D. Hutcheson," it is clear that Hutcheson's firm is Matthew D. Hutcheson, LLC (www.erisa-fiduciary.com). G Fiduciary's website simply states that Hutcheson is the architect and trustee of that particular plan. I gleaned this information in 15 short minutes of following the link you provided.

 

 

Ellen,

 

In all fairness there were two significant factual problems with the Kiplinger piece that could have easily been corrected by G Fiduciary & Mr. Hutcheson. The editor, John Frandsen, identified Hutcheson as a "Certified Independent Pension Fiduciary" and G Fiduciary as a "consulting firm". Neither statements appear to be accurate and were in fact corrected by Hutcheson & Dan Peterson (in the comments section) after I mentioned them. Mr. Frandsen allows these inaccuracies to stand many months later.

 

I note that G Fiduciary is "his firm" and by that I meant affililation rather than ownership. However he was identified as the founder of Gemini Financial, LLC (name changed to G Fiduciary on 3-1-2007) by John Wasik of Bloomberg. G Fiduciary was identified in the Wall Street Journal as a "401(k) provider which offers just one investment option: a fund that is 60% stocks and 40% bonds". These articles has been widely republished across the web and are named on the Kiplinger link I provided.

 

I know this doesn't seem like a big deal but it is. You see it's the little things that matter. His piece (Kiplinger) was about HIDDEN fees and asking thoughtful, specific question of the folks who earn a living from retirement plans directly or from the organizations who sponsor them. Now what is a "Independent Plan Sponsor"? I couldn't tell you. A Google search provides THREE hits for the term. Not three thousand or three hundred, but THREE. One is for G Fiduciary.

 

Yes, I remain skeptical. Just like I'm skeptical of those insurance agents masquerading as "Retirement Education Specialists" or Wealth Advisors".

 

"one of the most important modern figures in the world of retirement plans"? Perhaps that's a bit much, but I appreciate that you like and respect the guy.

 

 

 

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"one of the most important modern figures in the world of retirement plans"? Perhaps that's a bit much, but I appreciate that you like and respect the guy."

 

 

Jim: It was the sponsor of a major retirement plan conference that said it during his introduction of Mr. Hutcheson prior to him giving a speech. I was there and heard it first hand. Why do you object?

 

Yes, like many others, I also respect him. Why let Kiplinger's failure to make a correction taint your view of him? It sounds like Kiplingers problem, not Hutcheson's.

 

This comment may be viewed as naive, but I still believe that there are still honest, open, independent, honorable, people out there. I simply believe Hutcheson is one of those people. Having met him, I believe I can at least make some reasonable judgment about him. That's all I'm trying to say.

 

I think it is great that the morningstar articles were posted here. I loved reading them, too. Wasn't that the point (the articles I mean) of this thread? How about a discussion about the articles instead of the author??

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"one of the most important modern figures in the world of retirement plans"? Perhaps that's a bit much, but I appreciate that you like and respect the guy."

 

 

Jim: It was the sponsor of a major retirement plan conference that said it during his introduction of Mr. Hutcheson prior to him giving a speech. I was there and heard it first hand. But why do you object?

 

Yes, like many others, I also respect him. Why let Kiplinger's failure to make a correction taint your view of him? It sounds like Kiplingers problem, not Hutcheson's.

 

This comment may be viewed as naive, but I still believe that there are still honest, open, independent, honorable, people out there. I simply believe Hutcheson is one of those people. Having met him, I believe I can at least make some reasonable judgment about him. That's all I'm trying to say.

 

I think it is great that the morningstar articles were posted here. I loved reading them, too. Wasn't that the point (the articles I mean) of this thread? How about a discussion about the articles instead of the author??

 

 

EllenTSA,

 

Fair enough. I think he is probably one of the good guys too. But I think the author is always fair game when discussing an article. Google "Independent Pension Fiduciary". I got 76 hits, almost all of which were related to Hutcheson, while a few were about the airline pension bailouts. These are simply not terms in wide use within the industry. That doesn't mean there is anything improper or wrong. I unfortunately no longer give the benefit of the doubt to anyone working in the industry. I think that asking the hard questions is a consistent theme in his writings.

 

Best regards,

 

Jim

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Thanks Jim. It is unfortunate that we have to be as cautious as we do, and I appreciate where you are coming from.

 

I know I recommended that we stop talking about Hutcheson, but I wanted to share something that I think sheds favorable light on where he is coming from. I really thought this interview was great.

 

http://www.401khelpcenter.com/401k/meigs_mdh_interview.html

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Skeptical, I agree with you that if you put yourself out there, you're fair game. But what about the content of his statements. Ad hominem arguments can help people assess the source, but not the content.

 

Whatever his proper title, Brother Hutchison is clearly knowledgeable. Given the application of ERISA, his comments are very smart and very helpful in laying out the issues, although I do disagree with things he says. My concern was, and is, that, in my opinion, he overstates the problem, setting up straw men he can knock over. I do that, too, at least when I'm arguing a point, because it's a fun and effective argument technique.

 

I practice as a consultant now, but when I was lawyering I did a lot of M&A benefits work. One of the things I did was go into negotiating rooms, have my corporate partner describe a structure propsed by the other side, and then say it raised difficult and complicated ERISA issues. Of course it did-they all do. But the other side probably didn't know that, so they'd roll on the structure. It was surprisingly effective, and makes for some fun stories. Every once in a while they'd wheel out their benefits person and we'd both sit there and say how difficult and complicated everything was. Good times.

 

Does anybody have any thoughts on the fiduciary issues? It makes me nervous that I appear to disagree with some sort of consensus, and to do so based on an "I don't see it" argument. But I just don't see anything.

 

Another comment to Skeptical. Your comments on the 401(k) market are very well put, and correct. The only response to them is, perhaps, not very persuasive, and at the very least not happy-making. It costs a certain amount of money to put the "tax wrapper" on retirement plans because of the complexity (and increasing complexity) of the regulatory scheme. That wrapper costs what it costs, and somebody has to pay for it somehow. Retirement plans will never have the fee levels associated with necked (the software here does this the the word ######) mutual funds.

 

However, at least in placing some gatekeeper function on the employer or plan fiduciary, the 401(k) model provides protections that 403(b) does not, and right now I think that is the largest issue 403(b) participants and employers have to confront. Skeptical, have you had occasion to look at the issue?

 

In the 401(k) environment I grind two axes most finely. First, I want people to understand both the benefits and the detriments of their financial instruments, including annuities. I started this in 1979, when a client came in that had terminated a group annuity contract with a 56% market value discount and 80% of the funds in the affected stable value fund (admittedly an extreme example and One they could have avoided with installment withdrawals). The second is full disclosure of fees and receipts from all sources. My largest relationship with a TPA is with one that not only discloses all receipts (i.e., sub-TA fees) but offsets them against the quoted fee. And absent at least disclosure, I will not work with a client, which (and I will keep saying this until I believe it) explains why I'm not driving that Maserati I drool at.

 

Tom Geer

 

 

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Tom: Would you share something specific you disagree with Hutcheson about? I have an open mind. I've heard people comment they feel he stimulates thoughtful discussion, but I've never actually heard someone say they disagreed with him. Just curious.

 

Ellen

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Now that we have all read the articles can someone explain what the take away is from this parable?

 

Secondly what is the extent of fiduciary liability for an employer who operates a 401k plan in reliance on 404c of ERISA.

 

Third can the plan eliminate potential liability if the employee can hire a fiduciary to provide advice and select plan investments for the participant?

 

Fourth: what are the standards for determining liability of a fiduciary under ERISA and who makes the determination of a breach of fiduciary liability under ERISA?

 

Fifth what is the applicability of these articles for 403b plan sponsors that are exempt from ERISA?

 

 

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