A Financial Headline You'll Never See

Did you catch this story that made big news last week? The Yahoo! headline read:

"Ex-hedge fund manager ordered to pay $300 million."

It's about former hedge fund manager Paul Eustace who, according to the Commodity Futures Trading Commission, "cheated clients by sending out fake account statements." Evidently Eustace told clients that their portfolios were valued at over $230 million while he "fraudulently operated the funds and lost millions of dollars."

So what's the financial headline I bet you'll never see?

"Ex-index fund manager ordered to pay $300 million"

I wonder how many more millions of dollars Eustace's clients would have in their portfolios right now if they had just put all their money in a low cost index fund or ETF instead of a risky (and evidently fraudulent) hedge fund.

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More 401(k) Problems?

Here's an article from IndexUniverse.com titled "Auditors Finding More 401(k) Problems".

The article talks about the IRS is finding a "substantial" increase in the number of compliance problems in 401(k) plans. Not surprisingly, the problem is especially troublesome for small businesses.

It's a short article, and worth a quick read. We especially agree with the sentiment in it's conclusion:

"So what does this all mean for index investors? It could be another sign that pressure is building to clamp down even more on the use of high-priced actively managed funds."

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Some Disclosure on Disclosure

It seems many 401(k) plan sponsors aren't that sure that the fees associated with their plans have been fully disclosed. This according to a Planadviser.com article about a recent survey of 150 defined benefit plan sponsors.


One item from the article that we're especially interested in is that more sponsors are implementing fee monitoring and benchmarking. Of them, 68% just started this process within the last year. It's clear the recent 401(k) lawsuits and proposed regulations in Congress and the Department of Labor are making employers pay attention to what their employees are paying in fees.


We're definitely happy to see that.


However, one thing to note about this survey is that 87% of the respondents were from companies that had 1000 or more employees. We wonder how much different the numbers would be if more smaller businesses had been included in the survey.


Here's a link to the full article on the lack of confidence in 401(k) fee disclosure.

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Does the DOL 401(k) Fee Disclosure Proposal Go Far Enough?

The other week, we applauded the Department of Labor's proposed rules that would require that employers to disclose more information on the fees 401(k) participants and do so in a clearer format.



But do the rules go far enough?



No, says Rep. George Miller (D-CA). You may know that Rep. Miller has been pushing legislation in Congress that would require greater disclosure of fees to 401(k) plan participants. Unfortunately, that bill was defeated just a few months ago (though it will likely be brought back again next year).



Rep. Miller says that although the DOL proposal is a step in the right direction, it doesn't go far enough. He believes that under the DOL proposal, financial firms would still be able to hide many of the fees that 401(k) plan participants pay.



According to an article in Pensions and Investments, Rep. Miller's spokesman elaborated by saying that invesment management charges and trading commission charges would not have to be disclosed "in the most important document that workers see — their quarterly benefit statement.”



The spokesman went on to say that ". . . fees that could actually be the largest charge against a participant's account could still be hidden. Administrative charges can also be hidden if they are bundled as part of the management fee.”



Given their history, we have no doubt that financial firms will go do everything in their power to keep their excessive, hidden fees excessive and hidden. We just hope that rules like the DOL proposed and legislation like Rep. Miller is working on get implemented so it's more difficult for financial firms to get away with fleecing the retirement savings of American workers.

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