The DOL should get off the Fee Disclosure Pot

To be or not to be, that is the question. To delay or not to delay, I don’t know what the answer is.

With April 1 rolling around and no final rules concerning their implementation, many folks (namely retirement plan providers) are lobbying the Department of Labor to extend the enforcement of the fee disclosure regulations.

While a previous posting was my belief that the DOL shouldn’t delay the implementation of the regulations, my belief is that as each day that passes by, it is more likely that the DOL will delay.

So while I believe that plan providers should be ready for the April 1 date and don’t need to extend their complaints that they still aren’t ready for six months, the DOL deserves the blame for this mess.

Fee disclosure regulations have been on the board for almost 2 years now and it’s time the DOL to publish their final rules.  Otherwise, we will get a delay and those who care about fee disclosure (whether it’s a plan provider, plan sponsors, or participants) will lose.

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One Response to The DOL should get off the Fee Disclosure Pot

  1. Joel L. Frank says:

    JOEL L. FRANK
    PO Box 148
    Marlboro, NJ 07746
    732-536-9472

    RETIREMENT HEIST

    The cost of operating an investment fund is expressed in “basis points”(bp), with one bp point equal to one hundredth of one percent (0.0001). For the fiscal year ended June 30, 2010 it cost the State of New Jersey eight bp to operate its Defined Benefit Pension System. This equates to $80.00 for each $100,000 under management. It’s important to keep the costs of operating the System to a minimum so that more money will be available for other government programs. Eight bp is de minimis cost.
    The same logic applies to our Defined Contribution Pension System where the operating cost is paid, not by the public sector employer but, by the public sector worker-investor. It’s extremely important to keep the costs of operating this personal investment portfolio to a minimum so that more money will be available to us during retirement.
    NEW JERSEY STATE EMPLOYEES DEFERRED COMPENSATION PLAN
    This voluntary/supplemental Defined Contribution pension plan is for State employees. During its first 25 years the Plan’s investment lineup consisted of four investment funds managed by the Division of Investment. The Division charges the worker the same eight bp it pays to operate the State’s multi-billion dollar Defined Benefit Pension System. This protective shell, encasing the worker-investor’s 457(b) account, was purposefully destroyed on January 2, 2006 when each of the four State-managed funds were summarily closed to future contributions and replaced with 23 commission-based Prudential funds.

    Moreover, Prudential was hired to handle two key Plan functions: Plan Administration and Plan Investment Provider which, heretofore, were handled by the New Jersey Division of Pensions and Benefits and the New Jersey Division of Investment, respectively. Both agencies are divisions of the New Jersey Department of the Treasury.
    The other “usual suspects” the State could have farmed the Plan out to are prominently displayed on the website of the New Jersey Department of Community Affairs. They are: AXA Equitable, Great-West Life and Annuity Company, The Hartford, ICMA-RC, ING Life Insurance and Annuity Company, Lincoln National Life Insurance Company, Massachusetts Mutual Life Insurance Company, MetLife, Mutual of America, Nationwide Retirement Solutions, Inc., Variable Annuity Life Insurance Company. ICMA-RC is the only one that is not commission-based.
    Do you have any idea how the costs associated with investing impacts the growth of your 457(b)/403(b) retirement-investment account? Example: For 40 years Bob and Rob contribute to the State’s 457(b) Plan. Their first year salary is $30,000 with annual increases of 3 percent. 10 percent of their salary is invested in the Plan each year. They each earn an 8 percent return, before costs. At the end of 40 years Bob has an account balance of $1.1 million while Rob’s account balance is $700,000. Why the massive difference? Bob invested his money in the four State-managed funds at a cost of eight bp or $80.00 per $100,000 of account value while Rob was forced to invest his money with Prudential at a cost of 220 bp or $2200.00 per $100,000 of account value. In other words, after paying his costs, Bob’s net investment return was reduced to 7.92 percent (800 bp minus 8 bp) while, after paying his costs, Rob’s net investment return was reduced to 5.80 percent (800 bp minus 220 bp).
    The sole intent of these fundamental changes was to compel the worker-investor to buy commission-based Prudential funds. Recognizing that it’s the worker-investor, not the State (taxpayer), that makes the investment, pays all associated costs of acquiring and maintaining the investment and assumes all investment risk, it is the height of arrogance and wrongdoing for the State to sanction the sale of commission-based investments to its employees. Why, after 25 years of operating the Plan at de minimis cost, did the State see fit to place Prudential’s profit goals ahead of the financial security goals of its workers? Why, after 25 years of operating the Plan at de minimis cost, did the State decide to contribute to Prudential’s profit margin on the backs of its own workers? It is just stunning that at a time when fees paid by the worker-investor are under intense scrutiny the Trustees would have the unmitigated gall to replace the four de minimis cost funds with 23 commission-based ones.

    If the Trustees’ objective was to expand the investment lineup all additional funds should have been of the de minimis cost variety. Why is the State’s contempt for its workers exhibited with such gusto? Such bedrock changes represent a colossal breach of fiduciary responsibility on the part of the State and must be rejected.
    COUNTY, MUNICIPAL, SCHOOL DISTRICT AND PUBLIC AUTHORITY DEFERRED COMPENSATION 457(b) PLANS While investment in commission-based funds is comparatively new to State workers, it has flourished on the county, municipal, school district and public authority level for more than 30 years. For more than 30 years “Rob” has been severely mauled by the commission-based 457(b) sales shark.
    NEW JERSEY SUPPLEMENTAL ANNUITY COLLECTIVE TRUST (SACT)
    This Defined Contribution pension plan is the State-administered 403(b) Plan for employees of public school districts and higher education. It is also available to all other public workers on an after-tax basis. Since its inception in 1963 it has offered just one investment option, a common stock fund. It’s hard to comprehend how such glaring negligence can continue, unchecked, for almost half a century. Such flagrant breach of fiduciary responsibility on the part of the SACT Trustees is the only reason why each of the 565 school districts have farmed out their own, high pressured, commission-based 403(b) plan to insurance companies and mutual funds. For nearly 50 years the SACT, with its solitary investment option, has been the commission-based 403(b) sales shark’s most cherished and reliable ally. While it’s utter nonsense for each of the 565 school districts to sponsor their own 403(b) plan, until the SACT Trustees adopt a diversified investment lineup, employees of school districts and higher education will continue to avoid the SACT, as they should. Unfortunately, they will also continue to be severely mauled by the high pressured, commission-based 403(b) investment companies that have been, since 1963, sanctioned by their employing school districts. 565 high pressured, commission-based 403(b) plans when a State-administered 403(b) Plan has been available for nearly half a century. A colossal breach of fiduciary duty.
    For nearly 50 years New Jersey has been the national poster-child for the sale of high pressured, commission-based investment funds to its public workers.
    RECOMMENDATIONS
    1. The same high fiduciary standards that apply to the operation of the Defined Benefit Pension System must also apply, with equal vigor, to the Defined Contribution Pension System to which employees of state, county, municipal governments, public authorities and school districts invest in.
    To that end the Defined Contribution Pension System should also be administered by the New Jersey Division of Pensions and Benefits with the New Jersey Division of Investment being the System’s Investment Provider.
    This includes mandatory Defined Contribution pension plans funded by both employer (taxpayer) and employee contributions; i.e., the Alternate Benefit Program and the Defined Contribution Retirement Program as well as supplemental Defined Contribution pension plans funded solely by the voluntary salary reductions of workers under sections 457(b) and 403(b) of the Internal Revenue Code. The State (taxpayer) should charge the worker-investor the same amount it pays to operate the State’s Defined Benefit Pension System, currently eight basis points.
    2. If it is sound public policy for all public employees (state, county, municipal, public authority and school district) to belong to a single, State-administered, Defined Benefit Pension Plan, why do we have 21 counties, 565 municipalities and 565 school districts farming out their own high pressured, commission-based 457(b) plan to insurance companies and mutual funds? 1151 high pressured, commission-based 457(b) plans when a State-administered 457(b) Plan has been available for more than 30 years. A colossal breach of fiduciary duty.
    Additionally, why do we also have 565 school districts farming out their own high pressured, commission-based 403(b) plan to insurance companies and mutual funds? (School districts and public institutions of higher education may sponsor 457(b) plans and 403(b) plans). 565 high pressured, commission-based 403(b) plans when a State-administered 403(b) plan has been available for nearly 50 years. Another colossal breach of fiduciary duty.
    3. As soon as possible the administration and investment management functions of the New Jersey State Employees Deferred Compensation Plan shall revert back to the Division of Pensions and Benefits and the Division of Investment, respectively. Plan participation should be expanded to include the entire public employee universe (county, municipal, public authority, school district and public institutions of higher education). See: New York State Deferred Compensation Plan at: https://www.nrsservicecenter.com/iApp/ret/landing.do?Site=nysdcp
    The Plan’s four State-managed investment funds represent just a beginning to a well diversified investment lineup. Improvements are urgently needed. See: Deferred Compensation Plan of the City of New York at: http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml
    The SACT must offer more than a solitary common stock fund. See: Deferred Compensation Plan of the City of New York at: : http://www.nyc.gov/html/olr/html/deferred/dcphome.shtml

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