Month: December 2003

Did you know that there is a little-known, easy-to-use online tool which allows you to have input into the federal government’s promulgation of regulations at this site: Regulations.gov? For instance, at this page you can comment on the recent “Electronic Registration Requirements for Investment Advisers To Be Investment Managers Under Title I of ERISA.” You can view the proposed regulations in html or pdf format and then submit a comment online.

Internal Revenue Service open regulations appear here.

Department of Labor open regulations appear here.

SEC open regulations appear here including the controversial “Disclosure Regarding Market Timing and Selective Disclosure of Portfolio Holdings” or the “Amendments to Rules Governing Pricing of Mutual Fund Shares.”

Also, at this link you can view all of the regulations for which today is the last day to submit comments.

The site allows you to search by agency and also by keyword.

In a press release issued December 16, 2003, Fiduciary Analytics announced that it had “completed research on mutual fund families that ranks them by the percentage of their individual funds that pass fiduciary due-diligence screens.” Fiduciary Analytics is a Pittsburgh-based organization that provides fiduciary training and research to pension plan sponsors and investment advisers. This fiduciary scoring process developed by Fiduciary Analytics ranks funds within their peer group as “passed, acceptable, watch, or replace.” The funds are scored according to an established eight-point due diligence process which consists of the following:

• Minimum track record
• Amount of assets under management
• Stability of the organization (manager turnover)
• Holdings consistent with style
• Correlation to style or peer group
• Expense ratios/fees
• Performance relative to assumed risk
• One-Year performance relative to peer group
• Three-Year performance relative to a peer group
• Five-Year performance relative to a peer group.

Why is all of this important? The press release says it best:

Fiduciaries–such as trustees, investment advisors, and retirement plan investment committees–are required to prudently manage investment decisions. As such, when a mutual fund family is implicated in wrongdoing, the fiduciary must show evidence that a process was followed in deciding whether or not the fund family should be retained. Knowing the fund family’s overall fiduciary ranking can significantly help in reaching a sound decision, and demonstrating that a prudent process was followed.

The Street.com reports on the research tool: “Does Your Fund Meet Its Fiduciary Responsibilities?” Quote of Note: “Don Trone, founder and president of Fiduciary Analytics, said the firm conducted the extensive study due to the groundswell of investors and retirement-plan fiduciaries asking what to do with funds from families implicated in the scandal. “Not surprisingly, the funds that have been implicated didn’t rank very well,” Trone said.”

Additional quote of note: “Of Vanguard’s 100 funds, 85% were in the “passed/acceptable” camps, while 71% of T. Rowe Price’s 83 funds made the cut. . . [Vanguard founder John] Bogle always talks about meeting the fiduciary responsibilities of Vanguard’s investors, and this ranking is a vindication,” Trone said. Also turning up among the top 50 were American Funds Group (No. 31, with 62% of its funds making the top two categories) and Fidelity (No. 48, with 50% of its funds making the cut).

It is important to understand that the rankings do not factor in recent allegations, scandals, market-timing confessions, etc. in any quantifiable way. Even ERISA fiduciaries using this tool would still have to obtain information regarding the various funds in their 401(k) line-up and analyze that information as discussed in this previous post: Plan Fiduciaries: Navigating the Rough Waters of the Mutual Fund Investigations.

By the way, I would be interested in hearing from plan sponsors and others on what sources they find the most helpful in obtaining information regarding the mutual funds being implicated. I have mentioned some sources to use here at Benefitsblog, but would be interested in hearing about how plan sponsors are coping with this issue. Please email me by clicking here if you would like to share your experience. Any information I receive will be kept confidential. I would be glad to publish results here on a collective and purely anonymous basis.

The Wall Street Journal has this today,”Is Money Missing from Your 401(k)?” The article reports how a certain company failed to credit employee contributions and matches under a 401(k) plan to employee accounts, going all the way back to 1999. Apparently, the problem which can occur inadvertently through administrative error as well as for other reasons is more common that one would like to think. The article reports that the Department of Labor, which polices employee-benefit plans, says reports of troubled corporate retirement plans are on the rise and that the number of civil and criminal retirement-plan cases closed by the Labor Department has risen to 1,459 in the year ended Sept. 30, from 962 in 1999. Quote of Note: “Experts stress the importance of tracking your contributions. “You have to keep comparing your pay stub and account statements to make sure they match up,” says Jack Van Derhai, a retirement-plan expert and business professor at Temple University. He says he has found errors in his own statements in the past when he worked for a different university.”

How about the “Pocket Lawyer Talking Doll“? (Disclaimer: No financial incentives here at all. No guarantees about this product or the company selling this product.)

A previous post day before yesterday featured the AMT tax trap. The Wall Street Journal today has this article: “Minimum Tax Ensnares More People Each Year.” What’s the most serious problem encountered by taxpayers, asks the article? According to the article and a report by a senior Internal Revenue Service official, “that dubious honor now belongs to the alternative minimum tax, which is hitting growing numbers of Americans.” The article quotes Nina E. Olson, IRS National Taxpayer Advocate of the Taxpayer Advocate Service, an IRS unit designed to help taxpayers cut through bureaucratic red tape and resolve problems that haven’t been fixed through normal IRS channels, as saying that the AMT problem is a “train wreck.”

The article notes that “[a]bout 3.3 million taxpayers will owe additional taxes next year because of the AMT,”up 27% from this year and that support for overhauling the tax is widespread.

The Tax Policy Center also has this article: “The AMT Out of Control.”

Today’s Wall Street Journal is reporting that a musical revival in Washington at a Capitol Hill party roasted tax shelters. According to the article, a woman sang “God Rest You Merry Tax Shelters” to the tune of “God Rest You Merry Gentlemen.” “O hidings of shelter and joy. . .” she sang.

In addition, the Wall Street Journal is reporting that Pam Olson, Treasury’s assistant secretary for tax policy, has quipped: “This just in: Citing the growing cost of running the federal government and the need to cut costs in order to reduce the budget deficit, President Bush announced today that he was laying off all 535 members of Congress and transferring lawmaking operations to a legislative support center in Bangalore, India.”