Under regulatory pressure, Fidelity Investments, a leading online brokerage firm, is close to a settlement with the New York Attorney General Andrew Cuomo's office to buy back auction-rate securities from its customers to the tune of about $300 million, according to a person familiar with the negotiations.
The move sets the stage for mid-level and online discount brokerage firms to buy back auction-rate securities sold by them, just like some large Wall Street banks have done over the last few weeks. UBS AG, Merrill Lynch & Co. and Citi Smith Barney, along with others, have promised to buy back nearly $70 billion of such securities sold by them.
A Fidelity spokeswoman said "We do not have any agreement with any regulator. Anything else would be speculative."
The settlements by the Wall Street firms didn't cover ARS they had underwritten and brokers like Fidelity later sold. So far, these brokers have been resisting a push to buy back these securities, saying that they didn't bear the responsibility to do so because they did not underwrite or sponsor these securities, but merely acted as go-betweens.
Friday, September 12, 2008
WSJ: Fidelity-Auction Rate Securities Settlement Update
Thursday, September 11, 2008
401(k) vs. Pensions: Teamsters vs. Waste Management, Inc.
The leaders of Teamsters Local 200 said Thursday that they have made no decision yet on whether to take Waste Management Inc.’s “last, best and final offer” to union membership for a vote.
Speaking out in detail for the first time since the strike of union trash haulers began Aug. 26, union leaders said they learned only late in the negotiating process of Waste Management’s proposal to drop the Central States Pension Fund in favor of a 401(k) plan. Under Central States, the employees have a defined-benefit pension.
As a result, Tom Millonzi, secretary-treasurer, and Tom Benvenuto, the union’s business agent, said the local needs more information from Waste Management in order to make an informed decision. So far, they said, specific information has not been forthcoming.
“We feel we don’t have enough information on their plan,” said Benvenuto. “They refuse to answer anything.”
The two said the switch from Central States to a single-employer 401(k) program would impose an unfair and burdensome financial penalty on retirees and some current employees because it would take money out of workers’ pockets.
“This has ramifications for all employees for the next five years, and to some guys for the rest of their lives,” Benvenuto said.
Lynn Morgan, a Waste Management spokesman, said the Central States issue was raised “some time ago.” She said the company felt the Central States pension was an unreliable fund for employees and that a new plan would “bring greater value to employees.”
As to the impact on retirees if Central States were abandoned, Morgan said that would be a decision made by Central States, not the company.
As a counter-proposal, union officials have offered an alternative they said is similar in nature to the pension Teamsters have with UPS.
On Wednesday, Waste Management made public what it had offered to an estimated 240 striking Teamsters trash haulers in talks before a federal mediator: a five-year contract; a first-year wage boost of 10% to 15%; and the pension plan change.
Millonzi and Benvenuto said the company offer didn’t tell the whole story.
“Let’s be honest here,” Millonzi said. “The job isn’t glamorous, as we all know. They pick up people’s trash, work terrible hours and work in bad weather. And they work until their routes are done.”
Millonzi said the haulers work on an incentive basis, and their hourly wage averages about $14 to $19. The Waste Management offer, he said, is designed to put pressure on younger drivers to approve it.
The workers’ contract expired April 30.
Since the strike began, the company has been using replacement drivers brought in from around the country. Waste Management collects trash in Kenosha, Racine, Milwaukee, Ozaukee, Washington and Waukesha counties. Thousands of homes, apartment complexes, restaurants and other commercial operations depend on the drivers to pick up trash.
Waste Management is obviously posturing to get out from under this type of an arrangement (unlike what UPS finally agreed to do) and trying to push for a 401(k) plan instead. Wow!
Wednesday, September 10, 2008
WSJ Report - How Much Does Your 401(k) Cost You?
You may not realize it, but you could be paying thousands of dollars a year in fees on your 401(k) retirement account, hidden expenses that affect how your savings will grow. The government is now trying to expose those charges so you can make better investment decisions.
Under regulations proposed by the Department of Labor, 401(k) plans every year will have to disclose each investment's annual expense ratio -- the percentage that goes to management and other costs -- along with more detailed performance data. In addition, any administrative or other fees deducted from your account will have to be spelled out. New regulations may go into effect as soon as Jan. 1.
The fees and other costs we pay are hard to find because they're taken out before we see investment results. But they are significant because they nibble into our returns now, and, over decades, they can take a huge bite out of our future savings tally. Perhaps more important, expense ratios -- even more than an investment's past performance -- turn out to be a strong indicator of how a mutual fund will fare down the road.
About three weeks ago I wrote about the proposed regulations from the DOL calling for a better, standardized fee disclosure. The effective date is January 1, 2009 mentioned by Ms. Blumenthal above.
Most of the rest of Ms. Blumenthal's piece focuses on her quest to decipher her burden of costs in her own 401(k) account (presumably through her employer the Wall Street Journal Companies or NEWS Corp the parent company). Some interesting tidbits:
My plan is managed by Fidelity Investments, which provides lots of information on a fairly user-friendly Web site. It was easy to find the expense-ratio link for the Spartan International Index fund, for instance. But once there, the numbers were confounding: There were three separate expense ratios -- 0.2% as of April, 0.1% after reductions as of February and 0.1% after a cap on expenses in 2005. It took conversations with three people at Fidelity to confirm that the expenses are capped at $10 for every $10,000 invested. Finding the fund's prospectus -- which contained details on the expenses -- required a few extra clicks.
My funds don't come with any "loads," the sales charges assessed when you buy or sell a fund. Neither do they assess so-called 12b-1 sales and marketing fees. But your funds might. Some of mine do assess penalties for short-term trading, but I'm way too lazy to move into and out of funds frequently.
To find out who pays my 401(k) plan's administrative expenses -- those outside of individual funds -- I needed to locate something called the Summary Plan Description. That required a call to my employer's benefits department to get a copy. I learned on page 87 that the company picks up the modest legal and accounting fees, and the rest of the expenses appear to be paid from what Fidelity already charges. That's good news: Some plans actually charge participants for all or part of the administrative cost.
It is interesting to note that Ms. Blumenthal (probably like millions of 401(k) account holders) had to call her benefits department to get a copy of the Summary Plan Description (SPD). Each 401(k) plan sponsor/employer is required by law to provide a copy of the most current SPD at the time of enrollment (many provide at the time of employment), and any changes (via Summary of Material Modifications or SMM) must be provided on a timely basis (typically no later than 7 months in the year following the year of the changes).
Ms. Blumenthal, like many 401(k) participants in general probably misplaced her original copy through many years of employment. I am somewhat surprised that she did not find a copy of it posted online through the provider's (Fidelity's) website - many providers now have this as a core feature of their participant service website.
Moving along...
How cheap is it? Knowing that the Fidelity Growth fund charges $94 in expenses for every $10,000 invested still didn't tell me if those expenses were reasonable. Fred Reish, a Los Angeles lawyer specializing in employee benefits, cautions against looking at the average expense ratios for, say, large growth funds, since those averages include high-cost retail funds that wouldn't normally be in a 401(k). Instead, he suggests a better comparison would be the funds with the lowest expenses in their category.
At the Morningstar.com site, I put in the fund's ticker symbol (FDGRX) and clicked on a little "i" next to the expenses number. That showed me the fund's expenses were well below the category average of $137 per $10,000 invested, but still fell into the second quartile. In other words, this fund was more department store than Target, cost-wise.
Michael Callahan, of pension consultant Pentec Inc., says he would consider expensive any U.S. stock fund with an expense ratio over 1.5%, or an international fund with a ratio of 2% or more.
Using another free Morningstar tool called Xray, I entered all my stock funds and found that my average expense ratio was 0.36%, or $36 per $10,000 invested, mostly because I lean toward index funds and Fidelity's are among the cheapest.
I was feeling pretty smug -- but there was a catch. I couldn't find the expense ratio for one of my favorite investments, a company-sponsored "guaranteed investment contract" fund, which functions as sort of a low-volatility intermediate bond fund. The new Labor Department rules will require disclosure of expense ratios for these types of funds, as well as for collective trusts, which operate like mutual funds but aren't subject to regulation.
Gina Mitchell, president of the Stable Value Investment Association, a trade group, says the typical guaranteed-investment-contract fund has an expense ratio that ranges from about 0.4% to about 0.8%, depending on whether administrative fees are included. The higher end of the range is more than the bond-fund offerings in my plan charge. If it applies to my account, it would raise my average overall cost to about half a percentage point, or around $2,500 a year in expenses on a $500,000 portfolio.
Figuring out your overall cost is especially important if you are deciding whether to keep your 401(k) with a former employer. Hewitt Associates compared the expenses of a typical 401(k) and the retail costs of an individual retirement account, and found that a 35-year-old saver who chose the IRA could end up with 9% to 18% less in her retirement account at age 70 than if she stayed in the original plan. If your plan charges high expenses, you may also want to consider how much of your income you want to invest in it, beyond capturing the full employer match.
[emphasis added]You can find out more about the proposed disclosure changes at the Labor Department's Employee Benefits Security Administration site (www.dol.gov/ebsa). Comments are due this week; you can email yours to e-ORI@dol.gov, with the subject line "Participant fee disclosure project."
Monday, September 8, 2008
Weekend DOL Blotter - 9/7/08
First, a trip down to San-tone, TX: "U.S. Labor Department sues fiduciary of Adtech Systems in San Antonio to recover 401(k) assets."
San Antonio – The U.S. Department of Labor has sued the owner of defunct Adtech Systems Inc. in San Antonio for improperly using 401(k) assets withheld from employees’ pay to benefit the company in violation of the Employee Retirement Income Security Act.
The department’s lawsuit alleges that from April through November 2005, Eilert Richard Weitzel II, president and owner of Adtech Systems, failed to forward to the company’s 401(k) plan employee contributions deducted from their paychecks. The Labor Department seeks to recover all assets plus interest owed to the plan, correct any prohibited transactions and terminate the plan after all assets are disbursed to eligible participants.
...
Chao v. Eilert Richard Weitzel II
Civil Action Number: 5:08-cv-719
Fishers, Indiana – The U.S. Department of Labor has obtained a default judgment against defunct Technengineering Services Inc. to appoint an independent fiduciary to manage and terminate the company’s 401(k) profit-sharing plan and distribute $20,599 in assets to eligible participants and beneficiaries.
“Workers and their families counted on these benefit plans to help fund their retirement,” said acting Regional Director Paul Baumann of the Employee Benefits Services Administration’s (EBSA) Cincinnati Regional Office, which investigated this case. “The department will take whatever steps are necessary to recover retirement funds for America’s working people.”
The department’s lawsuit resolved by this judgment alleged that, as plan administrator, the company failed to take responsibility for terminating the 401(k) profit-sharing plan and distributing the assets to participants and beneficiaries after the company ceased operations.
...
Chao v. Technengineering
Civil Action Number 1:08-cv-0709
The next report is from Elgin, Ill.: "U.S. Labor Department obtains settlement with Elgin, Illinois business owner to restore 401(k) profit-sharing funds."
Elgin, Illinois – The U.S. Department of Labor has obtained a settlement restoring $14,033 owed to the Airtronics Gage & Machine Co. 401(k) Profit-Sharing Plans as restitution for losses resulting from violations of the Employee Retirement Income Security Act (ERISA). The 401(k) plan was sponsored by the Air Gage Co. and Airtronics Gage & Machine Co. in Elgin.
The companies and Jeffrey Danner, a fiduciary of the plan, agreed to restore the assets. The department sued the defendants for allegedly failing to remit to the plan contributions and loan repayments deducted from employees’ paychecks at various times between 2007 and February 2008. They also allegedly remitted employee contributions late during the period from 2001 through 2006. Those assets were retained in the general assets of the two companies.
“The department will act when plan fiduciaries fail to carry out their duty to protect the retirement plan assets held on behalf of participants,” said Steve Haugen, director of the department’s Chicago Regional Office of the Employee Benefits Security Administration (EBSA).
Employers with similar problems, who are not yet the subject of an investigation by EBSA, may be eligible to participate in the department’s Voluntary Fiduciary Correction Program (VFCP). Participation in the VFCP requires employers to make workers whole but allows them to avoid EBSA enforcement actions and civil penalties as well as any applicable excise taxes. For more information about the VFCP, see www.dol.gov/ebsa.
Wednesday, September 3, 2008
401(k) Day is Almost Here
What is 401(k) Day?
401(k) Day is an annual celebration spotlighting the importance of employer-sponsored profit sharing and 401(k) plans. As retirement follows work, 401(k) Day follows Labor Day. In 2008, 401(k) Day is officially September 5, 2008, the Friday after Labor Day.
The website offers great tools to plan sponsors that help increase awareness of retirement savings. The website appears to be managed by PSCA - Profit Sharing/401(k) Council of America and has the support of several corporate sponsors such as, ADP, Fidelity, The Hartford, Lincoln Financial Group, Principal Financial Group, The Standard, T. Rowe Price, TransAmerica, and Charles Schwab. Keep up the good work!
Sunday, August 31, 2008
U.S. Labor Department proposes rules on investment advice exemption for 401(k) plans and IRAs
Washington – The U.S. Department of Labor today announced publication of two proposed rules under the Pension Protection Act (PPA) to make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs). The proposed regulation and class exemption are to be published in the August 22, 2008 Federal Register.
“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,” said U.S. Secretary of Labor Elaine L. Chao.
The PPA amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a “level-fee” basis. Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.
In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption’s disclosure of adviser fees.
The proposed regulation provides general guidance on the exemption’s requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption’s fee disclosure requirement. In addition, to further the availability of quality, professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.
Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.
[emphasis added]
Weekend DOL Blotter - Labor Day Special
The restitution and penalty aside, it looks like the board of trustees got off easily with barely a slap on the wrist with only 8 hours of annual fiduciary training. Now if only the training sessions were offered at the Armitage G.C.Philadelphia – The U.S. Department of Labor has obtained a consent judgment in which the Pennsylvania Builders Association (PBA), its wholly-owned subsidiary and its trustees agree to restore $5 million to the fund and pay a civil penalty of $500,000. The judgment also permanently bars the trustees from using plan assets to pay royalties and/or licensing fees to the association, prevents the trustees from contracting with the subsidiary for administrative services in exchange for fees, and prohibits the use of trust assets for lobbying purposes. In addition, current and future trustees must receive eight hours of fiduciary training annually over the next five years.
“This $5 million judgment protects the benefits plan’s participants by restoring the funds and taking steps to make sure the plan is managed properly in the future,” said Secretary of Labor Elaine L. Chao.
The lawsuit being resolved alleged that PBA of Lemoyne, Pennsylvania; its wholly-owned subsidiary Builders Services Inc. (BSI); and trustees Robert Basile, Patrick Brewer, Dennis Brislin, Scott Cannon, James Conner, Brad Elliott, Charles Farrell, Chuck Hamilton, David Knipe, Gene Kreitzer, Gary Naeser, Michael Rodino, Toni Rogan, Mack Smith, Chauncey Wirsing, Clarence Yeagley, Jack Zimmer and Roger Zimmer violated their fiduciary duties to the Pennsylvania Builders Association Benefits Trust. PBA sponsored the trust, and BSI was administrator of the trust.
The suit alleges that PBA received royalty payments and BSI received administrative fees under arrangements with BSI and the trust’s third party administrators. The royalties paid to PBA represented a percentage of the administrative fees paid by contributing employers. The department alleged that these royalty payments were prohibited because the sponsor had provided its name and endorsement to the trust when it created and named the trust. The trustees allegedly misused plan assets to pay royalties to PBA from 2000 to 2007, administrative fees to BSI from 2000 to 2007 and for political lobbying from 2002 through 2004.
The trust provided health, life insurance, dental, vision and temporary disability benefits to 12,616 participants as of 2006.
The court action, filed in the U.S. District Court for the Middle District of Pennsylvania, resulted from an investigation conducted by the Washington District Office of the Labor Department’s Employee Benefits Security Administration (EBSA). Employers and workers may contact the Washington District Office of the EBSA at 202.693.8700 or toll-free at 866.444.3272 for help with problems relating to private sector pension and health plans. In fiscal year 2007, EBSA achieved monetary results of $1.5 billion related to pension, 401(k), health and other benefits for millions of American workers and their families.
Chao v. Pennsylvania Builders Association
Civil Action Number 1:08-cv-01564-SHR
[emphasis added]
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