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3 Months and Counting: Managing Your 401(k) Plan Under New Department of Labor Regulations

May 3, 2012 By Leave a Comment

May 1st marked the beginning of a three month countdown for managing your retirement plan under the new Department of Labor (DOL) regulations.  While the new regulations will significantly improve fee transparency and plan management over the long term, in the short term, there is likely to be significant confusion among plan sponsors, fiduciaries and participants.  To help provide some basic guidance, we thought you might appreciate the following highlights from our recent White Paper titled, New Regulations for Retirement Plan Fee Disclosures:  How Your Retirement Plan will be Affected.

What the changes mean for Plan Sponsors:

  • Communication From Plan Providers: Under revisions to section 408(b)2, plan providers are now required to provide details of all services and fees delivered to the plan on both a direct and indirect basis.  Between July 1, 2012 and August 30, 2012, you will receive communications from all plan providers summarizing services and fees.
  • Increased Responsibility: You are required to understand the total fees you are paying for services and determine that these fees are ‘necessary’ and ‘reasonable’.  Additionally, you must ensure that plan participants and beneficiaries are made aware of their rights and responsibilities with respect to managing their individual plan accounts.
  • Participant Questions: The new regulations will introduce almost all plan participants to more details regarding their retirement plans than ever before.  Uncovering these ‘secrets’ is likely to generate a number of questions.
  • Opportunity for Plan Improvement: Armed with details regarding services and fees, you will now have the information and power to improve your retirement plan and determine whether your providers are delivering value.  Look for ways to enhance what you are currently paying for or cut unnecessary costs. 

What the changes mean for plan participants:

  • New Information Regarding Fees and Services: Under revisions to ERISA section 404(a), plan providers will begin disclosing fee and service information to you on August 30, 2012.   These disclosures will help you get a better understanding of the fees associated with your retirement plan account. 
  • Opportunity for Plan Improvement: Utilize the fee information provided to help improve your current plan or assess whether maintaining your investments at an old retirement plan makes sense. 

For more details regarding the regulations and what they mean for you, please read our white paper at www.sperosmith.com or contact us at info@sperosmith.com.

Spero-Smith is a fee-only, independent investment adviser based in Cleveland, Ohio.  Serving individuals, small businesses and non-profits since 1972.

Filed Under: Wealth Management

Morningstar goes beyond the stars; is their “spy” among us?

December 2, 2011 By Leave a Comment

Earlier in November, Morningstar rolled out their “ground-breaking” Analyst Rating for Funds, which sounded eerily familiar to me.  Not to be confused with the often misused Star Rating, which strictly scores past performance, the Analyst Rating provides Morningstar’s guidance on the likelihood of a fund to provide strong relative returns in the future. 

I say this sounds eerily familiar because this type of framework has been core to our manager selection process for years, believing certain managers that have a competitive advantage over their peers that can lead to sustainable superior performance.  And that this competitive advantage typically results from their distinctive investment process, disciplined approach, demonstrated ability to identify opportunities and sound organizational structure.   Our proprietary fund summary pages broke down these advantages into three categories:  People, Process and Performance. 

Morningstar is slowly rolling out these ratings on funds that they follow.  But not surprisingly, of the funds utilized in our core portfolios and already rated by Morningstar, 80% of them have received the highest rating (Gold) while the other 20% have received the second highest (Silver).  None have received a neutral, negative or even a Bronze rating.

It also reminded me of when Morningstar introduced their fund Stewardship Grade back in August 2004 following the revelation of some fund industry transgressions where certain investors were given preferential treatment.  Earlier that year, I spoke at our client dinner about the additional due diligence we do in assessing whether a fund company has a culture around aligns its interests with those of its fund shareholders, including combing through funds’ Statements of Additional Information for details about manager compensation and Boards of Directors.  This research, I believed, helped us avoid much of the mutual fund improprieties that were taking place.

Maybe Morningstar’s “Fund Spy” has been eavesdropping on our research meetings.  Maybe we need to start trademarking parts of our manager selection process.  In any event, Morningstar’s evolution in fund research and reporting just reconfirms my confidence in our disciplined investment approach for clients.

Filed Under: Asset Management, Investment Strategy, Wealth Management