The Markets September 11, 2012

ETFs Gaining Popularity in Alternatives Universe

Though advisers are more likely to choose mutual funds over exchange-traded funds (ETFs) to access alternatives, ETFs are catching up.
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Among advisers who currently access alternatives, 29% expect to increase ETF use, Cogent Research’s Alternative Investment Trends 2012 report found. The majority of investors (78%) still prefer mutual funds over ETFs (58%), but just 17% plan to increase their use of mutual funds.

Investors who are not currently utilizing ETFs to meet alternative investment needs are almost twice as likely as mutual fund non-users to begin doing so over the next two years (17% vs. 9%).

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“Advisers continue to flock to ETFs that access alternative investments for the same reasons they seek this vehicle in traditional asset classes—cost efficiency, liquidity and transparency,” said Steven Sixt, senior project director and study co-author.

The 2012 Alternative Investment Trends report surveyed 1,741 U.S. retail investment advisers via the Web in March 2012.

For more information, visit www.cogentresearch.com.

 

Compliance September 11, 2012

PANC 2012: Making Sense of MEPs

Multiple-employer plans (MEPs) do not absolve plan sponsors from fiduciary responsibility, despite what marketing campaigns may advertise.
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“Before the end of May, we lived in a world where there was a lot of marketing,” David Levine, principal at Groom Law Group, Chartered, told attendees at the 2012 PLANADVISER National Conference. “It’s pretty clear that [this] didn’t sit well with the [Department of Labor].”

In May, the Department of Labor (DOL) issued Advisory Opinion 2012-04A, which addressed whether a multiple-employer plan open to unrelated employers constitutes a single employee pension benefit plan (see “DOL Says Open MEPs Not Single-Employee Plans”). The DOL said it has been its consistent view that where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of the Employee Retirement Income Security Act (ERISA) section 3(5).   

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This means that each employer that has adopted an open MEP will be treated as if they have their own stand-alone plan and disclosure requirements – such as Form 5500 – and plan audits that have been done collectively until now must be performed separately going forward.

Marketing materials that claimed plan sponsors could reduce or completely eliminate their fiduciary responsibilities was a “trigger point” for the DOL to issue its advisory, said Geoffrey Strunk, senior vice president and general counsel at ExpertPlan Consulting Services. “The idea that you can delegate [fiduciary responsibility] all away, I think, is kind of a farce.”

Plan sponsors can still offer open MEPs, but they have lost many of the advantages after the DOL’s advisory guidance, Strunk said. Going forward, he thinks plan sponsors will need guidance on Form 5500s, citing it as a “serious concern.”

Levine said some open MEPs in the startup phase have simply shut them down after the DOL advisory, while other large MEPs have continued and are adjusting to the DOL’s guidance. 

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