401K Plan Sponsors Don’t Understand Fiduciary Responsibilities

David McCann’s recent article Passive Aggression cites an ongoing trend of 401K Plan Sponsors moving toward low-fee index funds.   According to a recent survey by Cerulli Associates, many plans are making theses changes to help prevent law suits as opposed to reducing costs.  And, McCann warns that these plan sponsors might be exposing themselves to additional liability by doing so.  He is correct.  And, he is missing the larger point: too many plan sponsors don’t understand their fiduciary responsibilities.

The Employee Retirement Income Security Act (ERISA) requires plan fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries, prohibits self-dealing, and provides judicial remedies when violations of these standards cause harm to plans.

McCann doesn’t see any problem with adding index funds to plans.  After all, they should always have significantly lower fees than an actively managed funds.  They can also be a reasonable method of managing risk.    He warns that plan sponsors get into trouble when they act for the wrong reason:  to prevent litigation.  To be fair, I agree with McCann’s point.  Plan Sponsors who use such logic are certainly not helping their case.

And this points to the bigger problem:  many Plan Sponsors don’t understand how to properly act in a fiduciary manner.  Outlining all of the nuances and best practices of being a great fiduciary is beyond the scope of the article.  But, a great start is for plan sponsors to ensure they actually act in the best interest of plan participants.  Another great step is maintain records of the decision making process and criteria for the plan.  Of course taking these actions won’t prevent a lawsuit.  They will, however, go a long way in building a strong defense.

Full Disclosure:  I am very much a Boglehead, and I encourage my friends and family to be as well.

Side Note:  About a month ago, John Oliver did a nifty piece on how much 401K fees cost plan participants.

Reading Notes: The Catcher in the Rye

Author:  JD Salinger

Format: Hardback

Subject:  Coming of Age

Rating: 6/10


The Catcher in the Rye is a well known American classic.  I am quite sure this book was assigned reading at some point during my high school education.  However, I never got around to reading it until now.  I found the method of storytelling to be pretty difficult to read.  The protagonist, Holden, generally rambled and skipped from topic to topic at random.  Also, the overall plot is pretty thin.  However, the book is loaded with symbolism, so I  understand why so many book lovers and academics love it.

I tolerated the novel as opposed to loving it.  And, the thin plot and ending are quite anti-climatic.  To be fair, I read this book in my late thirties as opposed to reading it in high school.  But, I doubt I would have enjoyed this book much more if I had read it when I was sixteen years old.  Having said that, I am certainly happy I have read it and have a better understanding of “what all the fuss was about.”

Favorite Quotes:

“Anyway, I keep picturing all these little kids playing some game in this big field of rye and all. Thousands of little kids, and nobody’s around – nobody big, I mean – except me. And I’m standing on the edge of some crazy cliff. What I have to do, I have to catch everybody if they start to go over the cliff – I mean if they’re running and they don’t look where they’re going I have to come out from somewhere and catch them. That’s all I do all day. I’d just be the catcher in the rye and all. I know it’s crazy, but that’s the only thing I’d really like to be.”  Holden

If a girl looks swell when she meets you, who gives a damn if she’s late?”  Holden

I don’t exactly know what I mean by that, but I mean it.”  Holden

If you had a million years to do it in, you couldn’t rub out even half the ‘Fuck You’ signs in the world. It’s impossible.”  Holden

The mark of the immature man is that he wants to die nobly for a cause, while the mark of the mature man is that he wants to live humbly for one.”  Mr. Antolini

Travel Notes: North Dakota

The Keith family recently made  our first trip to Bismarck, North Dakota to visit one of my sisters and her family.  I have a strong dislike of cold weather, so we were sure to time our trip accordingly.  It is a beautiful city with a “Big Sky.”  The economy is doing quite well.  But, I certainly missed the many beautiful trees we have here in the Natural State.  We had a very relaxing and enjoyable trip, and everybody we encountered was very friendly.

Here is a list of random facts, firsts, and enjoyable moments that came up during the trip:

Favorite Actor:  Josh Duhamel –  I know him most from the movie transformers.  I had no idea he was from North Dakota.  Also he is married to Fergie which is news to me.

Favorite Attraction:  Dakota Zoo.  It is much larger than I expected.

Favorite Athlete:  Carson Wentz

Favorite Bar:  Luft Rooftop Beer Garden.  This might be my favorite rooftop bar anywhere.  It sports a retractable rooftop and a very impressive view of the area.

Favorite Football Team:  NDSU Bison

Favorite Restaurant: J60.  We had a splendid time and even better food.

Favorite Exhibit: Dakota Zoo’s prairie dog exhibit.    We had a splendid time and even better food.

First Taste:  Duck Bacon courtesy of Avery’s AM Eatery.  I ate duck bacon for the first time, and I must say that it mostly taste like pig bacon.

Reading Notes: Rich Dad, Poor Dad

Author: Robert T Kiyosaki

Format: Audible

Narrated By: Tim Wheeler

Subject: Personal Finance

Rating: 4/10


Rich Dad, Poor Dad is written in the form of a narrative containing life lessons of the author from both his Rich Dad and Poor Dad. I went through an entire spectrum of emotions while listening to this audio book.  The character known as the “Rich Dad” made several excellent and inspiring points during the many lessons he taught to the author.  However, an equal amount of those lessons were full of of bad advice and Ad Hominem attacks against anyone that didn’t agree with his logic.

The book makes a lot of subtle and not so subtle attacks on traditional education, and implies that most educated people are idiots and have grand senses of entitlement; It often uses the Poor Dad, who is a college educated teacher, to make this point.  To be fair, the author makes an excellent point about the lack of strong financial education in our public schools and homes. He also does an excellent job of motivating people to take responsibility and accountability in their own financial futures.

In conclusion, I found Rich Dad, Poor Dad to be way more inspirational than educational.

What I liked Most About the Book:

The average person could read this book as the only personal finance education they ever received and would have a better chance at success.

What I liked Least About the Book:

The average person can follow this book verbatim and make a lot of really terrible personal finance decisions.

Favorite Quotes:

Rule #1: You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know.

An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.

That is why I say that someone’s Net Worth is worth less than they think.

I can’t afford it shuts down the brain…  How can I afford it? opens up the brain.

People who avoid failure also avoid success.

An intelligent person hires people who are more intelligent than he is.

Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.

There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”

Accounting is possibly the most confusing, boring subject in the world….” 

Reading Notes: Finally! Performance Assessment That Works: Big 5

nAuthor: Roger Ferguson

Format: Paperback

Subject: Performance Management

Rating: 7/10

My boss recently had the chance to listen to a presentation on performance reviews by the author.  He liked what he heard.  So, he asked me to review this book and determine if the process might be useful in our organization.  The book is a very easy read; and does a good job summarizing the challenges with existing review processes.  It also does an ample job of outlining a simplified version that should produce better results with significantly less effort.  The premise is that traditional review systems are driven from top-down.  They are not done on a timely basis to have any real meaning on performance.  They take a ton of time and effort (high cost.)  And, they provide very little value for the company or its employees.

Ferguson’s proposed solution is that each employee records their 5 most important accomplishments from the prior month along with their 5 biggest priorities for the next month on a single sheet of paper that is then reviewed by their supervisor.  The supervisor should provide timely feedback on whether they agree or disagree with the priorities.  They should also provide any other necessary coaching to help ensure the employee is properly focused.  The remainder of the book covers tying these monthly check-ins to the annual review system.  It also discusses the pros and cons of using this tool as part compensation management.

Ferguson also recommends that companies simplify their compensation system.  He recommends giving all employees an x% unless the employee is on probation or some other sort of improvement plan.  He also recommends allotting a bonus compensation pool that allows managers to give their best employees an additional percentage increase.   His argument is that most managers are only allowed a certain % increase for their area anyway regardless of how great or bad their team is.  Don’t waste managers or employees time trying to justify giving employee A a 5% increase, employee B a 4.5% increase and employee C and employee D a 2% increase.

What I liked Most About the Book:  This is a very easy and quick read, and Ferguson’s system makes sense.


The “Dirty Dozen” Challenges of Traditional Performance Systems

  1. Tying individual goals to corporate goals is difficult if not impossible.
  2. Goals are seldom reliable for an entire year.  – The business world changes quickly and the best companies change course quickly.
  3. Metrics do not always tell the entire story.  – I am a HUGE proponent of metrics, but tying every employee to a meaningful metric is very difficult.  What metric should be used for the executive assistant?  What about the janitor?
  4. Even the best metrics can be manipulated by the employee.  –  I am aware that people often figure out a way to “game” a number, often at the cost of the company’s mission and overarching goals.
  5. Metrics are also subject to manipulation by management.  – By now it should be apparent that Ferguson is somewhat skeptical of metrics.
  6. This is not an employee driven process.  – The entire process often occurs with little involvement or value to the very employees it is designed to help.
  7. Annual Feedback is a very dated concept. – It is useless to provide feedback about activities that my have occurred months ago.  Employees need timely feedback.
  8. Managers spend too much time on the process.  –  This cost companies a lot of money and detracts from time that could be spent on issues that provide more value.
  9. Employees are skeptical of the process. –  Regardless of how hard I try, most of my employees think I don’t understand their work.  To be fair, as I have progressed from a specialized manager to more of a general manager this has become more and more true.  At least for the 80% of the things that my team does that provide 20% of their results.  I almost always have a pretty good understanding of the most important 20% of their work, but it is difficult getting employees to understand that concept.
  10. At some point in the management hierarchy, the process breaks down.  –  This has been the case more often than not as I have climbed through the ranks.  At some level in the organization, the process just doesn’t happen any more. – This causes any employee who goes through the review process to have that much distrust for the system.
  11. The process can create corporate liability. – Yes, I have personally read a lot of comments on reviews that made shake my head in bewilderment.
  12. It is difficult to tie performance to compensation.  –  This gets exponentially harder the more people you have involved.

Why the number 5?  Experience shows that it is a good number.  Some companies may find that some people/teams might make due with more or less.

The importance of 1 page:  Some employees will want to list all of their accomplishments.  It is important to teach them to list only the most important 5.  An other accomplishments section can be included last on the monthly report, but each items should be very brief.  The entire report should still fit on one page.

Big 5 Challenges:

  1. Monitoring Monthly Report Completion.  –  The program is only effective if it actually gets done.  Email seems to be the easiest way to administer the program, but that makes tracking and archiving at least somewhat difficult.
  2. Avoiding Creep.  – Unless the process is easy, people won’t do it.  Don’t let people tack anything additional to the process.
  3. HR & Legal Approval.  –  I tend to be directly responsible for these areas, so I don’t see them as being too much of a road block.
  4. Quality of the Managers Response –  This isn’t any bigger of a challenge than it is for a traditional review system, however, it can still only be effective if the managers give a meaningful review/response.

Other Notes:  Do not try to use this system for formal corrective actions.  Stick with the tried and true processes that you are already using.

Reading Notes: How to Get Your Point Across in 30 Seconds or Less

Author: Milo O Frank

Format: Audible

Narrated By: Milo O Frank

Subject: Communication

Rating: 5/10

This is a very basic, but useful book.  Having said that the title of the book sums up its content nicely which is how to get your point across in 30 seconds or less.  It is a very easy book to read and I believe the audible version was just over 45 minutes long.  The book breaks down the content of a good message into six distinct parts:

  • Have a Clear Objective.  What do you want to happen?
  • Talk to the right Audience.  Find out as much as you can about them. (Who)
  • Find the right Approach (face-to-face, phone call, email, brochure.)
  • Hook is used to get the audiences attention.  It can be a statement or a question.  What is the most unusual, exciting, or dramatic part of your message?
  • The Body of the message should include all the relevant details, (who, what, where,how, why.)
  • During the Close, make sure you have a Call to Action (or reaction.)  Ask for something specific and include a specific time frame.  A message without a close is a wasted opportunity.

The book also stresses the importance of painting visual pictures and appealing to the listener’s emotions.

Possible Use for this Book:  Could be very useful in writing a 30 second elevator pitch.

What I liked Most About the Book:  It made its point quickly.  The entire length takes about 45 minutes to listen to.

What I liked Least About the Book:  The 90s game show music that play throughout the audio book.  The various voice actors and voice-acting made the entire book seem like a cheesy infomercial.

Reading Notes: The One Minute Manager

One Minute Manager Management Philosophy
One Minute Management Philosophy

Authors:  Kenneth Blanchard and Spencer Johnson

Format: Audible

Subject:  Management

Rating: 9/10


It took me far to long to get around to reading this gem of a book.  Its written in a narrative format and does an excellent job of both telling and showing the “Minute Manager” philosophy.  The focus of the book is coaching the team to grow and perform at their best.  The philosophy consists of three key parts:  One Minute Goal Setting, One Minute Praisings, and One Minute Reprimands.

One Minute Goal Setting serves as the foundation for One Minute Management and the authors rely heavily on the Pareto Principle, that 80% of the results come from 20% of your goals.  The One Minute Goal Setting Process is outlined below:

  1.  Agree on the specifics of the goal.
  2. Define what success looks like.
  3. Write out the goals on a single sheet of paper.
  4. Re-read each goal regularly, which should only take a minute per goal.
  5. Set aside a minute several times per day to review your actions and verify they align with your goal.
  6. Tell people that you will provide feedback about how they are doing.

One Minute Praisings This is the second tool in the One Minute Manager’s toolkit.  The idea is to build positive reinforcement when somebody is caught doing something right.  When people feel good about themselves, they produce good results.  Here are the steps for a One Minute Praising:

  1. Praise people immediately, be specific about what they are doing right, how good it makes you feel about what they did right, and how its helps the organization.
  2. Pause for a moment to allow them to reflect.
  3. Encourage them to continue the behavior, and give them a pat on the back.

One Minute Reprimands  This is the final piece in the One Minute Manager’s arsenal.  The purpose of the reprimand is to keep the person and lose the behavior.  It is the counterpart of the One Minute Praising, and it consists of two parts:

Part 1

  1. Reprimand people immediately.
  2. Be specific about the behaviors they did wrong, tell them how it makes you feel.  Focus the reprimand on their behaviors, not the individual.
  3. Pause for a few seconds and let them fell how you feel.

Part 2

  1. Shake hands and re-ensure them that you are on their side.
  2. Remind them how much you value them, but not their performance in this situation.

Aha Moment:

When it comes to getting the most of their team, companies have three options:

1) Hire All-Stars (very expensive and difficult)

2) Hire somebody with potential and then train them up

3) pray.

Favorite One Minute Manager Quotes:

I care about people and results. They go hand in hand.

“if you can’t tell me what you’d like to be happening, you don’t have a problem yet. You’re just complaining.”

“A problem only exists if there is a difference between what is actually happening and what you desire to be happening.

“Take A Minute: Look At Your Goals, Look At Your Performance. See If Your Behavior Matches Your Goals.”

“If you are first tough on the behavior, then then supportive of the person, it works.”