“Raiders Of The Lost Retirement Account”: Wall Street’s Deceptive Retirement Account Fees Hurt Savers
Worried about your ability to set money aside for retirement? You should also worry about what happens to the money you do manage to put away. According to a report from Demos, the typical two-earner family with an employer-sponsored account will end up paying some 30 percent of its retirement nest egg – a total of $155,000 – to Wall Street money managers in 401(k) fees and charges.
How can this be? The financial services industry, in addition to its talent for developing different kinds of fees, has been adept at coming up with ways of concealing them. To start with, many of the fees and costs that Wall Street collects for trading securities are typically omitted from the top-line “expense ratio” reported to savers. That’s a pretty huge omission, since trading fees account for half the fees charged to an average investor, according to Demos.
The industry also makes its fees look small by typically reporting them as a percentage of total savings, avoiding any mention of the far higher proportion they make up of your total investment return. For example, a total fee that adds up to 2 percent of managed assets may seem small – but if your typical return is 7 percent, the fee represents almost 30 percent of total returns.
One of the biggest advantages enjoyed by industry lies in the nature of the professional advice available to investors seeking to understand such questions. Astoundingly, the broker who sells you a retirement product often has no obligation to serve your best interests, or even to provide you with reliable counsel. Instead, the law often gives brokers a green light to promote products that generate higher fees for them, regardless of the impact on you.
The non-partisan Government Accountability Office has documented numerous instances of such conflicts of interest. The GAO not only found investment managers cross-selling products to 401(k) clients that enriched the manager at the investor’s expense, but also brokers being rewarded for steering investors into high-fee products. One report found that almost a quarter of telephone representatives and half of web sites incorrectly informed investors that no fees would be levied for managing their retirement money if they transferred it into an individual retirement account. In fact, fees are charged on these products, but are usually buried deep in the fine print of the IRA documents.
The good news is that these problems have found a place on the agenda of Washington regulators. The bad news is that the necessary remedies face tremendous opposition. In fact, the way things are going, it will take a mighty effort to keep industry lobbyists from winning the fight to keep investors in the dark.
The Department of Labor has taken up the task of updating the legal protections covering 401(k)s and other employment-based retirement accounts. Certain forms of retirement savings (especially those managed directly by your employer) are already protected by a strong fiduciary duty – that is, a legal requirement for the investment manager to put your best interests first. But the fiduciary-duty rules are outmoded, and exclude much of the current retirement-fund market.
These fiduciary rules were last updated in 1975 – a time when over 90 percent of retirement plans were controlled directly by employers. That’s very different from today’s individualized accounts like 401(k)s and IRAs. As a result, employees have no legal protection when engaged in many transactions, including the critical one of “rolling over” a 401-K into an IRA. In order for the new rules to be effective, the Department of Labor will have to impose a clear ban on inappropriate steering of clients, including strict limitations on broker-payment arrangements that create conflicts of interest, along with much better disclosure.
And it will have to do so in the face of fierce resistance from the financial industry. The Department of Labor recently had to retreat on one proposal to improve fiduciary rules in a debate dominated by insider interests such as brokers and investment managers who benefit from the current high fees and lack of obligations to clients. Now the department is preparing to propose reforms again, and the same interests will try to defeat them again. The public needs regulators and legislators to stand up for better protections for our savings, and prevent the process from being dominated by financial insiders.
The Dodd-Frank financial reform law also handed an important responsibility to the Securities and Exchange Commission – the task of developing new rules to increase fiduciary protections for advice given by securities brokers. Right now, while investment advisors have a duty to put your best interests first, securities brokers don’t. In practice, the distinction between the two types of investment professionals is blurred and unclear to most investors. The Dodd-Frank law called for securities-broker fiduciary duties to be made stronger, clearer and more like those of true investment advisors.
Unfortunately, this is another area where heavy industry lobbying has greatly delayed and weakened action. Preliminary indications suggest that the SEC’s approach could end up being far weaker than is needed to protect investors.
The issues in retirement savings are broad, and new fiduciary rules won’t take care of all of them. But a strong legal obligation for all investment advisors to avoid deceptive and abusive practices would be a common-sense start. And that can only happen if investors and employees stand up for the principle that when financial professionals give advice, they must put the best interests of their clients first.
By: Marcus Stanley, U. S. News and World Report, June 4, 2013
“Bob Woodward’s Credibility Is In Tatters”: From Impartial Reporter To Conservative Pundit
On Fox News Monday night, famed Washington Post reporter Bob Woodward and host Bill O’Reilly zeroed in on the latest twist in Washington scandalmania — why the White House is refusing to answer questions about the 157 times former IRS commission Doug Schulman allegedly visited the White House, a closeness that raises questions about presidential involvement in the agency’s controversial targeting of Tea Party tax-exempt groups.
“This fiction that somehow [the IRS is] totally an independent agency is absurd,” Woodward, who broke the Watergate scandal, said. “You say they aren’t answering this question about the 157 visits by the IRS commissioner. They should.”
“President Obama could easily come out through his spokesperson and say this is where Mr. Schulman was. And here are the dates. Here is who he met with,” O’Reilly said. “The fact that the President doesn’t do it, should raise the curiosity of every reporter, Mr. Woodward, every reporter. Yet, as I said, the major network news on television ignored the story last week in its totality. It’s amazing.”
This forces us to ask the uncomfortable question of whether O’Reilly and Woodward have access to Google. Because if they did, they would have the answers to all of these questions, and they may even find a statement from the president’s spokesperson that he is supposedly refusing to give.
“The IRS commissioner, in carrying out his duties, would of course have many reasons to have an appointment to visit the White House,” White House spokesperson Eric Schultz said.
That’s a bit vaguer than what O’Reilly and Woodward are looking for, but the White House doesn’t really have to say any more, considering that all the specifics are already online, available to anyone who looks for them.
The story of the 157 visits originated with the Daily Caller, based on a (sloppy) inspection of White House visitor logs. But as the Atlantic’s Garance Franke-Ruta reported, parsing those very same visitor logs a bit more closely, it turns out that while Schulman — a Bush appointee — was cleared to visit the White House 157 times, he appears to have actually visited only 11 times.
The vast majority of the cleared visits were related to the implementation of Obamacare, in which the IRS plays a key role, and include regularly scheduled weekly meetings with administration officials on the ongoing work. Meanwhile, many people seem to be conflating the presidential mansion itself with other executive office buildings that are organizationally under the “Executive Office of the President ” — all colloquially referred to as “The White House.” They’re all included in the Secret Services’ visitors logs, but it turns out Schulman was rarely cleared to visit the actual White House, more often having permission to go to the Executive Office Building.
Some Googling might also reveal a Politico story, which also cast doubt on the Daily Caller’s scoop, or plenty of others.
You can see where Schulman went, whom he met with and when — all of these mysterious questions the White House refuses to answer — here.
We expect it from O’Reilly, but it’s a bit disappointing from Woodward, who should know better. Still, he’s seemingly been making a subtle drift from impartial reporter to conservative pundit in recent years.
By: Alex Seitz-Wald, Salon, June 4, 2013
“In The GOP, Every Day Is A Bank Holiday”: The Republican College Loan Plan Would Help Banks, Hurt Families
Big banks are doing better than ever. Sunday, New York Times financial columnist Gretchen Morgenson wrote that 2013 has been a very good year for the financial industry. The KWB Bank Index which tracks the stock prices of 24 leading banks has risen 30 percent this year and it’s at its highest level since 2008.
With the banks doing so well, why are House Republicans pushing so hard to make banks even more money on the backs of kids from working families who want to attend college? The answer is that every day in the Republican Party is a bank holiday.
House Republicans took a step last week to boost the fortunes of their banker backers even higher. The GOP House majority proposed changes for the college student loan program which is scheduled to expire July 1. The Republicans would allow the interest on student loans to double. This will mean even higher profits for the GOP’s banker backers. But it will end the hopes and dreams that thousands of young Americans and their families have for their future in the cut throat world economic competition.
President Obama made his case to stop the interest rate increases in a speech last Friday. The president supports a Senate Democratic plan that would freeze interest rates for 79 million students at 3.4 percent for 2 years. Congressional Republicans want to tie the interest rate to the cost of a 10 year Treasury note. The nonpartisan Congressional Budget Office estimates the House Republican plan would push interest rates to 5.0 percent next year and to 7.7 percent by 2018.
If Republicans get their way, increased interest rates for 79 million college students will mean a big payday for the financial industry next year and a another step down for middle income families. Millions of college grads are already up to their armpits in debt. The Republican plan would make it even harder for young college graduates to get up from under the crushing debt that they already face.
Chinese president Xi Jinping will be in the U.S. this week. His visit should focus the United States on what it needs to do to compete economically with the emerging industrial tiger.
The United States has fallen to 10th in the world in the percentage of people with a college degree. That may be why it’s much easier for people to advance economically in Western Europe than it is in the U.S. The Republican plan will push us down even further on the education ladder and give our economic competitors in the world a leg up. If we want to compete effectively internationally, we should do everything we can to get more young people into college instead of making it more difficult for them to attend college. College is the ticket young Americans need to punch to get the training they need to compete with China and other engines of international economic growth.
The U.S. should build on its strengths. We still have the best higher education system in the world. Hundreds of thousands of international students are currently enrolled in American colleges and universities to get the best college education in the world. We would be a lot better off if American students could afford to attend them too.
The GOP plan to boost banks at the expense of kids in working families mirrors the trends in the American economy at large. The Dow Jones Index, which measures the fortunes of corporate America on Wall Street, has hit record highs several times this year. While profits for corporate America have mushroomed, real income for middle class families has been stagnant. The Republican student loan program will accelerate an unfortunate trend that has enriched Wall St. and improvised middle class families who are working overtime just to meet ends meet.
By: Brad Bannon, U. S. News and World Report, June 4, 2013
“Suspicionless Search And Seizure”: The Supreme Court Rules That DNA Is Like A Fingerprint Or Mugshot
In a 5-4 decision, the U.S. Supreme Court has ruled that police have the right to gather DNA evidence without a search warrant after an arrest and before the arrestee has been convicted of a crime. The majority ruled that a cheek swab is no different from taking a fingerprint or a photograph.
Already 26 states collect DNA samples from suspects, a fact that had gone mostly unnoticed until 26-year-old Alonzo King was arrested in Maryland for second-degree assault in 2009. Maryland authorities took a DNA swab from King while he was in custody, and after running it through the state’s and the FBI’s databases, they found that it matched DNA from an unsolved rape committed in 2003.
The U.S. Supreme Court’s decision on Monday reversed a 2012 Court of Appeals decision in which Maryland’s highest court ruled in King’s favor, stating that the DNA swab was used for investigative purposes after his arrest—this was in direct violation of his Fourth Amendment rights, as he had not been convicted of any crime and was still presumed innocent.
Groups including DNA Saves have been advocating for the DNA swabbing of arrestees as a means to close unsolved cases, citing statistics that most crimes are committed by repeat offenders.
Justice Anthony Kennedy was among the five Justices who voted to reverse Maryland’s decision. “DNA identification of arrestees is a reasonable search that can be considered part of a routine booking procedure,” Kennedy wrote. “Taking and analyzing a cheek swab of the arrestee’s DNA is, like fingerprinting and photographing, a legitimate police booking procedure that is reasonable under the Fourth Amendment.”
Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan joined Justice Antonin Scalia in his written opposition to the court’s decision. His dissent began, “The Fourth Amendment forbids searching a person for evidence of a crime when there is no basis for believing the person is guilty of the crime or is in possession of incriminating evidence. That prohibition is categorical and without exception; it lies at the very heart of the Fourth Amendment.”
Scalia’s defense of the Fourth Amendment continued in his scathing dissent: “Solving unsolved crimes is a noble objective, but it occupies a lower place in the American pantheon of noble objectives than the protection of our people from suspicionless law-enforcement searches.”
The dissenting Justices warned of likening DNA sampling to fingerprinting and taking photographs. They aimed to differentiate between methods of identifying and investigating an individual after their arrest and before a trial.
New technologies are increasingly presenting privacy challenges that complicate the typical conservative/liberal alliances on the Court.
USA Today reports, “Last year, they held that police could not attach a GPS tracking device to a car in order to monitor a suspect’s movements. This year, they ruled that using a drug-sniffing dog with reasonable suspicion was OK — but not at the door of a private home. And they decided that executing a search warrant after a suspect had left his home was out of bounds.”
Of course the major difference between last year’s decisions and the one the Supreme Court reached today is that DNA swabs may be used by authorities to implicate an arrestee in crimes for which they have no warrant or reasonable suspicion. In this way, the majority found, a DNA swab is similar to the procedural tasks of taking a fingerprint or a mugshot.
The minority warned of the broader implications of the decision.
“Make no mistake about it: Because of today’s decision, your DNA can be taken and entered into a national database if you are ever arrested, rightly or wrongly, and for whatever reason,” Scalia wrote in his dissent. “This will solve some extra crimes, to be sure. But so would taking your DNA whenever you fly on an airplane.”
By: Allison Brito, June 3, 2013
“A Matter Of Life And Death”: Leave It To Scott Walker To Turn Medicaid Expansion Into Medicaid Contraction
Several red states are turning down Medicaid expansion — only Scott Walker (R-WI) is actually using Obamacare as an excuse to cut Medicaid.
Wisconsin’s Badgercare health care plan is one of the best in the country. Families qualify for comprehensive coverage if they earn up to 185 percent of the federal poverty level.
So when the Affordable Care Act offered all 50 states a chance to expand their Medicaid programs to cover all the working poor who earn too much for Medicaid but make up to 133 percent of the poverty level, what did Governor Scott Walker decide to do?
He put forward a plan to drastically cut Badgercare.
If Walker gets his way, his state’s plan will only cover residents who earn 100 percent of the poverty level or below – $11,490 a year for a single adult.
Tens of thousands of Wisconsites will be forced from completely subsidized health care to the federal insurance exchanges, where they can purchase private plans with a subsidy. To do this, Walker has to give up federal funding that would cover 84,7000 residents, which would lead to a $119 million cut to his state budget.
“But a detailed analysis of the plan by the Legislative Fiscal Bureau finds that many of the people now receiving state Medicaid coverage would likely not buy the more costly insurance through the federal program,” The Milwaukee Journal Sentinel reports.
“As a general rule, they’re going to be really strapped to do it,” Jon Peacock, research director of the Wisconsin Council on Children and Families, told the Journal Sentinel. “They won’t scrape together the money unless they really need it.”
The Bureau estimates that 7 percent will not buy the coverage. Peacock thinks that’s overly optimistic.
A new UW Madison study shows that Badgercare – which was expanded in 2009 — reduces hospitalization and improves management of chronic disease.
Even Senate Majority Leader Scott Fitzgerald (R-Juneau) admits that Walker’s plan could send thousands to emergency rooms for care, driving up the cost of care for all residents. The legislature is considering additional payments to hospitals to make up for the costs of the uninsured.
Medicaid expansion is a great deal for the states. The federal government will fund 100 percent of the initial expense; that decreases to 90 percent over the next decade.
Rand Corporation just released a study that underlines the cruelty of rejecting expansion. “States rejecting the expansion will spend much more, get much, much less, and leave millions of their residents uninsured. That’s a lot of self-inflicted pain to make a political point,” according to The Washington Post‘s Ezra Klein and Evan Soltas.
“This is not a small issue,” writes The Guardian‘s Michael Cohen. “In fact, it is a matter of life and death.”
Cohen points to a New England Journal of Medicine study that shows increased access to Medicaid results in fewer deaths. A recent study in Oregon found that Medicaid eliminated economic hardships brought on by health problems and dramatically improved mental health.
What Walker is doing is even worse than his more than two dozen Republican colleagues who are rejecting expansion. He’s taking health care away from the working poor, knowing that doing so will cost his state money, well-being and even lives.
By: Jason Sattler, The National Memo, June 4, 2013
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