Dad was an avid sports fan, voracious reader and history buff, and he was deeply loved, admired and respected by everyone who knew him both inside and outside the game of baseball. 

A native of York, PA, Dad grew up in nearby New Freedom, PA. He played baseball and football at Susquehannock High School before transferring to York Catholic HS, where he played football. He attended York Junior College for two years before transferring to Millersville (PA) State College, earning three baseball letters. After graduating from Millersville in 1960, he spent three years as a reporter for the York Dispatch before joining the Orioles.

In 1963, while covering an assignment for the Dispatch that required him to travel to Baltimore, he stopped by the Baltimore Colts’ offices to inquire about employment opportunities.  Told that the team had no openings, it was recommended that he go next door to the Orioles’ offices.  Although the ballclub had no current positions available, his resume was kept on file and a year later, in 1964, he joined the organization as an assistant to the public relations director. He took over traveling secretary duties in 1968 and held them through the 2008 season.

In 2008, I had the privilege of inducting Dad into the Orioles Hall of Fame as the recipient of the Herb Armstrong Award for non-uniformed personnel who made significant contributions to the organization.  He was also inducted into the York Area Sports Hall of Fame in 2006 and the York Catholic High School Athletic Hall of Fame in 2007.

Viewed as legendary among his peers, Dad was honored in 1990 with the first Donald Davidson Memorial Award, given to the top traveling secretary in the major leagues.  In 1985, Sports Illustrated published an article entitled, “The Team Of Your Dreams” proposing its version of a true All-Star organization, from top to bottom.  Dad was selected as the team’s Traveling Secretary along with fellow Orioles greats such as Eddie Murray (First Base), Hank Peters (General Manager) and Pat Santarone (Groundskeeper). 

Here are some great quotes honoring my dad:

Jim Palmer - HOF Orioles Pitcher

"I used to always call him 'Fabulous Phil,' " Orioles Hall of Fame pitcher Jim Palmer said. "Phil did everything, and he was there for all the good times, all our championships. You know how difficult a job that is? You don't get paid the amount of money the managers do, but he had to deal with all the players, and he did it with class, with a sense of humor and with kindness. You don't find too many guys like Phil. When you lose somebody like that, it's just another horrible day."

Tippy Martinez - Former Orioles Reliever

"There are no words that could explain the type of character Phil had.  Anything you wanted, he got it done. If you forgot to get tickets to the game (for friends and family), all you had to do was talk to Phil. All we had to worry about was our suitcase, because everything else was taken care of. He did such a great job.  But more than just doing a good job, he was an honest man. You could give him your wallet and come back knowing everything would be how you left it. He got along with everybody. If you had a bad day with Phil, there's something wrong with you. It was a long way coming to get him mad, because honestly, I never saw him upset."

Andy Etchebarren - Former Orioles Catcher

"He did everything he could for you. He was a very, very good friend,."

Brian Roberts - Orioles 2nd Baseman

"For a long, long, long time, Phil was a huge part of the organization.  He helped things run the way they should in every aspect. He was an icon when it came to that position in major league baseball and within our organization."

Peter Angelos - Orioles Owner

"It is with great sadness that we learned today of the passing of Phil Itzoe. Phil served the Orioles with excellence and loyalty for over four decades and was respected not just by his co-workers, but also by those throughout the sports industry for his integrity and dedication. We extend our deepest condolences to his wife, TyLisa, and the rest of his family."

Dad was an incredibly humble, modest, kind, loyal and caring human being and a class act.  I've rarely met anyone who was so well-liked by everyone who met him and who always sought to put the needs of other people before his own without ever asking anything in return.  Rest in peace, Dad.  I love you and I'll miss you.

It's been amazing to see the number of tributes that have been written to my Dad over the past few days - here are some of my favorites:

Jeff Zrebiec - Baltimore Sun

Peter Schmuck - Baltimore Sun

Dan Connolly - Baltimore Sun

Roch Kubatko - MASN Sports

Jim Henneman - PressBox Online

Jeffrey Johnson - The York Dispatch

Jim Seip - York Daily Record

The article is written in Q&A fashion and takes an in-depth look at understanding the Fixing the 401(k) approach.  Here's the article and be sure to check out the Maryland Investor Magazine website.

For better or worse, I thought the article did a very good job of taking a ground-level look at how plans are generally operated and perceived by the fiduciaries and participants.  To me, the article highlighted several common (though usually faulty) perspectives from the plan fiduciaries who were quoted:

1. Some viewed the plan and their fiduciary duties as an afterthought.

2. Some seemed to think they were really "smart" and, therefore, doing a much better job at making decisions than they actually were.

3. None seemed to understand or grasp which decisions really matter (and which ones don't) in terms of designing their plan to be most effective and helping their employees use the plan wisely in order to accumulate more money.

Unfortunately, my experience has been that these misconceptions or errors in thinking are usually the rule out in the marketplace, rather than being the exception.  It's no wonder that most employees don't value their 401(k) plan or view it as a "benefit", especially when the prevailing attitude of some plan fiduciaries (as highlighted in the article) is "The 401(k)? That’s the least of my problems.”

Even so, with only a little bit of understanding and effort, the companies named in the article could go from having a poor/mediocre 401(k) plan to a great one like this.

As readers of my book know, I am a big advocate of this approach rather than allowing participants to completely self-direct. To help employees use the plan more effectively, we conducted a series of in-person presentations for local employees and webinars for remote participants, with a focus on educating them about sound investing principles, how a model portfolio works and the benefits of such an approach, and how to use these options correctly (i.e. by putting 100% of their balance and contributions in a model rather than incorrectly diversifying amongst multiple models and/or individual asset class investments).

For some background, we've created 5 primarily passive portfolios with blended expense ratios between .25% and .40% and with the following allocations:

Conservative - 20% equities / 75% fixed income / 5% real assets

Moderate - 30% equities / 60% fixed income / 10% real assets

Balanced - 40% equities / 45% fixed income / 15% real assets

Growth - 55% equities / 30% fixed income / 15% real assets

Aggressive - 70% equities / 15% fixed income / 15% real assets

We also included the Vanguard Balanced Index Fund (with an approximate allocation of 60% equities  / 40% fixed income and an ER of .25%) as the default fund for terminated participants who still have a balance in the plan. These participants were mapped into this fund at conversion.  Currently, the plan has 89 total participants, with 69 active and 20 terminated participants with a balance in the plan above $5,000 (and thus, couldn't be automatically forced out of the plan).

I was analyzing some data this week and was really excited by what I found. Of the 69 active participants, 65 chose a model and used it correctly (for a success rate of 94%).  If you factor in the 20 terminated participants who were defaulted into the Vanguard Balanced Index fund, the total number of participants who are successfully positioned with a low-cost, well-diversified portfolio climbs to 85 of 89 (for a success rate of 96%), with only 4 participants choosing to self-direct.  

Overall, I am ecstatic with the results so far.  Such a high quality, low cost, professionally managed (and cohesive) investment strategy plan should go a long way to helping these participants retire more successfully and with meaningful benefits. Oh, and we cut the total fees for participants nearly in half while allowing the trustees to delegate the discretionary authority for the plan investments to our firm, thereby transferring a significant portion of their liability and reducing their personal (and corporate) risk.

I couldn't have asked for a better outcome thus far.  I just wish more plan sponsors would understand and "buy in" to this approach because there truly is no better way to design and implement an investment strategy for a participant-directed plan within our country's current retirement system. 

Rich Lynch, COO of Fi360, essentially makes the same argument and backs it up with some interesting data points from a recent study conducted by the U.S. Government Accountability Office (GAO) which is an independent, nonpartisan agency that works for Congress.  

In a previous post, I wrote about the fiduciary duty to uncover conflicts of interest when hiring a retirement plan advisor.  In it, I referenced an SEC study from 2005 that raised issues regarding the independence of the advice provided by pension consultants.  

The GAO study Rich references is entitled, "Private Pensions - Conflicts of Interest Can Affect Defined Benefit and Defined Contribution Plans" and is a follow-up to the SEC study that was published in March 2009.  The GAO analyzed the lack of disclosure regarding conflicts of interest and the impact on returns of defined-benefit (DB) plans from 2000-2004.

The GAO conducted an "analysis of available data on pension consultants and plans revealed a statistical association between inadequate disclosure and lower investment returns for ongoing plans, suggesting the possible adverse financial effect of such nondisclosure."  The study detected statistically significant lower annual rates of return of 1.2 to 1.3 percentage points from 2000 to 2004 when consultants did not adequately disclose conflicts of interest.   The GAO is careful to make the point "that this finding should not be considered as proof of causality between conflicts and lower rates of return, although it suggests the importance of detecting the presence of conflicts among pension plan consultants." 

Rich cited Practice 1.4 of Fi360's Prudent Practices for Investment Advisors handbook which says "Fiduciaries and parties in interest are not involved in self-dealing" as evidence that there is the strong possibility of the link of better fiduciary process leading to better performance.  

You can read the GAO's executive summary and download the full report, here.

In the meantime, I encourage you to watch my initial webinar entitled "An Analysis of Recent 401(k) Litigation & Subsequent Fiduciary Best Practices".  

During the webinar, I provide an in-depth look at United Technologies Corporation (UTC) recent legal victory in connection with its alleged breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA) related to the company's 401(k) plan.  I also analyze several key aspects of the ruling and discuss a number of fiduciary best practices employers should implement as a result.

First, the plan sponsor should have engaged the services of an independent advisory firm that serves in an acknowledged fiduciary capacity and preferably as an ERISA 3(38) investment manager.  The plan sponsor also should have negotiated a fixed fee with the advisory firm that was paid directly from the company or the plan (but always fully disclosed) and not through any of the funds being evaluated (thus eliminating any conflicts of interest.)  

In addition, the plan sponsor, with the aid of the advisory firm, would have separately negotiated the total billable fee with Fund Company A for recordkeeping and administrative services and required that any revenue sharing received above and beyond the billable fee be credited back to the plan which is the way this compensation structure should be utilized rather than as an additional income stream for Fund Company A.

These two steps would have restructured asset-based fees into fixed ones, and allowed the total cost from a percentage standpoint to decrease over time for participants, thereby providing pricing power and economies of scale.  In my opinion, this is an excellent fiduciary best practice and clearly better for participants.

The advisory firm then should have started by selecting the appropriate asset classes for the plan.  Asset classes at the most basic level are things like stocks, bonds, cash and alternative investments like real estate and commodities.  Within each basic asset class are sub asset classes such as large and small domestic stocks, large and small international stocks, emerging markets, US and international bonds, cash, commodities and real estate.  Beyond that are decisions about value and growth.  Each asset class has different risk and return characteristics and perform differently at different times.  Beginning the process with a focus on asset class selection would have stopped Fund Company A from dictating the process and clearly brought objectivity to the equation (rather than beginning with a conflicted focus on "required revenue").  

Next the advisory firm should have identified key metrics by which to select the specific funds for each asset class. Also, the advisory would have had a clear understanding of the significant amounts of academic research and real-life experience that show that costs and style drift are generally the best indicators of future performance.

Therefore, the advisory firm would heavily weight these two criteria which would lead to the inclusion of a high number of passively managed investments, such as index funds, increasing the probability of higher returns and substantially reducing the total investment costs for participants.  Using these key metrics, the advisory firm would then have evaluated the universe of mutual funds according to these criteria and selected preferably one fund for each asset class in the plan, thereby streamlining the number of options and reducing the confusion participants often experience when trying to make investment decisions when too many options are presented (often leading to "paralysis by analysis").

Finally, the advisory firm would determine which criteria would be used to monitor investment performance moving forward so that a judgement could be made as to whether to leave a fund in the plan or replace it if it fails to measure up within a specified time frame.  Generally, the same criteria used in the selection process would be used for monitoring purposes.  

If the advisory firm really new what they were doing, they would have then created a number of custom asset allocation models using the selected funds, thereby, creating low-cost, well-diversified portfolios for participants. Finally, the advisory firm would have taken efforts to educate participants on how to use these models correctly which is to say they should be selected as the sole investment option for both their current balance and future contributions.  

And there you have it.  An effective, low cost, highly transparent, less conflicted, easier to use plan that actually will do what it is supposed to - provide meaningful benefits to participants.  Oh, and by the way, a clearly more prudent process which leads to lower corporate and personal liability.

Could someone please tell me why this approach is so hard for plan sponsors and fiduciaries to grasp?

Click here to read Part 1.