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Fiduciary duties of trustees, directors, others

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District Court Halts Some Portions of Challenge to MIT DC Plan
"[P]laintiffs allege breaches of the ERISA duties of loyalty and prudence arising out of the plan's inclusion of retail class options instead of institutional class options in the funds provided by Fidelity Investments. In addition, plaintiffs allege that Fidelity was paid excessive compensation for its recordkeeping services and that MIT never engaged in a competitive bidding process for those services.... The district court decision spells out a number of key caveats impacting this type of ERISA litigation, explaining why it is dismissing some aspects of the various claims while permitting others to go to a full trial." [Tracey v. Mass. Inst. of Technology, No. 16-11620 (D. Mass. Oct. 4, 2017)] (planadviser)
Interesting Angles on the DOL's Fiduciary Rule, Part 66
"Because of the change in the definition of fiduciary advice (which applied on June 9, 2017), all advisors to retirement plans need to review their prior 408(b)(2) disclosures to see if changes are necessary.... [Would] the following types of disclosures [be] narrow enough to provide information that allows the plan fiduciaries to make those determinations? [1] For mutual funds, the broker-dealer may receive between 0% to 10% front-end commissions. [2] As ongoing trailing commissions, the compensation may range from 0% to 2% per year. [3] The compensation for managed accounts will not exceed 2.5% per year." (
Plaintiff's Attorneys to Get Almost $6 Million from Tibble v. Edison Challenge to Plan Investment Fees
"The recommendation of the parties ... is that the law firm of Schlichter Bogard & Denton LLP will receive $5.8 million for all attorney fees and taxable costs and non-taxable litigation expenses, in exchange for which plaintiffs and their attorneys (including Class Counsel) waive and forever relinquish their right to seek any additional payment of attorney fees or costs from defendants. Assuming the court concurs with the recommendation, that sum is to be paid to the law firm on or before Nov. 1, 2017." (National Association of Plan Advisors [NAPA])
[Opinion] Mere Disclosure Inadequate for Fiduciary Advice
"The first attack on the rule is underway at the DOL itself, where the rule is currently undergoing 'reconsideration' in an Administration that has made no secret of its hostility. Key aspects of the rule that are being targeted are the contract requirement, which is the provision that makes the rule enforceable for IRA investors, and the requirement that firms avoid or mitigate, rather than simply disclose, conflicts of interest. These are, of course, the very provisions that give the rule its teeth and force industry to change practices that are harmful to investors." (Fiduciary News)
DOL Asks for Stay in 'Unnecessary' Fiduciary Rule Challenge
"Thrivent Financial for Lutherans challenged the fiduciary rule Sept. 29 and asked the U.S. District Court in Minneapolis for preliminary relief from a ban on having investors waive their right to bring class-action lawsuits. Government lawyers in an Oct. 13 brief said that request 'is unnecessary and therefore inappropriate here.' " (Pensions & Investments)
Phillips 66 Retirees Say 401(k) Plan Should Drop ConocoPhillips Stock Option
"Plan participants have funneled more than $1 billion into ConocoPhillips stock, representing about 25 percent of the plan's total assets. Many more have invested their retirement savings in Phillips 66 stock. Taken together, plan participants have put more than half their retirement assets into the stock funds of the two energy companies." (Houston Chronicle)
Bill to Strike Fiduciary Rule Passes House Panel
"The Protecting Advice for Small Savers (PASS) Act of 2017, which aims to repeal the [DOL] conflict of interest rule, has passed the House Financial Services Commission. The bill seeks to establish its own best-interest standard for broker/dealers, while moving all fiduciary rule-making powers to the [SEC] and away from the DOL. It also means to erase 'related prohibited transaction exemptions published April 8, 2016.' " (planadviser)
[Opinion] Economic Policy Institute Comment Letter to SEC on Possible Fiduciary Rule
"While we recognize that the SEC has an important role in setting the standards that apply to broker-dealers and investment advisers, many of the questions you ask were satisfactorily answered by the [DOL], the Council of Economic Advisors (CEA), consumer advocates, and other experts representing the interests of retirement savers who submitted comments and testified in the process of crafting the DOL fiduciary rule.... We urge the SEC to build on the DOL rule addressing conflicts of interest that harm retirement savers to extend protections to other investors." (Economic Policy Institute)
Prudential Beats Appeal Over Alleged 401(k) Kickback Scheme
"Prudential didn't act as an [ERISA] fiduciary in its role as the service provider and directed trustee of Ferguson Enterprises' retirement plan ... the Second Circuit held ... While Prudential may qualify as a fiduciary with respect to certain separate accounts it managed, the participant failed to properly plead a breach of fiduciary duty related to those accounts, the three-judge panel said." [Rosen v. Prudential Ret. Ins. & Annuity Co., No. 17-0239 (2d Cir. Oct. 11, 2017)] (Bloomberg BNA)
ERISA: Why the Fiduciary Rule Is Not a New Idea
"[P]rotecting retirement accounts from excessive fees or unnecessary risk is not a new idea and predates the U.S. [DOL's] fiduciary rule by more than 40 years.... Years later it became obvious what ERISA didn't cover: individual retirement accounts.... The same money that was governed by ERISA one day was the next day subject to a weaker suitability standard when it was rolled over into an IRA[.]" (U.S. News & World Report)
How Advisers Can Solve the Most Difficult DOL Rule Documentation Requirement
"As part of acting in the client's best interest when doing a 401k to IRA rollover, the new DOL fiduciary rule requires advisors to assess ... the fees and expenses of both the client's existing 401k and the IRA which they are rolling into.... [H]ow can an advisor find out what the admin fee is that the client is currently paying in the 401k? And what fees and expenses are included in the 401k admin fee?" (RIXtrema)
Impact of the Fiduciary Rule on Plan Sponsors
"Some of your service providers were not fiduciaries before June 9, but now they are. You need to understand what their new role is, how this changes their services, how it changes their compensation and what new conflicts of interest they may have.... Recommendations to participants about taking a distribution from the plan and rolling it over to an IRA are now fiduciary advice. This requires an advisor to engage in an analytical process before making a recommendation. And this may mean recommending that a terminating employee leave his account in the plan." (Drinker Biddle)
Climate Change Defines the Fiduciary (PDF)
"It is now high time for fiduciaries to begin or continue a process to identify and manage both the investment risks and opportunities arising from climate change in accordance with their fiduciary obligations under [ERISA], especially [DOL] Interpretive Bulletin (IB) 2015-01. This process would encompass engaging plan service providers, particularly investment managers, on what steps they are taking to address both the risks and opportunities, recognizing that critical disclosures continue to evolve. This process would also include shareholder engagement with issuers on improved disclosure and transparency regarding climate risks in accordance with IB 2016-01." (Stradley Ronon via Bloomberg BNA Tax Management Planning Journal)
Interesting Angles on the DOL's Fiduciary Rule, Part 65
"For both the prudence and best interest standards of care ... an advisor must consider whether it is prudent to recommend a TF fund or an NTF fund.... NTF funds typically have a higher expense ratio, while TF funds charge an initial transaction cost but usually have a lower expense ratio.... To further compound matters, there are also prohibited transaction issues.... [T]he Best Interest Contract Exemption [BICE] only protects compensation resulting from non-discretionary advice. So, for example, if the advisor is the one who decides to use NTF funds, that decision amounts to discretion. In that case, BICE would not be available to permit the prohibited payments from the custodian." (
It Takes a Committee: The Best Ways to Govern DC Plans (PDF)
13 pages. "Plans with higher participant counts were more likely to have separate committees -- administrative and investment -- than smaller plans ... Across committee types, poor participation and clarity around roles corresponded with a higher-than-average number of committee members.... While most committees reported annual or at least periodic fiduciary training, nearly one in seven respondents from single committees noted no fiduciary training had been done." (Callan Associates)
How to Reduce Your ERISA Risks, and the Role of Fiduciary Liability Insurance (PDF)
28 pages. "[This report provides] an overview of the most prevalent (and serious) types of ERISA claims currently being filed ... discusses a variety of plan-drafting and plan administration measures that plan sponsors and fiduciaries should consider to mitigate litigation exposure ... [and] considers why fiduciary liability insurance should be deemed an integral part of any employee benefits program[.]" (Groom Law Group, for Chubb)
[Opinion] Nevada Rains on Anti-Fiduciary Rule Parade
"The bullying efforts of the DOL and investment industry have now been countered by the state of Nevada's announcement that the intend to exercise their 10th Amendment police powers to protect their citizens by holding all stockbrokers and financial adviser in their state to a fiduciary standard. Pandora's box is officially open and the investment industry has clearly indicated its concern, and rightfully so." (The Prudent Investment Fiduciary Rules)
Dangerous Fiduciary Assumptions
"[1] Assuming that not being required to have an investment policy statement means you don't need to have an investment policy.... [2] Assuming that all target-date funds are the same.... [3] Assuming that hiring a fiduciary keeps you from being a fiduciary.... [4] Assuming that all expenses associated with a plan can be charged to the plan.... [5] Assuming that the worst-case deadline for depositing participant contributions is the deadline.... [6] Assuming you have to figure it all out on your own." (National Association of Plan Advisors [NAPA])
What a Fiduciary Should Know: Down and Dirty with 'Clean' Shares
" 'Clean' shares refer to mutual funds with all the sales-related fees stripped out of them.... This long-term trend among mutual funds to incorporate conflict-of-interest fees into their business models may have finally hit a brick wall with the DOL's Conflict-of-Interest (a.k.a. 'Fiduciary') Rule.... In shifting away from broker-oriented transaction fees, the industry itself may shift towards new business models.... With fees no longer hidden, it will be easier to monitor fees and competitive pressure will likely eliminate excessive fees." (Fiduciary News)
Let's Be Clear About Fiduciary Status
"An alarming percentage of individuals who oversee company 401(k) or other [DC] plans are not aware of -- or are uncertain about -- their status as fiduciaries under [ERISA].... [T]hose who know they are fiduciaries are more likely to have a philosophy that supports proactively placing participants on a strong saving and investment path. They also tend to be associated with plans that have features designed to help participants save for retirement, such as automatic enrollment and automatic contribution escalation[.]" (J.P. Morgan Asset Management)
MIT Must Defend Lawsuit Over Excessive Fees in Retirement Plan
"Judge Nathaniel M. Gorton ... partially adopted the magistrate judge's 59-page report and recommendation not to dismiss most of the participants' claims under [ERISA]. Gorton refused to dismiss claims that MIT acted imprudently by charging excessive record-keeping fees and failing to choose the least expensive share classes for some of the plan's investment options. However, Gorton departed from the magistrate judge's recommendation to allow the participants' claims of prohibited transactions based on an alleged kickback scheme between Fidelity and the plan." [Tracey v. Mass. Inst. of Tech., No. 16-11620 (D. Mass. Oct. 4, 2017)] (Bloomberg BNA)
Fee Litigation Sets Sights on Corporate Retirement Plans
"Currently, there are more than 20 different financial institutions facing lawsuits challenging these in-house 401(k) investments.... [O]nly two were defeated at the motion to dismiss stage. The remainder are either pending, have had their motions to dismiss denied, or have engaged in multi-million-dollar settlements." (Willis Towers Watson)
L-3 Executives Cleared in ERISA Suit Over Stock Losses
"The lawsuit said [L-3 Communications Corporation's Chief Executive Officer and Chief Financial Officer] were wrong to continue allowing L-3 workers to invest retirement savings in the company's stock when an ongoing accounting fraud caused the stock to be artificially inflated. The judge rejected these allegations, saying the plan participant who sued failed to show that the executives should have known that an ongoing fraud was making L-3 stock an imprudent investment." [Price v. Strianese, No. 17-652 (S.D.N.Y. Oct. 4, 2017)] (Bloomberg BNA)
Are Brokers Violating DOL Fiduciary Rule by Shifting Clients to Fee Accounts?
"The Consumer Federation of America is urging regulators to investigate incidences of broker-dealers shifting retirement savers into fee-based accounts from less expensive commission accounts, which violates the [DOL's] fiduciary rule." (ThinkAdvisor)
Think a 401(k) Brokerage Window Can Eliminate Your Fiduciary Responsibilities? Think Again
"The obvious risk plan participants face when choosing among the universe of stocks, bonds, mutual funds and ETFs is the chance a lack of expertise results in a risky portfolio with poor performance.... Plan sponsors should be aware, however, if a brokerage window will require increased recordkeeping costs, result in higher audit fees, or in any way add to plan expenses. The high fees may be justified, but if so, the plan sponsor should be able to explain and defend these expenses if necessary." (ForUsAll)
Proposed Legislation Would Kill DOL's Fiduciary Rule, Create Best Interest Standard for Broker-Dealers
"U.S. Rep. Ann Wagner has introduced legislation that would ... repeal the DOL's fiduciary rule; create a best interest standard for broker-dealers; require broker-dealers to disclose compensation they receive and any conflict of interest that exists; limit U.S. [SEC] rulemaking authority under Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act; prevent the Department of Treasury and DOL from promulgating fiduciary regulations on broker-dealers under [ERISA]; and preempt state laws." (
[Opinion] Obama's Fiduciary Rule Is Already Hurting Small Savers. Here's How to Roll It Back
"[The House Committee on Education and the Workforce] recently advanced the Affordable Retirement Advice for Savers Act, which will repeal the fiduciary rule and preserve access to affordable retirement advice. It also amends federal law to require retirement advisers to act in the best interests of their clients. Legislation -- not 1,000 pages of red tape -- is the right way to address an issue with such a widespread impact. This legislation proves we can hold financial advisers accountable without causing millions of Americans to lose access to affordable retirement advice." (Rep. Virginia Foxx and Rep. Phil Roe, via Washington Examiner)
ERISA Excess Fee Litigation: Waiting for the Deluge
"It's exceedingly easy to gather information on plan fees from 5500 filings. It is in the public domain on the Labor Department website for everyone to see. Participants, vendors and attorneys will find opportunities to use it. If a plan is paying excessive fees someone will find out. Just about any law firm can now get in on this action. Before it was St. Louis-based Schlichter Bogard & Denton. This is no longer true. It doesn't take much to copycat an electronically previously filed complaint and use it for another. This means to me there will be more of these cases." (Fiduciary Plan Governance, LLC)
Interesting Angles on the DOL's Fiduciary Rule, Part 64
"While advisors may be obligated to recommend investment strategies that are consistent with generally accepted investment theories, a retirement investor can override those recommendations and direct that the account be invested differently. In that case, a fiduciary advisor is well-advised to obtain written directions from the retirement investor about how the investor wants the account to be invested. Armed with that direction the fiduciary advisor's duty is to provide advice within the limits imposed by the retirement investor." (
[Opinion] What's Wrong with Third-Party 3(38) Investment Managers?
"[T]here's a significant difference in value between the direct and indirect provision of 3(38) services. A 3(38) that provides its services directly is free from the influence of an entity with the power to highly restrict the available universe of investment options from which an outsourced 3(38) must assemble a plan's investment menu. Who is responsible for such restrictions? In these RFP situations, it's often insurance companies or stockbrokers." (W. Scott Simon, via Morningstar Advisor)
SEC Chairman Tells Lawmakers SEC Is Drafting Its Own Fiduciary Duty Rule
"The agency is trying to catch up with the [DOL] ... The [SEC] is currently receiving public comments about a fiduciary rule. 'The next step in anything like this would be a rule proposal. We're working on such a proposal,' Mr. Clayton said in an appearance before the House Financial Services Committee." (Pensions & Investments)
Fidelity Dismissed from Verizon Plan Investments Suit
"Although the court dismissed claims regarding risky investments in TDFs and participant fee disclosure failures, Verizon still faces a charge regarding an underperforming investment." [Jacobs v. Verizon Communications, Inc., No. 16-1082 (S.D.N.Y. Sept. 28, 2017)] (planadviser)
[Opinion] Why You Can't Be 'Three-Quarters of a Fiduciary'
"[T]he range of outcomes on fiduciary rulemaking at the Labor Department, SEC -- and in the Certified Financial Planner Board of Standards' proposed conduct standards -- [are coming into] focus. Two main and disparate outcomes stand out. One comprises 'suitability' rules and more disclosures and falls short of fiduciary duties for retail investors. The other comprises fiduciary duties to reasonably ensure conflicts are managed and mitigated.... Managing and mitigating conflicts is essential to fulfilling fiduciary requirements, not just desirable or an elective duty ... The present lack of guidance virtually assures that many CFPs will not address conflicts appropriately." (Institute for the Fiduciary Standard)
IBM Beats ERISA Lawsuit Over Company Stock in 401(k), Again
"The retirement plan committee of International Business Machines Corp. and its executives again defeated a lawsuit accusing them of failing to mitigate a 'foreseeable drop' in the company's stock and protect participants from losing millions of dollars in retirement savings. The participants offered three alternative actions IBM and the executives could've taken to mitigate the risks to the plan, but this wasn't enough to support a fiduciary breach claim, [the judge held]." [Jander v. Ret. Plans Comm. of IBM, No. 15-3781 (S.D.N.Y. Sept. 29, 2017)] (Bloomberg BNA)
Supreme Court Declines to Hear ABB-Tussey Investment Mapping Case
"In the latest incarnation of litigation that started in 2006, the Supreme Court denied a petition to review a request by ABB based on a ruling by the 8th Circuit Court of Appeals in St. Louis on March 9, 2017.... The appeals court said the district judge had mistakenly ruled for ABB regarding potential damages to participants when the ABB plans mapped one investment option to another and how revenue sharing is administered in defined contribution plans." (Pensions & Investments)
[Guidance Overview] The DOL Fiduciary Rule: Charting a Course, Avoiding Collisions and Potential Litigation, Part 3
"What is the potential that either the 'financial institution' or the insurer, as well as the insurance agent/broker will face potential class action claims of a state law fiduciary breach during this 'temporary' period of the Rule, and what is such a claim's likelihood of success? ... What steps should financial institutions or insurers take to help prevent such class action claims from succeeding? ... What are the requirements for protecting against becoming a fiduciary under state law, as well as for adhering to the 'best interest' standard under the Rule in conjunction with a transaction which involves either advice that a plan participant make a distribution from an existing ERISA plan into an IRA, or a recommendation to move from one IRA to another?" (Carlton Fields)
[Opinion] Why Aren't Advisor Groups More Involved in Efforts by States to Protect Investors?
"State securities regulators have historically been far less conflicted and 'captured' than the SEC, and have been on board with the idea that advisors should manage or avoid conflicts from the beginning. But at present, they don't have anything resembling a unified position on what a fiduciary law should look like. The logical group to propose model state legislation is the Financial Planning Coalition -- made up of NAPFA, the FPA and the CFP Board." (Bob Veres in Inside Information)
Tips to Keep You and Your Recordkeeper on Track (PDF)
"One of a plan sponsor's many fiduciary responsibilities is to monitor its service providers. Best practices suggest that you and your committee should review your record keeper on, at least, an annual basis.... [C]heck your agreement for provisions for dealing with poor performance. For example, what happens if the record keeper doesn't send out participant statements on time or send out participant checks in a timely fashion? Is there anything in your agreement to make your record keeper accountable?" (Pavilion Advisory Group)
Third Circuit Upholds Retirement Plan Administrator's Interpretation of 'Ambiguous' Plan Terms
"[The court determined that] the plan is silent as to how to calculate Final Average Compensation specifically for disabled participants. The court also found that the plan is ambiguous due to its structure, where the relevant plan terms are strewn throughout three Articles of the massive plan document. The court determined that there is nothing unreasonable about the plan administrator's interpretation which harmonizes Credited Service with the calculation of Final Average Compensation." [Dowling v. Pension Plan for Salaried Employees of Union Pac. Corp. & Affiliates, No. 16-1977 (3d Cir. Sept. 15, 2017)] (Roberts Bartolic)
Dismissal of Case Against Univ. of Pennsylvania Is Good News for 403(b) Plan Sponsors
"Participants in the plan asserted breaches of fiduciary duties arising out of a variety of decisions made by plan fiduciaries at UPenn: locking in the plan to certain TIAA-CREF accounts; allowing TIAA-CREF and Vanguard to serve as their own recordkeepers and use asset-based recordkeeping fees instead of flat, per-person fees; offering some retail class shares, rather than all lower-fee institutional class shares; and permitting some underperforming funds to remain in the plan. The judge dismissed all claims in their entirety." [Sweda v. The Univ. of Penn., No. 16-4329 (E.D. Pa. Sept. 21, 2017] (Verrill Dana LLP)
Rep. Wagner Introduces Bill to Kill the DOL Fiduciary Rule
"Rep. Ann Wagner, R-Mo., has introduced legislation that would create a new advisory standard somewhere between fiduciary and suitability.... Wagner's bill also would eliminate the fiduciary rule's prohibited transaction exemptions. It would amend the Securities Exchange Act of 1934 to include a best interest standard of care for brokers advising investors in the retail market." (
GE Hit with Lawsuit Over Fees in Its $28 Billion 401(k)
"GE allegedly selected and retained its proprietary mutual funds in the plan, earning hundreds of millions of dollars from a subsidiary that managed the plan to the participants' detriment, according to a lawsuit filed Sept. 26 in federal court in California. GE's selection of its proprietary funds for the plan provided its subsidiary -- GE Asset Management Inc. [GEAM] -- a constant source of fees and helped inflate the market value of GEAM, which GE sold to State Street for $485 million in 2016." (Bloomberg BNA)
DOL Settlement Agreements Provide ESOP Transaction Guidance
"The [DOL] and First Bankers Trust Services Inc. [recently] entered into a settlement agreement ... resolving a case challenging FBTS' actions as trustee in a transaction whereby a private label denim manufacturer was sold to an [ESOP]. This settlement agreement ... largely mirrors a process agreement that the DOL entered into with GreatBanc Trust Company in 2014 ... [This article describes] some key areas where the Agreements differ ... [and provides] an in-depth chart that summarizes the terms and highlights the differences between the two Agreements." (Holland & Knight)
How to Evaluate a Target Date Fund's Glide Path
"Choose a glide path, not a target date.... Study the fund's holdings.... Look for anomalies.... Know who's in charge." (U.S. News & World Report)
[Guidance Overview] Interesting Angles on the DOL's Fiduciary Rule, Part 63
"In order to comply with BICE, the supervisory entity and the advisor must satisfy the three Impartial Conduct Standards: the best interest standard of care; no more than reasonable compensation; and no materially misleading statements. It is commonly believed that BICE requires satisfaction of only those three conditions. However, that is not the case. There is a fourth, and less well-known, requirement." (
Testimony of SEC Chairman to Senate Committee on Banking, Housing and Urban Affairs: 'Oversight of the SEC'
"The SEC's mission to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation is deeply engrained throughout our offices and divisions.... [O]ur analysis starts and ends with the long-term interests of the Main Street investor; or as I call them, 'Mr. and Ms. 401(k).' At a time when greater responsibility is shifting to Main Street investors to save for their own retirement, I am confident that this is the correct metric for our analysis of success in meeting our tripartite mission. If Mr. and Ms. 401(k) are able to invest in a better future, then the SEC is serving them and our markets well." (U.S. Securities and Exchange Commission [SEC])
Standard Items Appearing in an Investment Policy Statement
"The [investment policy statement (IPS)] serves as a policy guide that can offer an objective course of action to be followed when emotional or instinctive responses might otherwise motivate less prudent action.... The IPS should be written to allow fiduciaries latitude to use their best judgment based upon a given set of circumstances. Rigid investment policies that are not followed could be used against fiduciaries in a court of law." (Strategic Benefit Services)
University of Chicago Can't Escape Retirement Plan Lawsuit
"The judge on Sept. 22 refused to dismiss claims that the plan's fiduciaries acted imprudently by offering high-fee investment options and poorly performing funds in the school's $980 million retirement plan. However, the judge dismissed allegations of disloyalty and claims involving a separate retirement plan with $2.1 billion in assets and 13,000 participants." [Daugherty v. Univ. of Chicago, No. 17-3736 (N.D. Ill. Sept. 22, 2017)] (Bloomberg BNA)
Fidelity Prevails in Suit Over Investment Costs, Robo-Adviser Fees
"Fidelity Management Trust Co. and a subsidiary defeated a lawsuit by participants in Delta Air Lines Inc.'s retirement plan challenging alleged high-cost investment options and certain financial advisory fees. The participants failed to show that Fidelity exercised a fiduciary function over which share classes would be available to them through the brokerage account that would give rise to liability under [ERISA] ... The plan documents show that once Delta chose to include a brokerage account, Fidelity was bound to follow the participants' investment instructions and exercised no discretion or authority with respect to which shares they elected to buy[.]" [Fleming v. Fidelity Management Trust Co., No. 16-10918 (D. Mass. Sept. 22, 2017)] (Bloomberg BNA)
University of Pennsylvania Prevails in 403(b) Fee Suit
"The suit, brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources ... alleges ... that: [1] the defendants breached their fiduciary duty by 'locking in' plan investment options into two investment companies; [2] the administrative services and fees were unreasonably high due to the defendants' failure to seek competitive bids to decrease administrative costs; and [3] the fiduciaries charged unnecessary fees while the portfolio underperformed." [Sweda v. Univ. of Penn., No. 16-4329 (E.D. Pa. Sept. 21, 2017] (National Tax-Deferred Savings Association [NTSA])
Where Does the Fiduciary Rule Leave Mutual Funds?
"Mutual fund share classes that pay broker commissions can create a conflict of interest. By removing front-end loads, deferred sales charges and 12b-1 fees, clean shares and other new share classes aim to eliminate conflicts that might arise for recommending such products. Any sales fees or other commissions charged by the broker would be handled separately, provided certain conditions are met." (Financial Planning)
Participant Says 'Large Plan' Failed to Negotiate Better Fees
"An excessive fee lawsuit has been filed against fiduciaries of the Novitex Enterprise Solutions Retirement Savings Plan, a 401(k) plan which had more than $157 million in assets as of the end of 2015.... The lawsuit says the fiduciaries breached their duties under [ERISA] by failing to fully disclose to participants the expenses and risks of the plan's investment options; by allowing unreasonable expenses to be charged to participants for administration of the plan; and by selecting and retaining opaque, high-cost, and poor-performing investments instead of other available and more prudent alternative investments." (PLANSPONSOR)
[Guidance Overview] The DOL's Fiduciary Rule: Marketing and Sales Implications for Investment Managers
"[A]pproaches for investment managers to avoid fiduciary responsibility when marketing their products and services to ERISA and IRA clients [include:] [1] ensuring communications are general in nature and not tailored to a specific recipient or recipients, [2] limiting communications to the provision of investment education and [3] adhering to the requirements of an exception for transactions with independent fiduciaries[.]" (K&L Gates)
SEC: Advisers Must Offer Investors the Lowest-Fee Share Class Available
"[The SEC] issued a cease-and-desist order to Envoy Advisory, Inc., a registered investment adviser that allegedly sold Class A mutual fund shares to advisory clients without disclosing that lower-fee institutional shares were available.... Envoy's clients are primarily organizations that sponsor [ERISA] Section 403(b) retirement plans for their employees, and individuals who hold individual retirement accounts with Envoy." (Thompson Hine)
Jerry Schlichter's Fee Lawsuits Have Left an Indelible Mark on the 401(k) Industry
"All told, there were 31 so-called 'excessive fee' suits filed by Mr. Schlichter and other firms over 2006-07 ... Following several large monetary settlements, including $62 million from Lockheed Martin, the litigation caught a second wind beginning in 2015. Last year, there were 29 new cases filed through September ... That's the largest annual total to date, and there's no sign the pace is slowing down.... One result of the litigation has been increased fee transparency." (InvestmentNews)
Wells Fargo Beats ERISA Challenge Over Cross-Selling Scandal
"Participants failed to show that the plan's fiduciaries couldn't have concluded that a disclosure of the unethical sales practices prior to 2016 would have done more harm than good to their investments, Judge Patrick J. Schiltz of the U.S. District Court for the District of Minnesota held Sept. 21.... Schiltz allowed [participants] to amend their claim of breach of the duty of loyalty, but they will have to specify exactly who breached the duty, when, and how." [In re Wells Fargo ERISA 401(K) Litig., No. 16-3405 (D. Minn. Sept. 21, 2017] (Bloomberg BNA)
Novitex Sued Over 401(k) Plan Fees, Not First Modest Plan Hit
"Novitex and its employee benefits committee failed to monitor the plan's investment options -- including its selection of mutual funds and a stable value fund -- to ensure that they were diversified and not excessively priced, according to a lawsuit filed Sept. 20 in the U.S. District Court for the District of Connecticut. Novitex also breached its fiduciary duties under [ERISA] by retaining and excessively compensating UBS as the plan's investment adviser, the complaint alleges.... The company's 401(k) plan had $157 million in assets and more than 10,000 participants as of 2015, according to the lawsuit." (Bloomberg BNA)
Should Your Retirement Plan Have an Education Policy Statement?
"[An education policy statement (EPS)] is a blueprint for how the plan fiduciaries will implement an employee education program for the plan and how they'll make sure it's meeting established goals. It's often seen as part of or as an extension of, the plan investment policy statement[.]" (401kTV)
Fiduciary Risk and Active Management in DC Plans: A Legal Perspective (PDF)
"Here are five guiding principles under ERISA that can aid fiduciaries in selecting and monitoring investment options and assessing active strategies within their plan lineups: [1] It's about the process ... [2] Fiduciaries should focus on the value-for-cost proposition ... [3] There is no one-size-fits-all approach to investment menus.... [4] Range of choice and strategies can be appropriate ... [5] Fear-based decisions fall short of prudence." (Goodwin LLP, via T. Rowe Price)
[Opinion] Text of Comment Letters to DOL on Disclosures and Coverage of Treatment for Eating Disorders Under MHPAEA
The 23 letters posted to the DOL website as of Sept. 18, 2017 were submitted to DOL in response to its request for comments on disclosures and on coverage for eating disorders, in ACA FAQ Part 38 (June 16, 2017). Deadline for submission of comments was Sept. 13, 2017. (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])

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