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News Items, by Subject

Ret plan investments - costs

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Checksmart Wins Dismissal of 401(k) Excessive Fee Lawsuit
"The proposed class action, filed two years ago by Checksmart employee Enrique Bernaola, made waves in the financial industry for being one of the first to challenge alleged excessive fees in a smaller 401(k) plan.... [The federal district court judge ruled that the participant's] claims were barred by ERISA's statute of limitations because the expense ratios for the various investment options offered by the plan were disclosed to him three years before he filed his lawsuit." [Bernaola v. Checksmart Financial LLC, No. 16-684 (S.D. Ohio July 12, 2018)] (Bloomberg BNA)
Court of Appeals Officially Nullifies Fiduciary Rule, DOL Extends Nonenforcement Policy
"[At] least 79% of sponsors charge recordkeeping fees to plan participants (through direct fees, netting from investments or both).... [M]ore than 80 lawsuits have challenged the reasonableness of plan fees paid from plan assets, some of which have resulted in multimillion-dollar settlements. These lawsuits underscore the need for monitoring the reasonableness of plan fees and documenting the process." (Willis Towers Watson)
401(k) Fee Levelization Can Make Revenue Sharing Worse
"In effect, fee levelization permits a 401(k) plan to pay direct-like provider fees using revenue sharing. However, the process requires complicated recordkeeping to properly refund revenue sharing. So why do 401(k) providers do it when they could simply charge 100% direct fees in the first place? The reason is simple -- the process can make high 401(k) fees easier to overlook." (Employee Fiduciary)
[Opinion] Pennsylvania's Pension Fury?
"Joseph Torsella, state treasurer, has accused Pennsylvania Public School Employees' Retirement System (PSERS) and Pennsylvania State Employees' Retirement System (SERS) of wasting $5.5 billion paid as fees to Wall Street investment managers whose funds performed poorly. The dispute follows similar rows in Maryland and California, where pension officials were forced to admit their failure over decades to disclose multimillion-dollar payments to private equity managers." (Pension Pulse)
The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2017 (PDF)
32 pages. "In 2017, the average expense ratio for equity mutual funds offered in the United States was 1.25 percent. 401(k) plan participants who invested in equity mutual funds, however, paid less than half that amount -- 0.45 percent -- on average.... The average expense ratio that 401(k) plan participants incurred for investing in equity mutual funds fell from 0.48 percent in 2016 to 0.45 percent in 2017. The average expense ratio that 401(k) plan participants incurred for investing in hybrid mutual funds fell from 0.53 percent in 2016 to 0.51 percent in 2017.... Employers and employees generally share the costs of operating 401(k) plans." (Investment Company Institute [ICI])
Fidelity Lowers Fees on Some Target Date Funds
"For the Freedom Index Funds institutional premium class, the net expense ratio has been cut to eight basis points from 10. This reduction applies to institutions that have at least $100 million in target-date assets. For the Freedom Index Funds investor class, for retail clients, the expense ratio has been reduced to 14 basis points from 15." (Pensions & Investments)
BofA Weighs Allowing Commissions on Merrill Lynch Retirement Accounts
"The firm's wealth-management unit may allow retirement-account customers flexibility in fee structures after a review is completed in about 60 days ... Merrill Lynch decided in 2016 it would stop offering commission-based retirement accounts and instead impose fees based on assets managed as it prepared to comply with the [DOL's] fiduciary-duty rule ... The firm was alone among wealth managers inside large U.S. banks to force the move on brokers and their clients[.]" (Bloomberg)
Northwestern University Defeats 403(b) Lawsuit
"[P]laintiffs alleged that Northwestern University and its fiduciaries ... mandated the inclusion of particular stock accounts in the plans, impos[ed] excessive record-keeping fees, improperly allowed payment for record-keeping expenses through revenue sharing, and included too many investment options. The Court rejected all of plaintiffs' fiduciary duty claims." [Divane v. Northwestern Univ., No. 16-8157 (N.D. Ill. May 25, 2018)] (McDermott Will & Emery)
Northwestern University Beats 403(b) Excessive Fees Case
"[Plaintiffs] alleged that inclusion of a CREF Stock fund was a breach of fiduciary duty because the fund underperformed and charged a high expense ratio. The court refused to find that including the fund was a breach of fiduciary duty.... The court also rejected the plaintiffs' allegation that offering too many funds was a breach of fiduciary duty, finding the plans offered them the types of funds they wanted -- low-cost index funds." [Divane v. Northwestern Univ., No. 16-8157 (N.D. Ill. May 25, 2018)] (Greensfelder)
Judge Dismisses Lawsuit Alleging Mismanaged Retirement Plans by Northwestern University
"Judge Jorge Alonso dismissed all seven of the plaintiffs' counts and denied their recent motion to file a second-amended complaint.... Plaintiffs alleged they were financially harmed because the retirement and voluntary savings plans included excessive or imprudent fee options. They argued that the defendants' inclusion of these options prohibited the plaintiffs from being able to grow their retirement savings by investing in options that were prudent and had reasonable fees. Such options, the suit alleged, were not available and the defendants therefore did not satisfy their obligations as fiduciaries, or trustees." (The Daily Northwestern)
University of Chicago Settles Fee Lawsuit
"In addition to the [$6.5 million cash] settlement, the university has agreed to 'retain certain structural changes to the Plans that will further benefit the Plans and their participants,' including agreeing 'not to increase per-participant recordkeeping fees for three years from the date of Final Approval of the Settlement, and to use commercially reasonable best efforts to continue to attempt to reduce recordkeeping fees.' " (National Association of Plan Advisors [NAPA])
Administrative Fee-Leveling to Impact Penn State Retirement Program Participants
"Beginning July 1, Penn State will adopt a 'fee-leveling' approach, an industry best practice, to create a more fair and equitable way to account for administrative expenses. Fee-leveling ensures that all participants pay the same percentage of their account balances for record-keeping and administrative fees, regardless of the funds in which they invest.... In 2018, the annual administrative fee is 0.052 percent, or $0.52 per $1,000 invested." (Penn State)
Excessive Fee Suit Targets TIAA Arrangement
"[T]he defendant university fiduciaries are alleged to have failed to take advantage of their size and clout as a 'jumbo' plan to negotiate for 'low-cost high-quality administrative services.' The plaintiff here notes that in addition, the defendants failed to 'properly inform participants of the fees they were paying to TIAA as required by law, and most importantly, to act prudently with such information.' " [D'Amore v. Univ. of Rochester, No. 18-6357 (W.D.N.Y., complaint filed May 11, 2018)] (National Association of Plan Advisors [NAPA])
Why Plan Sponsors Should Regularly Benchmark Retirement Plan Investments
"Benchmarking can provide access to a wealth of data beyond just fee statistics. Information like overall plan growth relative-to-market, average account balances and average income replacement ratios at retirement can be invaluable for plan providers looking to maximize the value derived from their offerings." (PlanPILOT)
Philips North America Agrees to Pay $17 Million, Make 401(k) Reforms to Settle Fiduciary Breach Case
"Among the non-monetary terms, Philips will: [1] Hire a consultant to review the 401(k) plan investment lineup to recommend if the plan should keep the money market fund or add a stable value 'or comparable fund.' [2] Issue an RFP within 18 months of the settlement for a record keeper.... [T]he fee for basic record keeping shall not be based on a percentage of plan assets.... [3] Consider offering collective investment trusts ... and consider offering the lowest-cost share class available for any mutual fund considered for inclusion in the plan." (Pensions & Investments)
Is Excessive Fee Litigation Headed for Its Dudenhoeffer? (PDF)
"Over the last half-year ... six district courts in five federal circuits have provided 401(k) and 403(b) plan sponsors with some hope by turning the established trend upside-down ... The [Dudenhoeffer] opinion ... seemed to acknowledge the need to 'weed[] out meritless claims' among the many stock drop suits that had been filed since 2008 ... In the excessive fee context, every win by defendants ... provides 401(k) and 403(b) plan sponsors some hope that the plaintiffs will be held to similar scrutiny." (Groom Law Group)
Wells Fargo Improperly Kept a Pension Fund's Fee Rebates
"The bank owned up to the problem in late April after the Chattanooga Fire & Police Pension Fund had spent months questioning Wells Fargo officials about fee practices in its institutional retirement and trust unit, according to the correspondence. The bank said in the correspondence that the improperly retained fee rebates resulted from 'a system set-up error.' " (The Wall Street Journal; subscription may be required)
[Opinion] Including High-Fee Funds Not Necessarily a Breach of Fiduciary Duty
"[D]espite higher fees ... [the] active portfolio's average return is better than that of the passive portfolio by 40 basis points per year, while exhibiting less volatility of returns ... [These] findings call into question [potential] plaintiffs' claims that the selection of higher-fee funds is necessarily against plan participants' interests." (Pensions & Investments)
Many Small-Business Leaders Express Limited Knowledge of Retirement Plan Fees
"Although two-thirds of employers said that they were 'somewhat' or 'very familiar' with their plan fees, only 49 percent said they had read their fee disclosure in the prior year and had understood it; 44 percent said they had not read it; and 7 percent said they had read the disclosure but did not understand it." (The Pew Charitable Trusts)
Advisors, Sponsors Cutting 401(k) Fees
"83% of plan sponsors calculated fees within the last year, 41% reduced their fees as a result of their fee review, and 60% are somewhat or very likely to conduct a fee study in 2018. Although reining in fees should be a good thing, ... even modest fee trimming requires care. Plan sponsors who skimp on investment management, plan administration, fiduciary services, participant education or other plan-related services may put themselves and their employees at risk." (Financial Advisor)
Applying the Test of Prudence to Fee Benchmarking and Competitive Bidding (PDF)
"The primary weakness is that benchmarking data represents pooled experience, the accuracy and completeness of which goes unverified. Further, there is no assurance that ... plans represented by the data have themselves independently established that investment-related fees, compensation and expenses are fair and reasonable.... [T]he only way to reliably test what is 'reasonable' for a plan and a service, whether it be investment advisory, recordkeeping and administration, trusteeship and custody, is to determine and compare what competing providers would charge." (Fiduciary Services, LLC)
Trends in the Expenses and Fees of Funds, 2017 (PDF)
"In 1996, equity mutual fund expense ratios averaged 1.04 percent, falling to 0.59 percent in 2017. Hybrid mutual fund expense ratios averaged 0.95 percent in 1996, falling to 0.70 percent in 2017. Bond mutual fund expense ratios averaged 0.84 percent in 1996 compared with 0.48 percent in 2017.... In 2017, average expense ratios for equity mutual funds fell 4 basis points to 0.59 percent.... The average expense ratios for money market funds rose 5 basis points in 2017 to 0.25 percent.... Expense ratios of target date mutual funds averaged 0.44 percent in 2017." (Investment Company Institute [ICI])
[Official Guidance] Text of DOL Field Assistance Bulletin No. 2018-01: Proxy Voting, Shareholder Engagement, and Economically Targeted Investments
"This Field Assistance Bulletin provides guidance to the Employee Benefits Security Administration's national and regional offices to assist in addressing questions they may receive from plan fiduciaries and other interested stakeholders about Interpretive Bulletin 2016-011 (relating to the exercise of shareholder rights and written statements of investment policy), and Interpretive Bulletin 2015-012 (relating to 'economically targeted investments' (ETIs))....

"Fiduciaries must not too readily treat ESG factors as economically relevant to the particular investment choices at issue when making a decision. It does not ineluctably follow from the fact that an investment promotes ESG factors, or that it arguably promotes positive general market trends or industry growth, that the investment is a prudent choice for retirement or other investors. Rather, ERISA fiduciaries must always put first the economic interests of the plan in providing retirement benefits. A fiduciary's evaluation of the economics of an investment should be focused on financial factors that have a material effect on the return and risk of an investment based on appropriate investment horizons consistent with the plan's articulated funding and investment objectives....

"In the case of an investment platform that allows participants and beneficiaries an opportunity to choose from a broad range of investment alternatives ... a prudently selected, well managed, and properly diversified ESG-themed investment alternative could be added to the available investment options on a 401(k) plan platform without requiring the plan to remove or forgo adding other non-ESG-themed investment options to the platform. In the case of a qualified default investment alternative (QDIA), however, selection of an investment fund is not analogous to merely offering participants an additional investment alternative as part of a prudently constructed lineup of investment alternatives from which participants may choose. Nothing in the QDIA regulation suggests that fiduciaries should choose QDIAs based on collateral public policy goals. In the QDIA context, the decision to favor the fiduciary's own policy preferences in selecting an ESG-themed investment option for a 401(k)-type plan without regard to possibly different or competing views of plan participants and beneficiaries would raise questions about the fiduciary's compliance with ERISA's duty of loyalty....

"If a plan fiduciary is considering a routine or substantial expenditure of plan assets to actively engage with management on environmental or social factors, either directly or through the plan's investment manager, that may well constitute the type of 'special circumstances' that the IB 2016-01 preamble described as warranting a documented analysis of the cost of the shareholder activity compared to the expected economic benefit (gain) over an appropriate investment horizon." (Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])

AARP Wants Great-West's 401(k) Victory Reversed
"The industry group representing Americans 50 and older wants the U.S. Court of Appeals for the Tenth Circuit to revive a class action by 270,000 people who invested in Great-West's guaranteed investment annuity contracts. Investors say that because Great-West kept the difference between the rate of return they received and the returns actually earned by the investment, the company essentially set its own compensation.... In its brief, the AARP argued that Great-West could be liable as an ERISA fiduciary because it exercised discretion over the guaranteed investment's crediting rate, which in turn affected both investors' returns and Great-West's compensation." [Teets v. Great-West Life & Annuity Ins. Co., No. 18-1019 (10th Cir. amicus brief filed Apr. 18, 2018)] (Bloomberg BNA)
NYU to Begin Trial Over Retirement Plan Mismanagement Claims
"More than 20,000 current and former NYU employees are part of a class that is scheduled to begin a two-week trial on April 16 ... The employees accuse NYU of violating federal benefits law by paying high fees to its retirement plan record keepers. NYU also offered certain actively managed investment funds that carried high fees despite having no realistic expectation of higher returns, the employees say." (Bloomberg BNA)
Text of New Jersey Proposed Legislation to Require Teacher Retirement Plan Fee Disclosure
"This bill requires persons who administer certain supplemental annuity retirement plans for teachers, offered by a local school board, to disclose to each plan participant the [1] fee ratio and return, net of fees, for each investment under the plan and [2] fees paid to any person who, for compensation, provides investment advice to participants directly or through publications or writings. The plan administrator must make the disclosures upon a participant's enrollment and annually thereafter." (218th Legislature, State of New Jersey)
First Round of Robo-Advisor Fee Litigation Goes to Record-Keepers
"The lawsuits claim, in essence, that fees collected by record keepers for investment advice were unreasonably high, because the fees exceeded the amount actually paid to Financial Engines. The suits claimed that the record keepers did not provide services of sufficient value to justify retaining the spread between the amount charged and the amount actually paid to Financial Engines. In March, two federal courts dismissed claims against the record keepers, bringing the total to four similar cases that all have been dismissed." (Proskauer)
Revenue Sharing Simplified
"Revenue sharing is a lot like ... rebates. Now, not all investments provide a rebate. And, sometimes, the cash back does not go directly into a participant's retirement plan account. It may first be used to offset plan expenses, such as recordkeeping and administrative expenses. In some plans, the remainder is then returned to an individual's retirement plan account." (Cammack Retirement Group)
Paying 401(k) Fees from Plan Assets
"Settlor expenses ... are considered to benefit the 401(k) plan sponsor in more than an incidental way....[and] must be paid by the plan sponsor.... When 401(k) plan participants are considered to derive some benefit from a settlor expense, the sponsor can charge that portion to the plan. Further, plan expenses necessary to implement a settlor decision can be paid from plan assets as an administrative expense." (Employee Fiduciary)
Yale University Must Defend Challenge to Retirement Plan Fees
"A federal judge ... refused to dismiss most claims against the school, including claims challenging the retirement plan's administrative and investment fees. The Yale workers who filed suit are also moving forward with claims challenging the 'locked-in' nature of the plan's record-keeping services, which the judge said may have prevented the school from properly monitoring the plan's investments and record-keeping fees." [Vellali v. Yale Univ., No. 16-1345 (D. Conn. Mar. 30, 2018)] (Bloomberg BNA)
[Opinion] Constructing 'The Best' 401(k) Investment Menu? Really?
"[S]hort-term bonds are ... a meaningful, although distinctly underutilized, addition. Perhaps a true bear market in bonds will change how employees invest in fixed income but, overall, providing one stop diversified options like asset allocation or target date funds as the foundation of an investment lineup is a much sounder approach.... While using the lowest cost share class available is advisable ... DOL, the courts and too broad a range of authorities to list have confirmed and reaffirmed what the fiduciary obligation really is and it is not to use the lowest cost share class, period." (Fiduciary Plan Governance, LLC)
Court Dismisses Fiduciary Breach Claims Against Aon Hewitt with Respect to Financial Engines Arrangement
"[T]he fact that courts are dismissing these cases against providers does not mean that a participant advice arrangement cannot violate ERISA. Indeed, it is certainly possible that such an arrangement could be unreasonably priced. In this regard perhaps the most interesting language in the decision was the court's explanation of the 'reasonableness' standard in this context: The analysis is to focus on the fair market value of the the services as a bundle, not on how the two service providers -- the recordkeeping platform provider and the advice provider -- divide up the total fee." [Scott v. Aon Hewitt Fin. Advisors, LLC, No. 17-679 (N.D. Ill. Mar. 19, 2018)] (October Three Consulting)
Edward Jones Can't Escape 401(k) Fee Class Action
"Edward Jones argued that the workers failed to plead additional facts showing that the fiduciary's decision was based on financial interest rather than a legitimate consideration. The company also said the workers didn't include facts suggesting that the choice of higher-cost affiliated funds was the result of flawed decision-making. [The judge] rejected the argument. The workers' allegations were sufficient to raise an inference of disloyalty and imprudence, he said." [Schultz v. Edward Jones & Co., L.P., No. 16-1346 (E.D. Mo. Mar. 27, 2018)] (Bloomberg BNA)
Understanding and Evaluating Retirement Plan Fees
"The criteria for fee and performance reviews should be contained in the plan's investment policy statement ... Recordkeeping and administrative fees should be evaluated and compared to plans of similar size and type that are receiving analogous services.... Other service provider fees should be evaluated on an annual basis, including audit fees, legal fees and investment advisory and consulting fees." (Cammack Retirement Group)
Aon Beats Challenge to 401(k) Robo-Adviser Fees
"The lawsuit, filed on behalf of investors in Caterpillar Inc.'s 401(k) plan, accused Aon Hewitt Financial Advisors and Hewitt Associates of running an illegal kickback scheme with Financial Engines that caused 401(k) investors to pay millions of dollars in excessive and unnecessary fees. A federal judge dismissed the lawsuit on March 19, saying that neither Aon Hewitt entity was a fiduciary under [ERISA] with respect to the disputed fees." (Bloomberg BNA)
Prudential, Morningstar Beat Robo-Adviser Lawsuit
"The lawsuit seeks to represent up to 5 million investors in 'hundreds' of retirement plans that used the GoalMaker robo-adviser designed by Morningstar and offered by Prudential. The investor who filed suit says the defendants tweaked GoalMaker to intentionally steer people toward higher-cost funds that earned extra fees and kickbacks for Prudential." (Bloomberg BNA)
Cost-Cutting Takes Precedence in Competitive Environment
"Putnam's launch of a lower-cost share class is just one approach target-date managers have taken to reduce fees. For certain active target-date series, American Century and Fidelity switched in 2017 to a direct management fee model that charges a flat fee, from the traditional indirect fee model where target-date funds' net expense ratios are determined by underlying fund fees. Plan executives stand to benefit from the direct management model when managers make underlying fund changes[.]" (Pensions & Investments)
Evaluating Average DC Plan Fees
"Not surprisingly, asset levels markedly influenced total investment management fees paid. Mega plans have driven down their fees to an average of 33 basis points, as a result of their scale and ability to invest in institutionally structured vehicles, while smaller plans pay progressively more." (Callan)
Ninth Circuit Finds 401(k) Service Providers Owe No Fiduciary Duty with Respect to Negotiating Their Fee Compensation
"[T]he United States Court of Appeals for the Ninth Circuit recently held that plan administrators ... are not ERISA fiduciaries when negotiating their own compensation with prospective customers. Instead, because the employer/plan sponsor has the express duty under ERISA to defray reasonable expenses of administering a 401(k) plan, any claims that fully disclosed fee arrangements are unreasonable 'lie against the employer, not the service provider.' " [Santomenno v. Transamerica Life Ins. Co., No. 16-56418 (9th Cir. Feb. 23, 2018)] (Masuda Funai)
More 401(k) Plans Moving Away from Revenue-Sharing Model
"[A] Callan survey showed that 54.7% of plans used a per-participant fee last year to pay for plan administration vs. 41.6% in 2016.... A survey ... by Willis Towers Watson PLC found 41% of plans used a fixed-dollar amount per participant for record-keeping fees vs. 32% in 2014 ... DC industry members said there's room for revenue sharing depending on plans' unique circumstances. And in the case of 403(b) plans with lineups heavily weighted toward annuities, sponsors cannot easily drop revenue sharing." (Pensions & Investments)
Ninth Circuit: Plan Service Provider Not Subject to Fiduciary Duties When Negotiating Fees or Collecting Predetermined Compensation
"According to the court, ... claims that fully disclosed fee agreements are unreasonable lie against the hiring fiduciary, not the provider.... [T]he court dismissed claims related to the revenue-sharing payments because they were fully disclosed before the provider agreements were signed and did not come from plan assets. Finally, the court held that the provider's withdrawal of its predetermined, formula-driven fees from pooled accounts was a ministerial act that did not give rise to fiduciary liability." [Santomenno v. Transamerica Life Ins. Co., No. 16-56418 (9th Cir. Feb. 23, 2018)] (Thomson Reuters / EBIA)
401(k) Fiduciaries: Is It Time to Hone Your Processes?
"Last year's litigation ... attacks 401(k) fiduciaries on the quality of their process and on outcome. The fiduciaries that were sued last year were for the most part doing what their lawyers told them to do. They followed a 'prudent process stratagem' and entered into pretty low cost arrangements but they still got hammered with a lawsuit." (Fiduciary Plan Governance, LLC)
How Low Can 401(k) Advisory Fees Go?
"During 2016, adviser fees declined 12.5% for plans with $50 million to $400 million in assets ... DC plan advisers covering plans under $25 million [saw a] 1% increase; advisers to plans under $5 million experienced a 4.7% increase.... With increased regulatory scrutiny on fees and more litigation, plan sponsors will continue to be more, not less, price-sensitive.... [As] margins get thinner upmarket, consultants and elite advisers will migrate down-market, bringing more competitively priced fiduciary services with them." (InvestmentNews)
Wells Fargo's Wealth Management Unit Attracts Justice Department Attention
"The Justice Department in late 2017 told the bank to conduct an independent investigation of its wealth-management business ... The bank said the board's review is assessing 'whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company's investment and fiduciary services business.' " (The Wall Street Journal; subscription may be required)
Interesting Angles on the DOL's Fiduciary Rule, Part 81
"The myth for this post is the oft-repeated statement that the Fiduciary Rule prohibits the payment of commissions.... Under transition BICE, there is only one explicit restriction on compensation. That is that advisors and their financial institutions can receive no more than reasonable compensation for their services." (
NYU Workers Can't Bring Second Lawsuit Over Retirement Plans
"The second lawsuit, filed about a year after the first, is duplicative and can't move forward, a federal judge ruled. The judge said the second lawsuit was an impermissible attempt to get around her earlier rulings dismissing some of the employees' claims." [Sacerdote v. N.Y. Univ. Sch. of Med., No. 17-8834 (S.D.N.Y. Feb. 23, 2018)] (Bloomberg BNA)
Ninth Circuit Opinion: Service Provider Is Not an ERISA Fiduciary with Respect to Plan Fees (PDF)
"Indeed, any other outcome would lead to absurd results. If service providers were fiduciaries while negotiating fees, they would have to promise that its fees were no higher than those of any competitor, rather than negotiate at arm's length with an employer. And, an employer who knowingly agreed to a fee structure could nonetheless later sue to lower it, invoking the administrator's fiduciary obligation." [Santomenno v. Transamerica Life Ins. Co., No. 16-56418 (9th Cir. Feb. 23, 2018)] (U.S. Court of Appeals for the Ninth Circuit)
Retirement Plan Best Practices: Plan Monitoring (PDF)
14 pages. "Monitoring your investment menu managers, your plan providers, and plan fees is an important part of your overall fiduciary responsibility. Plan sponsors vary widely in how they monitor their plans. What are best practices, and what standards should you be following in your monitoring practices?" (Arnerich Massena)
Making Sure Your Plan's 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"You should create a master list of items you want to see addressed by each respondent. This can, essentially, be the items in your RFP. You'll want to create a fairly detailed spreadsheet to analyze the fee component of the proposals. [Your list should include] at least the following items[.]" (Fiduciary Plan Governance, LLC)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"[C]ontact at least six firms ... [Y]ou are held to the standard of an expert in matters of plan management. If you don't have the resources to run an RFP ... find an independent consultant who can do it for you.... Unless you are using an integrated RFP platform to issue your request, to receive and aggregate information and to perform your analysis, you will want to allow about four [4] weeks from the date you issue the RFP to the date responses are due." (Fiduciary Plan Governance, LLC)
Fee Benchmarking Rises, But Does It Matter?
"The number of plan sponsors that calculated their DC plan fees within the past 12 months rose to 83.1% from 78.8% in 2016 ... And while about half (45%) of those who reviewed them kept fees the same following their most recent fee review, nearly as many (40.5%) reduced fees.... [O]ne in six plan sponsors say they are not sure what percentage of the funds in the plan offer revenue sharing." (National Association of Plan Advisors [NAPA])
[Guidance Overview] What Is 'Reasonable' Compensation for a Broker-Dealer or Advisor?
"The reasonable compensation requirement ... applies to service providers regardless of whether or not they are fiduciaries.... For compensation to be reasonable, it is not necessary to recommend a product that pays the least compensation. It is not necessary that compensation be below average. It just cannot rise to a level that is excessive in relation to the services and benefits provided.... [The] requirement applies to the compensation received by the broker-dealer and to the amount passed on by the firm to the advisor." (Drinker Biddle)
Benchmarking: It Isn't Just for Fees Anymore
"[In] the focus on fee benchmarking, some plan sponsors have concentrated solely on fees, to the exclusion of other important measures of the retirement plan's success. Plan sponsors who are not currently benchmarking the following plan metrics may wish to consider them: Overall plan asset growth ... Average account balance ... Projected income replacement ratios at retirement." (Cammack Retirement Group)
70,000 Oracle Workers Get Class Status in 401(k) Fee Case
"A federal judge in Colorado Jan. 30 granted class status to the workers, who accuse the California software company of draining more than $40 million from its retirement plan through a bad deal with the plan's record keeper, Fidelity Management Trust Co." [Troudt v. Oracle Corp., No. 16-175 (D. Colo. Jan. 30, 2018)] (Bloomberg BNA)
Lower Fees May Not Mean Added Retirement Savings
"Lowering investment fees by 100 basis points saves the average investor $40,000 by the time they hit retirement ... but the vast majority of cut-rate products will also sacrifice quality and may come along with higher costs elsewhere.... A focus on lowering non-fee costs could save clients around $340,000 over the same period ... [T]he typical retiree accumulated an average of 124% more wealth in retirement when using a strategy that reduced non-fee costs, rather than using products that just had a low relative price." (Financial Planning)
Mutual of Omaha Sued Over Affiliated Funds in 401(k) Plan
"The proposed class action accuses Mutual of Omaha of filling its 401(k) plan with affiliated investment funds that were essentially funds offered by third parties plus an extra layer of fees that went to the Nebraska-based insurer. The company also tacked on extra layers of fees to unaffiliated funds in the 401(k) plan, according to the complaint. These extra layers of fees allowed Mutual of Omaha to pocket more than $1 million per year at the expense of workers' retirement savings, the lawsuit says." (Bloomberg BNA)
Retirement Plan Best Practices
"Best practices include: [1] Documenting the administrator's decision-making process to show the basis for making decisions on behalf of the plan. [2] Selecting qualified individuals for any fiduciary committee, with clearly designated areas of responsibility. [3] Regular monitoring and adjustment of investment selections based on the plan goals.... [4] Keeping an eye on costs.... [5] Carefully review any changes to the plan documents.... [6] Communicate with employees and plan participants about plan eligibility and enrollment deadlines." (Butterfield Schechter LLP)
Text of District Court Order Dismissing Participant's Excessive Fee Claim Against Capital Group (PDF)
"It may not be necessary for Plaintiff to allege that the challenged funds underperformed, but Plaintiff must at least allege facts that plausibly suggest the fees were unjustified. That Defendants 'could' have chosen funds with lower fees, that 'similar' Vanguard funds charged lower fees, and that all or most of the challenged funds were Defendants' own financial products are insufficient, when viewed in context, to create a plausible inference of wrongdoing." [Patterson v. Capital Group Companies, Inc., No. 17-4399 (C.D. Cal. Jan. 24, 18)] (U.S. District Court for the Central District of California)
New Excessive Fee Litigators Emerge
"The suit, which seeks class action status to represent more than 13,000 participants in the hospital's $714 million 403(b) retirement plan, accuses the plan's fiduciaries of committing what the defendants claims is 'one of the most common and well-known examples of an imprudent investment' -- purchasing a more expensive share class of a mutual fund when a less expensive share class is available. 'A prudent fiduciary does not make such an elementary mistake,' the plaintiffs state." (National Association of Plan Advisors [NAPA])
Using Plan Assets to Pay 401(k) Fees? Reasons to Consider Payment by Plan Sponsor Instead
"Because so few 401(k) providers offer plan sponsors the opportunity to pay 401(k) administration fees themselves, many business owners don't know this option even exists. That's too bad because it's not just 401(k) plan participants that benefit when their employer pays 401(k) administration fees. Business owners also benefit by reducing their fiduciary liability, lowering their taxes, increasing their 401(k) returns and improving their plan's attractiveness to employees." (Employee Fiduciary)
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