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BlackRock Employees Seek Class Certification in $100M ERISA Suit
"Employees of BlackRock Inc. urged a California federal judge on Monday to allow them to proceed as two classes in their lawsuit alleging the investment firm violated [ERISA] and cost retirement plan participants more than $100 million. [Plaintiffs] asked U.S. District Judge Haywood Gilliam to certify one class of employees who participated in BlackRock's collective trust investment funds and another class who participated in the company's 401(k) plan, known as the BlackRock Retirement Savings Plan." (Cohen Milstein)
Third Circuit Carries on the Judicial Debate Over Level of Specificity Needed in ERISA Fee Complaint
"A new Third Circuit decision has allowed an ERISA fee complaint to stand even though there were no specific allegations of fiduciary errors in the process of selecting investment options and fees. This development is yet another in the line of decisions that decide if the federal door to discovery will be opened or closed at the complaint stage of the litigation. Expect judges to differ and more such decisions to issue." [Sweda v. Univ. of Penn., No. 17-3244 (3d Cir. May 2, 2019)] (Seyfarth Shaw LLP)
Reimbursement of Direct Expenses: Ninth Circuit Upholds Decision in City National
"CNB had calculated the amount that it charged to the plan for its services simply as a portion of mutual fund revenue sharing payments.... CNB was also recordkeeper for over 200 other plans. It did not, however, 'maintain a system for tracking how much time its employees specifically spent servicing the [City National] Plan.' ... [DOL alleged] that this fee arrangement violated ERISA's prohibition on self-dealing.... [T]he Ninth Circuit [held] that ERISA's prohibited transaction exemption for 'reasonable compensation' for the provision of services is not available for fiduciary self-dealing. " [Acosta v. City National, No. 17-55421 (9th Cir. Apr. 23, 2019)] (October Three Consulting)
CalSTRS's Plan to Reduce Investment Management Fees
"[CalSTRS] is initiating a long-range plan to increase internal management of assets to reduce the $1.8 billion it currently pays out in external management fees ... CalSTRS has made the largest progress in internal management in its $28.3 billion fixed income portfolio where 85% of the assets class is internally managed ... The largest group of fees paid to external managers in 2017 was in private equity where $521 million was paid in management fees and carry (profit sharing) to external managers." (Pension Pulse)
A Conversation with ERISA Litigator Jerry Schlichter: Cross-Selling in the Crosshairs?
"[T]he average total plan cost ... for a large retirement plan ... declined from 0.95% to 0.93%. Many advocates for retirement industry reform, Schlichter included, argue these numbers are still too high ... 'We're expecting to see something of a Whack-a-Mole game by providers as their fees are squeezed . . . . For example, you are seeing questions about the role of recordkeepers in taking confidential personal information from plan participants and using this data to market products and services outside the plan, such as IRAs, 529 plans, insurance and wealth management,' [he said.] Schlichter's position on this type of cross-selling is that it is improper under ERISA." (PLANSPONSOR; free registration may be required)
Zero Expense Ratio Investment Funds Coming
"Securities lending involves asset managers lending securities they hold to short-sellers for a fee.... [T]he Fidelity Small Cap Index Fund is able to generate 0.200% in securities lending revenue, which more than covers the fund's expense ratio of 0.025%.... [It] is clear that enough revenue exists for this fund to either move to a zero or negative expense ratio." (Lawton Retirement Plan Consultants)
Small 401(k) Plan Faces Excessive Fee Lawsuit
"The less than $250 million plan is accused of failing to employ a prudent and loyal process in evaluating investment and administrative fees.... According to the complaint, for every year between 2013 and 2017, the administrative fees charged to plan participants were greater than 90% of peer plan fees when fees are calculated as cost per participant.... The lawsuit also alleges that as of December 31, 2017, the fees for the investment options then in the plan were up to three-times more expensive than available alternatives in the same investment style. (PLANSPONSOR; free registration may be required)
A New Fight Breaks Out Over 401(k) Fees
"On average, the fees 401(k) participants pay for investments and administrative services fell from 0.65% of assets in 2009 to 0.51% in 2015 ... That has meant millions of dollars in lost revenue for asset managers and record-keepers ... In response, some 401(k) administrators are pursuing new sources of revenue." (The Wall Street Journal; subscription may be required)
Switching 401(k) Providers? Avoid These Costly Surprises
"[1] Your current retirement vendor may charge you to switch to a new 401(k) provider.... This is common practice in the 401(k) industry.... [2] Before you sign with a new plan, ask if they will prorate the first quarter's fees based on the actual time you are in the plan.... [3] Make sure you are paying attention to both the employer expenses as well as the employee expenses." (ForUsAll)
Index Investing Strategy: There May Be Better Options
"For most Americans who hire a financial advisor, an index investing strategy probably isn't the best option. Index funds and ETFs work great in some asset classes, for those investors who are comfortable working without an advisor and for those investors comfortable living with average performance each and every year." (Lawton Retirement Plan Consultants)
Plaintiffs Get Reprieve in University 403(b) Excessive Fee Case
"The suit was not only one of the first of the university 403(b) excessive fee suits to be filed, the district court decision, in favor of the fiduciary defendants for the University of Pennsylvania Matching Plan, had been cited in a number of these cases, including those that had been settled.... While the decision is surely a victory for plaintiffs, most of the claims were rejected by the appellate court on the same grounds as has the district court... More significantly, the dissent ... raises the specter of the impact that this kind of litigation might have on plan formation and the involvement of individuals as plan fiduciaries." [Sweda v. Univ. of Penn., No. 17-3244 (3d Cir. May 2, 2019)] (National Tax-Deferred Savings Association [NTSA])
401(k) Mutual Funds: Pay Attention to Share Class!
"[E]mployers have a fiduciary responsibility to choose the lowest-priced share class available to their 401(k) plan -- so participant investment returns aren't reduced unnecessarily by avoidable fees. To meet this fiduciary responsibility, employers must be capable of evaluating share class fee differences. This capability can often be obtained with some basic education. Further, these differences are usually obvious in a mutual fund's prospectus." (Employee Fiduciary)
Fee War Saved Investors Billions Last Year
"Asset-weighted expense ratios for U.S. funds dropped to a record low of 0.48 percent in 2018, from 0.51 percent the year before, Morningstar said ... Investors are paying half of what they were charged 2000, when the firm began tracking asset-weighted fees." (Institutional Investor)
Ninth Circuit Opinion: City National Violated ERISA by Setting Own Fees as Recordkeeper (PDF)
From the published summary: "[T]he panel held that City National Corporation engaged in prohibited self-dealing under ERISA Section 406(b) by setting and approving its own fees from Plan assets for serving as its own recordkeeper. The panel held that this conduct was not exempted under ERISA Section 408(c)(2) as 'reasonable compensation' for services provided by a fiduciary such as recordkeeping services. The panel held that the 'reasonable compensation' exemption does not apply to prohibited self-dealing, including where a self-dealing fiduciary seeks the exemption for actual and legitimate services rendered." [Acosta v. City National, No. 17-55421 (9th Cir. Apr. 23, 2019)] (U.S. Court of Appeals for the Ninth Circuit)
[Opinion] It's Too Easy to Conceal 401(k) Fees -- We Need 408(b)-2 Reform
"[T]he current 408b-2 fee disclosure rules make it too easy for 401(k) providers to do what Fidelity is accused of doing -- obfuscate indirect compensation. That's a big problem for business owners who rely on 408b-2 information to confirm their 401(k) fees are both reasonable and necessary -- an important fiduciary responsibility. [In this article] are 408b-2 fee disclosures that ... make it too difficult for business owners to evaluate indirect compensation.... [T]hey demonstrate the need for 408b-2 reform." (Employee Fiduciary)
[Opinion] The Cost-Efficiency Standard: Streamlining the ERISA 401(k)/403(b) Litigation Process
"[In] some of the recent dismissals involving 401(k)/403(b) actions, it seems that the courts involved have based their decisions on irrelevant, corollary issues, while totally losing sight of ERISA's stated purpose -- protection of a plan's participants.... If the goal of 401(k) and 403(b) plans is truly to protect and promote the 'best interests' of plan participants as they work toward 'retirement readiness,' the cost-efficiency of a plan's investment options should be of primary concern." (The Prudent Investment Fiduciary Rules)
Fee Disparity Linked to Size of Defined Contribution Plans
"In 2017, participants in a defined contribution plan with fewer than 1,000 participants paid a median 0.6% of assets in total fees, while those with more than 15,000 paid only 0.4% ... While asset-based fee arrangements -- those that charge a percentage of plan assets -- might initially be advantageous to plan sponsors, they can quickly become expensive as the plans grow." (Pensions & Investments)
Parties Propose $23.65 Million Settlement in Anthem 401(k) Excessive Fee Lawsuit
"[W]hile it's not unusual -- at least for suits brought by the Schlichter law firm -- to call for changes in plan administration and process, this settlement includes some fairly specific directives and timeframes for the Anthem fiduciaries.... This wasn't a situation where the fiduciaries ignored the counsel of an advisor who told them they were paying too much for record keeping fees, or where the plan fiduciaries had taken no action following their review of that fund menu ... [H]ere what seems to have made the fund charges unreasonable was simply that that they were not the cheapest option available." (National Association of Plan Advisors [NAPA])
Pay to Play Lawsuits: Issues for Plan Sponsors
"In the typical case that has (thus far) been decided, courts have dismissed plaintiffs' claims, finding that the platform provider is not a fiduciary and/or that the transaction has been approved by the sponsor fiduciary.... [Do] these arrangements pose an ERISA prudence challenge for sponsor fiduciaries? ... [T]he key question is likely to be, is the plan overpaying for these services? And the answer to that question is likely to turn on the issue of fair market value and the cost of alternative solutions." (October Three Consulting)
[Official Guidance] Massachusetts Division of Securities: Request for Comments on Proposed Amendments to Investment Adviser Disclosure Regs
"[T]he Division proposes amendments that would: [1] Require investment advisers registered in Massachusetts to provide clients and prospective clients with a table of fees for services provided by the investment adviser; and [2] Revise paragraphs (a) and (d) of the existing regulations to remove redundancy and potential ambiguity in those paragraphs as currently drafted." (Massachusetts Securities Division)
Putnam Investments Reply Brief on Petition for Writ of Certiorari (PDF)
19 pages. "This Court should couple its review of the loss-causation question with the related legal question concerning how to prove loss: whether a mechanical index-fund comparison suffices in every case, irrespective of plan-specific facts. The loss-causation and loss questions affect virtually every ERISA fiduciary-breach case, and the persistent [Circuit] split drives decisions about whether, and where, to file suit." [Putnam Investments, LLC v. Brotherston, No. 17-1711 (1st Cir. Oct. 15, 2018; cert. pet. filed Feb. 11, 2019, No. 18-926)] (Supreme Court of the United States)
Annuity Market Pricing Approaches (PDF)
22 pages. "The purpose of this study is to provide retirement actuaries with a resource on group annuity pricing. No resource is needed for individual annuities, prices for which are readily available on websites. Since the difference between group and individual annuities is primarily due to mortality and expenses, a method could be developed to get group annuity rates from individual rates from these websites." (Society of Actuaries)
Oracle Granted Partial Summary Judgment in 401(k) Fees/Investment Option Case
"The court rejected the plaintiffs' claims that ERISA's six-year statute of repose should be tolled because of fraud or concealment, and found no genuine issue of fact that the defendants prudently managed the plan's recordkeeping fees.... Although there have been a number of high-profile settlements, defendants increasingly are walking away with judgments in their favor on most, if not all, of the claims asserted." [Troudt v. Oracle Corp., No. 16-175 (D. Colo. Mar. 1, 2019)] (McDermott Will & Emery)
Paying the Plan Expenses of an ESOP: Best Practices
"Special consideration should be made if you allocate expenses pro rata to the [other investment account (OIA)] and you are segregating former employees out of company stock and into OIA assets. If segregated participant balances are part of a pooled investment within the plan, then most of the expenses will be paid by the terminated participants. In this scenario, it could be considered a detriment to the terminated participants and a best practice would be to have the expenses allocated on total account balance." (Blue Ridge ESOP Associates)
What Are Average 401(k) Fund Fees?
"[A] company with 10 employees could pay anywhere from 0.25% annually on the low end to 1.92% on the high end.... [T]hough 401(k) expense ratios can be wildly different for different plans, with the average being 1.34%, most are paying way too much.... [1] Build a low-cost fund lineup.... [2] Remove funds that have 12b1 fees.... [3] Shop around!" (ForUsAll)
2018 Trends in the Expenses and Fees of Funds (PDF)
32 pages. "On average, expense ratios for long-term mutual funds have declined substantially for more than 20 years.... In 2018, average expense ratios for equity mutual funds fell 4 basis points to 0.55 percent.... Expense ratios of target date mutual funds averaged 0.40 percent in 2018.... Average expense ratios for both actively managed and index equity mutual funds have fallen since 1997.... In 2018, average expense ratios for index equity ETFs fell 1 basis point to 0.20 percent." (Investment Company Institute [ICI])
Fidelity's 2016 'Hidden' Fee Fix for 'Broken' 401(k) Business Model May Spark Fresh State and Federal 401(k) Crackdown
"[W]hat jumps out here is language from an internal Fidelity document. The company says -- now that revenue sharing from active managers is drying up -- it needs to charge the fee to address a 'broken business model' and 'unsustainable economics.' Interestingly, this is all happening after the death of the DOL fiduciary rule, which means that the free market is causing disruption ... What happens to Fidelity in the this case will almost certainly determine just how recordkeepers charge and disclose fees." (RIABiz)
ERISA Section 404(a)(5) Participant Fee Disclosures: Rules and Requirements
"The plan sponsor has the duty to distribute the fee disclosure to all participants and account holders with control of their accounts (this includes other beneficiaries with direct management of the funds). [A chart outlines] different participant fee disclosures, what's required, and when." (ForUsAll)
Complaint Alleges That Fidelity Charged Improper Fees
"Plan fiduciaries, regardless of whether they use Fidelity as their record keeper, should take the following steps: [1] Review and analyze investments and fee disclosures for investments (including any footnotes in fine print); [2] Ask their record keepers whether there are any nondisclosed fees similar to infrastructure fees paid by Fidelity; [3] Understand and analyze the employer's/plan sponsor's/fiduciary's own fiduciary obligations; [4] Consider whether additional actions may be appropriate to further the interests of plan participants, including changing the fund line-up or participating in litigation; and [5] Document the above steps." (Husch Blackwell)
ERISA: Thou Shall Not Pay Excessive Fees!
"While there have been recent, yet expensive, victories for not-for-profit plan sponsors in the Section 403(b) space, plan fiduciaries should not get too comfortable. There were also early victories in the 401(k) cases that were filed in 2006. However, the tide turned and some of those Section 401(k) cases ended up settling in the multi-million dollar range ... Litigation is not limited to large plans, as plaintiffs and the DOL have found that smaller plans are 'low hanging fruit' in terms of finding ERISA violations." (CKR Law, via Real Property, Trust and Estate Law [RPTE] eReport, American Bar Association)
Maximizing Pre-Tax Investment Advisory Fees After TCJA
"[F]or clients who are small business owners, a portion of the total advisory fee may be deductible as a business expense, at least to the extent that business-related advice (i.e., succession planning, retirement plan services, business-related tax strategies, etc.) has been provided.... [O]nly payments made from taxable accounts (i.e., not retirement accounts) could potentially qualify for this treatment[.]" (Nerd's Eye View)
Fidelity Faces Massachusetts State Inquiry Over Fees Charged for 401(k) Plans
"Fidelity Investments is facing more scrutiny over fees it charges some mutual funds for using its platform to access retirement plan customers. The Massachusetts ... securities division sent a letter on Feb. 27 to Boston-based Fidelity requesting information about those fees. The inquiry follows a Feb. 21 lawsuit against Fidelity by an investor in T-Mobile USA's 401(k) plan that claims the firm conceals so-called infrastructure fees." (Pensions & Investments)
DOL Probes Fidelity Over Mutual Fund Fees
"The Labor Department is investigating Fidelity Investments over an obscure and confidential fee it imposes on some mutual funds ... The fee, which appears to have been implemented in 2016, is 'designed to ensure that each Fund Firm meets a minimum required payment to Fidelity.' By marking the charge as an infrastructure fee, the fund firms may be able to avoid disclosing it to investors." (The Wall Street Journal; subscription may be required)
[Opinion] 12b-1 Fees: What They Are and Why You Should Avoid Them
"Of the confusing 401(k) fees, few are more cryptic than 12b-1 plan fees. 12b-1 fees are paid to the salespeople who distribute mutual funds and are paid from the fund's assets. But what exactly are they? How do you know if you're paying them? What impact do they have on you? And how can you avoid these fees in the future?" (ForUsAll)
Sponsors of Defined Contribution Plans Still Sharply Focused on Fees
"Plan fees' top rank for sponsor focus over the next 12 months replaced last year's highest-rated area, retirement readiness, which fell to the middle of the pack for 2019. Participant communication and financial wellness (a new category this year) were the next two highest-rated areas of focus for 2019." (HR Daily Advisor)
Georgetown Prevails in ERISA Fee Litigation Case
"[T]he court concluded that plaintiffs ... had not experienced any harm ... because they failed to allege that: [1] they were invested in the challenged funds, [2] the challenged funds outperformed plaintiffs' alleged comparable investment fund, and/or [3] that they had withdrawn, or planned to withdraw from, one of the funds ... The court rejected plaintiffs' excessive recordkeeping fee claim because plaintiffs did not show that the fees were excessive relative to the services that were being offered." [Wilcox v. Georgetown Univ., No. 18-422 (D.D.C. Jan. 8, 2019)] (Proskauer's ERISA Practice Center)
Evaluating Judicial Dismissals of 401(k)/403(b) Fiduciary Breach Actions
"In one recent decision, the court dismissed an ERISA action based the disallowance of the plaintiff's use of Vanguard for benchmarking purposes.... A common rationale given by the courts for dismissing ERISA actions is the number of investment options offered by a plan.... Several courts have recently dismissed ERISA actions on the grounds that the expense ratios of the funds involved were appropriate as a matter of law." (The Prudent Investment Fiduciary Rules)
Stadion, United of Omaha Slapped with Excessive Fee Suit
"Ultimately, the plaintiffs claim that Stadion directed participants' accounts into United of Omaha- and Stadion-affiliated investment options, 'despite the availability of lower-cost, higher-performing investment options within the plan that would have better met the needs of participants' ... The plaintiffs claim that 'Stadion avoided these options because they did not generate as much revenue for its business partner, United of Omaha." [Davis v. Stadion Money Mgmt., LLC, No. 19-119 (M.D.N.C. complaint filed Jan. 25, 2019)] (National Association of Plan Advisors [NAPA])
Slicing and Dicing Retirement Plan Fees: Allocation Considerations for Plan Sponsors (PDF)
"[The authors] review the legal background related to fee allocation and examine the impact of the [DOL's] fee disclosure rules ... discuss considerations for plan sponsors as they evaluate the interrelation of investment management and recordkeeping fees ... consider common recordkeeping fee allocation approaches, along with the potential benefits and drawbacks of each method ... [and] address the importance of procedural prudence that includes proper documentation of the fee allocation process." (Vanguard)
Ex-Employees' Retirement Assets Help Plan Sponsors Keep a Lid on Fees
"401(k) plans with a high percentage of non-active participants risk losing value if they fail to retain the assets of terminated and retired employees.... Almost 3 in 5 plan sponsors (58.1%) have a policy for retaining the assets of non-active participants, up from 43.5% in 2015, according to Callan's research. Among those that had a policy, 70% sought to retain assets in 2018." (Pensions & Investments)
Fees Remain the Focus for DC Plan Sponsors
"More than 75% of sponsors calculated their DC plan fees within the past 12 months in 2018, although that is down from a high of 93% in 2013. Participants paid all investment management fees in more than three-quarters of plans, and nearly always paid a share of them. But the survey revealed a significant drop in the percentage of plans in which participants paid all administrative fees, from 63% in 2017 to 33% in 2018. Finally, slightly more than half of plan sponsors are likely or very likely to conduct a fee study in 2019." (Callan)
Another University Wins 403(b) Suit
"In the course of the 28-page ruling, [Judge Collyer] took the plaintiffs to task for: [1] not appreciating the difference in standing between defined benefit and defined contribution plans ... [2] applying 401(k) plan standards to 403(b) ... and [3] 20/20 hindsight in evaluating investment decisions[.]" [Wilcox v. Georgetown Univ., No. 18-422 (D.D.C. Jan. 8, 2019)] (National Association of Plan Advisors [NAPA])
Most Counts Against GE Allowed to Proceed in ERISA Lawsuit
"[The district court said] that, although mere knowledge that 'something was awry' is insufficient for actual knowledge ... Congress intended the actual knowledge requirement to excuse 'willful blindness by a plaintiff.'... [T]he defense unsuccessfully argue[d] that ERISA Section 406 does not apply here because the management fees are not a 'plan asset,' and that even if management fees are a plan asset, the claims must be dismissed because plaintiffs have not pled a non-exempt prohibited transaction." [In re G.E. ERISA Litigation, No. 17-12123 (D. Mass. Dec. 14, 2018)] (PLANSPONSOR)
Litigation Lessons for 401(k) and 403(b) Fiduciaries: Apply These in 2019
"[1] Your process matters.... [2] Put it in writing.... [3] Know and review your options.... [4] Understand target date funds.... [5] Benchmark plan fees ... [6] Retain an expert to help you.... [7] Consult outside counsel when necessary.... [8] Hold regular committee meetings.... [9] Review your providers.... [10] Schedule regular RFPs." (Cohen & Buckmann, P.C.)
$3M Settlement Reached in Edward Jones Self-Dealing Lawsuit
"In response to the defendants' motion [to dismiss], the plaintiffs amended their complaint by replacing the one questioned plaintiff with another; removing allegations concerning the three Edward Jones managed mutual funds; and adding the Edward Jones Profit Sharing and 401(k) Administrative Committee and its members as defendants. After this complex set of motions and rulings, the parties have now opted to settle the matter rather than proceed to the full trial." (PLANSPONSOR)
How the DOL Fiduciary Rule Proposal Affected Fund Flows
"[T]he DOL fiduciary rule proposal was successful in mitigating lower returns resulting from conflicted advice in the two years after the rule was proposed.... While loads appeared to play a big role in directing fund flows from 1993 to 2014, they do not seem to affect fund flows in a statistically significant way from 2015 onward. In short, brokers may have been swayed to steer their clients to funds that shared more loads with them, but that does not seem to be the case anymore." (Morningstar Advisor)
2018 Small Business 401(k) Fees -- What's Too High?
"[This article includes a summary of fees] for 102 401(k) plans with less than $5 million in assets. More detailed fee information for each plan -- including fees paid by each investment -- [is also provided]. A new data point for this study is per-head 401(k) provider fees. Employers should consider this information when benchmarking their 401(k) fees because plan administration services -- generally related to participant recordkeeping and Third-Party Administration (TPA) -- scale with participant count, not assets." (Employee Fiduciary)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable', Part 3
"It's very likely that by the time you've finished with interviews, scoring and group discussion your choice will have emerged. If it hasn't, identify what further information you need to get to a decision. Follow-up by sending your questions to the firms you are still considering with the explanation that you are continuing to deliberate and need items clarified. This is also the time to ask for references." (Fiduciary Plan Governance, LLC)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable', Part 2
"[Budget] four-to-six weeks for your review of the responses.... [S]ince all of the responses on pricing in particular will almost certainly not be uniform or completely clear, you'll need time to analyze, ask questions and assess. 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." (Fiduciary Plan Governance, LLC)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable', Part 1
"The most effective way to meet this fiduciary requirement is a Request for Proposals (RFP) process, typically run every three-to-five years.... The 401(k) and 403(b) markets are extremely competitive. They are constantly evolving and changing.... [S]omewhere between 5‑10% of plans go out to bid each year. A fraction of those actually make a change in their provider. Most, as a result of the process, achieve service and value advances." (Fiduciary Plan Governance, LLC)
ERISA: Thou Shall Not Pay Excessive Fees! (PDF)
"While there have been recent, yet expensive, victories for not-for-profit plan sponsors in the Section 403(b) space, plan fiduciaries should not get too comfortable. There were also early victories in the 401(k) cases that were filed in 2006.... The first crucial step is determining who are the plan fiduciaries ... There is a continuing duty to monitor investments or service providers after the selection process.... ERISA also dictates what you cannot do.... Recent 403(b) decisions [summarized]." (CKR Law)
An Update on University Plan Lawsuits with NYU's Victory at Trial
"[K]ey takeaways from [the NYU] decision: [1]  Lack of knowledge by a few committee members regarding the plan and the plan's investment options does not necessarily mean that the committee as a whole breached its fiduciary duties.... [2] While a committee may engage an expert, such as an investment advisor, it must still exercise independent judgment.... [3] Even if requests for proposals are not done on a regular basis, negotiating a lower fee may be sufficient to show that fiduciaries are carrying out their fiduciary duties." [Sacerdote v. New York Univ., No. 16-6284 (S.D.N.Y. July 31, 2018)] (Trucker Huss)
Your Retirement Plan Participants May Be Hiring Advisors and Using Plan Assets to Pay for Them
"While such arrangements are ostensibly approved at some point, usually when the plan was first established, or when the recordkeeper first made the option available and a participant wished to sign up, they often have not been revisited since the time of establishment.... [S]tandards are not all that stringent, with advisors permitted to charge as much as 2% or more in fees, and advisors with multiple SEC enforcement actions against them being permitted to participate. Obviously, this can be an issue from a fiduciary perspective, particularly for ERISA plans." (Cammack Retirement Group)
Retirement Plan Fees: Small Percentages Can Have Big Impacts
"[An] employee with a 401(k) balance of $25,000, averaging a seven percent return on investment with half a percent in fees will have $227,000 in 35 years. If, however, the fees and expenses were instead one and a half percent the balance is only $163,000 after 35 years. The one percent difference in fees annually reduces the account balance by twenty-eight percent ($64,000) in retirement." (Hill, Chesson & Woody)
California Public Employees Vote Against CalPERS Investment Activism
"The California Public Employees' Retirement System this month said no thank you to pension-fund activism. Government workers unseated Priya Mathur, the sitting CalPERS president. She was defeated by Jason Perez, a police-union official who criticized Ms. Mathur's focus on environmental, social and governance investing, or ESG. Mr. Perez emphasizes the agency's fiduciary duty to maximize investor returns." (Paul S. Atkins in The Wall Street Journal; subscription may be required)
[Opinion] When Must a Fiduciary Say 'No' to No-Fee Funds?
"These funds are being labeled 'no-fee' because they have no management fee and no transaction fee. They also have no minimum investment.... With financial markets near all-time highs as they are now, a taxable investor could realize capital gains and incur tax costs that are significantly higher than the potential savings of a few basis points of moving to a slightly less expensive Fund. This is self-defeating and is missing the proverbial forest for the trees, as they say." (Fiduciary News)
Merrill Lynch Returns to Commissions
"Merrill Lynch will again accept commission-based individual retirement accounts ... Only fee-based annuities will be allowed ... [A]ccording to Merrill Lynch [a]nnuities are complex, and a fee-based advisory platform is the best way to serve advisors who have clients with annuities in their IRAs." (
How to Avoid Hidden 401(k) Fees
"One of the easiest ways to lower your costs is to look for cheaper investment options. Typically, the biggest bargains will be found among index funds ... If you work for a large employer, you may have another low-cost option: institutional funds, which may include lower-cost share classes of retail funds or collective investment trusts[.]" (Consumer Reports)
State Public Pension Funds' Investment Practices and Performance: 2016 Data Update
"61 percent of plan portfolios in 2006 were made up primarily of equities, with only 11 percent allocated to alternative investments. A decade later, allocations to alternative investments had more than doubled to 26 percent of the average plan portfolio.... Ten-year total investment returns for the 44 funds in our study that report performance net of fees as of June 30, 2016, ranged from 3.8 percent to 6.8 percent, with an average yield of 5.5 percent. Given that the average target return for these plans was 7.5 percent, the long-term variability is significant." (The Pew Charitable Trusts)
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