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Ret plan investments - costs


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Essentia Health Loses Round in Lawsuit Over Retirement Plan Fees
"The allegations that Essentia fiduciaries breached their duties by allowing the plans to pay higher than reasonable market fees for record-keeping services and that comparable or superior services were available at lower cost are sufficient to survive dismissal, Magistrate Judge Leo I. Brisbois said ... Brisbois also recommended not dismissing the participants' claim that Essentia failed to monitor the plans' fiduciaries and ensure that they were satisfying their duties. If the recommendation is adopted, the Minnesota health-care nonprofit that also serves North Dakota, Wisconsin, and Idaho will have to defend a lawsuit that seeks class treatment for thousands of participants in Essentia's retirement plans." [Morin v. Essentia Health, No. 16-4397 (Magistrate's Report, D. Minn. Sept. 14, 2017)] (Bloomberg BNA)
Attack on University Section 403(b) Retirement Plans: Litigation Update
"To date, only three district courts -- the Middle District of North Carolina, the Northern District of Georgia and, most recently, the Southern District of New York -- have ruled on the motions and dismissed some of the class claims against the universities. However, the bulk of the claims alleging that the fiduciaries breached their duties of prudence in monitoring or investigating investment options, administrative fees and costs have survived." (Michael Best & Friedrich LLP)
ERISA's 'Reasonable Fee' Requirement
"Plan fiduciaries have become acutely aware of their fiduciary risk and that they need the requisite level of expertise and protection. Packaged, outsourced 3(38) services offered by less specialized advisors are merely fund selection services without any focus on benchmarking and plan governance. These service agreements often include disclaimers of responsibility, resulting in less than a complete fiduciary risk management offering.... [P]lan fiduciaries are increasingly replacing their nonfiduciary brokers with 3(21) advisors -- and their 3(21) advisors with 3(38) advisors -- as they become more knowledgeable about fiduciary risk and marketplace offerings." (The CPA Journal)
Texas Teacher Retirement System Adjusts Proposed 403(b) Rule Amendments
"TRS is sticking with its current rule allowing a 10-year surrender period (12 years with disclosure) at 10%, instead of its proposal to halve the penalty to five years and 5%. Additionally, TRS is opting to raise the caps it previously proposed on asset-based fees and split those caps into two categories, one for variable annuity (VA) products and one for non-annuity products[.]" (National Tax-Deferred Savings Association [NTSA])
Lawsuit Alleges Voya Charged Big Fees to Small 401(k)
"Voya Financial Inc. is accused in a new lawsuit of charging excessive record-keeping and administrative fees to a small 401(k) plan... The participant seeks class treatment for 47,000 plans and 4.5 million individual investors. Based on certain fees charged to the plan, Voya 'potentially earns over $1 billion in excessive compensation at the expense of the individual plans and their participants,' the lawsuit said." [Goetz v. Voya Financial, Inc., No. 17-1289 (D. Del., complaint filed Sept. 8, 2017)] (Bloomberg BNA)
MIT Retirement Plan Lawsuit Over Excessive Fees Advances
"Federal Magistrate Judge Marianne B. Bowler recommended Aug. 31 not to dismiss several of the workers' claims under [ERISA] ... that MIT acted imprudently by allowing higher-cost, retail-class mutual funds instead of identical, lower-cost alternatives, such as institutional share class, separate accounts, or collective trusts. In her 59-page report, Bowler also declined to dismiss the participants' claims that MIT paid excessive administrative fees for record-keeping services." (Bloomberg BNA)
Seven Year Streak of Falling Corporate DC Plan Fees Ends
"[D]efined contribution plans have a median record keeper, trust, and custody fee of $59 per participant, up from $57 in 2016. The asset-weighted average expense ratio for defined contribution plans is currently 0.41%, which was a shade under the 0.42% ratio reported in [2016] ... However, both the median fee and average expense ratio have dropped substantially since ... 2006, when fees were $118 per participant and the expense ratio was 0.57%." (Chief Investment Officer [CIO])
Most Plan Sponsors Remain Highly Satisfied with Their Plan Advisors, But About One-Third May Be at Risk
"Reducing business costs related to having a plan is the top concern for plan sponsors, with 31 percent citing it as an area of focus. Other important themes for plan sponsors include managing their fiduciary responsibility (23 percent), preparing employees for retirement (22 percent) and the risk of litigation and liability (18 percent).... Plan design activity continues to increase and reached a new high at 92 percent, with plan advisors seen as the primary influencer of these changes. Importantly, 79 percent of plan sponsors reported that participants were satisfied with the changes." (Fidelity)
Tibble v. Edison: Lessons for Plan Fiduciaries (PDF)
"Plan fiduciaries have no right to take advantage of revenue sharing and should choose the class share that is in the plan's best interest.... In the case of institutional-versus retail-class shares, because they are identical but have lower fees, a prudent fiduciary should know immediately that a switch is necessary ... This marked just the second time that a 401(k) fee case has figured damages." [Tibble v. Edison Int'l, No. 7-5359 (C.D. Cal. Aug. 16, 2017)] (Lockton)
Excessive Fee Suit Alleges Fiduciary 'Abdication'
"[P]laintiffs (who have clearly never been recordkeepers) allege that, since the [two defined contribution] plans were 'administered in an identical fashion, this fact had "virtually no effect" on the level of services that [Fidelity Management Trust Company] was required to provide to the Plans compared to the services it would have had to provide to a single plan.' Moreover, since the 403(b) plan was frozen to new contributions and participants near the beginning of the class period, they claim that Fidelity only had to process contributions and investment elections for one plan." [Larson v. Allina Health Sys., No. 17-3835 (D. Minn., 310-page complaint filed Aug. 18, 2017)] (American Society of Pension Professionals & Actuaries [ASPPA])
Bank of America Corp., Others Named in Antitrust Lawsuit Filed by Public Pension Systems
"[T]he plaintiffs allege that the defendants ... 'engaged in a combination and conspiracy among themselves to prevent the emergence of efficient all-to-all electronic trading platforms in the stock loan market' and to 'to boycott emerging platforms and force customers to boycott them.' They allege this conduct violated antitrust laws and damaged them and members of the class." [Iowa Public Emp. Ret. System v. Bank of America, No. 17-6221 (S.D.N.Y.; complaint filed Aug. 16, 2017)] (LegalNewsLine.com)
DOL to Withdraw Proposal for Guide to Help Understand Fee Disclosures
"[EBSA] is removing from its agenda a regulations project that was proposed during President Obama's administration to require that retirement plan service providers create and deliver a guide to help plan fiduciaries better locate certain information in required fee and service disclosures." (Ascensus)
Excessive Fee Suit Alleges Fiduciary 'Abdication'
"The most recent excessive fee suit involves both the 401(k) and 403(b) plans of Allina Health System, which have nearly $2.3 billion in assets and 47,500 participants, according to the complaint. The suit ... claims that the fiduciary-defendants 'did not try to reduce the Plans' expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the Plans to ensure it was prudent.' " (National Association of Plan Advisors [NAPA])
Corporate DC Plans Report Flat Fees
"[Defined contribution] plans have a median record keeper, trust and custody fee of $59 per participant, a slight increase from $57 in 2016. The asset-weighted average expense ratio for DC plans is currently 0.41%, consistent with the ratio reported in NEPC's 2016 survey (0.42%). However, both the median fee and average expense ratio have dropped substantially since NEPC first conducted this study in 2006, when fees were $118 and the expense ratio was 0.57%." (NEPC)
Retirement Plan Fees Level Out. How Does Your 401(k) Compare?
"The average expense ratio on investments in defined-contribution, or 401(k), plans dropped by a hair to 0.41 percent of assets this year ... That follows three straight years of somewhat deeper declines, spurred in large part by regulatory pressure and a rash of high-profile class action lawsuits alleging excessive fees and plan designs that weren't in savers' best interests. The all-in cost of plans, including fees tied to investment management, record-keeping, and trust and custody services, have also been dropping in recent years. In the latest survey, it flattened out at 0.43 percent, the same amount as in 2016." (Bloomberg)
10 Years Later: The Pendulum Swings Back in Tibble v. Edison International
"Edison urged the court to adopt the statutory post-judgment rate ... The court, however, refused to apply it, finding it 'unreasonable' since money saved from investing in the lower cost institutional shares would have carried over to the new investment ... Judge Wilson was equally dismissive of the plaintiffs' argument to follow the only other excessive fees case tried to judgment to date ... and use the S&P 500 index fund.... Of the remaining two options, the court found the Plan returns to be the only reasonable approximation of the lost investment opportunity." [Tibble v. Edison Int'l, No. 7-5359 (C.D. Cal. Aug. 16, 2017)] (Miller & Chevalier)
[Opinion] High Fees Flourish When Good 401(k) Advisors Do Nothing
"The financial media's focus is on the suspension and delay of the [DOL's] fiduciary rule, but tort lawyers are going full out on class action claims against plans that have ... allowed high fee investment options to remain on their platforms while the plan would qualify for lower-cost alternatives. In so many cases, plans now qualify for lower-fee share classes from the exact same provider. As is almost always the case with situations like these, plan sponsors don't know -- or haven't asked -- and the plan's broker doesn't tell." (401K Specialist)
Three Pension Funds Sue Major Banks in Stock Loan Case
"Three public retirement funds have banded together to file a lawsuit against six major Wall Street investment banks, alleging that they were overcharged by those banks in the stock loan market and that the banks conspired to control the market.... Stock lending is a common practice among institutional investors, particularly public pension funds, which often sit on large piles of cash for a long time. Lending shares ... allows these investors to earn a cash return on their investments while holding a stable interest in publicly-traded companies... [T]he investors allege that the banks worked together to keep the stock-loan market inefficient by conspiring to keep third-party electronic platforms from tapping into this lucrative business." (Institutional Investor)
[Guidance Overview] Everything You Wanted to Know About BICE But Were Afraid to Ask (PDF)
"While much of the rule is aimed at financial advisors who provide retirement investment advice and recommendations to retirement investors ... plan sponsors and fiduciaries will have items to cross off their to-do list as well.... BICE is DOL attempting to balance the need to protect retirement plan investors from investment losses caused by conflicted advice while at the same time providing advisors the flexibility and discretion to design compensation structures and practices unique to their business, so long as they adhere to impartial standards of fiduciary conduct and implement procedural safeguards to mitigate conflicts of interest with respect to the provision of such investment advice." (Jackson Lewis via Benefits Quarterly, published by the International Society of Certified Employee Benefit Specialists [ISCEBS])
District Court Rules in Favor of Plaintiffs on Retail-Priced Investments
"The ruling ... on [August 16] was issued exactly 10 years after plan participants filed their original complaint against Edison International ... The judge [accepted] the parties' agreement that there were damages of $7.52 million from 2001 to January 2011. Damages past January 2011 will be calculated based on the plan's 'overall returns.' ... The complaint focused on 17 mutual funds that participants in the class-action suit argued should have been institutionally priced rather than retail priced. The judge agreed." [Tibble v. Edison Int'l, No. 7-5359 (C.D. Cal. Aug. 16, 2017)] (Pensions & Investments)
Tibble's Trials Nearly Over, with a District Court Win
"[T]he court noted that for the first time [defendant Southern California Edison] argues that they had a right to invest in the retail-class shares to take advantage of revenue sharing, but found several problems with this argument, notably that it could have been made eight years ago.... Applying guidance from the Supreme Court in Tibble I, the court held that the defendants were liable for breaching the duty to monitor from August 16, 2001, onward.... 'Thus, even if Defendants successfully showed it would take months to make the switch, they are nonetheless liable for losses on each mutual fund at issue either beginning on August 16, 2001, or on the day after 2001 that institutional funds became available,' [Judge Wilson] wrote." [Tibble v. Edison Int'l, No. 7-5359 (C.D. Cal. Aug. 16, 2017)] (National Association of Plan Advisors [NAPA])
[Opinion] Feeding Frenzy Is Averted as DOL Throws Giant Bone to 225,000 Firms That Dabble in the 401(k) Business
"The [DOL's] new guidance on the fiduciary rule just brought the 90% of advisors who dabble in retirement services out of uncharted territory and onto a more rigorously ruled grid -- one that gives them a much better shot at expanding and elevating their 401(k) practices. The [recent] Conflict of Interest FAQs ... also postpone -- perhaps indefinitely -- the day when those 225,000 advisors become so handicapped by new DOL strictures that the 25,000 advisors who specialize in the 401(k) business will be able to feast on those accounts unchecked[.]" (RIABiz)
Distributed Ledger Technology and Retirement Savings Infrastructure, Part 1
"[Plan] sponsors and providers have sought to lower costs by leveraging scale ... 'institutionalizing' plan investment ... and simplifying plan design. The movement (among some sponsors) towards explicit pricing (unbundling of investment and administrative services) and lower-cost passive investment strategies is also a response to this pressure. These initiatives are all taking place within the current asset management and plan administration infrastructure ... There is, however, an innovation emerging which some argue will radically change ... current infrastructure and materially reduce both investment and administrative costs across the board: distributed ledger technology (DLT)." (October Three Consulting)
Do 401(k) Managed Accounts Live Up to All the Hype?
"Plan sponsors should assess the value of a vendor's managed account services against the fees paid out of participants' accounts.... Target-date funds (TDFs), like managed accounts, were created to tailor account investments to a participant's needs ... Managed accounts, in contrast, take into consideration a wider range of factors, such as contribution rates, personal risk tolerance, current savings in individual retirement accounts (IRAs) or taxable accounts, and anticipated spending needs in retirement.... The problem is getting participants to interface with the data and provide all necessary information to the account manager[.]" (Society for Human Resource Management [SHRM])
Pro-Rata Participant Fees and Fee Transparency: A Recordkeeper's Conundrum
"Pro-rata deductions are used to ensure that participants with a lower account balance do not get charged a greater percentage of their balance than another participant with a higher account balance. In terms of fee fairness, pro-rata fees will ensure that all participant fees are reasonable based on their account balance. In terms of fee clarity, a participant will never be able to verify or calculate their pro-rata fee, since they are only aware of their individual account balance and not the balances of other participants." (RPG Consultants)
Evaluating Fees, Features and Service Providers for Your 401(k) Plan: Start Planning Soon for 2018
"Most plan sponsors who decide to make 401k plan changes like to have those new features in place by January 1 of the new plan year.... Fees have come down, so it is reasonable to expect a fee reduction for each piece of business you evaluate.... Investment advisers, trustees, custodians, recordkeepers and consultants are constantly adding new features to better serve their clients.... Make sure that you offer a balanced investment option, like target date funds.... Make sure that the investment adviser you work with has signed on to your plan as a fiduciary." (Lawton Retirement Plan Consultants)
The Fiduciary Duty (And Challenge) of Cost-Consciousness
"The investment industry and even some courts have been quick to reference that fact that ERISA does not require an ERISA fiduciary to always select the least expensive investment option, which is true. However, neither ERISA nor the [Restatement (Third) Trusts] gives an ERISA fiduciary carte blanch power to just select any investment option without consideration of the corresponding benefit derived from any additional costs and/or risks associated with the more expensive investment option. The absurdity of such an argument is obvious, as it would essentially nullify the basic fiduciary duties of loyalty and prudence." (The Prudent Investment Adviser Rules)
Avoid Getting Sheared by Revenue Sharing (PDF)
"Far too often, employers evaluate recordkeeper capabilities and fees through an RFP process, establish new relationships with vendors whose fees and services fit their needs -- and then they put the fee monitoring process on the back burner. It isn't until many years later that someone -- hopefully not a representative of the [DOL] or a plaintiff's attorney -- points out to them that the recordkeeper's fees have become excessive. That's the problem with revenue sharing in a nutshell, because it's 'out of sight,' it often falls 'out of mind.' " (Lockton)
Independent Financial Advisor Fee Comparison: All-In Costs
"[T]he reality is that the portion of a financial advisor's fees allocable to investment management is actually not that different from robo-advisors now, suggesting there may not be much investment management fee compression on the horizon. At the same time, though, financial advisors themselves appear to be trying to defend their own fees by driving down their all-in costs, putting pressure on product manufacturers and platforms to reduce their own costs.... [E]ven as financial advisors increasingly shift more of their advisory fee value proposition to financial planning and wealth management services, advisors are still struggling to demonstrate why financial planning services should command a pricing premium in the marketplace." (Nerd's Eye View)
Defining Plan Expense Accounts (PDF)
"[A Plan Expense Account] is an account within the Plan to which your Plan's recordkeeper makes deposits to be used by the plan administrator. The plan sponsor can use these funds to pay eligible plan operating expenses.... Plan Expense Accounts become a critical tool not solely for larger plan sponsors, but perhaps more importantly, for sponsors with above average account balances, without regard to total plan size. The critical issue is how much revenue your plan investments generate and the unique servicing requirements of your plan." (Multnomah Group)
Retirement Plan Fees: Top Questions Answered
"[1] What fees should be reviewed and how frequently? ... [2] What benchmarks should be used when comparing fees? ... [3] What is the best way to allocate recordkeeping fees to participants?" (Cammack Retirement Group)
Investment Manager and Recordkeeper Changes Driven by Fees
"Plan sponsors' desire to reduce plan costs is substantially impacting their approach to investment menu design and their relationships with defined contribution (DC) plan investment managers ... Overall, 7% of plan sponsors intend to add at least one manager to their investment lineup in the next year. At the same time, 2% plan to drop a manager and 16% intend to do a combination of adding and dropping managers." (PLANSPONSOR)
Guide to Retirement Plan Fees and Expenses
11 pages. "[R]etirement plan fees can be classified into three main categories: [1] Asset-based fees and expenses are calculated as a percentage of plan assets and can be based on a portion or all assets of the Plan. [2] Participant-based fees and expenses are calculated based on the number of participants in the Plan, or eligible for the Plan. [3] Itemized service fees and expenses are typically applied as a fixed charge for a specific service provided to the Plan or a specific participant." (Multnomah Group; free registration required)
Know Thyself: Socratic Thoughts on Defined Benefit Fee Policy Statements
"DB plans generally require a more complex collection of services than DC plans which can make price benchmarking difficult for fiduciaries.... The value of these services to plan participants and the fees they generate can vary widely based on the complexity of the plan and the level of sophistication of each service. Unless fiduciaries can demonstrate that they have considered the level of these fees relative to the quality of services being provided on behalf of participants, they remain at risk." (The Principal Blog)
These Three Firms Own Corporate America
"In the past, individuals and large institutions mostly invested in actively managed mutual funds ... But since the financial crisis of 2008, investors have shifted to index funds ... [F]rom 2007 to 2016, actively managed funds have recorded outflows of roughly $1,200 billion, while index funds had inflows of over $1,400 billion.... This shift, arguably the biggest investment swing in history, is due in large part to index funds' much lower costs.... The fast-growing index sector ... is dominated by just three giant American asset managers: BlackRock, Vanguard and State Street ... [which,] taken together, have become the largest shareholder in 40% of all publicly listed firms in the United States." (The Conversation)
[Opinion] Four Ways to Cut Fat 401(k) Retirement Fees
"Most Americans are paying too much when it comes to retirement fund management.... What's the best way to avoid these fees? [1] Always work with a 'no-load' fund company.... [2] Don't go with 'house' funds.... [3] Always read your fund disclosures.... [4] Make a move if you're getting gouged." (John Wasik in Forbes)
A New Format for Plaintiffs' Complaints in ERISA Fiduciary Breach/Excessive Fee Cases?
"The investment industry is quick to try to defend a fiduciary's selection of actively managed mutual funds on the argument that ERISA does not require that a plan fiduciary only select the cheapest investment options.... [The Restatement of the Law (Third) of Trusts indicates] that a fiduciary still has a duty to select only those actively managed funds that provide a plan and plan participants with benefits that are commensurate with the added costs and risks resulting from the actively managed funds.... [T]he Restatement provides plan participants and their counsel with the perfect blueprint of providing the courts with an applicable fiduciary standard and proof to defeat any motion to dismiss." (The Prudent Investment Adviser Rules)
Making Sure 401(k) and 403(b) Fees Are 'Necessary' and 'Reasonable'
"[A scoring system] adds an objectivity that cannot be as easily affected by the really skilled sales people you'll be talking with and listening to.... 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.... Plan on your conversion taking 90 and 120 days from the date on which you sign on the dotted line, usually a letter of intent, until assets move." (Fiduciary Plan Governance, LLC)
Latest Wave of 401(k) Suits Yields Big Wins, and Big Losses, for Plaintiffs
"Since 2006, plaintiffs' firms have filed more than 90 lawsuits against employers and other parties alleging excessive fees in 401(k)-style retirement plans ... Last year alone, firms representing 401(k) participants filed more than 25 such cases -- a record annual number. Many of the latest suits target companies -- including a number of financial-services firms -- for using their own investments in their retirement plans." (The Wall Street Journal; subscription may be required)
[Opinion] Pension Investment Advisory Fees -- Once High, Now Getting Higher
"The national consulting firms ... indicated they generally maintained only 'published' fee databases, which are of limited utility.... Given the ease with which data regarding fees can be compiled, ... the lack of in-depth fee information might be due, in part, to conflicts of interest in the pension consulting industry. Consultants, eager to maintain favorable relations with money managers (to whom they also sell services) might not be motivated to negotiate with managers too vigorously on behalf of their clients. Client ignorance regarding investment advisory fees permitted greater consultant latitude in negotiating." (Edward Siedle, in Forbes)
American Airlines Inks $22M Deal in 401(k) Funds Challenge
"The proposed class action targeted the American Beacon funds in the airline's 401(k) plan, which participants said were overly expensive and 'complete failures in the marketplace.' These funds earned fees for the airline's corporate family and caused the plan to lose tens of millions of dollars in excessive fees and lost earnings, the lawsuit alleged... This $22 million deal ... dwarfs recent settlements in lawsuits against employers that include affiliated investment funds in their 401(k) plans." (Bloomberg BNA)
MFS Investment Management Sued Over Claims of Self-Dealing in 401(k) Plans
"In 2015, ... 60 of the plan's 76 funds were proprietary MFS mutual funds, according to the complaint, which also alleges 98% of the plans' investible assets were held in MFS-affiliated investments throughout the relevant time period." (Pensions & Investments)
Making Sure 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." [The authors provide a list of items to consider.] (Fiduciary Plan Governance, LLC)
Fidelity, American Century Adopting New Target Date Fee Tactic as Cost Pressures Grow
"The two asset managers are the first among their peers to switch to a 'single fee' management structure in their target-date mutual funds, analysts said. This structure allows the firms to charge a fixed fee for their funds, irrespective of the underlying funds that make up the portfolios. Target-date managers have historically used an 'acquired fee' model, whereby firms determine the cost of the overall portfolio based on the asset-weighed cost of the underlying funds." (Pensions & Investments)
Pioneer Natural Resources Participant Suit Alleges Unreasonably Expensive Investment Options in 401(k) Plan
" 'Instead of leveraging the plan's bargaining power to benefit participants and beneficiaries, the Pioneer defendants chose inappropriate, higher-cost mutual fund shares classes,' said the June 28 complaint filed in U.S. District Court in Denver ... These actions 'caused the plan to pay unreasonable and excessive fees for record keeping and other administrative services.' The complaint said the Pioneer Natural Resources USA Inc. 401(k) and Matching Plan had $500.2 million in assets as of Dec. 31, 2015." (Pensions & Investments)
401(k) Self-Dealing Suit Filed Against Waddell & Reed
"The complaint alleges that, instead of acting for the exclusive benefit of the 401(k) plan and its participants and beneficiaries, the defendants ... [forced] the plan nearly exclusively into investments managed by WR Financial or an affiliated entity, which charged excessive fees ... and which performed worse than comparable available options. The lawsuit says the defendants could have chosen nonproprietary, less costly, better-performing investment options for the plan." (planadviser)
Nationwide Accused of Charging Excessive 401(k) Fees
"The lawsuit, filed June 27 by a participant in a small 401(k) plan sponsored by Andrus Wagstaff PC, says Nationwide's practice of charging a flat, 1 percent fee for administrative services allowed the company to collect fees that were nearly 10 times the median fee throughout the industry." (Bloomberg BNA)
Voya's Win in 401(k) Fee Suit Involving Financial Engines Bodes Well for Other Record Keepers
" 'The court here has said that an entity can be a fiduciary for some purposes and not others, and with respect to this fee issue, Voya was not a fiduciary,' [attorney John Utz] said. 'It was not a fiduciary because it wasn't acting as a fiduciary in negotiating fees, and ... once the arrangement was in place, there was not anything Voya could do to control its compensation.' Voya, for example, couldn't control the number of participants using the personalized advice services offered in the Nestle 401(k) plan." [Patrico v. Voya Financial, Inc., No. 16-7070 (S.D.N.Y. June 20, 2017 ] (Pensions & Investments)
Voya Scores Win in ERISA Suit Over Robo-Adviser Fees
"The investor, a participant in Nestle USA Inc.'s 401(k) plan who filed a proposed class action, can't use [ERISA] to challenge Voya's fees, a federal judge ruled June 20. That's because Voya wasn't acting as an ERISA fiduciary when it negotiated the fees for Financial Engines' advisory services, the judge said." [Patrico v. Voya Financial, Inc., No. 16-7070 (S.D.N.Y. June 20, 2017 ] (Bloomberg BNA)
Putnam, Fidelity Win 401(k) Lawsuits
"A federal judge shot down plaintiffs' arguments that Putnam breached its fiduciary duty to its own 401(k) plan participants by "stuffing" the plan with Putnam-affiliated investment funds, without regard to cost, performance or other metrics.... The Fidelity lawsuit, Ellis et al. vs. Fidelity Management Trust Co., concerned the firm's alleged mismanagement of a stable value fund. Plaintiffs claimed the fund's low investment returns and high fees made it an imprudent investment for 401(k) plan participants." (Pensions & Investments)
Allianz Workers Win Class Certification in Suit Over 401(k) In-House Funds
"U.S. District Judge Josephine L. Staton June 15 conditionally granted the plan participants' motion for class certification. Participants sufficiently showed they have standing to continue as a class by producing evidence suggesting that Allianz managed and selected funds for the plan based on whether the funds would benefit the company rather than the participants[.]" (Bloomberg BNA)
Mutual Fund Fees Continue to Decline for 401(k) Plans
"Expense ratios for equity mutual funds in 401(k) plans declined again in 2016, falling to 48 basis points from 51 basis points in 2015 ... This average asset-weighted expense ratio of equity mutual funds in 401(k) plans has fallen almost steadily from the 83 basis points reported in 2003[.]" (Pensions & Investments)
Why Actively Managed Mutual Fund Performance Is About To Improve
"[M]utual funds currently have to report their performance net of commissions and broker compensation. But as broker-dealers shift to being compensated by levelized commissions outside of the funds (even if the consumer still pays a 1% fee via the broker-dealer equivalent to the 1% trail in a C share), the mutual fund itself will no longer have to count the broker's compensation against their own performance!" (Nerd's Eye View)
The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016 (PDF)
32 pages. "401(k) plan participants investing in mutual funds tend to hold lower-cost funds.... The expense ratios that 401(k) plan participants incur for investing in mutual funds have declined substantially since 2000 ... The downward trend in the expense ratios that 401(k) plan participants incur for investing in mutual funds continued in 2016." [Also available: Supplemental Tables.] (Investment Company Institute [ICI])
Alternate Fee Calculation/Allocation Models
"[M]ost retirement plan sponsors have an understanding of the two primary methods used by recordkeepers to charge fees to plans and participants: As a percentage of plan assets ... As a flat dollar amount per participant account balance ... While a number of alternative models have been proposed by recordkeepers, the ones that appear to attract the most plan sponsor attention are: Modified flat fee ... Basis point allocation of flat dollar fee ... [and] Percentage of assets/basis point fee with a per-head cap[.]" (Cammack Retirement Group)
Another Money Manager's Investment Menu Draws Lawsuit by Its Employees
"While it is not unusual for such lawsuits to spend time and space (and tables) outlining gaps in performance and fees, this one takes the menu on one fund after another -- through 26 core funds, then to (and through) a half dozen of the portfolio series 'funds of funds,' then through the entire series of target-date funds (all the way through 2060) and then to each of the Collective Investment Trust (CIT) offered by the program -- along the way making the case that the fees charged were 'well in excess of the fees' charged by the unaffiliated companies for comparable funds." (National Association of Plan Advisors [NAPA])
Northrop Grumman Settles 401(k) Fee Class Action for $16.8M
"The deal ... resolves claims by a class of more than 100,000 people who participated in Northrop's retirement plans between 2000 and 2009. The lawsuit accused Northrop of forcing 401(k) plan participants to pay excessive administrative fees -- some of which went directly to Northrop. This is the latest multimillion-dollar settlement over 401(k) plan fees to be negotiated by St. Louis-based Schlichter Bogard & Denton." (Bloomberg BNA)
Court Dismisses Chevron Fee Complaint a Second Time
"Chevron has many facts in common with other 401(k) plan fee cases -- plaintiffs generally challenge as imprudent the use of certain funds in the plan's fund menu and the revenue sharing-based fees paid to the plan's recordkeeper. The new decision is interesting for its discussion of plaintiffs' duty of loyalty claim and its dismissal of plaintiffs' claims based on the availability of 'identical lower-cost share classes.' " [White v. Chevron Corp., No. 16-793 (N.D. Cal. May 31, 2017)] (October Three Consulting)
Merrill Lynch Settles Suit with Small 401(k) Class
"The deal features a 'corrective remediation payment' totaling at least $8.8 million ('equal to the deficient remediation payments and interest sought by Plaintiffs from the outset') and a 'disgorgement payment' of $16.2 million. Class counsel will request attorney's fees equal to 35% of the settlement payment, or $8.75 million.... Most of the mutual funds available on Merrill Lynch's retail platform offered waivers on up-front sales charges for retirement plans; however, the firm failed to apply those waivers." (National Association of Plan Advisors [NAPA])
The Lawyer on a Quest to Lower Your 401(k) Fees
"When Jerome Schlichter started filing 401(k)-fee lawsuits against big companies a decade ago, the personal-injury lawyer from St. Louis wasn't taken seriously.... Companies now are so worried about suits alleging mismanagement of these retirement plans that 401(k) industry consultants have coined a term for the threat: 'getting Schlichterized.' ... Last year, law firms filed more than 25 fee cases against 401(k)-type plans ... That includes 14 from Mr. Schlichter's firm against employers including elite universities.... Consumer advocates say the litigation has saved 401(k) participants nationwide billions of dollars by helping to push down 401(k) fees, which declined 17% from 2009 to 2014[.]" (The Wall Street Journal; subscription may be required)

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