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Ret plan investments - costs


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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)
Waddell & Reed Settles 401(k) Lawsuit for $4.9 Million
"The class-action lawsuit claimed the asset manager breached its fiduciary duty by assembling a 401(k) lineup consisting exclusively of proprietary funds without considering alternative, less expensive and better-performing options. The firm, which manages roughly $72 billion, sponsors the Waddell & Reed and Ivy-branded investments." (InvestmentNews)
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)
Another 403(b) Plan Sponsor Beats Back Fee Lawsuit
"The Washington University lawsuit, which was filed in June 2017, alleged that the university violated its fiduciary duty to the plan by causing participants to overpay for record keeping and administration and investment management, as well as failing to address fund underperformance." [Davis v. Washington Univ. in St. Louis, No. 17-1641 (E.D. Mo. Sept. 28, 2018)] (InvestmentNews)
[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." (InsuranceNewsNet.com)
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)
Understanding Revenue Sharing and the Flow of Money in Retirement Plans (PDF)
"[It is] critical for employers to understand the various components of their retirement plans' fees, particularly indirect fees like revenue sharing arrangements.... In the employer-sponsored retirement plan industry, all components of the gross expense ratio, with the exception of investment management fees, are generally classified as revenue sharing.... Some recordkeepers have the ability to credit back revenue sharing fees to the plan. Often, this is done by creating an escrow account, known as an ERISA budget account, within the plan." (Grinkmeyer Leonard Financial)
Important Facts About 401(k) Plans (PDF)
16 pages."401(k) plans are the largest share of DC plan assets, with more than two-thirds of DC plan assets held in 401(k) plans.... More than one-third of 401(k) plan participants are younger than 40.... Most 401(k) plan participants receive plan contributions from their employers.... Equities figure prominently in 401(k) plans, and younger 401(k) plan participants are highly engaged in equity investing.... Fewer than one in five 401(k) plan participants have loans outstanding." (Investment Company Institute [ICI])
Prudent Practices for Assessing Bundled Services in This Era of 401(k) Plan Fee Litigation
"[1] [A] plan sponsor must ensure that there is a documented record of the fiduciary's procedural and substantive prudence.... [2] [P]rior to contracting, each service provider proposal should be scrutinized for the cost of each distinct service, as well as overall costs.... [3] [F]iduciaries, with the assistance of fee consultants, should attempt to benchmark each level of service to other marketplace fees and proposals.... [4] [P]lan fiduciaries should consider the pros and cons of unbundling recordkeeping services from other distinct services.... [5] Plan sponsors should be cognizant of structural elements that position the service providers to facilitate IRA rollovers to themselves.... [6] [P]lan sponsors and fiduciaries should carefully review their existing policies with service providers to determine if the service providers solicit rollovers from the plan." (Thompson Hine LLP via Bloomberg BNA)
Sanders Bill Would Create Financial Transaction Tax
"The Inclusive Prosperity Act of 2017 [sponsored by Sen. Bernard Sanders (I-Vt.)] ... includes a financial transaction tax (FTT).... [T]he FTT would be applied to every stock traded, including a 0.5% rate on equity, a 0.1% rate on debt and a 0.005% rate on derivatives.... [T]he tax [would] affect all defined benefit plans, [IRAs], defined contribution plans and individual investors." (PLANSPONSOR)
Fidelity Lowers Fees for Blended Target Date Funds
"Previously, the net expense fee for the active-passive commingled pools, available only to institutional investors, included a management fee and an underlying expense fee, which covered administrative costs incurred by the Fidelity and Geode Capital Management investment strategies used in the target-date approach. Geode is Fidelity's subadviser for passively managed equity strategies. The underlying expense fee has been eliminated and the net cost of the pools lowered[.]" (Pensions & Investments)
Getting ESG Funds Into Retirement Plans Can Be Challenging
"CalSavers recently announced the selection of State Street Global Advisors [SSGA] to manage the investment lineup ... but said there won't be an ESG fund in the plan, at least not initially. The reason? The ESG options were too expensive." (Morningstar Advisor)
Merrill Lynch to Resume Charging Commissions on Retirement Accounts
"Merrill Lynch originally said it would stop charging commissions in retirement accounts and in 2016 launched a media campaign advertising its new policy and commitment to clients' best interests. The move to reintroduce commission-based brokerage accounts for retirement money is the result of the [DOL] fiduciary rule being killed ... along with the [SEC] proposing its own rule covering all accounts, not just retirement money" (The Wall Street Journal; subscription may be required)
[Opinion] Calculating ADP 401(k) Fees Using Their 408(b)-2 Disclosure
"One of the largest small business 401(k) providers in the country is the payroll company ADP.... [This article will encourage a] 401(k) plan sponsor to total their ADP fees and evaluate them for 'reasonableness' -- an important 401(k) fiduciary responsibility.... Step #1 -- Confirm the ADP 408-b2 disclosure covers all of your 401(k) fees ... Step #2 -- Total ADP's direct fees ... Step #3 -- Total ADP's revenue sharing payments." (Employee Fiduciary)
Duke Retirement Fee Case Spawns Second Lawsuit
"Duke University is accused of using some retirement plan assets to pay employee salaries and fringe benefits, instead of returning them to plan participants, in violation of federal benefits law.... The new lawsuit was filed by the same three workers who filed the first one. It comes nearly two months after a federal judge in the first case denied the workers' request to file a third amended lawsuit to add new claims." [Lucas v. Duke Univ., No. 18-722 (M.D.N.C. complaint filed Aug. 20, 2018)] (Bloomberg BNA)
How Do Fees Affect Plans' Ability to Beat Their Benchmarks?
"The analysis, using new data for 2011-2016, found that plans that paid higher fees experienced worse performance relative to their benchmarks. This finding held across all major asset classes, but was particularly pronounced for alternative assets, such as private equity and hedge funds." (Center for Retirement Research at Boston College)
Fidelity Cuts Some Fees to Zero in Price War, Stinging Blackrock
"The company will offer two new index funds to individual investors with a zero expense ratio ... Additional fuel for the price competition among money managers has come from a practice that involves asset managers loaning out shares of companies. In exchange, the firms get cash collateral, which they can reinvest for a return to help offset fees associated with index funds and exchange-traded funds." (Pensions & Investments)
USC Can't Force Arbitration of Retirement Fee Lawsuit
"The University of Southern California can't force its retirement plan investors to take their fiduciary breach claims to arbitration, a federal appeals court ruled. The decision could be a blow to litigants such as Franklin Templeton and Charles Schwab Corp., which are currently trying to force their workers' fiduciary breach claims under [ERISA] to arbitration." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir. July 24, 2018)] (Bloomberg BNA)
Brown University Only Partially Successful in 403(b) Lawsuit
"[The court] allowed plaintiffs to proceed with claims relating to record-keeping services, including engaging more than one record-keeper, incurring excessive administrative fees and failing to conduct a competitive record-keeping bidding process. Of note, the court indicated that whether particular record-keeping fees are excessive involves questions of fact that cannot be resolved on a motion to dismiss." [Short v. Brown Univ., No. 17-318 (D.R.I. July 11, 2018)] (McDermott Will & Emery)
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)
 
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