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Ret plan investments - costs

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21% of Investment Managers Plan to Lower Fees
"Investment managers are allocating a lower percentage of their revenue to bonuses: 18%, down from 24% in 2014. However, the amount of revenue allocated to cover the cost of operations increased from 42% to 60%.... The percentage of investment management firms that offered performance-based fees dropped from 75% in 2014 to 64% in 2016." (PLANSPONSOR)
Participants Say More Information About Plan Investment Fees Would Be Useful
"[N]early seven in 10 survey respondents in employer-sponsored retirement plans said they were at least somewhat familiar with their plan's fees, while 31% were not at all familiar with the fees. Roughly two-thirds had not read any investment fee disclosure in the previous year.... Of the one-third who had read a fee disclosure, nearly seven in 10 said they found the information understandable ... Roughly four in five participants said it would be at least somewhat useful to have additional information about investment fees." (PLANSPONSOR)
Text of Amicus Brief to First Circuit: Plan Sponsor's Fiduciary Duty Should Be Assessed in Terms of Process Rather Than Hindsight Results
"[A] decision from this Court endorsing Plaintiffs-Appellants' hindsight-based theory of ERISA fiduciary liability, their proposed presumption of imprudence, or their unduly expansive view of the duty of loyalty would saddle [retirement plan sponsors] with increased plan-administration and litigation costs, and their employees with decreased options for retirement savings.... [T]hese burdens would not benefit employees or plans but would be deadweight losses through transaction costs ... [and] these burdens are incompatible with ERISA's text and purposes." [Ellis v. Fidelity Mgmt. Trust Co., No. 17-1693 (1st Cir. brief filed Nov. 13, 2017; on appeal from Ellis v. Fidelity Mgmt. Trust Co., No. 15-14128, D. Mass. June 19, 2017)] (American Benefits Council and the Chamber of Commerce of the United States of America)
Wells Fargo Requires Advisers to Use Level Fees for New 401(k) Business
"[A]dvisers servicing 401(k) plans going forward will do so as fiduciaries receiving a flat fee -- a percentage of plan assets, for example -- for acting in clients' best interests. Prior to the fiduciary rule, which raises investment-advice standards in retirement accounts, firms such as Wells Fargo would only allow a select group of advisers ... to service retirement plans as fiduciaries. The remainder with retirement plan business could do so as non-fiduciaries and receive commissions, or 12b-1 fees, as payment." (InvestmentNews)
Why Performance Fees Are Banned for Most Financial Advisors
"As financial advisors feel increasing pressure to differentiate themselves, a recently emerging trend for those who (actively) manage client portfolios is the idea of charging clients not an AUM fee that is a percentage of assets, but instead, a performance-based fee that is a percentage of upside (or outperformance of a benchmark index), where the advisor's fee is forfeited if he/she fails to achieve the required threshold or hurdle rate. Such a compensation structure would compel active financial advisors to eschew closet indexing and really, truly, try to outperform their benchmarks -- which can be a very compelling proposition to prospective clients." (Nerd's Eye View)
Nordstrom Plan Participant Claims 401(k) Plan Fees No Bargain
"[The participant] argues, among other things, that Nordstrom failed to use the leverage it says the plan's $2.6 billion in assets should have enabled it to obtain reasonable fees for plan participants. In addition, she argues that the plan fiduciaries failed to adequately and prudently manage the plan by not using lower-cost investment vehicles and that they provided inadequate disclosures on fees." [McCorvey v. Nordstrom, Inc., No. 17-8108 (C.D. Cal., complaint filed Nov. 6, 2017)] (National Association of Plan Advisors [NAPA])
[Opinion] Fiduciary Rule Fallout: Increasing the Cost of Retirement
"Research conducted by the U.S. Chamber found that 6 million investment accounts already face increased costs directly related to the Fiduciary Rule. Another recent study by the Securities Industry and Financial Markets Association (SIFMA) estimated $4.7 billion of compliance fees will be passed onto savers and investors following the fiduciary rule's implementation. The rising costs can primarily be explained by the change in the pricing of financial advice." (U.S. Chamber of Commerce)
Chamber Backs Mandatory Arbitration of Employee Benefit Issues
"The Chamber is backing the University of Southern California in its attempt to move a proposed class action over the fees associated with its retirement plan into arbitration. In a brief filed Nov. 6, the Chamber asked the U.S. Court of Appeals for the Ninth Circuit to rule that employment agreements with arbitration clauses -- like the ones USC required its workers to sign -- apply to disputes involving retirement plans governed by [ERISA]." [Munro v. Univ. of Southern Calif., No. 17-55550 (9th Cir., amicus brief filed Nov. 6, 2017)] (Bloomberg BNA)
Plan Sponsor Fee Litigation Cases on the Rise (PDF)
"[This article provides a] summary of recent fee lawsuits and implications for your plan.... This year has been an active year for excessive fee cases as more than 30 cases have been filed across almost every circuit in the country. In comparison, over the past decade, there were only about 80 ERISA excessive-fee cases filed across the country." (Groom Law Group, via Plan Sponsor Council of America [PSCA])
Wells Fargo Gets Industry Support in Appeal Challenging Use of In-House Target Date Funds
"The U.S. Chamber of Commerce and other prominent industry groups are backing Wells Fargo & Co. in an appeal challenging the in-house target date funds in the company's 401(k) plan ... The groups are urging the U.S. Court of Appeals for the Eighth Circuit to uphold a decision dismissing a challenge to the affiliated target date funds in the 401(k) plan for Wells Fargo employees." (Bloomberg BNA)
Xerox Nixes Challenge to Robo-Adviser Fees in Ford 401(k) Plans
"Xerox HR Solutions LLC escaped a lawsuit by participants in three Ford Motor Co. 401(k) plans challenging the allegedly excessive fees charged for investment advice provided by robo-adviser Financial Engines Advisors LLC. Xerox -- which provided administrative and record-keeping services to the Ford plans -- didn't act as an [ERISA] fiduciary with respect to the compensation it received from Financial Engines ... Xerox had no discretion over the amount of its own compensation as it relates to the participants and thus wasn't acting as a fiduciary in collecting fees from Financial Engines, Cleland held." [Chendes v. Xerox HR Solutions, No. 16-13980 (E.D. Mich. Oct. 19, 2017)] (Bloomberg BNA)
District Court Halts Some Portions of Challenge to MIT DC Plan
"[P]laintiffs allege breaches of the ERISA duties of loyalty and prudence arising out of the plan's inclusion of retail class options instead of institutional class options in the funds provided by Fidelity Investments. In addition, plaintiffs allege that Fidelity was paid excessive compensation for its recordkeeping services and that MIT never engaged in a competitive bidding process for those services.... The district court decision spells out a number of key caveats impacting this type of ERISA litigation, explaining why it is dismissing some aspects of the various claims while permitting others to go to a full trial." [Tracey v. Mass. Inst. of Technology, No. 16-11620 (D. Mass. Oct. 4, 2017)] (planadviser)
Interesting Angles on the DOL's Fiduciary Rule, Part 66
"Because of the change in the definition of fiduciary advice (which applied on June 9, 2017), all advisors to retirement plans need to review their prior 408(b)(2) disclosures to see if changes are necessary.... [Would] the following types of disclosures [be] narrow enough to provide information that allows the plan fiduciaries to make those determinations? [1] For mutual funds, the broker-dealer may receive between 0% to 10% front-end commissions. [2] As ongoing trailing commissions, the compensation may range from 0% to 2% per year. [3] The compensation for managed accounts will not exceed 2.5% per year." (
Plaintiff's Attorneys to Get Almost $6 Million from Tibble v. Edison Challenge to Plan Investment Fees
"The recommendation of the parties ... is that the law firm of Schlichter Bogard & Denton LLP will receive $5.8 million for all attorney fees and taxable costs and non-taxable litigation expenses, in exchange for which plaintiffs and their attorneys (including Class Counsel) waive and forever relinquish their right to seek any additional payment of attorney fees or costs from defendants. Assuming the court concurs with the recommendation, that sum is to be paid to the law firm on or before Nov. 1, 2017." (National Association of Plan Advisors [NAPA])
Prudential Beats Appeal Over Alleged 401(k) Kickback Scheme
"Prudential didn't act as an [ERISA] fiduciary in its role as the service provider and directed trustee of Ferguson Enterprises' retirement plan ... the Second Circuit held ... While Prudential may qualify as a fiduciary with respect to certain separate accounts it managed, the participant failed to properly plead a breach of fiduciary duty related to those accounts, the three-judge panel said." [Rosen v. Prudential Ret. Ins. & Annuity Co., No. 17-0239 (2d Cir. Oct. 11, 2017)] (Bloomberg BNA)
Which 403(b) Plans Are Good Fee Levelization Candidates?
"More than a quarter (26.2%) of 403(b) organizations are currently re-evaluating how plan expenses are allocated. Beyond fee allocation, some 403(b) organizations plan to tailor their investments with a tighter list of investment options -- dropping to 26, down from 28 last year. By narrowing the options, organizations can help make investment decisions less daunting for plan participants." (The Principal Blog)
What a Fiduciary Should Know: Down and Dirty with 'Clean' Shares
" 'Clean' shares refer to mutual funds with all the sales-related fees stripped out of them.... This long-term trend among mutual funds to incorporate conflict-of-interest fees into their business models may have finally hit a brick wall with the DOL's Conflict-of-Interest (a.k.a. 'Fiduciary') Rule.... In shifting away from broker-oriented transaction fees, the industry itself may shift towards new business models.... With fees no longer hidden, it will be easier to monitor fees and competitive pressure will likely eliminate excessive fees." (Fiduciary News)
MIT Must Defend Lawsuit Over Excessive Fees in Retirement Plan
"Judge Nathaniel M. Gorton ... partially adopted the magistrate judge's 59-page report and recommendation not to dismiss most of the participants' claims under [ERISA]. Gorton refused to dismiss claims that MIT acted imprudently by charging excessive record-keeping fees and failing to choose the least expensive share classes for some of the plan's investment options. However, Gorton departed from the magistrate judge's recommendation to allow the participants' claims of prohibited transactions based on an alleged kickback scheme between Fidelity and the plan." [Tracey v. Mass. Inst. of Tech., No. 16-11620 (D. Mass. Oct. 4, 2017)] (Bloomberg BNA)
Fee Litigation Sets Sights on Corporate Retirement Plans
"Currently, there are more than 20 different financial institutions facing lawsuits challenging these in-house 401(k) investments.... [O]nly two were defeated at the motion to dismiss stage. The remainder are either pending, have had their motions to dismiss denied, or have engaged in multi-million-dollar settlements." (Willis Towers Watson)
ERISA Excess Fee Litigation: Waiting for the Deluge
"It's exceedingly easy to gather information on plan fees from 5500 filings. It is in the public domain on the Labor Department website for everyone to see. Participants, vendors and attorneys will find opportunities to use it. If a plan is paying excessive fees someone will find out. Just about any law firm can now get in on this action. Before it was St. Louis-based Schlichter Bogard & Denton. This is no longer true. It doesn't take much to copycat an electronically previously filed complaint and use it for another. This means to me there will be more of these cases." (Fiduciary Plan Governance, LLC)
Average 403(b) Fees: How Do Your Plan Expenses Measure Up?
"Smaller plans tended to incur higher costs to run their 403(b) plans. Plans with $1-$10 million in assets experienced total plan costs of 0.91% of assets, almost double the 0.46% costs incurred by non-profits with more than $1 billion assets in their 403(b). Even plans with $100-$250 million in assets, at 0.54%, experienced far lower costs than the smallest plans." (ForUsAll)
GE Hit with Lawsuit Over Fees in Its $28 Billion 401(k)
"GE allegedly selected and retained its proprietary mutual funds in the plan, earning hundreds of millions of dollars from a subsidiary that managed the plan to the participants' detriment, according to a lawsuit filed Sept. 26 in federal court in California. GE's selection of its proprietary funds for the plan provided its subsidiary -- GE Asset Management Inc. [GEAM] -- a constant source of fees and helped inflate the market value of GEAM, which GE sold to State Street for $485 million in 2016." (Bloomberg BNA)
University of Chicago Can't Escape Retirement Plan Lawsuit
"The judge on Sept. 22 refused to dismiss claims that the plan's fiduciaries acted imprudently by offering high-fee investment options and poorly performing funds in the school's $980 million retirement plan. However, the judge dismissed allegations of disloyalty and claims involving a separate retirement plan with $2.1 billion in assets and 13,000 participants." [Daugherty v. Univ. of Chicago, No. 17-3736 (N.D. Ill. Sept. 22, 2017)] (Bloomberg BNA)
Fidelity Prevails in Suit Over Investment Costs, Robo-Adviser Fees
"Fidelity Management Trust Co. and a subsidiary defeated a lawsuit by participants in Delta Air Lines Inc.'s retirement plan challenging alleged high-cost investment options and certain financial advisory fees. The participants failed to show that Fidelity exercised a fiduciary function over which share classes would be available to them through the brokerage account that would give rise to liability under [ERISA] ... The plan documents show that once Delta chose to include a brokerage account, Fidelity was bound to follow the participants' investment instructions and exercised no discretion or authority with respect to which shares they elected to buy[.]" [Fleming v. Fidelity Management Trust Co., No. 16-10918 (D. Mass. Sept. 22, 2017)] (Bloomberg BNA)
University of Pennsylvania Prevails in 403(b) Fee Suit
"The suit, brought by participants in the $3.8 billion University of Pennsylvania Matching Plan against the University of Pennsylvania and its Vice President of Human Resources ... alleges ... that: [1] the defendants breached their fiduciary duty by 'locking in' plan investment options into two investment companies; [2] the administrative services and fees were unreasonably high due to the defendants' failure to seek competitive bids to decrease administrative costs; and [3] the fiduciaries charged unnecessary fees while the portfolio underperformed." [Sweda v. Univ. of Penn., No. 16-4329 (E.D. Pa. Sept. 21, 2017] (National Tax-Deferred Savings Association [NTSA])
Jerry Schlichter's Fee Lawsuits Have Left an Indelible Mark on the 401(k) Industry
"All told, there were 31 so-called 'excessive fee' suits filed by Mr. Schlichter and other firms over 2006-07 ... Following several large monetary settlements, including $62 million from Lockheed Martin, the litigation caught a second wind beginning in 2015. Last year, there were 29 new cases filed through September ... That's the largest annual total to date, and there's no sign the pace is slowing down.... One result of the litigation has been increased fee transparency." (InvestmentNews)
Wells Fargo Beats ERISA Challenge Over Cross-Selling Scandal
"Participants failed to show that the plan's fiduciaries couldn't have concluded that a disclosure of the unethical sales practices prior to 2016 would have done more harm than good to their investments, Judge Patrick J. Schiltz of the U.S. District Court for the District of Minnesota held Sept. 21.... Schiltz allowed [participants] to amend their claim of breach of the duty of loyalty, but they will have to specify exactly who breached the duty, when, and how." [In re Wells Fargo ERISA 401(K) Litig., No. 16-3405 (D. Minn. Sept. 21, 2017] (Bloomberg BNA)
Novitex Sued Over 401(k) Plan Fees, Not First Modest Plan Hit
"Novitex and its employee benefits committee failed to monitor the plan's investment options -- including its selection of mutual funds and a stable value fund -- to ensure that they were diversified and not excessively priced, according to a lawsuit filed Sept. 20 in the U.S. District Court for the District of Connecticut. Novitex also breached its fiduciary duties under [ERISA] by retaining and excessively compensating UBS as the plan's investment adviser, the complaint alleges.... The company's 401(k) plan had $157 million in assets and more than 10,000 participants as of 2015, according to the lawsuit." (Bloomberg BNA)
Selecting a DC Plan Recordkeeper: Is Cheaper Always Better? (PDF)
"While the DOL has provided guidance on the overall responsibilities of plan sponsors, these guidelines fall short of speaking to best practices when dealing with recordkeepers.... [It] is essential to periodically assess if all contractual obligations are being met (not just fees).... [This paper describes] five core components to consider in order to both meet your fiduciary duties and get the most value from your retirement plan recordkeeper: Fees, Hidden Expenses, Plan Demographics, Service Quality and Technology." (Portfolio Evaluations, Inc.)
Gucci Sued Over 401(k) Plan Fees, Transamerica Funds
"The lawsuit challenges Gucci's relationship with its 401(k) service provider, Transamerica Retirement Solutions LLC. Gucci allowed Transamerica to fill its $96.5 million plan with expensive, proprietary funds that earned fees for Transamerica at the expense of plan participants, according to the complaint filed Sept. 15 in a federal court in New Jersey. Gucci also failed to rein in the revenue-sharing payments that Transamerica received in connection with the plan, the lawsuit alleges." (Bloomberg BNA)
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)] (
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)

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