Article Summaries

Fiduciary and Plan Governance

Vast Majority of 401ks Have a "Red Flag" Fiduciary or Regulatory Violation: Study

A recent analysis by Abernathy Daley 401k Consultants revealed that 84% of U.S.-based retirement plans show at least one potential ERISA red flag, indicating possible regulatory or fiduciary violations. The consultancy examined Form 5500 filings for 764,729 plans and identified over 600,000 companies at risk of fines, legal penalties, and fiduciary failures. Red flag violations are categorized into Regulatory Infraction Red Flags and Egregious Plan Mismanagement Red Flags, representing issues including infractions, fineable offenses, fiduciary failures, or plan malpractice.

Source: 401kspecialistmag.com

Practical Takeaways From Spence v. American Airlines for ERISA Plan Fiduciaries

On January 10, 2025, Judge Reed O'Connor of the Northern District of Texas made a significant ruling in Spence v. American Airlines, Inc., addressing the duties of retirement plan fiduciaries under ERISA concerning ESG issues. The judge found that American Airlines and its Employee Benefits Committee breached their duty of loyalty by including funds in their 401k plan that were managed by an investment manager known to engage with companies on ESG-related issues, even though the funds themselves were not ESG-focused. However, he ruled that there was no breach of the duty of prudence, as the defendants' monitoring practices were consistent with standards among large plan fiduciaries.

Source: Ropesgray.com

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Insight: Studies, Research, Analysis, or Papers

AI Slowly Makes Inroads Into DC Plans

The retirement industry is exploring the integration of artificial intelligence to enhance functionality, as discussed in the latest Cerulli Edge -- U.S. Retirement Edition. Some AI applications are already being used in defined contribution plan management, with the potential to improve back-office operations. Adam Barnett, a senior analyst, emphasizes that asset managers and recordkeepers can significantly benefit from implementing AI in day-to-day tasks, such as enhancing legal document summaries and beneficiary designations.

Source: Cerulli.com

American Views on Defined Contribution Plan Saving: 2024

The Investment Company Institute conducted a survey to track the actions and sentiments of retirement savers in the U.S. This report, the 17th in their series, is based on a nationwide survey of adults aged 18 and older, performed by NORC at the University of Chicago between November and December 2024. Findings reveal that Americans highly value 401k plans for their discipline and investment potential. Respondents generally oppose changes to the tax treatment or investment control of these accounts and prefer to maintain control over their retirement savings. Additionally, a majority expressed opposition to proposals that would require part of their retirement accounts to be converted into income guarantees managed by the government or insurance companies.

Source: Ici.org

Declining Interest in Student Loan Matches, PSCA Finds

The Plan Sponsor Council of America has been monitoring interest in the optional provisions of the SECURE 2.0 Act. Among these, the employee match provision linking 401k contributions to student loan payments has garnered significant media attention. However, actual interest and adoption by plan sponsors have been minimal and appear to be declining. PSCA continues to report on which provisions are being implemented by plan sponsors and which are being deferred.

Source: Asppa-net.org

Hands Off My 401k: American Retirement Savers Appreciate Their Plans Just the Way They Are

New research from the Investment Company Institute reveals that nearly 75% of Americans hold favorable views of 401k and similar defined contribution plans. The report, "American Views on Defined Contribution Plan Saving, 2024," emphasizes the benefits of employer-sponsored DC plans, such as employer contributions, diverse investment options, and tax-deferred growth. Sarah Holden, ICI Senior Director of Retirement and Investor Research, notes that 85% of participants find the tax benefits a significant motivator to save. The research indicates that most Americans, regardless of their retirement account status, trust the current system and do not favor changes.

Source: Prnewswire.com

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Court and Legal

Latest Forfeiture Reallocation Suit Targets JP Morgan

Another national employer's 401k plan has been sued for a fiduciary breach concerning the misuse of employee retirement plan assets. The lawsuit, filed by participant-plaintiff Daniel J. Wright, alleges that JPMorgan Chase & Co. and JPMorgan Chase Bank improperly used forfeited plan assets to meet their employer contribution obligations instead of benefiting the plan participants, violating ERISA and their fiduciary duties.

Source: Asppa-net.org

Virginia District Court Dismisses Suit Challenging Use of Managed Account as a Default Investment

On January 10, 2025, the U.S. District Court for the Eastern District of Virginia dismissed the claim in Hanigan v. Bechtel, where the plaintiff argued that the plan sponsor violated ERISA's fiduciary prudence standard by using a managed account as the plan's qualified default investment alternative. The plaintiff contended that for 65% of participants who did not provide personalized information, the managed account's approach was similar to that of a target-date fund but incurred higher fees ($458 more annually) and yielded poorer returns. The dismissal of the case raises important implications for the fiduciary responsibilities of plan sponsors.

Source: Octoberthree.com

Southwest 401k Hit With Lawsuit for Underperforming Fund

A class action lawsuit was filed on Tuesday in the U.S. District Court for the Northern District of Texas by Sanford Heisler Sharp McKnight against Southwest Airlines Co., accusing the airline of breaching fiduciary duties under ERISA by mismanaging its Retirement Savings Plan. The complaint, representing over 60,000 plan beneficiaries, alleges that Southwest failed to remove the Harbor Capital Appreciation Fund, which holds over $2 billion in assets but has underperformed its benchmarks and similar funds for more than 15 years. The Harbor Capital Fund was selected as an investment option before 2010, and by December 2018, its performance lagged behind the Russell 1000 Growth Index and other alternatives, yet Southwest did not take action to replace it.

Source: 401kspecialistmag.com

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Legislative or Washington DC

DOL Investigations - Priorities for 2025

Faegre Drinker attorneys Fred Reish and Brad Campbell provide concise updates on current trends and developments in ERISA in their quick-hit series. This latest episode focuses on the Department of Labor's priorities for investigations in 2025. This series offers a high-level overview of important topics within the ERISA realm.

Source: Spotlightonbenefits.com

Anticipated Retirement Policies Under the Second Trump Administration

Lawmakers are considering the SECURE 3.0 Act to enhance retirement savings access for Americans. Proposed measures may involve simplifying the rollover process, establishing default investments in retirement plans, and increasing coverage for more workers. Additionally, President-elect Trump is anticipated to extend the 2017 Tax Cuts and Jobs Act, set to expire at the end of 2025, which could boost retirement savings through increased disposable income. Conversely, if Congress lets the legislation lapse, taxes on withdrawals from retirement accounts may increase.

Source: Hallbenefitslaw.com

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Cyber and Plan Security

What Is a Proper Cybersecurity Policy for a Retirement Plan?

As cybersecurity threats, including ransomware attacks, increasingly target participant data and plan assets, plan fiduciaries must have established procedures to protect against breaches. A written cybersecurity policy detailing specific procedures is essential for plan sponsors to fulfill their fiduciary responsibilities and comply with DOL standards, as highlighted by attorney Carol Buckmann from Cohen & Buckmann P.C. While not legally mandated, this policy is as important as the plan's investment and participant procedures and should be regularly reviewed and updated due to the evolving nature of cyber threats.

Source: Planadviser.com

AI-Enhanced Fraud: A Growing Threat to Retirement Plans

Artificial intelligence is advancing rapidly, contributing to an increase in fraud and cyberattacks, particularly in phishing. Jeffrey Wu from DOL Cybersecurity LLC suggests that AI enhances the effectiveness of cybercrime by generating error-free messages, realistic images, and personalized emails using stolen information. This allows for more convincing and targeted phishing attacks, which can be automated. Wu notes that retirement plans are working to improve their defenses against the rise of AI-driven fraud, although the level of preparation varies among companies based on their size and available resources.

Source: Planadviser.com

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Compliance and Regulatory

Missing Participants: What to do With Abandoned Accounts

Plan sponsors and administrators have long faced challenges in managing accounts belonging to participants who left employment years ago and are now unlocatable, often referred to as "missing participants." Despite their efforts, many plans still hold accounts for these individuals. On January 14, 2025, the DOL released Field Assistance Bulletin 2025-01, which permits sponsors and administrators of ongoing defined contribution plans to transfer unclaimed small accounts to the state unclaimed property fund corresponding to the participant's last known address, as long as certain conditions are met.

Source: Beneficiallyyours.com

Retirement Plan Sponsors and Participants Get LA Wildfire Relief

The IRS has extended tax filing and payment deadlines for retirement plan sponsors and participants affected by the Los Angeles wildfires, with the new deadlines set until October 15, 2025. This extension will automatically apply to certain filings with the Pension Benefit Guaranty Corporation. The SECURE 2.0 Act of 2022 also permits plan sponsors to provide affected participants with access to their retirement savings and other assistance.

Source: Mercer.com

SECURE 2.0 Administrative Pandemonium: Are You Keeping Up?

In recent months, there has been significant activity surrounding the implementation of SECURE 2.0 provisions, a set of laws enacted at the end of 2022 that impact retirement plans. Employer plan sponsors must make informed decisions regarding SECURE 2.0, carefully track these decisions, and ensure compliance with legal requirements. They should avoid impulsive reactions and seek guidance from benefits counsel and advisors to strengthen their processes and prevent future issues. There are still unresolved questions and considerations regarding these decisions that warrant careful thought.

Source: Hawleytroxell.com

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Marketplace News

Equitable Introduces 401k PEP

The Retirement Advantage Announces New 401k PEP

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