Bad Choices for 401k Plan Sponsors That Often Lead to Bad Results

Help for 401k Plan Sponsors and Retirement Professionals

Newsletter for July 1, 2019

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In This Issue

General Items

Bad Choices for 401k Plan Sponsors That Often Lead to Bad Results

Abstract: Certain choices that a 401k plan sponsor make can lead to bad and costly results. Plan sponsors can make their own bad luck by making bad choices, so this article is a warning tale on what bad choices that a plan sponsor should not make.


401k Plan Sponsors Need to Focus on These Issues

Abstract: Too many plan sponsors ignore their retirement plans and by doing that, they are unknowingly putting themselves in harm's way. Plan sponsors need to make sure that they have a plan in place that won't cost them in liability later down the line. Here are the issues they should be focused on.


Fiduciary and Plan Governance

The Nebulous Concept of Fiduciary Duty

Abstract: The various duties owed by private equity fund managers to their clients are often referred to collectively as "fiduciary duty," as if that were a term that has a clear and consistent meaning. In reality, fiduciary duty means different things in different jurisdictions and in different contexts and, as a blanket statement of legal obligations, implies little more than a special relationship that has trust and confidence at its heart. Although fiduciaries have certain duties imposed on them by law, and may face tougher consequences if they breach those duties, the precise nature and extent of their duties can vary considerably.


Fiduciary Breach Lawsuit Issues: Active Versus Passive Investments

Abstract: Based on the outcomes of the litigation surrounding active versus passive investments, it seems clear that plan fiduciaries can include actively managed investment options in their plans. There is nothing in the ERISA regulations that requires a plan to include any index investment options, or to select passive funds instead of active options in any particular asset class. However, it will likely help lessen the chances of being sued on this issue if there are at least some index funds included in the investment lineup.


Fiduciary Framework for Investment by DC Plans in Alternative Assets

Abstract: This 19-page Legal Update reviews recent trends, considerations under the Employee Retirement Income Security Act of 1974, as amended, and potential legal risks arising out of the investment of defined contribution plans in alternative asset classes.


»»  Click here for more Fiduciary and Plan Governance Material

Insight: Studies, Research, and White Papers

Baby Boomer Women Significantly Lag Baby Boomer Men in 401k Savings

Abstract: Baby boomer women have a median 401k savings balance of $59,000, less than half of the $138,000, median balance of baby boomer men, according to a recent T. Rowe Price survey focused on the financial behavior and attitudes related to gender. This savings gap carries over to millennial women, who have a median 401k balance that is $30,000 less than the median balance of millennial men.


Retirement Assets Top $29 Trillion, While Plan Fees Continue Downward Trend

Abstract: Since the end of last year, total U.S. retirement assets were up 7.4%, reaching $29.1 trillion at the end of the first quarter for 2019, according to new data by the Investment Company Institute. Retirement assets accounted for 33% of all household financial assets in the U.S. at the end of March 2019, with defined contribution plan assets reaching $8.2 trillion at the end of the first quarter, up 8.2% from year-end 2018. Of these DC plan assets, $5.7 trillion was held in 401k plans.


»»  Click here for More Studies, Research, and White Papers

Items of Special Interest to Service Providers

Congress Members Ask GAO to Study Fallout From Death of DOL Fiduciary Rule

Abstract: High-level Democrats in the Senate and House of Representatives have asked a congressional watchdog to study the fallout from the now-defunct Department of Labor fiduciary rule, including the regulation's effect on a wide range of business practices and how those practices have changed since the rule was killed in court.

Source: (registration may be required)

Fog Still Hangs Over Defunct DOL Fiduciary Rule's Influence

Abstract: By the time the 5th Circuit vacated the DOL fiduciary rule expansion last year, advisory and brokerage firms had spent many millions of dollars to comply with the rule. Congressional Democrats want to know more about what's happened since.


»»  Click here for More 403b Material

Target-Date Funds

How Target-Date Defaults Affect Equity Allocation Exposure

Abstract: The economic consequence of different defaults in defined contribution plans is significant, according to a new report by the TIAA Institute. TIAA finds that participants who joined plans post target-date defaults tend to have a greater percentage allocation to equity. And because so many allocate to the same type of fund, there is less cross-sectional variation in equity percentage for this group, according to the report. By contrast, those who joined under a money market default tended to customize their portfolios and there is a substantial cross-sectional variation in the equity percentage of their allocations.


»»  Click here for more on Target-Date Funds

Court and Legal

Gucci Plaintiffs Bag Settlement in Excessive Fee Suit

Abstract: A relatively small plan has settled claims that fiduciaries had "imprudently incorporating funds on its menu that were excessively expensive." The defendant plan in question is the $96.5 million 401k plan of Gucci America Inc. and the settlement is for $1.2 million.


Supreme Court Will Take Another Look at Its ERISA Stock-Drop Pleading Standard

Abstract: ERISA stock-drop litigation has diminished in recent years due to the Supreme Court's Dudenhoeffer decision (and a rising stock market). Now, the Court will have another chance to weigh in on whether federal ERISA litigation in this space should breathe new signs of life.


Supreme Court Agrees to Hear Intel Case With Potentially Significant Implications for 401k Plan Fiduciaries

Abstract: The issue to be decided by the Supreme Court is whether the receipt by a plan participant of investment disclosures is enough for that participant to have "actual knowledge" of a potential claim, which would start the statute of limitations. In light of such a pending decision, retirement plan fiduciaries may be left wondering what actions need to be taken to ensure plan participants have "actual knowledge" of information contained in the various ERISA required disclosures.


»»  Click here for more Court and Other Legal Issues

Compliance and Regulatory

How to Find, Fix and Avoid Plan Loan Mistakes

Abstract: Plan sponsors who choose to include a loan feature in their retirement plan must take care to ensure their loan program is operated in compliance with the tax rules and the plan's loan policies to avoid unintended consequences for loan recipients and the plan. To help you keep your loan program in compliance, here's an overview of the basic rules for plan loans and some best practices for finding, fixing and avoiding plan loan mistakes.


IRS Issue Snapshot - Hardship Distributions From 401k Plans

Abstract: A 401k plan may permit distributions to be made on account of a hardship. With respect to the distribution of elective deferrals, a hardship is defined as an immediate and heavy financial need, and the distribution must be necessary to satisfy the financial need. This updated Snapshot examines the criteria for hardship distributions.


The $100,000 Uncashed Pension Check

Abstract: Faced with increased scrutiny from the Department of Labor about lackluster efforts to find missing retirement plan participants, employers are asking for permission to send uncashed pension checks -- money that belongs to former workers -- to state unclaimed property funds.


»»  Click here for more Compliance and Regulatory Material

Marketplace News

NAPA Launches Campaign to Recognize Top DC Wholesalers

»»  Click here for More Marketplace News

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