Fidelity Survey Finds 401(k) Plan Sponsors Focused on Fiduciary Responsibilities

Plan sponsors are seeking retirement advisers who can consult on plan design and performance, with an all-time high of 86% of sponsors having made plan design changes in the last two years.

The seventh edition of Fidelity’s Plan Sponsor Attitudes Survey contains some interesting and counterintuitive findings compared with previous years, especially as it pertains to retirement plan sponsor satisfaction and regulatory pressures.

Presenting a sneak-peek of the survey data to PLANSPONSOR, Jordan Burgess, head of specialist field sales overseeing defined contribution investment only (DCIO) business at Fidelity Institutional Asset Management, stressed the quality of this survey compared with some other research.

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“The 2016 Plan Sponsor Attitudes Survey was conducted in collaboration with E-rewards, an independent market research company, via an online survey of 976 plan sponsors on behalf of Fidelity in February 2016,” Burgess explains. “Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan, and unlike others, the survey did not just focus on plan sponsors in our own book of business. We also looked predominantly at plan sponsors actually using the services of a financial adviser or plan consultant.”

The result is a particularly informative look into the decisionmaking of the slice of plan sponsors already engaged with advisers, Burgess said, noting one of the clear standout finding from this year is the dramatic shift in plan sponsor attitudes towards their fiduciary responsibility. It’s a trend Burgess said “is obviously being fueled by the Department of Labor’s recent efforts, but it’s about more than that, too.”

Specifically, the survey results show 38% of the plan sponsors surveyed are concerned about their fiduciary duty, a significant increase from 24% last year. At the same time, a new high of 69% ranked an adviser’s willingness to take on a formal fiduciary role as important. Furthermore, for the first time, “fiduciary responsibility” is the top reason plan sponsors say they started using retirement advisers.

“Results also show sponsors cite the need for a more knowledgeable adviser who is an expert in a variety of areas, including how to best manage fiduciary responsibilities but also other areas related specifically to DC plan design and operations,” Burgess said.

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Interestingly, the Fidelity research also found that a record 72% of plan sponsors in the study are satisfied with their advisers, with two-thirds saying they get good value from their advisers.

“Despite this, the percentage of respondents actively looking to change their advisers also reached a new high of 23%,” Burgess warned. “It’s pretty remarkable and more than a little counterintuitive.”

The research shows the most common reason for looking for a new advisers is “the need for a more knowledgeable adviser who is an expert in a variety of areas,” including how to best manage fiduciary responsibilities. In addition, Fidelity finds plan sponsors surveyed are also looking for retirement advisers who can consult on plan design and improving plan performance, with an all-time high of 86% having made plan design changes in the last two years, and a similar 87% having made investment menu changes in the last two years.

“Advisers who specialize in the retirement plan market are delivering increasingly greater value, offering services that allow them to operate as a fiduciary, as well as building scalable ways to manage investment menus and serve their plan sponsor clients,” Burgess concludes. “Another all-time high in the survey data this year includes 88% of plan sponsors saying they have participants who delay retirement due to a lack of savings. It’s a tremendous opportunity for advisers to step up and help employers solve these very challenging problems.”

According to Fidelity, sponsors are focused on driving participation among their employees, with a record number of respondents (61%) citing this as a reason for design changes. In fact, more than three-quarters (76%) of plan sponsors surveyed are planning future design changes, “the highest percentage ever.”

“While retirement advisers and consultants are considered the primary driver of plan design changes, recordkeeper influence is expanding, with more plan sponsors saying that advisers and recordkeepers have equal impact on decisions,” Burgess concluded. “Advisers must be aware of what recordkeepers can offer, including simplifying plan administration, and they should ensure that their clients understand how a strong partnership that includes the plan sponsor, the recordkeeper and the adviser can benefit plan participants.”

Additional information about the survey can be found at institutional.fidelity.com/attitudes

Pension Plans to Receive Settlement in Caremark Fraud Case

The plaintiffs serving as representatives of the class include the City of Birmingham Retirement and Relief System.

An Alabama Circuit Court Judge granted final approval to a $310 million class action settlement that seeks to rectify a fraud committed against more than 20,000 individuals, entities and pension plans who owned stock in MedPartners, Inc., in the late 1990s.

MedPartners changed its name in 2000 to Caremark Rx and merged with CVS Health in 2007. The lawsuit claims that Birmingham-based MedPartners, Inc., a physician practice management company, lied to its shareholders about how much the company could pay to settle securities-fraud lawsuits in 1999.

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The class is made up of investors who purchased MedPartners securities from 1996-1998. The plaintiffs serving as representatives of the class include the City of Birmingham Retirement and Relief System.

According to a news release from the law firm Hare, Wynn, Newell & Newton, more than 20 securities-fraud lawsuits were filed by investors in 1998 against MedPartners. Those lawsuits alleged that MedPartners made false and misleading statements to the public about its financial condition and prospects. The lawsuits were combined and settled in 1999 for $56 million after MedPartners and its insurer, AIG, claimed MedPartners was teetering on the edge of bankruptcy and that $56 million exhausted the limits of its insurance coverage.

In 2003, a new class action lawsuit was filed against MedPartners (Caremark) and AIG for not disclosing the true fact that in 1999, AIG provided unlimited insurance coverage to MedPartners for the 1998 securities-fraud lawsuits. This claim alleged that Caremark and AIG committed fraud in the 1999 settlement.

In 2011, CVS Caremark Corp. agreed to pay nearly $20 million to settle three lawsuits involving allegations that the company defrauded pension systems in three states. Those lawsuits contained different allegations against the company than the Alabama case.

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