Participants May 31, 2017

Helping Gen X With Financial Wellness

Generation X has competing financial priorities that plan sponsors need to address.
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While Millennials and Baby Boomers get much attention, it could be argued that Generation X is the most in need of financial wellness help.

For Gen Xers, according to Larisa Terkeltaub, senior director of LearnVest at Work, aside from credit card and student loan debt and saving for emergencies and retirement, there’s an additional layer when it comes to prioritizing competing goals. Many parents tend to put their family’s needs, such as paying for their children’s college, ahead of saving for their own retirement and accelerating their debt repayment. Parents strive to provide their families with everything they need, which at times can come at the cost of their own savings plan.

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Monika Hubbard, AIF, institutional retirement consultant at Unified Trust Company, who is based in Louisville, Kentucky, says, “Millennials get all the press, probably because they are the digital generation, which is unique to them,” she says. “In addition, the wealth transfer from Baby Boomers will be mostly to Millennials—about $30 trillion—and interest follows money.”

According to Hubbard, Gen X’s top worry (56%) is not having money for short term financial needs. The second worry for Gen X is not having enough for retirement. Also, cash management and debt management are worries (45%).

Terkeltaub says in many cases, Gen Xers are more likely to be able to focus on goals above and beyond their basic financial security. Gen Xers who have established strong financial footing are better able to dream up what their next financial achievement may be.

Hubbard says Unified Trust Company is seeing Gen X turn to topics correlated to their stress; debt management seems to be a first priority. Gen X is asking, “How do I manage money—reduce credit card debt and improve my credit score while managing day to day expenses?” she says.

“We always tell them to save early and save more, but if the average debt for student loans is $10,000 to $15,000, and they have to pay for living expenses, they think, ‘How can I save enough to get the company match when I don’t have money for current expenses?’” Hubbard says. She adds that Generation X also worries more about breaks in service or change in jobs, unlike the Baby Boomer generation. They have to make sure they can deal with something that happens in the short term.

NEXT: How Plan Sponsors Can Help

“We’ve found that if you spread resources across too many buckets, it can feel like you’re not making progress on anything. So, a big part of this process is to strike the right balance between working toward the goals that feel most pressing and building a solid financial foundation,” Terkeltaub says.

Terkeltaub notes that employers seem to recognize that a financially healthy workforce can have a positive impact on their bottom line. She cites Aon Hewitt research that found more than 60% of human resource professionals say financial stress is having an impact on employee work performance, and Consumer Financial Protection Bureau data that shows 55% of employers believe financial wellness leads to greater productivity.

Hubbard says any retirement plan sponsor has to recognize that each generation has unique needs. They should understand generational concerns, but also individual concerns. “Younger Gen Xers have children; older Gen Xers have children going to college, and sometimes they are also facing taking care of their parents,” she notes.

Providing access to one-on-one financial planners who can create a customized plan for employees can help employees gain confidence in their financial well-being, Terkeltaub suggests. And, a dedicated financial planner can help employees take advantage of benefits already being offered by their employer.

Hubbard suggests plan sponsors should look at different wellness programs available in the marketplace. “Do look to outside vendor support, because when you start talking about very personal things, employees don’t want to talk to someone in company, and employees need to feel they can trust and share personal information,” she says.

She notes that unfortunately a lot of small businesses don’t have the resources to go to bid for outside organizations. For those that don’t have the resources, and even for additional support for those plan sponsors that do, they need to ensure their retirement plan provider is engaged at the participant level, according to Hubbard. Providers can offer tools and thought leadership to help employees reach retirement success; tools not just about retirement savings, but addressing challenges to get to retirement success.

“When employees understand the basics of financial planning and how to improve their finances from the core level, they can work to establish a solid foundation from which to continuously build upon,” Terkeltaub says.
Compliance May 31, 2017

Self-Dealing Suit Against Wells Fargo Dismissed

A U.S. District Court Judge agreed with Wells Fargo that allegations that the bank breached its fiduciary duty by continuing to invest in its own TDFs when better-performing funds were available at a lower cost are insufficient to plausibly allege a breach of fiduciary duty.
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A federal district court judge has granted Wells Fargo’s motion to dismiss a lawsuit accusing it of self-dealing and imprudent investing of its own 401(k) plan’s assets by funneling billions of dollars of those assets into Wells Fargo’s proprietary target-date funds (TDFs).

John Meiners filed the lawsuit last November, also accusing Wells Fargo of using a quick enroll option which defaulted participants into the TDFs to seed the funds and make more money. According to the complaint, Wells Fargo “double charged for its target-date funds—charging fees for both managing the target-date funds themselves, and managing the index funds underlying the target-date funds.”

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However, U.S. District Court Judge David S. Doty of the U.S. District Court for the District of Minnesota agreed with Wells Fargo that Meiners’ allegations that the bank breached its fiduciary duty by continuing to invest in its own TDFs when better-performing funds were available at a lower cost are insufficient to plausibly allege a breach of fiduciary duty.

Central to Meiners’ complaint is the allegation that the Wells Fargo funds consistently underperformed Vanguard funds. “In order to plausibly allege a fund is underperforming, Meiners must provide some benchmark against which the Wells Fargo funds can meaningfully be compared,” Doty wrote in his opinion.

He noted that the only benchmark Meiners provides is the Vanguard funds’ performance. However, citing Tussey v. ABB, Inc., Doty said a comparison of the returns for two different funds is insufficient because “funds … designed for different purposes … choose their investments differently, so there is no reason to expect them to make similar returns over any given span of time.” Doty added that one would expect the Wells Fargo and Vanguard funds to perform differently because the Wells Fargo funds have a different investment strategy than the Vanguard funds. Specifically, Wells Fargo funds have a higher allocation of bond than Vanguard funds. “Therefore, it does not necessarily follow that the Wells Fargo funds were substandard compared to the Vanguard funds, nor does it follow that Wells Fargo’s decision making process was flawed,” he concluded.

NEXT: Fees and seeding the TDFs

Regarding fees, Doty cited other cases in which it was ruled that nothing in the Employee Retirement Income Security Act (ERISA) requires every retirement plan fiduciary to scour the market to find and offer the cheapest possible fund. Meiners argues his complaint does not merely allege that the bank failed to invest in the cheapest fund available, but it alleges that Wells Fargo acted in self-interest by choosing higher-cost affiliated funds over lower-cost non-affiliated funds. Meiners’ support of his complaint is that two funds, Fidelity and Vanguard, are less expensive.

“If such allegations were sufficient to survive a motion to dismiss, it would render fiduciaries liable to suit for failing to choose the cheapest, non-affiliated fund—even if that fund is ‘plagued by other problems,’” Doty wrote. “Therefore, Meiners must plead something more to make his excessive fees claim plausible.”

Doty added that nothing in the complaint suggests that the Vanguard and Fidelity funds are reliable comparators, offer similar services, or are of similar size, nor does it contain facts showing that the Wells Fargo funds are more expensive when compared to the market as a whole. “Without a meaningful comparison, the mere fact that the Wells Fargo funds are more expensive than two other funds does not give rise to a plausible breach of fiduciary duty claim,” Doty wrote.

Meiners claims that Wells Fargo set its TDFs as the default for participants in order to seed its own funds, but Doty found this also insufficient to give rise a breach of fiduciary duty claim, noting that it is not uncommon for plans to provide default investment options for participants who fail to make an investment election, and Congress specifically anticipated this scenario by providing guidelines for default investment options. Doty also found the fact that Wells Fargo chose affiliated funds as the default option is, without more, insufficient to show a breach of its fiduciary duty.

“Although a fiduciary’s choice of affiliated funds is relevant in showing that the fiduciary may have acted in its financial self-interest, Meiners must plead additional facts showing that the fiduciary’s decision was based on financial interest rather than a legitimate consideration. Other than the unsupported allegations of excessive fees and under-performance …, Meiners pleads no facts suggesting that the choice of affiliated funds was the result of flawed decision-making,” Doty concluded.

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