Products January 6, 2021

The 401(k) Plan Co. Touts PEP as Alternative to CalSavers

The California 401(k) Plan offers higher contribution limits, a stable value fund that outperforms and Roth eligibility regardless of wage level versus CalSavers, an announcement says.

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The California 401(k) Plan, a pooled employer plan (PEP) sponsored by the 401(k) Plan Co., launched this week.

The announcement of the launch notes that the PEP allows for higher contributions from employees, allows employer contributions, has a higher returning default investment and is a better option for highly compensated employees than the automatic-enrollment, state-run retirement plan CalSavers. “The employer controls age, term of service and entry requirements, and exempts themselves from work associated with the state plan and enabling Roth [contributions] for highly compensated and owners,” the 401(k) Co. says in its announcement.

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“It’s a complete solution, instead of the expensive half measure of a state plan so that employers can opt out of CalSavers like many of their employees do,” said a spokesperson for The 401(k) Plan Co. in the announcement. The spokesperson stated that, “The opt-out rate by employees from CalSavers is about three times what it is for a 401(k).”

The California 401(k) Plan comes in two separate options:

  • A solution for employers with five to 100 employees that wish to gain size and scale; and
  • Enterprise, for employers with more than 100 employees that want to outsource administrative services such as audits, Form 5500 and notice filings.
More information is here.
Compliance January 6, 2021

Another Fiduciary Breach Lawsuit Filed Against Allstate

The new complaint states that the Allstate defendants mishandled the process of picking the plan’s default target-date fund suite.

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A new complaint filed in the U.S. District Court for the Northern District of Illinois, Eastern Division, accuses Allstate of various breaches of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act (ERISA).

Many features of the lawsuit echo the numerous other ERISA fiduciary breach lawsuits filed against well-known employers—including a separate suit already filed against Allstate.

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“Throughout the class period, Allstate defendants breached these fiduciary duties,” the complaint states. “In 2011, and again in 2017, they loaded the plan with a suite of poorly performing funds called the Northern Trust Focus Target Retirement Trusts. Allstate defendants kept these funds throughout the class period despite their continued underperformance.”

Northern Trust is not a named defendant in the lawsuit, though the investment options in question here have been cited in other, previous lawsuits. For example, in August 2019, a group of current and former participants in the Walgreen Profit-Sharing Retirement Plan filed a similar complaint. 

The new complaint states that the Allstate defendants “mishandled the process of picking the Northern Trust funds.”

“Despite a market teeming with better-performing alternatives, Allstate selected the Northern Trust funds in 2011,” the complaint alleges. “At the time, the Northern Trust Funds were in their nascent stage, with only a one-year investment track record, and a poor one at that. From 2011 through 2014, the time leading up to the start of the relevant class period, the Northern Trust funds significantly underperformed both their benchmark indexes and comparable target-date funds [TDFs]. Predictably, the Northern Trust Funds continued underperforming from 2015 through the present.”

The complaint then states that “virtually all of these Northern Trust Funds performed in the 70th to 90th percentile—worse than 70% to 90% of their peer funds.” It suggests the plan has lost “upward of $70 million in retirement savings since 2015 because of Allstate’s decision to retain the Northern Trust funds instead of removing them.”

Though neither of the companies are named as defendants, the complaint also includes familiar allegations involving Financial Engines and Alight Financial Advisors.

“As fiduciary to the plan, Allstate arranged for two outside investment advisers—Financial Engines and Alight Financial Advisors—to provide investment advice directly to plan participants for a fee,” the complaint states. “In doing so, Allstate defendants are obligated to act for the exclusive benefit of the plan’s participants and beneficiaries, to assure that plan expenses are reasonable and to ensure the plan’s investments are prudent. Instead, Allstate neglected these sacrosanct duties. It allowed participants to pay unreasonably high fees to the plan’s investment advisers, first Financial Engines and later Alight Financial Advisors. It also constructed a plan with far too many layers of fees and turned a blind eye to a kickback scheme between Financial Engines and the plan recordkeeper, Aon Hewitt.”

Allstate has not yet responded to a request for comment about the new complaint, the text of which is available here.

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