Compliance December 1, 2016

403(b) Plan Participant Files Suit Over Voya Stable Value Funds

The suit claims Voya collects hundreds of millions of dollars annually in undisclosed compensation.
Reported by

Darlene Dezelan has filed a lawsuit on behalf of the Cedars-Sinai Medical Center 403(b) Retirement Plan, and on behalf of all other similarly situated employee pension benefit plans covered under the Employee Retirement Income Security Act (ERISA), alleging that Voya Retirement Insurance and Annuity Company improperly profited from stable value funds offered through annuity contracts.

According to the complaint, Voya sells group annuity contracts to retirement plans which include what it labels and markets as stable value funds (SVAs). The SVAs periodically credit a certain amount of interest income to retirement plans and the participants in such plans who invest their retirement plan accounts in SVAs. This income, generally expressed as a percentage of the invested capital, is determined pursuant to the Crediting Rate. The Crediting Rate varies in that in each Crediting Period, and Voya sets a Crediting Rate for all money in and added to its SVAs in that period.

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The lawsuit alleges that Voya sets the Crediting Rate well below the internal rate of return (IRR) on the plan’s deposits to the SVAs, guaranteeing a substantial profit for itself through both the retention of the spread between the two rates and/or the use of the spread for its own purposes. Further, the lawsuit says, Voya does not disclose to its retirement plan clients and their respective participants the amount of the spread, so it collects hundreds of millions of dollars annually in undisclosed compensation.

The case was filed in July of this year, and Voya defendants have filed a motion to dismiss.

Similar lawsuits were filed against MassMutual and New York Life this year.

Administration December 1, 2016

Small Businesses Buy Into Safe Harbor 401(k) Plan Design

However, only 8.71% of plans automatically enroll employees that fail to make an affirmative enrollment election, an analysis finds.
Reported by

Eric Droblyen, president and COO of Employee Fiduciary, studied the 2,767 small business 401(k) plans for which the firm provides Employee Retirement Income Security Act (ERISA) compliance services and found 68% of plans use a safe harbor 401(k) plan design to avoid annual ADP/ACP and top heavy nondiscrimination testing.

In addition, a new comparability profit sharing contribution is most commonly combined with a safe harbor 3% non-elective employer contribution plan design. Traditional profit-sharing plan designs use either a flat percentage to allocate profits among participating employees, or an approach that is integrated with Social Security. By contrast, new comparability plans permit substantially higher levels of distributions to highly paid employees.

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Droblyen’s analysis found pro-rata and integrated profit sharing contributions are most commonly combined with the 3% match-based safe harbor 401(k) plan designs.

Other plan design features among small business 401(k)s the analysis noted include:

  • Only 8.71% of plans automatically enroll employees that fail to make an affirmative enrollment election;
  • 65.96% of plans permit after-tax Roth 401(k) contributions;
  • 64.37% of plans permit non-safe harbor employer matching contributions; and
  • 85.65% of plans permit employer profit sharing contributions.

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