Compliance September 24, 2020

Duke Energy Faces Classic Excessive Fee Lawsuit

The complaint suggests the plan’s recordkeeping expenses demonstrate that defendants failed to engage in prudent monitoring and engage in prudent practices to keep those costs at competitive levels.

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A new Employee Retirement Income Security Act (ERISA) lawsuit has been filed in the U.S. District Court for the Western District of North Carolina, Charlotte Division, naming as defendants the Duke Energy Corp. and its benefits committee.

“Defendants have a fiduciary duty—the highest obligations under the law—to engage in prudent practices to monitor the plan’s expenses and ensure they are minimized,” the lawsuit states. “Defendants have failed to do this with respect to the plan’s recordkeeping and managed account services. They have allowed the plan to pay roughly twice as much for the same services than other plans pay.”

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The plaintiffs suggest the plan, its participants and beneficiaries have suffered “significant losses totaling millions of dollars.”

“Given the exorbitant excess fees defendants have allowed the plan to pay, it is reasonable to infer defendants have failed to follow these prudent practices and have thus failed to uphold their fiduciary duties,” the lawsuit states.

According to the lawsuit, from the beginning of 2014 through the end of 2018, the plan had between 33,000 and 39,000 participants, and between $6.7 and $8.6 billion in assets. The plaintiffs say plans of this size are often referred to as “jumbo” or “mega” plans and have “significant bargaining power to extract extraordinarily low fees for services,” including for recordkeeping and managed account services.

Responding to a request for comment, Duke Energy provided the following statement: “Duke Energy’s retirement savings plan has been carefully designed and administered as a retirement savings tool for the company’s 29,000 employees. Duke Energy and its fiduciaries take seriously their responsibilities under the federal Employee Retirement Income Security Act of 1974, and work diligently to fully discharge their duties under the law. The company will vigorously defend against this lawsuit.”

Plaintiffs state that Fidelity has been the plan’s recordkeeper since at least 2009, and that the plan’s Form 5500s for 2014 through 2018 show that Fidelity’s direct compensation for recordkeeping services to the plan has been between $58 and $67 per participant during the class period.

“Based on [our] investigation and publicly available filings, a prudent and loyal fiduciary of a similarly sized plan could have obtained comparable administrative services of like quality for approximately $25 to $30 per participant near the beginning of the statutory period, in 2014, and between $20 and $25 per participant toward the end of the class period,” the lawsuit states. “Not only have Duke Energy’s recordkeeping fees been two to three times higher than competitive marketplace rates, but the Form 5500s also demonstrate that Duke Energy has used the same recordkeeper for at least the past decade, and that the recordkeeping rates paid by participants stayed roughly the same between 2014 and 2018, while marketplace rates were dropping. This gives rise to an inference that defendants failed to monitor recordkeeping compensation during [the class period].”

The complaint suggests the plan’s recordkeeping expenses demonstrate that defendants failed to engage in prudent monitoring and engage in prudent practices to keep those costs at competitive levels.

The text of the lawsuit goes on to state that the managed account option in the plan is operated by Financial Engines Advisors, an independent investment advice and management services provider. Though not named as a defendant in any of the cases, Financial Engines Advisors is involved in other ongoing pieces of ERISA excessive fee litigation.

“For this service, defendants have allowed participants to pay an annual fee—0.5% of their average account balance for the year—regardless of the size of their account,” the complaint alleges. “In doing so, defendants have caused the plan to pay significantly more for managed account services than other plans pay for identical services. Defendants also failed to capture tiered pricing for participants with larger account balances, which is industry standard for managed account services.”

The full text of the complaint is available here.

Data and Research September 24, 2020

BoA Finds Financial Wellness Disconnect Between Employees and Employers

Employer interest in helping employees grows, but workers aren’t reporting better financial security, and more are willing to use financial tools and resources from a third-party instead of their employer.

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Bank of America (BoA) has released its 10th annual “Workplace Benefits Report,” examining recent trends in financial wellness.

As the effects of the COVID-19 pandemic emphasize the importance of well-being, the survey found more employers are committed to ensuring their participants feel secure with their financial status. Sixty-two percent of plan sponsors say they feel “extremely” responsible for their employees’ financial wellness—a big jump from just 13% in 2013.

This response grows when employers also think of their employees’ long-term future, added Lorna Sabbia, head of retirement and benefit plan services at BoA, during a recent webinar. “Employers’ sense of responsibility is even greater when it comes to focusing on retirement-related progress,” she said. For example, when it came to retirement health care needs/costs, 80% of sponsors say they feel either very or extremely responsible.

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Yet, even as employer interest in helping their employees grows, workers aren’t reporting better financial security. Forty-nine percent of employees say they are feeling financially well today, down from 61% two years ago. However, 59% say they don’t have control over their debt, which could contribute to reduced feelings of financial wellness.

Being strapped for money after paying off monthly expenses is likely contributing to these feelings as well. According to the report, 38% of employees say they don’t have spare money after monthly bills. Eighteen percent said they are focused on other non-financial needs that are more pressing.

Women, who are more likely to halt their careers for caregiving and are still subjected to the gender pay gap, reported feeling lower levels of financial wellness than men. Forty-one percent said they would rate their financial wellness as good or excellent, while 58% of men say the same.

The survey also found slight disparities in the top three financial concerns for men and women. While both groups highlighted retirement savings and sufficient funds to pay for unexpected expenses as top goals, women were more likely to add paying off credit card debt as their third goal, while men were likely to be concerned about paying off a mortgage.

Among age groups, Baby Boomers led the way with 60% rating their financial wellness as good or excellent. Forty-one percent of Generation Zers and Millennials reported the same, with Generation Xers coming in last at 38%. Kevin Crain, head of workplace financial solutions at BoA, attributed these findings to that fact that Gen Xers are more likely to be in the midst of their careers while handling caregiving, aging parents and paying rent or a mortgage. “[They] are feeling a bit of a squeeze in terms of what’s going on in their lives,” he said.

Each cohort had distinct financial focuses, which BoA attributed to their members’ current lifestyle. Gen Xers said saving for retirement, paying off credit card debt and growing savings to pay for unexpected expenses were their top three areas of concern. Gen Zers and Millennials listed paying off credit card debt, buying a house and growing savings to pay for unexpected expenses as their principal goals, while Boomers and the Silent Generation reported saving for retirement, paying off a mortgage and paying off credit card debt as their main focuses.

Similarly, feelings of progress when it comes to retirement savings differed across generations. As Boomers and the Silent Generation enter and live in retirement, more of their members are likely to add to their retirement savings. Fifty percent say they feel progress in saving for retirement, compared with 23% of Gen Xers and 21% of Millennials and Gen Zers.

To increase financial well-being, more employees are seeking advice from retirement industry professionals. Given a list of financial resources, 41% said advice from a financial adviser, planner or accountant was most important to them. Thirty percent said they would like information on retirement plans; 28% are looking for financial products/services that help employees; 27% want online financial tools or calculators; and 27% are interested in developing financial skills and good financial habits.

More employees are also willing to use financial tools and resources from a third-party instead of their employer. Forty-seven of respondents said they would use retirement income planning tools from a third-party professional; 39% said they would use a health savings account (HSA); 37% would use health care cost estimators; 36% would use Social Security withdrawal education; 35% would use access to preferred checking and savings accounts; and 35% would use legal services.

If employers are implementing a workplace financial wellness program, BoA recommends incorporating a step-by-step plan and progress reports; a way to track finances, including debt; and streamlined information on one platform.

“[Employees] want tools and resources to help them stay on that track towards financial wellness, but one size does not fit all,” said Steve Ulian, managing director at BoA. “Some need a road map; others want progress reports. People are on different timelines on that journey.”

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