Compliance October 3, 2022

Judge Rules in Home Depot’s Favor in ERISA Suit

Plaintiffs had alleged that Home Depot did not monitor their retirement plan offerings closely, and that they charged participants excessive fees that damaged their retirement accounts.

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A federal judge for the U.S. District Court for the Northern District of Georgia ruled in favor of The Home Depot, Inc. in an Employee Retirement Income Security Act lawsuit last Friday.

Plaintiffs Jaime Pizarro and Craig Smith had brought the class action lawsuit in April 2018. They alleged that Home Depot offered imprudent investment options for their retirement plans and failed to monitor their performance in violation of ERISA over a class period beginning in April 2012.

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Specifically, they alleged that the Home Depot plan had higher fees than similar plans. Some funds offered charged fees as high as 0.5%, when similar funds charged as low as 0.07%. The higher fees also bore no relation to the services rendered, argued the plaintiffs, because the fund advisor, Financial Engines Advisors, is a “robo advisor” offering “cookie cutter” plans and therefore had minimal operating costs. Plaintiffs also noted that even small fee differences can add up to a lot over the course of a participant’s life.

In September 2020, Home Depot’s co-defendants, Financial Engines, and its recordkeeper, Alight, were dismissed from the suit since they were not fiduciaries for the plan. The Home Depot motion to dismiss was denied. The judge ruled then that the plaintiffs had no specific evidence at this stage, but it could rely on circumstantial evidence of an imprudent selection and monitoring process since they were unaware of the process but it would be revealed in discovery.

Last December, the Chamber of Commerce filed an amicus brief to the court in support of Home Depot. The Chamber of Commerce often files amicus briefs in ERISA lawsuits on behalf of the fiduciary. The Chamber of Commerce  argued that plaintiffs cannot merely point to higher-performing funds after the fact as evidence of imprudence:

“ERISA does not subject fiduciaries to liability for selecting the alternatives they judged suitable for their individual plans at the time the decision was made, or for arriving at a conclusion different from what another fiduciary could have prudently made—not least when a fiduciary has elected objectively reasonable investments and services that are widely embraced by the fiduciaries of other similar plans.”

The judge in this case, Steven Grimberg, was once an uncompensated employee of the Chamber of Commerce’s Technology Litigation Advisory Committee from 2018 to 2019. The plaintiffs moved for his recusal on this basis, but Judge Grimberg declined. He noted that he was not paid for the work, and the committee he served on did not handle ERISA litigation.

On September 30, the judge ruled in Home Depot’s favor. The judge noted that Home Depot invested little in monitoring the investment options they provided. They did not do a survey of plan fees, nor engage in a competitive bidding process, and that Home Depot did not discuss the fees assessed by Financial Engines in their fiduciary meetings.

However, the plaintiffs did not prove that they actually suffered any loss by providing a fair comparison to the funds managed by Financial Engines on either fees or performance. The judge explained that “plaintiffs mistake competitors for comparators.”

In fact, said the judge, the fees paid by the plaintiffs were lower on a per-capita basis than the majority of other clients of Financial Engines, and that Financial Engines’ plans offered different “glide paths” or the investment adjustments made along the life of the participant, than other plans.

The judge ruled that even though Home Depot did not monitor its options closely, the plan they were still those that a prudent fiduciary would have kept, meaning the plaintiffs did not actually endure a legally actionable financial loss: “Regardless of any imprudent process, if a plan fiduciary selects an objectively prudent service or investment option, the plan has not suffered a loss, and the element of loss causation is wanting.”

Lastly, the judge ruled that even though some funds underperformed comparators briefly, keeping underperforming assets as part of a long-term strategy is not imprudent, and their underperformance in hindsight is not the basis for a claim since ERISA requires “prudence not prescience.”

Home Depot did not respond to a request for comment.

Data and Research September 30, 2022

BIPOC Workers Worked With Financial Professionals Less in 2022

A new Allianz Life Retirement study highlights that BIPOC workers less frequently access financial advice in 2022, while engagements for white workers are steady

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Plan sponsors, retirement plan advisers and financial professionals have much runway ahead, with abundant opportunities to engage with workers who identify as BIPOC, according to new data from Allianz Life Insurance. 

There are myriad opportunities to engage because members of diverse communities who identify as BIPOC—Black, indigenous and people of color including Hispanic and Asian/Asian Americans—report receiving less financial advice than they did a year ago, according to the 2022 Allianz Life Insurance Retirement Risk Readiness Study.   

Individuals from each of the BIPOC communities surveyed for the study noted a decline in working with a financial professional from 2021, while white workers’ engagement levels remained steady at (48%) in 2022, compared to 49% in 2021.

The survey found that among Black workers, 24% worked with a financial professional in 2022 versus 38% in 2021; for Hispanic workers, 35% worked with a professional in 2022, compared to 44% in 2021; and 32% of Asian/Asian Americans did the same in 2022, against 36% last year.

“[There was] a little bit of a drop off with members of the BIPOC community that had engaged with a financial professional in the past, who do not currently but are open to doing it in the future,” explains Travis Walker, business solutions and diversity consultant for Allianz Life.

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The survey shows that portions of the BIPOC community—while not monolithic in their outlooks, by any stretch—view their retirement and financial goals differently, as well. 

“Each group had a different focus or a different concern, as far as they what they consider risky and how they’re approaching retirement,” says Walker. “[The] Hispanic population for example, is a little more concerned with leaving a legacy or staying in their home, [for] Asian Americans, their concerns are a little different—when you talk about financial risks because, frankly, they tend to live longer and so that drives they’re thinking about the rising cost of living or the market taking a downturn. When speaking to some African Americans, there was a little bit more immediacy when you’re talking about balancing a budget or paying down debt.  

Lower levels of engagement with financial professionals may drive up feelings of financial unpreparedness and retirement insecurity, a particular vulnerability for some BIPOC communities, Walker added, in a press release

“We know these past two years of managing through the pandemic have only served to exacerbate the racial wealth gap, so it’s discouraging to see that BIPOC communities aren’t getting a higher level of financial planning help compared to last year,” he said in the news release. “There is tremendous opportunity for the financial services industry to use this opportunity to build stronger relationships with BIPOC clients, because the interest is there.”

When workers were asked about their readiness for retirement and what worries them about living in retirement, overall, among all cohorts, 59% said they are concerned that the rising cost of living will prevent them from enjoying their retirement. Among Black workers, 60% said they are concerned that the rising cost of living will blunt enjoying retirement, compared to 69% of Hispanic workers, 73% of Asian/Asian American workers and 58% of white workers.

Overall, 59% of workers are concerned that a stock market slump will hurt their retirement nest egg; 47% of Black workers said the same; compared to 68% of Hispanic workers; 69% of Asian/Asian American workers and 58% of white workers, the study found.

Among Hispanic workers, 21% regret taking money from their retirement accounts during the pandemic, compared to 15% white for white workers; 13% Black/African American; and 7% Asian/Asian Americans.

Among Black workers, 71% reported lower confidence in being able to financially support their financial long-term goals in 2022, compared to 77% in 2021. Having more of a focus on short-term goals, rather on their long-term finances, according to the study, may be driving higher the value Black workers find in working with a financial professional on financial planning issues.

For example, among Black workers, 37% are interested in working with a financial professional to get help with balancing a budget, compared to 27% of white workers, 30% of those of Hispanic descent, and 29% for Asian/Asian American workers, according to the study. Additionally, Black workers find value in getting help with paying down debt—31% versus 20% for white workers; 29% for Hispanic workers; and 20% among Asian/Asian American workers.

“This study continues to illustrate how the experiences BIPOC Americans have in managing their finances are constantly changing, and that our industry needs to keep pace,” added Walker. “As risks to retirement increase in frequency and severity, it’s important that BIPOC Americans view financial professionals as trusted partners who can help them accomplish both their short- and long-term financial goals.”

Data from this portion of the report is from the third wave of Allianz’s Retirement Risk Study, which focused on BIPOC workers. 

Allianz Life conducted the survey online in February 2022 with a nationally representative sample of 1,000 individuals age 25 and older in the contiguous U.S. with an annual household income of $50,000 or more for single workers/$75,000 or more for (married/partnered) or investable assets of $150,000. The study included an oversample of respondents who identified as Black/African American (388 responses); Hispanic (355 responses); Asian/Asian American (373 responses).

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