Compliance December 30, 2022

Fiduciary 401(k) Breach Claims Against Milliman Will Proceed

A federal judge ruled against a Milliman Inc. motion to dismiss fiduciary breach allegations that it failed to prudently choose and monitor 401(k) plan investments.

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A federal judge in Washington state on December 13 denied a motion from Milliman Inc. to dismiss breach of fiduciary duty claims brought by a 401(k) retirement plan participant under the Employee Retirement Income Security Act.

The court order allows the plaintiff’s breach of fiduciary duty claims to proceed, including allegations of mismanagement of investments in its employer-provided 401(k) plan. Seattle-based actuarial and consulting firm Milliman is now faced with ERISA counts for breaches of duties of loyalty and of prudence and failure to monitor its workplace 401(k).

In June, U.S. District Court Judge for the Western District of Washington Thomas Zilly had dismissed portions of the complaint, but the plaintiff was allowed to submit an amended version, and this one allows all three complaints to proceed.

Although Milliman argued the plaintiff’s amended complaint failed to state a claim, Zilly ruled that the legal standard to state a claim for breach of fiduciary duty was met by the plaintiff’s amended complaint. These included that the plaintiff must allege facts plausibly showing that defendants were fiduciaries, that defendants breached their fiduciary duties and that their breach caused loss to the ERISA-covered plan.

“Having viewed plaintiff’s allegations in their totality, the court is persuaded that plaintiff has pleaded a ‘plausible’ claim for breach of fiduciary duty,” Zilly stated.

Milliman argued, unsuccessfully, that “in her second effort, plaintiff has again failed to establish that various funds or indices are appropriate comparators. … In their present attack, defendants do not identify necessary details that plaintiff has omitted or neglected to include, but rather (i) dispute plaintiff’s characterization of the investment options at issue, and (ii) disagree with inferences plaintiff has drawn from the statistics that she has proffered,” the court order stated.

Zilly also dismissed the defendant’s argument to throw out the failure to monitor claim.

“Defendants contend that, because a failure to monitor claim is derivative of a breach of fiduciary duty claim, which defendants argue has not been adequately pleaded, plaintiff’s failure to monitor claim also fails,” he stated. “In light, however, of the court’s ruling concerning plaintiff’s breach of fiduciary duty claim, defendants’ motion to dismiss plaintiff’s failure to monitor claim likewise lacks merit.”

The initial complaint proposed a class action lawsuit. The plaintiff alleged Milliman failed to prudently monitor the plan’s investments.

The complaint alleged Milliman mismanaged the retirement plan’s investments, causing harm to workers contributing to their 401(k). The complaint accused plan fiduciaries of failure to remove three of the plan’s “poorly performing investment options,” the plaintiff stated.

According to the original complaint, when the investment committee decided to add a suite of target-risk funds to the plan’s investment menu in 2013, the funds had only been launched two months prior, had no track record and were untested.

The plan had approximately $1.7 billion in assets under management, according to the original complaint.

A Milliman spokesperson declined to comment.

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Compliance December 30, 2022

It’s Official: SECURE 2.0 Is the Law

After many months of debate and concern that SECURE 2.0 might not pass, it has been signed into law by President Biden.

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On Thursday night, President Joe Biden signed the $1.7 trillion omnibus spending package which contains the SECURE 2.0 Act—a package of retirement reform that will have widespread implications for the industry and will increase the savings potential for many Americans. The Senate passed the spending bill 68 to 29 on December 22, and the House 225 to 201 on December 23.

Some of the SECURE 2.0 provisions will take effect on January 1, 2023, such as increasing the required minimum distribution age to 73 and increasing the small business startup tax credit from 50% of administrative costs to 100%, up to $5,000. Still others will take effect years in the future, such as requiring automatic enrollment for new 401(k) and 403(b) plans, starting in 2025.

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Our overview of the key provisions in SECURE 2.0 can be found here.

SECURE 2.0 is the aggregated and reconciled product of three bills, two of which originated in the Senate and one in the House of Representatives.

The Senate versions, known as the Enhancing American Retirement Now (EARN) Act, and the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE and SHINE) Act, were proposed in the U.S. Senate Committee on Finance and the U.S. Senate Committee on Health, Labor and Education, respectively. The House version was known as the Securing a Strong Retirement Act, which began in the U.S. House Committee on Ways and Means.

Voya Financial, one of the country’s largest retirement recordkeepers, said in an emailed statement that “SECURE 2.0 will make a number of important changes to help working individuals save more for retirement and increase their access to workplace retirement plans, including: automatically enrolling new employees into 401(k) and 403(b) retirement plans; granting a small business plan start-up credit for start-up costs; increasing the required minimum distribution age; allowing employers to treat repayments of student loans as elective contributions to one’s retirement plan for matching purposes; and allowing employers to create emergency savings accounts within their retirement plan.”

The automatic features are broadly popular in the retirement industry and backed by research as effective means of increasing enrollment. They were also cited by a statement from another of the country’s large retirement service providers, Vanguard, which wrote: “This landmark legislation makes it easier for participants to save for their future by broadening Americans’ access to the retirement savings system through expanded automatic enrollment and escalation, novel portability efforts that Vanguard helped pioneer, and greater transparency around target-date fund performance.”

The Insured Retirement Institute boasted that 14 provisions they advocated for made it into the final bill, including automatic enrollment, allowing 403(b) plans to join pooled employer plans, and increasing catch-up contribution limits.

The Investment Company Institute also applauded the passage: “Key provisions of this important bill include the promotion of automatic enrollment, which will lead to increased participation rates in 401(k) and 403(b) retirement savings plans. The bill will support people as they look to start saving earlier by allowing employees to receive matching contributions to their retirement accounts based on student loan payments. Additionally, the legislation will help expand pooled employer plans, giving additional opportunities for individuals to access savings tools, and build for a secure financial future.”

Attorneys from the Wagner Law Group, which practices in ERISA and employee benefits law, noted that while most provisions will go into effect January 1, 2025, plan sponsors and advisers need to be aware of the various time frames for each specific law and how to manage them accordingly.

“Secure 2.0 is nearly 400 pages in length, addressing many disparate provisions,” the Boston-based firm said in an emailed newsletter to clients. “Some are technical in nature, many are non-controversial, and some represent significant improvements that have been requested for a long period of time.”

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