Data and Research May 10, 2023

Retirement, Broad Financial Fallout From COVID Continues

A defined contribution industry survey finds lasting financial effects to retirement plan participants.

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The financial fallout resulting from the COVID-19 pandemic has increased retirement anxiety for plan participants, according to an MFS Investment Management survey and data cited in the report.

More than 65% of workers surveyed think they will need to save more than planned because of the impact of COVID-19 on the economy, 52% say they will have to work longer than planned and 11% took an early withdrawal from a defined contribution retirement plan due to financial stress, according to the MFS Investment Management DC Pulse survey for the first quarter of 2023. The response totals represent the share of respondents who responded that they either somewhat agree or strongly agree with each statement.

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“Consider if your plan has the tools and resources available to help participants stay on track,” the MFS Investment Management survey advised plan sponsors.

MFS recommended that plan sponsors consider if their retirement plan makes available the optimal supports to help participants stay on track and save for retirement.

MFS cited data indicating that many participants’ financial health is low overall, as 32% of Americans cannot afford a $400 emergency expense, according to 2022 data from the Federal Reserve’s Economic Well-Being of U.S. Households Survey. The finding is supported by Cerulli Associates data from Q1 2023 showing that 38% of individuals say not saving enough for retirement was either the most or second most significant source of financial stress.

State of Financial Wellness

The MFS survey cited Defined Contribution Institutional Investment Association data on the state of financial wellness offerings that gauged the benefits offered to workers.

More than half, 55%, of survey respondents said that if they were given $1,000, they would add the money to emergency savings as opposed to another option, according to Cerulli Associates data cited by MFS.

Emergency savings tools or accounts are currently offered by 40% of plans, 12% do not have the benefit but are very likely to add it, and 33% do not provide the benefit but are moderately likely to add it. Additionally, 33% of employers provide financial wellness offerings related to managing student loan debt, 20% do not but are  very likely to add it, and 27% are moderately likely to add it, according to DCIIA.

The research showed that 77% of plan sponsors provide access to financial planning, 11% do not currently offer access but say they are likely to add it, and 9% do not offer access but are moderately likely to add the benefit.

The SECURE 2.0 Act of 2022 included provisions related to emergency savings.

“Starting in 2024, employers can make matching contributions to a DC plan on qualified student loan payments,” the MFS survey advised. “The contributions will be treated as elective contributions for nondiscrimination testing and safe harbor rules, and plan sponsors can rely on an annual participant certification” about the loans being repaid.  

According to the survey, most employers are already making an effort to help with financial concerns: 71% of employers offer budgeting assistance and debt, 9% do not offer the benefit now but are very likely to add it, and 9% are moderately likely to add it. Similarly, health care and health savings account planning is provided by 70% of plans, 9% do not offer the benefit but very likely will add it, and 6% of employers do not offer the benefit but are moderately likely to add it, according to MFS data.  

MFS Investment Management gathered global data for the proprietary portion of the survey from the 2022 MFS Global Retirement Survey. MFS engaged Dynanta, an independent third-party research provider, to conduct a study among 1,000 defined contribution plan participants in the U.S., aged 18 and older, employed at least part-time and actively contributing to a 401(k), 403(b), 457 or 401(a) plan.

Compliance May 9, 2023

Aon, Schneider Electric Agree to $200,000 Settlement

Many claims from 2020 complaint were dismissed, leaving settlement subject to final approval at a September fairness hearing.   

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Aon Investment Consultants and Schneider Electric Holdings Inc. have completed the terms of a settlement agreement with retirement plan plaintiffs, closing for $200,000 a 2020 fiduciary breach lawsuit, according to a judge’s order to approve the unopposed March motion from the plaintiffs.

The lawsuit was brought by participants in the Schneider Electric 401(k) Plan alleging plan fiduciaries and Aon (then known as Aon Hewitt Investment Consultants) breached their fiduciary duties and engaged in prohibited transactions in violation of the Employee Retirement Income Security Act. The plaintiffs claimed that instead of acting in the exclusive best interest of plan participants, the defendants selected and retained proprietary Aon collective investment trusts. 

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U.S. District Judge Nathaniel Gorton, presiding in U.S. District Court for the District of Massachusetts, on Friday signed the order to allow the settlement agreement. in Turner et al. v. Schneider Electric Holdings Inc..   

“The settlement agreement is sufficiently fair, reasonable, and adequate to warrant sending notice of the settlement class,” Gorton wrote.

The order directed Schneider Electric or its insurer to deposit $200,000 into an interest-bearing settlement account—The Turner et al. v. Schneider Electric Holdings Inc. et al. Litigation Settlement Funds—and directed the funds be used to compensate members of the class, pay plaintiff’s attorneys’ fees and administrative expenses. Any remainder would be distributed to the plan for related expenses, the judge wrote.

The settlement amount will be spread across some 26,000 total potential class members, with deductions for legal fees, costs and to award nine named plaintiffs $500 each.

Analytics Consulting, selected as the settlement administrator, will be paid an estimated $3,845, according to the order.

Gorton wrote in the approval order that the settlement was executed after the parties engaged in substantial litigation and after settlement negotiations had continued within that period, including a full-day mediation and summary judgment briefing culminating in an order disposing of substantially all the claims adversely to the plaintiffs, he wrote.

The judge’s order appointed class representatives and class counsel; certified the settlement class as applying to all current participants and beneficiaries of the Schneider Electric 401(k) Plan with an active account as of year-end 2022, excluding the defendants; appointed the settlement administrator; defined the class period as running from May 26, 2014, through December 31, 2022; and scheduled a fairness hearing at the Massachusetts District Court on September 19, according to the filing.

At the fairness hearing, the court will consider final approval of the settlement.   

Considering the defendants’ motions for dismissal, Gorton allowed the lawsuit to proceed in March 2021, although he  ruled out several of the plaintiffs’ claims.

The plaintiffs were represented in court by attorneys from the law firm Schlichter Bogard & Denton LLP, based in St. Louis, with local counsel provided by Milton, Massachusetts-based Naumes Law Group. The defendants were represented by Washington, D.C.-based lawyers from the firms McDermott Will & Emery LLP and O’Melveny and Myers LLP.

Representatives for Aon said the firm is “pleased the court previously granted Aon’s motion for summary judgment and has now granted the motion for preliminary approval of class settlement to fully resolve this matter. We will continue serving our client to maximize [its] employees’ retirement savings.” 

Schneider Electric did not return requests for comment on the lawsuit. 

In another case involving some of the same parties, Aon and plan sponsor Astellas Pharma US Inc. have settled a complaint brought by current and former participants in the pharmaceutical company’s 401(k) plan over Aon’s selection of its own proprietary CITs in the plan, according to a Friday court filing.

Terms of the settlement were not disclosed but should be filed before June 9, according to the filing in U.S. District Court for the Northern District of Illinois, Eastern Division.

The plaintiffs in the Astellas case were also represented by the Schlichter firm. Astellas was represented by Chicago-based Morgan, Lewis & Bockius LLP and Aon was represented by New York-based O’Melveny and Myers and Chicago-based Foley and Lardner LLP.  

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