Compliance February 5, 2025

Industry Groups Urge 11th Circuit to ‘Preserve Integrity of ERISA’ in Amicus Brief

The employer organizations are supporting Southern Co. Services, accused of using outdated assumptions when calculating retirees’ joint and survivor annuity benefits.

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Several employee benefits industry groups are urging the U.S. 11th Circuit Court of Appeals to uphold a decision establishing that employers, rather than the courts, have the authority to design and administer benefit plans.

The ERISA Industry Committee, the American Benefits Council and the Committee on Investment of Employee Benefit Assets Inc. argued in an amicus brief filed on Monday that the 11th Circuit should reject the request of the plaintiffs in William Drummond v. Southern Co. Services to rewrite the Employee Retirement Income Security Act’s provisions for calculating qualified joint and survivor annuity benefits.

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A joint and survivor annuity is a benefit that pays out an annuity both for the duration of the participant’s life and, once the participant dies, for the life of the participant’s surviving spouse.

In the lawsuit, initially filed in September 2022, a former participant of the Southern Co. Pension Plan claimed the company used actuarial assumptions more than 70 years out of date and used “unreasonable assumptions” with respect to calculating retirees’ joint and survivor annuities.

In the second of two amended complaints, filed in September 2023, the plaintiffs asked the district court to graft “reasonableness” and “currentness” standards for mortality assumptions onto the phrase “actuarial equivalent” in the relevant section of the Employee Retirement Income Security Act.

The U.S. District Court for the Northern District of Georgia granted Southern Co.’s motion to dismiss in July 2024, arguing that ERISA does not require that plans determine actuarial equivalence using assumptions that are “reasonable or using specified interest rates and mortality tables.”

In their amicus brief, the industry groups argue that the district court correctly rejected the plaintiffs’ invitation to “fashion unwritten, judge-made standards for actuarial assumptions where the Congress elected not to specify any.”

On December 4, 2024, the Department of Labor, under the administration of former President Joe Biden, filed an amicus brief supporting the retirees’ claims that the qualified joint survivor annuity benefits were erroneously calculated and called for the 11th Circuit to reverse the district court’s dismissal. The DOL argued in its brief that ERISA’s requirement that a qualified joint and survivor annuity be the “actuarial equivalent” of a single life annuity requires the use of reasonable actuarial assumptions.

John Lowell, a partner in October Three Consulting, says ERISA does not reference “reasonable” actuarial assumptions.

“The arguments from the defense in these cases have been that ERISA has many requirements about things needing to be reasonable, [but] where it talks about requiring a definition of actuarial equivalence, it doesn’t say reasonable, and it doesn’t say that they have to be current,” Lowell says.

The industry groups’ brief states that a core tenet of ERISA is that employers—not Congress or the courts—determine benefit plan design and the level of plan design.

“Overthrowing the regulatory regime contemplated by the Congress in 1974 would be a radical step with radical consequences, and this court should reject appellants’ invitation to walk down that path,” the brief states.

The industry groups further argue that the “reasonableness” and “currentness” standards advocated by the plaintiffs come with a cost, bringing “administrative burdens, sometimes unworkable ones, and pointlessly increased costs.”

Lowell says if the appeals court decides that these factors need to be considered when calculating the annuity benefits, every defined benefit plan would have to do this, and plan sponsors could be even more deterred from offering a DB plan.

Tom Cristina, executive director of the ERIC Legal Center, wrote in a statement about the groups’ filing, “The approach contemplated by the [plaintiffs] in Drummond suggests that the courts needlessly meddle, which will inevitably create more litigation, more confusion and more cost for plan sponsors. That means fewer resources available to invest in the plans and those who are served by them. Affirming the ruling of the lower court is critical to preserving the foundation of ERISA.”

Opinions February 5, 2025

How Plan Sponsors Can Benefit in the Evolving 401(k) Competitive Landscape

The key factors that differentiate between recordkeepers are changing, which means companies should adjust their requests for proposals accordingly.

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A recent report from Accenture highlighted the challenges facing 401(k) recordkeepers in an increasingly competitive environment. The industry is experiencing a wave of acquisitions and partnerships as companies search for ways to offset slimmer profit margins and find the capital necessary to invest in their technology platforms and keep them on the cutting edge.

For recordkeepers, this consolidation has led to a fiercely competitive market, as companies battle to increase market share and take advantage of the economies of scale that come with higher assets under management. For plan sponsors, it presents an opportunity to keep plan costs down without sacrificing any of the support or benefits of a well-managed retirement plan. When combined with the ongoing advances in artificial intelligence-enabled technology solutions, for both participants and plan sponsors, the potential to reduce costs while enhancing what the benefits program offers to employee participants has never been better.  

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Anova Consulting Group’s retirement research has shown that plan sponsors have clearly noticed these trends and are taking advantage of the opportunity to deliver more to participants while maintaining their fiduciary responsibilities. Anova Consulting’s research explored the factors considered by plan sponsors throughout the recordkeeper evaluation process and evaluated what is driving buying committees’ decisionmaking processes. A look back at the last five years shows a slow and steady shift in what plan sponsors are looking for in a recordkeeper, and it is not just the lowest price anymore.

Top Mentioned Reasons for Selecting 401(k) Recordkeeper

2019
2023
Price / value
69%
58%
Investment offering
21%
13%
Client service
38%
45%
Participant experience
25%
28%
Participant technology
26%
28%
Sales team
18%
23%

Decision Drivers: The Shift Away From Price

Recordkeeping fees have been squeezed to the point where there is rarely a meaningful gap between one finalist and another. Based on responses from plan sponsors and advisers interviewed by Anova, this fee compression has caused a shift in the reasons for choosing a recordkeeper.

In the past five years, we have seen the percentage of buyers who identified price as a top reason for their recordkeeper choice drop to 58% from almost 70%. Price is therefore still a significant factor, but less of a differentiator or a decision driver.

The same is true for investment options. With most recordkeepers now offering open architecture, the investment options offered by a provider are now only cited 13% of the time as a reason for selecting a recordkeeper. This has dropped significantly over the last half-decade, as most recordkeepers now offer a similar slate of nonproprietary products, from standard mutual funds to target-date funds to exchange-traded funds, reducing the ability for one recordkeeper to stand out from another.

Growing in Importance

So what are companies looking for when selecting a recordkeeper for their defined contribution  plan? Anova’s research revealed a steady increase in the importance of client service and of a strong relationship between the two organizations.

Service starts with establishing rapport between the plan sponsor and the recordkeeper. A trusted relationship and a connection between the relationship manager, the client service manager and the plan sponsor are key drivers of a successful partnership. Plan sponsors often cite the confidence they have in a recordkeeper delivering on the promise of service and support as an increasingly important reason for selecting a partner.

Dynamic Participant Experience

There has also been a steady increase in the expected quality of the participant experience. This often starts with technology. As most participants access their retirement plan online, either through a browser or a mobile app, a simple, easy-to-use platform is essential in not only encouraging participation, but also in getting employees to take advantage of all the benefits the plan may offer.

Assistance with investment decisions, educational opportunities and other features that used to depend on human interaction can now be accessed and completed online. Of course, there are still some transactions—and some participants—that require access to a human, so a call center is also still an important support component for some companies.

Getting the Most out of Your Plan Review

Given the complexity and disruption involved with a move to a new 401(k) provider, it is important for buying committees and plan sponsors to learn as much as possible about the companies competing to manage their plans.

Most companies will work with a financial adviser when selecting a recordkeeper. Be sure to ask your adviser about their experience with each recordkeeper. Does the recordkeeper have a lot of experience with companies like yours? What are their differentiators in the market? Which one has a culture that would be a good fit with yours?

Keep in mind that most sponsor-recordkeeper partnerships last more than seven years1, so it is important to think long term. Another important consideration is whether a bundled or unbundled solution is best for your plan. Work closely with your adviser on these questions while preparing the request for proposals. This will help you narrow down your choices ahead of the finals presentations and help the selected recordkeepers come prepared to discuss what you care about. Allow at least an hour for each presentation so that you have time to ask questions and hear about the key features of what each recordkeeper has to offer.

Selecting a Recordkeeper

Once you have had a chance to meet with the competing recordkeepers, take the time to review the options as a group.

The RFP process will have focused on many of the details, like pricing, investment options and participant offerings. In the next phase of the evaluation, it is important to take a more holistic view of what the relationship will look like. Be sure to consider the various stakeholders in your company’s plan. Will the new recordkeeper be a good partner and provide the best solutions and services for all your employees—executives, office and non-office workers—and those managing the program day-to-day?

Once you have taken all these factors into consideration, you’ll know you’ve done your best for all participants and stakeholders.

  1. 2024 Cogent Syndicated Report by Escalent (https://escalent.co/news/ma-activity-healthy-business-growth-are-now-top-triggers-for-switching-401k-recordkeepers/)


Brendon Attridge is a senior engagement manager with Anova Consulting Group, a voice-of-the-customer research firm that specializes in win/loss analysis. He is responsible for building and maintaining long-term partnerships with Anova’s financial services and retirement clients. His responsibilities also include identifying and communicating actionable insights to help clients win and retain more business. Brendon draws on his 25 years of research and consulting experience to drive value clients.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.

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