Compliance February 14, 2022

Some Claims Tossed in NFP Fiduciary Lawsuit

Claims regarding NFP’s direct responsibility for the selection and retention of the flexPATH target-date funds were dismissed while allegations about its advice regarding the funds were moved forward. 

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The U.S. District Court for the Central District of California has ruled in an Employee Retirement Income Security Act lawsuit involving multiple defendants, including NFP Retirement and one of its affiliates.

The plan sponsor involved in the case is the Wood Group, which is an international business involved in the U.S. oil and gas sector. According to the complaint, filed by plaintiffs under the representation of the well-known law firm Schlichter Bogard & Denton, the plan’s in-house fiduciaries and various service providers with functional fiduciary status failed to operate the Wood Group’s retirement plan for the exclusive benefit of participants and beneficiaries. The defendants are further accused of failing to ensure that all plan expenses were reasonable and that all plan investments were prudent.

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Instead of acting in the exclusive best interest of participants, the lawsuit contends, the Wood defendants and NFP caused the plan to invest in NFP’s collective investment trusts managed by its affiliate, flexPATH Strategies, which allegedly benefitted the NFP defendants at the expense of plan participants’ retirement savings. The complaint states that the Wood defendants and NFP also failed to use their plan’s bargaining power to obtain reasonable investment management fees, which caused unreasonable expenses to be charged to the plan.

The new ruling comes after several previous legal steps, including NFP filing a dismissal motion that was targeted at the plaintiffs’ second amended complaint. For their part, the plaintiffs opposed the motion, and NFP responded in turn. The flexPATH Strategies defendants also moved to dismiss the second amended complaint, and the plaintiffs also opposed this motion—a step which then drew a response from flexPATH. Finally, the Wood defendants, too, moved to dismiss the second complaint, which led to the same type of cross motion and response.

After the court posted a tentative order, both NFP and the Wood defendants filed a request for hearing. The court considered the arguments raised by both parties and found that oral arguments would not be helpful in this matter at this stage, leading it to issue the new order.

Specifically, the court has granted NFP’s motion to dismiss the first cause of action to the extent that it relies upon co-fiduciary liability for actions taken by flexPATH as investment manager. It has also dismissed the third cause of action with respect to the transactions involving the flexPATH CITs. The court further granted NFP’s motion to dismiss the second cause of action to the extent that it relies upon direct liability. However, the court has denied the remainder of NFP’s motion to dismiss.

Similarly, the court has granted the flexPATH motion to dismiss the third cause of action with respect to the transactions involving the flexPATH CITs, but it has denied the remainder of flexPATH’s motion to dismiss.

Additionally, the order grants the Wood defendants’ motion to dismiss the first cause of action to the extent that it relies upon co-fiduciary liability for actions taken by flexPATH as investment manager, and the third cause of action with respect to the transactions involving the flexPATH CITs. On the other hand, the court has denied the remainder of the Wood defendants’ motion to dismiss.

The ruling explains its support for NFP’s arguments by noting the allegations in the second amended complaint are “consistent with NFP rendering investment advice per its role as a fiduciary under Section 1002(21)(A)(ii), not exercising discretionary control as a fiduciary would under Section 1002(21)(A)(i).” It explains that the plaintiffs do not argue in opposition to this motion that the complaint alleges that NFP was responsible for selecting or removing any funds for the plan.

Accordingly, the court finds that plaintiffs have not stated a claim to the extent that it is premised on NFP’s direct responsibility for the selection and retention of the flexPATH target-date funds.

On the other hand, after extensive analysis, the court finds that plaintiffs have plausibly alleged that NFP breached its fiduciary duties in the provision of advice concerning both the initial selection as well as the ongoing retention of the flexPATH target-date funds.

The full text of the order is available here.

Reader Responses February 14, 2022

SURVEY SAYS: Importance of Financial Responsibility in Relationships

NEWSDash readers share how important it is for people in relationships to be financially ‘in sync’ and the way they think is best for couples to avoid financial conflict.

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Two recent surveys highlighted how important financial matters are to relationships. Last week, I asked NewsDash readers how important they think it is for a love interest or significant other to be financially responsible and how important it is to be “in sync” financially for people in relationships. I also asked about the best way for couples to avoid financial conflict.

Sixty-two percent of responding readers work in a plan sponsor role, 24% are or work for recordkeepers/TPAs/investment consultants, 10% are advisers/consultants and 3% are CPAs.

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More than eight in 10 respondents (83%) said it is extremely important for a love interest or significant other to be financially responsible, while 14% said it is somewhat important and 3% are neutral. Two-thirds (68%) indicated it is extremely important for people in a relationship to be “in sync” financially, while 29% said it is somewhat important and 4% are neutral.

Asked what the No. 1 thing people in a relationship can do to avoid money problems, 41% selected “collaborate on and discuss major purchases,” and 21% chose “work on each other’s financial obligations together.” Three percent each selected “keep financial accounts separate,” “equally divide financial obligations,” “collaborate on and discuss every dollar spent” and “have a prenuptial agreement, if married.”

Among “other” suggestions for avoiding money problems, a few people said there was not a No. 1 item, either because a combination of things works best or because it depends on the couple. Several people said communicating was the No. 1 thing people in a relationship can do to avoid money problems, with suggestions to stick with the agreed upon approach and ensure a mutual understanding of finances. “Work with each other on major expenditures, and set allowances for other times” and “discuss spending and savings habits and goals before getting married” were other suggestions.

Common themes among readers who provided additional comments in the survey were that couples need to communicate, trust is important, and couples should decide on and understand their overall goals and approach to finances. There were opposing views of whether one person should take the lead on finances, and a couple of readers feel each person in a relationship should have some discretionary money to spend as they wish. Editor’s Choice goes to the reader who said: “If the big picture is in alignment, the smaller differences are more easily managed.”

A big thank you to all who participated in the survey.

Verbatim

One should have a pretty good idea of his/her partner’s financial situation prior to any permanent relationship arrangement. Be willing to support one another during a major financial change (i.e., loss of job) but neither party should expect the other to be the single responsible financial support long term.

No matter how the money is spent, true love will keep a relationship together. Happy Valentine’s Day!!

Find the financial balance that works for your relationship. Love endures – money, not so much.

The most important thing is for one person to be responsible for the family finances with full trust of the partner. The trust is gained when discussions occur about any changes to the budget or any major purchases.

Trust is key.

If individuals have the same philosophy of handling finances (attitudes toward debt, saving vs. spending) they can support each other in reaching goals. When the philosophies don’t mesh – it can be destructive to a relationship – one feeling sabotaged by the other. If the big picture is in alignment, the smaller differences are more easily managed.

Communication is The Key. If talking about finances frightens you, that’s an emotional response that needs to be addressed. You can’t face your fears without talking through them, either with your partner or a financial adviser. That’s also how you discover that things you “know to be true” may not be accurate or correct. Refusing to talk about finances won’t make them magically work out. You need to bring those fears into the light so that all concerned can understand first, and then work towards a better understanding of how to achieve your goals. Have the conversation about fears in a place where all parties feel safe. Once you have talked through the fears, have a separate conversation at a different time and place. Take a direct look at income. expenses, emergency funds and other savings. I think it’s a good idea to use a combination of joint and separate accounts. Use the joint account for household finances that affect everyone (mortgage, utilities, food, etc.) and separate accounts so that each person can spend on things that matter to them without affecting the household finances.

Each person needs to understand their partner’s relationship with money and how the partner’s family dynamics have influenced that relationship over time.

Like everything in a relationship, communication is key.

Money is such a taboo subject, and it shouldn’t be. People need to be made aware early on that it should be discussed openly and understood. This way, when partners get together and money becomes more central, it isn’t taken lightly but there is awareness of the money earned, the money allowed and the saved money.

I think there are a lot of different ways to approach finances, and there is no one right way to do it. Whatever approach you decide on, it should be discussed and agreed on by those in the relationship. And then you have to continue to follow the agreed upon approach. Continued discussion is helpful. I think it’s also helpful for each person in the relationship to have some discretionary money that they can spend as they want.

Both people in the relationship must have similar goals for current and future financial planning. Full transparency and agreement of financial goals and how to get there is a must. Collaborate on a reasonable budget and what things need to be discussed, review your plan to incorporate changes and gain agreement.

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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