Investing March 27, 2020

Data Shows Majority of Investors Staying Calm Amid Volatility

Vanguard found its clients with only a defined contribution (DC) retirement plan relationship exhibited the lowest levels of trading.

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Plan sponsors and their advisers are reiterating the message for retirement investors to stay put in the markets during the volatility caused by the novel coronavirus outbreak.

It’s a message they have had to deliver before, but they may be worried that the wilder swings of this market crisis are causing employees to panic and forget what they’ve learned. Early data shows this is not true for the majority of investors.

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Americans are concerned that the worst is yet to come, but they are not panicking quite yet, according to the latest Quarterly Market Perceptions Study from Allianz Life Insurance Co. of North America. Market crash and recession fears increased significantly from the end of 2019 when worries were at their lowest levels in more than a year and half. Now, nearly two-thirds of Americans (63%) express concerns about a recession (compared with 43% in Q4 2019). In addition, 57% think that the market hasn’t bottomed out yet.

Still, more than half (52%) of Americans understand that it’s good time to stay neutral and not take any action because of market conditions. The study also found Americans still seem optimistic about their ability to recover retirement savings after a market decline. Nearly 70% believe that, even if the market continues to decline, they will have time to rebuild their retirement savings.

“Many investors have been through big drops before, and for the most part understand that what goes down almost always goes back up,” says Kelly LaVigne, vice president of Advanced Markets, Allianz Life. “Hopefully, people have already taken steps to mitigate market risks that could impact retirement before the market plummeted, like diversifying or moving money into protection products.”

Vanguard research analyzing the trading behavior of Vanguard investors from February 19 through March 20, finds that while transactional activity has been elevated, more than nine in 10 investors have “stayed the course” and not traded in response to the market decline. Of those households that did trade, half made only a single transaction.

The majority of households trading—about seven in 10—have moved money into equities. Among those trading, most households are buying equities on the dips, while older, wealthier investors are moving modestly to fixed income.

Households that have only a defined contribution (DC) retirement plan relationship with Vanguard, exhibited the lowest levels of trading. Between February 19 and March 20, 8.3% of U.S. households traded one time or more, about double the percentage that traded over the same time frame in prior years. The proportion of all U.S. household assets that traded was 4.8%, more than double the amount traded during the same time frame in prior years. Between February 19 and March 20, households with only a DC Vanguard account had the lowest incidence of trading at 2.5%.

“On balance, we believe these levels of trading indicate that the vast majority of investors are maintaining a long-term perspective despite market turmoil,” Vanguard says.

Compliance March 27, 2020

Lawsuit Over Asset-Based Fees for Nationwide’s Retirement Plan Program Dismissed

The parties say they have reached a confidential settlement resolving all claims.

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A lawsuit that had sought the return of “excessive and unreasonable asset-based fees” charged by Nationwide for recordkeeping and administrative services, “and to prevent Nationwide from charging those excessive fees in the future,” has been dismissed “with prejudice.”

“With prejudice” in the legal sense means the case is permanently dismissed and cannot be brought back to court. According to the stipulation filed in the U.S. District Court for the Southern District of Ohio, as grounds for the dismissal, the parties say they have reached a confidential settlement resolving all claims.

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The original suit called out a plan sponsor for potentially breaching the Employee Retirement Income Security Act (ERISA) by willingly entering into an arrangement with Nationwide, but it did not actually name the plan sponsor, law firm Andrus Wagstaff PC, as a defendant. Upon the court’s order, a second amended complaint was filed naming the law firm as a defendant.

The plaintiff proposed two classes for the lawsuit, which Chief U.S. District Judge Edmund A. Sargus Jr. rejected. There was a defendant class proposed to be represented by Andrus Wagstaff. It was described as all sponsors of participant-directed individual 401(k) plan accounts during the class period that had total plan assets of less than $10 million; that entered into program agreements with Nationwide for recordkeeping and other administrative services through Nationwide’s Retirement Flexible Advantage Retirement Plans Program; and that paid recordkeeping and administrative service fees to Nationwide in excess of $64 per participant.

Sargus found the defendant class members did not share a judicial link and the plaintiff did not have standing to sue each individual plaintiff. He said the plaintiff’s alleged injury—excessive fees—was not traceable to a specific provision of the shared contract. In addition, he said, the plaintiff presented no evidence to suggest that the defendants in the class acted in concert when investing the terms of their proposed plan agreements.

There also was a plaintiff class proposed of all participant-directed individual 401(k) plan accounts during the class period that had total plan assets of less than $10 million; paid Nationwide for recordkeeping and other administrative services through Nationwide’s Retirement Flexible Advantage Retirement Plans Program; and paid recordkeeping and administrative service fees to Nationwide in excess of $64 per participant. Sargus ruled that the named plaintiff had no standing to sue a class of defendants that had in no way injured her.

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