Products August 24, 2020

DCIIA Offers Primer on Managed Accounts in DC Plans

The primer is the first in a series of four papers DCIIA will issue that will cover the basics of managed accounts, due diligence in selecting a provider and personalization of managed accounts.

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In the first in a series of four papers that the Defined Contribution Institutional Investment Association (DCIIA) will publish on managed accounts, the organization offers an overview of the key aspects of managed account programs today.

The primer includes a review of the basics of managed accounts, a summary of their usage over time, a description of how they can be offered and considerations for determining if they are right for a particular defined contribution (DC) plan, and, if so, in what ways.

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In the publication, DCIIA says the use of managed accounts in DC plans is on the rise. Managed accounts may have the potential to add value for DC plan participants, but they also come with additional costs to participants, it notes. “Plan sponsors should therefore carefully consider whether a managed account program is suitable for their plan and its participants, and, if desirable, should prudently select its managed account provider,” the primer says.

Future papers in the series will address due diligence and implementation considerations; the potential benefits and challenges of managed accounts from the viewpoint of a fiduciary committee deciding between managed accounts and target-date funds (TDFs) as a plan’s default option; and the results of a request to managed account providers to provide recommended asset allocations for a variety of different participant profiles.

The first paper, “Managed Accounts: A Primer,” is available here.
Compliance August 24, 2020

Parties in Lawsuit Over Revenue Sharing in 401(k) Plan Agree to Settle

BTG International and company officials agreed to pay $560,000 to settle charges they allowed the plan’s recordkeeper to receive unreasonable compensation through undisclosed channels.

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Parties in a lawsuit alleging BTG International and company officials allowed its Profit Sharing 401(k) Plan recordkeeper to receive excessive and unreasonable compensation through a variety of undisclosed channels have filed a motion for preliminary approval of a settlement agreement.

Under the settlement agreement, “without any admission or concession on the part of the defendants as to the merits” of the lawsuit, the named defendants have agreed to pay $560,000.

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The complaint stated that “since the plan is a group annuity 401(k) product, defendants offered only investment options primarily offered by John Hancock to the exclusion of all other options.” According to the complaint, during the class period, of the plan’s more than 100 investment options, 53 of them “appear to be managed by John Hancock, with the remainder paying revenue sharing to John Hancock.”

The complaint argued that plan fiduciaries have limited their selection of funds to only those funds which provide sufficient revenue sharing, thus foregoing superior investment alternatives and selecting or maintaining inferior investment options based upon revenue-sharing relationships.

The plaintiff alleged that the defendants did nothing “to limit or curtail John Hancock’s growing compensation, rather, John Hancock was allowed to generate ever higher fees despite costs which were either stable or falling.” The lawsuit said this failure “cost the plan millions of dollars in excessive fees charged directly by John Hancock or collected by John Hancock from the plan’s investment options through revenue sharing.”

The plaintiff also accused the defendants of failing to accurately disclose the fees John Hancock received on Form 5500 filings with the Department of Labor (DOL) each year from 2012 to the present.

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