The Defined Contribution Institutional Investment Association believes retirement income adequacy should be the primary objective of most DC plans today.
The
Defined Contribution Institutional Investment Association (DCIIA) has developed
a best practices framework to outline actions that defined contribution (DC)
plan sponsors and fiduciaries can take to build plans that have the greatest
potential to help participants achieve retirement readiness.
In
“Defined Contribution Plan Success Factors: Framework for Plans with an
Objective of Retirement Income Adequacy,” the DCIIA addresses specific factors
related to plan design, investment structure, and plan monitoring. It can help
plan sponsors and fiduciaries:
Maximize
the effectiveness of auto features programs; and
Identify
and address less-than-optimal plan participant behaviors.
The
association notes that the framework is intended to provide ideas for plan
sponsors and fiduciaries to consider; it is not expected that every
recommendation will apply to every plan. Plan sponsors and fiduciaries should design
a plan and implement the practices that make the most sense for their participants.
“The
decisions that plan sponsors and fiduciaries make today will impact the
retirement readiness of future generations of retirees,” DCIIA says.
Centinela
Capital Partners sufficiently alleged that it had an oral agreement with the
California Public Employees’ Retirement System (CalPERS) to manage a $100
million investment into the Capital Link III fund, according to the Court of
Appeal for the State of California.
The
court found Centinela set forth 13 of the material terms of that promise and alleged
that the management of the Capital Link III fund is to be governed by the same
terms and conditions set forth in the very detailed written contracts
applicable to the Capital Link I and Capital Link II funds, which Centinela
already managed for CalPERS. “Centinela’s incorporation of the prior written
contracts, coupled with its allegation that their terms will apply with equal
force to the Capital Link III agreement, provides a basis for evaluating a
breach of contract and for fixing damages,” the court said.
According to the
court opinion, in 2006 and 2008, respectively, CalPERS hired Centinela to manage two of its
$500 million portfolios—the Capital Link I and Capital Link II funds. Each of
these funds was created by a detailed written contract. In 2009, Centinela and
CalPERS started discussing the possibility that Centinela might manage a third,
$100 million portfolio to be called Capital Link III.
On
May 16, 2011, Centinela and CalPERS orally agreed that CalPERS would bypass any
competitive bidding process and award Centinela the management of the Capital
Link III fund, and another, unspecified larger portfolio in the future. The
parties further agreed that CalPERS’s performance was contingent upon Centinela
severing its ties with Cesar Baez, one of its three principals, who had some
association with persons being investigated by the Attorney General for peddling
influence with CalPERS.
In
reliance on this oral agreement, Centinela severed its ties with Baez. Then,
Centinela learned that CalPERS would not carry through with its oral promise to
have Centinela manage the Capital Link III fund. Centinela sued CalPERS for not
honoring the alleged oral promise to award Centinela a contract to manage a
$100 million investment portfolio for CalPERS.
A
lower court found the alleged oral contract was “an agreement to agree” and
“lacked specificity.” The appellate court reversed and remanded that decision
to the lower court.
A client alert from
law firm Reed Smith says the case “provides an important warning to plan
fiduciaries and their investment staff: Be careful what you say when discussing
investment opportunities with managers, especially those incumbents with whom
you already have a contractual relationship. Make it clear in your communications—whether
by phone, in person, by email or letter—that nothing will be binding on your
plan unless and until a complete set of documents has been approved and inked
by both sides.”