Compliance June 14, 2023

ERISA Lawsuit Against Advance Publications Dismissed, Pending Amended Complaint

A federal judge dismissed all counts in the suit brought by a former 401(k) plan participant, but the plaintiff may submit a second amended complaint by June 27.

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An ERISA lawsuit against Advance Publications accusing the company of offering a poor-performing suite of BlackRock target-date funds was dismissed on Tuesday in the U.S. District Court for the Southern District of New York decision. The plaintiff, however, was afforded a second opportunity to amend the complaint. 

In Anderson v. Advance Publications Inc., Jermaine Anderson, a former participant of Advance Publications’ 401(k) plan, sued the privately held media company and its plan fiduciaries, claiming Advance Publications made “an imprudent decision that deprived plan participants of significant growth in their retirement assets.” 

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U.S. District Judge Analisa Torres granted Advance Publications’ motion to dismiss all three of Anderson’s alleged breaches under the Employee Retirement Income Security Act: the duty of loyalty, the duty of prudence and the duty to comply with the provisions of the plan. She did, however, also deny Advance Publications’ request to dismiss Anderson’s amended complaint with prejudice, giving Anderson until June 27 to amend the complaint. 

Anderson’s complaint is centered on the BlackRock LifePlan Index Funds, a suite of 10 passively managed exchange-traded funds that have been offered by Advance Publications’ 401(k) plan since its April 2011 adoption. Anderson argued that the company elected to retain the BlackRock TDFs instead of choosing from a wide range of alternative TDF families offered by competing providers. The complaint stated that Advance Publications “employed a fundamentally irrational decision-making process … [and] breached their fiduciary duties under ERISA.” 

As of December 31, 2020, Advance Publications’ 401(k) plan had 12,027 participants, with account balances and assets totaling approximately $1.5 billion, placing it in the “top 0.1% of all defined contribution plans by plan size,” according to the court filing. 

The case is one of a slew of ERISA lawsuits filed in 2022 in which plaintiffs, often represented by law firm Miller Shah LLP, complained about the BlackRock TDFs, which are used as default investments in several firms’ defined contribution retirement plans. Other defendants included employers such as Cisco, CitiGroup, Microsoft and Wintrust. 

Anderson filed the initial complaint in August 2022. Advance Publications filed a motion to dismiss the complaint on January 6, and in response, Anderson filed an amended complaint on January 27. Advance Publications again filed a motion to dismiss the amended complaint on February 16, arguing that Anderson “assert[ed] a breach of loyalty [cause of action] without any supporting facts.”  

Torres agreed with the media company that the amended complaint did not contain “sufficient factual allegations to state a claim of breach of loyalty under ERISA” and granted the motion to dismiss that count. 

Anderson also argued a claim for breach of the duty of prudence under ERISA, alleging that the BlackRock TDFs underperformed. Advance Publications argued that Anderson “offer[ed] no direct allegations of an imprudent fiduciary process,” and Torres concluded that the allegations of underperformance were insufficient to support Anderson’s claim for breach of the duty of prudence.  

Torres also dismissed Anderson’s claim that Advance Publications did not comply with plan documents. 

Advance Publications requested that the amended complaint be dismissed with prejudice—which would prevent Anderson from filing an amended complaint—and argued that Anderson had multiple chances to amend and should not be afforded another. But Torres wrote that the complaint’s deficiencies “might be cured by amendment” and dismissed the complaint without prejudice, giving Anderson one final chance. 

Advance Publications did not respond to a request for comment.  

Data and Research June 13, 2023

High-Income Households More Likely to Overestimate Retirement Readiness

More than 25% of U.S. households think they are on track to maintain their standard of living in retirement, but many are at risk of falling short, according to the Center for Retirement Research at Boston College. 

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While many U.S. households hold misperceptions about their retirement readiness, those who fall into the high-income category tend to be the most likely to “not be worried enough” and least likely to change their savings or retirement plan contributions, according to a new report from the Center for Retirement Research at Boston College. 

The report analyzes households by income group, and 32% of high-income households are “not worried enough” about their retirement risk, as opposed to 26% of low- and middle-income earners, according to authors Anqi Chen, Yimeng Ying and Alicia Munnell.

The study defines married couples ages 45 to 47 as low-, middle- and high-income if their median income is $50,000, $110,000 and $248,000, respectively. 

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Households surveyed that were overly optimistic about the economy’s recovery or overestimated how much income their assets could provide in retirement are more likely to be “not worried enough,” according to the report.

The Center for Retirement Research used data from the Federal Reserve’s Survey of Consumer Finances to construct the National Retirement Risk Index where each household was asked to rate the adequacy of its anticipated retirement income. This index measures retirement readiness based on a range of assets like Social Security, pensions, home equity and employer-sponsored retirement plans. 

“[Higher-income households’] overconfidence may lead them to underestimate possible risks,” the report states. “Therefore, it is not surprising that households with higher debt-to-asset ratios, relatively low asset balances in 401(k)s, and other DC plans, and two earners but only one saver were more likely to be ‘not worried enough.’” 

With the housing debt-to-asset ratio, some households may have seen the value of their assets rise, as the housing market improved, but they may not be considering how much they still owe. The correlation between the housing debt-to-asset ratio and the “not worried enough” group was especially strong for high-income households, who tend to own more expensive homes, the report found. 

In addition, the Center for Retirement Research pointed out that DC plan assets can portray a “wealth illusion.” For example, $100,000 can appear to be a lot of money to many people even though it only provides about $617 per month in retirement income. 

“This wealth illusion may have been exacerbated by the strong market performance,” the report stated. “Having only a modest DC balance is associated with a higher probability of being ‘not worried enough’ for low and middle-income households.” 

Many dual-earner households also may not realize that they will have to replace both spouses’ earnings to maintain their standard of living in retirement. Therefore, the authors found that dual-earner households where only one spouse has a retirement plan are more likely to be “not worried enough.” 

Because Social Security replaces a small share of pre-retirement income for high earners, the probability that dual earners are not worried enough increases further, the report argues. 

Besides high-income earners, the report found that Black and Hispanic households are more likely to not be worried enough about retirement, likely due to racial and ethnic gaps in financial literacy.  

In general, accumulating adequate income in retirement is especially difficult for Black and Hispanic families in the U.S., as the racial wealth gap and inequity of the housing market persists, according to recent research conducted by the Wharton School of the University of Pennsylvania.  

The National Retirement Risk Index found that in 2019, 47.1% of American households were at risk of not being able to maintain their standard of living in retirement. That is only down slightly from the years following the 2008 financial crisis. 

It is important to note that the meaning of “at risk” differs by income, the report explains. For example, at-risk households with very low income may have trouble affording necessities, whereas at-risk householders with high income are not in danger of falling into poverty. However, they do face the prospect of not being able to maintain their current lifestyle in retirement.  

The NRRI also found that 20% of low-income households are “too worried” about their retirement readiness. Those who fall into this category are unaware of how much income they will have in retirement and perhaps have less optimism in the asset markets.  

Households that are risk-averse, have only one earner, own a home and rate themselves as having low financial knowledge are most likely to be “too worried” about their retirement readiness, the report showed. 

“Overall, the results suggest that households with incorrect perceptions get it wrong for predictable reasons,” the report stated. “A little education about the value of various sources of retirement income could reduce the size of the ‘too worried’ group.”  

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