In court filings last week, fiduciaries of retirement plans at PPL Corp. and Mass Brigham General were accused of failing to ensure fees were reasonable.
A proposed class action lawsuit was filed last week alleging that fiduciaries of the Consolidated 403(b) Plan of Mass General Brigham and Member Organizations failed to ensure investment and recordkeeping fees were not excessive.
According to the complaint, the health care system’s plan qualified as a “jumbo” plan and one of the largest in the United States. As such, the plaintiffs allege, its fiduciaries had substantial bargaining power regarding the fees charged to participant accounts.
The lawsuit claims that the fiduciaries “did not try to reduce the plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent.” The defendants are accused of failing to objectively and adequately review the plan’s investments with due care to ensure that each investment option was prudent, in terms of cost and of failing to control the plan’s recordkeeping costs.
In another court filing, fiduciaries of retirement plans sponsored by energy company PPL Corp. are accused of failing to act diligently and prudently by retaining a suite of “unproven collective investment trust [CIT] target-date funds [TDFs] as investment options in the plan, known as the Northern Trust Focus Funds.”
The complaint alleges that “the Focus Funds suffered from significant and ongoing quantitative deficiencies and managerial turnover resulting in massive underperformance relative to that of well-established, prudently managed, comparable target-date funds that were available to the plan.” The plaintiffs suggest that a prudent fiduciary would have removed the Focus Funds and replaced them with a prudent investment alternative. They say the fiduciaries’ breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties cost participants who were invested in these funds millions of dollars in losses.
The PPL lawsuit also says that because of the plan’s size, the fiduciaries had “tremendous bargaining power to demand lower fees.”
Northern Trust is not listed as a defendant in the lawsuit against PPL, but it is facing a lawsuit about the use of the Focus Funds in its own retirement plan, among other claims.
The pace of ERISA litigation shows no signs of slowing in the new year. Also last week, a lawsuit was filed against fiduciaries of Milliman Inc.’s 401(k) plan alleging that the poor performance of a suite of target-risk funds resulted in a nearly $250 million loss to participant accounts.
In a statement to PLANSPONSOR, PPL said: “PPL offers comprehensive benefits programs for employees, including voluntary 401(k) plans that enable employees to set aside a portion of their pay to save for retirement. Participants may select their own investments from a diverse array of investment options available in the plans.
“PPL’s 401(k) plans are administered by Fidelity Investments, undergo a rigorous evaluation annually to compare costs and investment performance against industry benchmarks, and are regularly reviewed by an independent board to ensure they align with our investment policy and meet plan objectives.
“We are confident in the soundness of our retirement plans and believe the fees associated with those plans are reasonable. We’re confident we’ve acted lawfully and appropriately at all times. Any claims to the contrary are entirely without merit.”
Mass General Brigham has not yet responded to a request for comment.
SURVEY SAYS: Responsibility for Employees’ Financial Wellness
NEWSDash readers weigh in on whether employers have a responsibility to help employees get their financial lives in order and whether employees’ finances need to be in order before they can save for retirement.
There are some who believe employees should have their day-to-day financial lives in order before they save for retirement, and there are some who believe employees can manage day-to-day financial issues and save for retirement at the same time.
Last week, I asked NewsDash readers which camp they belong in and whether they feel employers have a responsibility to help employees get their financial lives in order.
More than half (56%) of responding readers work in a plan sponsor role, while 29% are or work for recordkeepers/TPAs/investment consultants, 9% are advisers/consultants, 3% are attorneys and 3% are CPAs.
No responding readers said they generally believe employees should have their day-to-day financial lives in order before they save for retirement. The vast majority (97%) generally believe employees can manage their day-to-day financial issues and save for retirement at the same time, and 3% indicated they are unsure.
Less than three in 10 (29%) said they feel employers have a responsibility to help employees get their financial lives in order. More than half (51%) said they do not feel that employers have this responsibility, and 20% indicated they are unsure.
There were strong feelings by readers who left comments that employers do not have a “responsibility” to help employees get their financial lives in order. However, many of them said employers should provide the tools for employees to do so. There was also a strong sentiment that if employees waited until they got their financial lives in order before saving for retirement, they might never save. Editor’s Choice goes to the reader who said: “Just like what everyone says about having kids—if you wait until you’re ready, it will never happen.”
Thank you to all who participated in the survey!
Verbatim
Employers may not have the “responsibility,” but it is still the right thing to do. Offering opportunities to learn about financial wellness can allow employees to focus on their job rather than their debt.
Firm believer in saving, whether through 401(k) opportunities or standard savings. If the average Joe would lean that living through credit cards was not a good way to go, they might have less stress and not think an employer is responsible for the way they live.
It’s a slippery slope to suggest employers ‘help’ employees get their financial lives in order. Employers can provide the vehicle, but the employee must be the driver. Providing various and diverse investment opportunities is the vehicle, but the employee must make the choices and be the driver. If the employer makes suggestions relative to an employee’s finances, the employer becomes a fiduciary, which is probably not a good thing from a standpoint of liability and feasibility.
Most working employees are adults and if they don’t know how to get their affairs/financial lives in order, they need more than help from their employer!!
All employers need to adopt auto enrollment, using the Roth feature. Also, an auto increase up to the max allowed. Put retirement first!
We offer SmartDollar to our employees and their spouses at no cost. I’ve seen the impact it has had on our employees and how they have made long term behavior changes with money. As an employer, you should offer financial wellness. One of the components of a successful employee wellness program is financial wellness. Our goal is to have happy and healthy employees both physically, mentally and financially.
If asked, I advise to include yourself with those who you are indebted to. By including the amount you want to invest regularly as a regular “bill” you are much more likely to include that amount in your budget and stay on track with your investing. I don’t expect my employer to be responsible for my financial life. Nor do I expect my employer to be responsible for my development of my career, parenting my children, or defining my beliefs. My employer is a factor in all but certainly not responsible.
I think it’s great when employers offer tools and resources to their employees to help them with financial wellness, but people need to be responsible for their own financial lives.
I believe employers have a responsibility to communicate with employees what is possible regarding their retirement. You can lead a horse to water, but you can’t make it drink. And while it does help to have your financial affairs in order before saving for retirement, there’s more than one path to get there.
There is a big difference between saying that it is good for employers to help employees get their financial lives in order and that it’s the employer’s responsibility to do so. I don’t agree with the expectation that a business that exists to make widgets also has the responsibility to teach finances to people.
Long ago (late 1800’s), it was recommended that retirement savings should be accrued over one’s working lifetime, with 1/3 financed by the government, 1/3 by the individual and 1/3 by the employer. Nothing has truly changed. Killing debt is important but possibly too much debt is being taken on without regard to the future, again a financial wellness item.
Doesn’t matter how much you try to teach and prepare, there are people that just aren’t good with money managing skills, live outside their means, or have a lot of unfortunate emergency situations that require fast access to cash. Someone can be making a 6-figure salary and have the skill of a 12-year-old to save and manage money; then you can have someone making 4 or 5 figures and be set for life.
Studies show that financial stress limits employees’ professional and personal effectiveness. Thus, when employers assist staff in setting and meeting personal financial goals, everyone benefits.
It is a nicety if the employer can provide assistance to employees to understand financial wellness and provide savings vehicles, but it isn’t the responsibility of the employer.
Employers should NOT have the responsibility to help employees get their financial lives in order. The employer may WISH to offer financial planning seminars or other resources because they feel their employees could benefit from it, but they should not feel responsible or obligated to solve their employees’ financial problems. Regarding managing current financial issues and saving for retirement, I feel that people need to do both at the same time. Unfortunately, many people will never really get their day-to-day finances in order, so waiting to save for retirement until that is in order means that they will never get a chance to save for retirement. They need to put some money towards retirement while also paying their bills.
Employees are ultimately responsible for their retirement, but it is important for the employer to guide them (mostly through education) toward the employee’s retirement wellness.
I struggle with what an ER’s responsibility is to help people get their financial lives in order. We provide the tools; it’s up to you to educate yourself and take action. I’ve been saving in my ER 401(k) since I could barely rub two nickels together, living paycheck to paycheck and now after 40 years of working I have a very nice next egg for retirement. I didn’t sacrifice taking vacations or buying things I liked, I saved first and spent the rest.
I don’t believe all the day-to-day financial issues need to be in order before you start saving for retirement. I regret not starting earlier as I missed out on some matching contributions early in my career.
Just like what everyone says about having kids—if you wait until you’re ready, it will never happen.
I feel employers should provide opportunities for employees to save for retirement and help them get their financial lives in order, but it should be [employees’] responsibility. Employees need to take responsibility for getting the finances in order and make sure they have their retirement planned (without relying on Social Security). My husband and I made sure that both of our children have maxed out their 401(k) savings contributions as soon as they were eligible to do so.
Your day-to-day financial life is never going to be perfect. If you wait for it to “be in order” before you start saving for retirement, you’ll never start. Saving for retirement, even if it is very little, is always better than nothing and you can never start too soon.
Employers should be required to offer financial education/information to employees, but they are not responsible for the employees using the education to get their financial lives in order.
Employers should help but should not be mandated.
I believe that employers should provide the tools for their employees to improve their financial wellness. Employers can usually access tools that individuals may not have access to at discounted or preferred rates.
Although I feel that employers do not have a responsibility to help employees get their financial lives in order, they should consider offering some reimbursement for professional financial planning.
It is not the responsibility of the of an employer to help employees to get their financial lives in order. It is the employee’s responsibility. Although it is in [employers’] best interest to help.
NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.
