Benefits March 2, 2011

Group Blames DB Decline on Funding Volatility Concerns

March 2, 2011 (PLANSPONSOR.com) – A new research brief by a Washington, D.C. trade group blames “an onerous regulatory environment” for the trend away from defined benefit and toward defined contribution plans.
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A news release from the National Institute on Retirement Security (NIRS) charged that the legal and regulatory framework governing pension plans “created funding volatility for companies sponsoring pensions, rather than facilitating predictable costs that enable companies to effectively manage cash flow.” 

According to NIRS:

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  • Companies may not understand that employees value pension benefits. NIRS research indicates that nearly nine out of ten Americans believe all workers should have a pension to help ensure retirement security, and 84% believe policymakers should make it easier for employers to offer pensions.
  • Private-sector industry shifts have seen fewer new industries offering pensions. For example, the number of domestic manufacturing jobs with long-tenured employees has declined, while there has been a growth in information technology companies that typically have employees with shorter average tenures.

NIRS recommended that: 

  • pension law be changed so that plan funding is less volatile,
  • employees be given a way to share the cost of pensions by allowing pre-tax contributions,
  • pensions be made portable, and
  • officials create an avenue for third-party sponsorship of a pension plan.

“Americans soon will start to feel the sharp sting of the trend away from pensions as the first of the 78 million Baby Boomers turn 65 this year,” said Diane Oakley, NIRS executive director, in the news release. “This retirement shortfall will have negative consequences for individuals, the U.S. economy, the job market, and governmental public assistance programs. It’s a troubling forecast.”

The group’s research brief is here.

Compliance March 2, 2011

Court Gives Final Approval to Settlement of 401(k) Fee Case

March 2, 2011 (PLANSPONSOR.com) – A U.S. District Court judge has granted final approval of an $18.5-million settlement in an excessive 401(k) fee suit.
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The agreement ends proceedings in Kanawai v. Bechtel Corp., N.D. Cal., No. C 06-05566 CRB, in which two former Bechtel employees alleged the company violated its Employee Retirement Income Security Act (ERISA) fiduciary responsibilities by not using its size to get lower fees from vendors. 

Under the settlement agreement announced in October (see Bechtel Settles 401(k) Fee Case for $18.5M), Bechtel agreed for a three-year period to: 

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  • not use any of its own affiliates to act as the investment manager for the 401(k) plan, 
  • greatly enhance the disclosures it makes about investment and recordkeeping fees, 
  • not offer any retail mutual fund as an investment option and prohibit all of the plan’s separate account investment managers from investing in retail mutual funds, 
  • not use plan asset-based pricing for recordkeeping service fees, and 
  • conduct a competitive bidding process for recordkeeping services when the plan’s current contract with J.P. Morgan Retirement Plan Services expires, which is scheduled to occur no later than 2012. 

 

U.S. District Judge Charles R. Breyer of the U.S. District Court for the Northern District of California also approved a fee award of 30% of the net settlement fund (not to exceed $4,859,872.33) to class counsel, Schlichter Bogard & Denton, LLP, in addition to costs in the amount of $1,571,102.56. Each named plaintiff was awarded a $7,500 incentive award.  

In 2008, Breyer ruled that Bechtel did not engage in a prohibited transaction under ERISA with a “party in interest” barred under 406(a) or involving self-dealing in violation of 406(b) because the investment manager payments were not funded out of plan assets for most of the period in question (see Case Sensitive:”Outside” Interests).

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