Products March 4, 2021

Investment Product and Service Launches

Lockton and Morningstar team up to offer adviser managed accounts and firms launch TDFs with guaranteed income.

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Art by Jackson Epstein

Lockton and Morningstar Team Up to Offer Adviser Managed Accounts

Lockton Investment Advisors LLC has teamed with Morningstar Investment Management LLC to provide adviser managed account services. 

“In the rapidly evolving retirement space, our clients continue to lean on Lockton as a consultative advisory leader,” says Pam Popp, president of Lockton’s retirement practice. “The growing demand for personalized support to help multi-career workers reach financial security spurred our innovation and relationship with Morningstar Investment Management. We’re proud to offer a customizable retirement service that is designed to help participants and meet employer goals.”

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Lockton’s new service, FinanceGPS Managed Accounts, provides an alternative to target-date funds (TDFs), expanding the investment focus beyond the employee’s projected retirement date. The service creates personalized portfolios that integrate additional data, including the employee’s location, savings rate, gender, outside assets and long-term goals. Additionally, employees can receive personalized savings rate advice and guidance to set an income strategy during retirement.

”Morningstar Investment Management’s expertise, technology and focus on helping participants meet their retirement goals is impressive,” says Tom Simonson, a senior Lockton retirement adviser. “Helping employees achieve their retirement goals is paramount to our role as advisers and teaming with Morningstar Investment Management will allow us to expand on that commitment. FinanceGPS Managed Accounts enables our clients to offer their employees an advice alternative supported by the same fiduciary rigor used for the plan itself.”

Initial clients are expected to be live on the new platform in June.

Firms Launch TDFs With Guaranteed Income

American Century Investments, Lincoln Financial Group, Nationwide, Prime Capital Investment Advisors, SS&C Technologies, Wilmington Trust and Wilshire have launched a new in-plan target-date series with guaranteed income for life.

Called “Income America 5ForLife,” this new solution, which is designed to be used as a plan’s qualified default investment alternative (QDIA), strives to address the need for guaranteed monthly retirement income.

“Working together with our retirement industry partners, we developed the ‘Income America’ consortium to offer a defined contribution [DC] solution that helps plan participants concerned about outliving the money they’ve set aside for retirement,” says American Century Investments President and Chief Executive Officer Jonathan Thomas. “Our recent 2020 Retirement Plan Participant study indicates that more than 80% of participants would keep their assets in their retirement plan if they had an income option. We believe Income America provides an innovative approach to helping more people achieve a successful and comfortable retirement.”

Income America is a series of portfolios built on a target-date glide path designed by American Century and held in a portable, non-proprietary, multi-manager collective investment trust (CIT). It is available as both a traditional series of target-date portfolios, called Income America, and as a companion series of target-date portfolios with an in-plan guaranteed lifetime withdrawal benefit (GLWB), known as Income America 5ForLife. Either series can be used as a plan’s QDIA.

“By partnering on this important new solution, we look forward to continuing to help retirement plan participants not just understand how to save for the retirement they envision but help them take those savings and translate them into a monthly check that will last through retirement,” says Jamie Ohl, executive vice president, president, workplace solutions, head of life and annuity operations, Lincoln Financial Group. “As more Americans rely on their workplace retirement plan as their primary savings vehicle, it is more important than ever that we focus on the outcomes that will help them build financial security—because in planning for retirement, the ultimate outcome is income.”

Compliance March 4, 2021

American Red Cross Faces ERISA Lawsuit

Plaintiffs say the failure to issue an effective RFP for recordkeeping and a rebranding process for investments led to additional costs for participants.

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An Employee Retirement Income Security Act (ERISA) lawsuit has been filed on behalf of participants in the American Red Cross Savings Plan against the American National Red Cross, its Board of Governors, members of the board, its Benefit Plan Administration Committee and members of the committee for breaches of their fiduciary duties.

According to the complaint, the plan’s assets under management (AUM) qualify it as a jumbo plan in the defined contribution (DC) plan marketplace and among the largest plans in the United States. As such, it had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments. The plaintiffs accuse the defendants, however, of not trying to reduce the plan’s expenses or exercising appropriate judgment to scrutinize each investment option that was offered in the plan to ensure it was prudent. The complaint cites data from BrightScope that found the Red Cross plan fell in the category of plans with the highest total plan cost for plans with more than $500 million in assets.

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The lawsuit says the defendants breached the duties they owed to the plan and its participants by (1) failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; (2) maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories; and (3) failing to control the plan’s recordkeeping costs. The plaintiffs say the actions of the defendants cost the plan and its participants millions of dollars.

For example, according to the lawsuit, the use of revenue sharing to pay for recordkeeping resulted in a worst-case scenario for the plan’s participants because it saddled them with above-market recordkeeping fees.

The lawsuit cites an NEPC survey which found that the majority of plans with more than 15,000 participants paid slightly more than $40 per participant in recordkeeping, trust and custody fees. Per participant fees in the Red Cross plan ranged from $126.89 in 2015 to $207.67 in 2019.

Although the plan changed its recordkeeper in 2016, recordkeeping costs were higher after the change. The plaintiffs say this strongly suggests that the defendants failed to conduct a proper and effective request for proposals (RFP) at any time prior to 2015 through the present to determine whether the plan could obtain better recordkeeping and administrative fee pricing from other service providers.

The defendants are also accused of failing to timely consider available collective investment trusts (CITs) that were identical to the funds offered by the plan and lower in cost. The complaint explains that the plan has engaged in a rebranding process in which it contracts with providers of CITs to offer each provider’s CIT bearing the Red Cross name with the only difference being additional cost. In its March 2020 fee disclosure, the plan detailed how its rebranding process works: The plan “adds basis points to the expense ratio of funds to cover administrative fees.” The 2020 fee disclosure further states that “15 basis points (0.15%) have been included in the expense ratio of each listed investment for administrative expenses.”

There is no difference between the underlying CITs and the rebranded Red Cross product, the complaint argues. The funds hold identical investments and have the same managers, risk return profiles and investment strategy. “Because the underlying funds are otherwise identical to the Red Cross version, but with lower fees, a prudent fiduciary would know immediately that a switch is necessary,” the lawsuit states. “Had the plan’s fiduciaries prudently undertaken their fiduciary responsibility for oversight of the plan, determining the appropriateness of the plan’s investment strategy and monitoring investment performance, the plan would have moved to the unbranded versions of the identical fund.”

In a statement, the American Red Cross told PLANSPONSOR, “We don’t believe there is any validity to the claims that the American Red Cross 401(k) plan has been mismanaged. To the contrary, we believe that the Red Cross 401(k) plan has been well managed and provides a valuable benefit to our employees. We do not believe any litigation against our plan would have any merit and plan to defend vigorously. Plaintiff law firms have been very active in soliciting participants in company 401(k) plans to pursue litigation against plans and employers, and this is part of an uptick in litigation in this area. Many of these lawsuits have been shown to be without merit.”

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