Compliance August 17, 2020

LinkedIn Joins List of Plan Sponsors Targeted in Stream of Excessive Fee Suits

The allegations are similar to other ERISA excessive fee suits, including a challenge to the use of the Fidelity Freedom Funds TDF series.

Reported by

One current and two former participants of the LinkedIn Corp. 401(k) Profit Sharing Plan and Trust have sued LinkedIn, its board of directors and its 401(k) committee for breaches of Employee Retirement Income Security Act (ERISA) fiduciary duties.

According to the complaint, the plan has at all times during the class period maintained more than $164 million in assets—including having more than $817 million in assets in 2018—qualifying it as a large plan in the defined contribution (DC) plan marketplace and giving it “substantial bargaining power regarding the fees and expenses that were charged against participants’ investments.” The plaintiffs allege, however, that the defendants did not try to reduce the plan’s expenses or scrutinize each investment option that was offered in the plan to ensure it was prudent.

Get more!  Sign up for PLANSPONSOR newsletters.

The class period is defined in the complaint as August 14, 2014, through the date of judgment on the case. The lawsuit alleges that, in many instances, the defendants failed to use the lowest cost share class for many of the mutual funds in the plan, failed to consider certain collective investment trusts (CITs) available as lower-cost alternatives to the mutual funds in the plan and failed to consider replacing actively managed funds with lower-cost index funds with similar investment objectives.

As in other excessive fee lawsuits, the use of the Fidelity Freedom Funds target-date fund (TDF) series is called out in the LinkedIn case. However, it is not just for the use of the actively managed version of the TDF suite rather than the index version, as has been the case in other lawsuits, it is also for not offering the CIT version offered by Fidelity. Notably, the complaint says LinkedIn changed the TDFs offered in the plan from Fidelity Freedom K funds to FIAM Blend Target Date Q Funds at some point in late 2018 or early 2019, but the plaintiffs says this was “too little too late” and say the change “should have been done much sooner.”

All these actions cost the plan and its participants millions of dollars, the complaint alleges.

Finally, the lawsuit says, “the structure of this plan is rife with potential conflicts of interest because Fidelity and its affiliates were placed in positions that allowed them to reap profits from the plan at the expense of plan participants.” The complaint notes that Fidelity is the plan’s trustee and an affiliate of Fidelity performs the recordkeeping services for the plan.

“This conflict of interest is laid bare in this case where lower-cost Fidelity collective trusts and index funds—materially similar or identical to the plan’s other Fidelity funds (other than in price)—were available but not selected because the higher-cost funds returned more value to Fidelity. … The company, and the fiduciaries to whom it delegated authority, breached their duty of undivided loyalty to plan participants by failing to adequately supervise Fidelity and its affiliates and ensure that the fees charged by Fidelity and its affiliates were reasonable and in the best interests of the plan and its participants,” the complaint states.

LinkedIn has not yet responded to a request for comment.

Opinions August 17, 2020

Why Employers Should Consider a Dedicated HSA Provider

James Denison, with HealthSavings, discusses how using a dedicated HSA provider can help employees better understand the mechanics of, and how to use, HSAs.

Reported by

A recent HealthSavings survey of employers indicated that, on average, more than 50% of eligible employees haven’t even opened a health savings account (HSA), with the primary reason cited being education.

As this and other studies show, employees struggle to understand what an HSA is and how it can help them save money tax-free for medical expenses, now and in retirement. Also, employees are often not able to distinguish HSAs from other health benefits. A recent LIMRA survey found that 40% of Americans confused HSAs with flexible spending accounts (FSAs) by thinking HSA funds are forfeited if not spent by end of year.

Get more!  Sign up for PLANSPONSOR newsletters.

What’s causing this knowledge gap? When HSAs first came into existence, they were lumped into a package of benefits alongside FSAs and health reimbursement accounts (HRAs). This led to persistent misunderstandings among employees. HSAs, unlike FSAs and HRAs, are actual bank accounts where real dollars are deposited. They are not “notional” accounts where the employee must incur an eligible expense before funds are paid out.

This is an important distinction. With an HSA, an employee is in possession of real dollars and can control how those funds are used. They can make their own contributions to increase their tax savings and adjust their contribution levels during the plan year if their needs change. They can invest in mutual funds to build a nest egg for retirement and bring their savings with them if they change jobs. Or, they can pay for HSA-qualified expenses out of pocket, watch their HSA balances build over time, then reimburse themselves in the future tax-free for those expenses.

None of these features apply to FSAs or HRAs. They are simply spending vehicles with no option to plan for down-the-road health care costs or allocate funds for the future. In fact, because of their investing ability, HSAs can end up more strongly resembling a 401(k) or individual retirement account (IRA) than an FSA or HRA.

Unfortunately, many employers and benefits brokers lump the HSA offering alongside the FSA and the HRA in an alphabet soup of health benefit offerings. Everything is presented on the same shelf with little attention paid to the very important differences. It’s no wonder employees are confused.

The key to improving employee understanding of the HSA is to uncouple it from these other accounts and ensure it is offered by a qualified administrator with a singular HSA focus. These administrators are able to focus on the important lifetime benefits HSAs provide for all employees, no matter where they are on their health savings journey.

Consider for a moment two employees. One is just starting his career, is new to the world of benefits, and is focused on paying off student loans and building an emergency fund. The other is a C-level executive who is a seasoned investor and is focused on saving for a comfortable retirement. These employees have very different needs and goals, but they have one thing in common: neither will be helped by HSAs being presented alongside FSAs and HRAs. The first employee will likely just get confused, while the second employee could very well end up not understanding how an HSA can be invested as part of an overall retirement planning strategy.

A dedicated HSA provider will be able to tailor communications to meet employees where they are and help them achieve their specific needs and goals. Given the powerful benefits HSAs offer to employees, targeted education from an experienced HSA provider can play a significant role in helping them meet their long-term health and financial wellness goals.

By decoupling HSAs from other health benefits and choosing a dedicated HSA provider, employers can maximize their employees’ chances of making the best use of their HSAs, now and in the future.

 

James Denison is director of marketing at HealthSavings.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.

«