Benefits January 8, 2013

Most Recordkeeping RFPs to Benchmark Fees

January 8, 2012 (PLANSPONSOR.com) – Recordkeeper search activity is expected to increase; however, most requests for proposals (RFPs) will only serve to benchmark pricing, according to Cerulli.
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“More than half of plan sponsors have indicated they are likely to conduct a search for recordkeeper within the next two years,” said Kevin Chisholm, senior analyst at Cerulli Associates. “However, many of these plan sponsors have no intention of leaving their current recordkeeper.”  

In Cerulli’s recent report, “State of Large and Mega Defined Contribution Plans: Investment Innovation and the Plan Sponsor Perspective,” 41.9% of plan sponsors surveyed indicated they expect to do a recordkeeper search in the next two years, but only to benchmark pricing. Only 13% of plan sponsors said they expect to perform a search because they are actively seeking a new recordkeeper.  

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“There is concern that the current emphasis on costs will increase the frequency of provider searches and force recordkeepers to re-bid on plans before they become profitable,” Chisholm said. “About 60% of plans have been with their current recordkeeper for more than three years. But, a significant percentage, slightly more than 40%, have been with their current recordkeeper for less than three years.”  

The report examines the new ideas and products that have been developed for defined contribution (DC) plans in the large and mega segments (Large = $250 million to $1 billion, Mega = $1 billion +). It includes analysis of plan sponsors’ perspective of their DC plans and the likelihood of implementing new plan designs.    

The report provides asset managers, recordkeepers, and consultants with a window into plan sponsor thinking via a proprietary survey administered to more than 250 plan sponsors that fall in the large and mega segment. Other data contained in this report comes from surveys of DCIO asset managers. More than 30 conversations with executives at recordkeepers, investment consultants, and asset managers support the data and findings.  

The report is available for purchase by contacting CAmarketing@cerulli.com.
Compliance January 8, 2013

Employer Contributions Owed to Plan Not Plan Assets

January 8, 2013 (PLANSPONSOR.com) – A federal appellate court ruled employer contributions owed to a 401(k) plan are not plan assets, so an employer did not breach its fiduciary duties by not contributing.
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The 11th U.S. Circuit Court of Appeals agreed with a district court decision that the unpaid contributions were not plan assets because they were not clearly identified as plan assets in the governing plan documents. The district court entered judgment in favor of the employer because it did not breach a fiduciary duty as a matter of law.  

The appellate court explained that while the Employee Retirement Income Security Act (ERISA) does not define the term “assets,” federal regulations do prescribe that ERISA plan assets “include amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his wages by an employer, for contribution or repayment of a participant loan to the plan, as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.”   

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Thus, an employee’s elective contributions to an ERISA plan, withheld from his wages, are “plan assets” even when the funds remain in the employer’s possession. However, federal regulations do not address employer contributions to an ERISA plan. “Recognizing this absence of regulation, we have held that unpaid employer contributions are not ‘plan assets’ unless specific and clear language in the plan documents or other evidence so indicates,” the 11th Circuit opinion said.  

Manuel Pantoja worked for Edward Zengel & Son Express, Inc. (EZS) for approximately six months in 2009. From February until August 2009, EZS withheld fringe benefits totaling $3,472.17 without depositing most of the money owed into the plan. Instead, EZS used the money to pay its payroll taxes.   

Pantoja learned there was less than $300 in his 401(k) account when Hartford Life Insurance Company sent him a balance statement in late 2009. In March 2010, Pantoja filed suit against EZS, and three corporate officers alleging a breach of fiduciary duty and requesting injunctive relief. After Pantoja filed the lawsuit, EZS remitted to the plan the funds owed to Pantoja, plus interest.  

The 11th Circuit’s opinion is at http://www.ca11.uscourts.gov/unpub/ops/201210036.pdf.

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