Compliance April 26, 2018

Motion for Class Certification Filed in American Airlines Stable Value Fund Suit

The complaint says that instead of offering a stable value fund in its 401(k) plan, American Airlines offered the AA Credit Union Fund, which yielded “tremendously” poor returns throughout the relevant time period.

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Plaintiffs in a case challenging American Airlines’ (AA) decision not to include a stable value fund in its 401(k) investment menu has filed a motion for class action certification.

According to the original complaint, the plan does not offer a stable value fund as its “income producing, low risk, liquid fund.” Instead, it offered during the class period the AA Credit Union Fund, which yielded “tremendously” poor returns throughout the relevant time period.

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“The AA Credit Union Fund effectively delivered, at all material times, the returns of a poorly managed checking account. The AA Credit Union Fund consistently failed to outpace inflation and was at all times thus a categorically imprudent retirement investment under ERISA [Employee Retirement Income Security Act]. Therefore, Defendants violated their duties of prudence under ERISA by including it as a retirement investment option in the Plan’s menu of investment options,” the complaint states.

The complaint notes that as of November 5, 2015, the one-month return for the AA Credit Union Fund was 0%. As of November 29, 2015, the one-month return for the fund was 0.07%, and as of January 3, 2016, the one-month return for the fund was 0%. At the same time, the AA Federal Credit Union has an actual checking account option called a “Priority” checking account that, according to the AA Federal Credit Union Internet site, is currently paying interest rates of up to 2.27%.

The plaintiffs allege that stable value funds are commonly used by large 401(k) plans like the American Airlines’ plan and typically offer more in return than the AA Credit Union Fund.

“In light of stable value funds’ clear advantages and enhanced returns compared to the AA Credit Union Fund, when deciding which fixed income investment option to include in a defined contribution plan, a prudent fiduciary would have included a stable value fund—and not the AA Credit Union Fund,” the complaint states. “Had the funds invested in the AA Credit Union Fund instead been invested in a stable value fund returning average benchmark returns, as represented by the Hueler Index during the proposed class period here, Plaintiffs and other Plan participants would not have lost tens of millions of dollars of their retirement savings, and would not continue to suffer additional losses as a result of the AA Credit Union Fund being retained in the Plan.”

Last November, U.S. District Judge John McBryde of the U.S. District Court for the Northern District of Texas denied American Airlines’ motion to dismiss the case saying, “The court is satisfied that plaintiffs have met their pleading burden. The arguments defendants make go to the merits of the claims and would more properly be presented by motions for summary judgment.”
Data and Research April 26, 2018

Access to Planning Information Correlates With Retirement Readiness

Compared to workers who feel very ready for retirement, unprepared workers show disappointment with the retirement information provided by their employers, a survey by the Indexed Annuity Leadership Council finds.

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Nearly one-fifth of all Americans approaching retirement are at the low end of the readiness spectrum (not ready at all), having saved 20% or less of the money they will need for retirement, according to a survey by the Indexed Annuity Leadership Council.

 

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More than 40% of those surveyed report they are worried, with 13% very worried, about retirement.

 

Overall, American workers are satisfied with the amount of information their employer provides about retirement options. However, workers at small companies (fewer than 50 employees) are two times more likely than employees at larger companies to feel their employer is not helpful at all with retirement planning. Access to planning information correlates with retirement readiness: compared to workers who feel very ready for retirement, unprepared workers show disappointment with the retirement information provided by their employers.

 

Those pre-retirees who feel most prepared for retirement are almost three times as likely as unprepared workers to have access to pensions. Fifty-nine percent of those prepared have access to a 401(k) plan, compared with 39% of unprepared workers. Further, pre-retirees who feel most prepared are five times as likely to have individual retirement accounts (IRAs), eight times as likely to have mutual funds and 10 times as likely to have an annuity.

 

Overall, 64% of workers feel satisfied with retirement options provided by their employers. Those in larger companies tend to have higher satisfaction rates regarding the retirement options provided by their employers than those at smaller companies. More than half of all of America’s workforce reports their access to retirement plans and products has either stayed the same or decreased in the past 10 years.

 

The most common savings mistakes and regrets among survey respondents are not saving earlier (40%), making bad financial decisions (19%), not saving enough (17%) and having personal issues that impacted their ability to save (8%). Personal issues often cited include divorce, marital choice, career path and family illnesses. Ongoing challenges like high daily living expenses (26%) and elevated debt level (24%) also hinder the ability to save.

 

Workers who are unprepared for retirement are five times as likely as those who are prepared to cite high living expenses as a barrier to retirement planning. They are also seven times as likely to have too much debt. In contrast, 71% of prepared workers don’t face these barriers.

 

The survey finds pre-retirees are already taking steps to be more prepared for retirement. More than 40% have already adjusted their lifestyle choices/expenses; nearly 14% are taking on multiple jobs to support their retirement savings goals; and nearly 10% have switched jobs for better retirement benefits. The research shows that workers are, above all, looking for lifetime income (78%). This goal is quickly followed by having stability of income (76%) and principal protection (71%). However, having a diversified portfolio was only cited by less than 60% of workers surveyed.

 

The survey report, “America’s Workforce: The Reality of Retirement Readiness,” may be downloaded from here.

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