Investing June 24, 2021

PSNC 2021: Understanding Options for Investment Selection

Panelists discussed what fiduciaries should consider when rounding out their investment selections and how to determine whether the investment fees their participants are paying are reasonable.

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After committees decide which asset classes to include in their retirement plan lineups, they must also decide what version of each investment to add on the menu. Panel experts the 2021 virtual PLANSPONSOR National Conference (PSNC) reviewed available investment options and discussed what plan sponsors should consider when debating between funds.  

Panelists started off by discussing environmental, social and governance (ESG) and sustainable investing, which saw a rise in interest during the height of the coronavirus pandemic last year, as more participants engaged in their investments.

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Sharon Kacsits, director of human resources (HR) for North America at COFCO International USA, a winner of one of the winners of this year’s PLANSPONSOR of the Year awards, said her company added optional sustainable funds to appease investment demand from participants. “We have recently added sustainability funds to allow employees who are passionate about that to be able to contribute to those funds,” she said.

James Buccella, president of ADP Strategic Plan Services, noted that more of his plan sponsor clients are reporting an increase in sustainability demand. “I get calls from plan sponsors saying they have an increase in participants asking about the funds and choices available to them now,” he said.

The pecuniary rule proposed by the Department of Labor (DOL) last year during former President Donald Trump’s administration led some employers to stray away from ESG investments, since many felt that showing a sustainable fund’s performance was superior to another fund could be “very difficult to prove,” as Buccella said during the panel. Because President Joe Biden’s administration has since taken a different stance and appears to be more accepting of ESG investing—including by asking the DOL to consider rescinding the Trump-era rule—more employers are willing to introduce these funds now to attract participants, he said.

The panelists also discussed their processes in selecting a default investment option, as more plan sponsors debate between selecting target-date funds (TDFs), managed accounts or even stable value funds for their plans.

When Kacsits began at COFCO International, the company was formed from two businesses that had merged, but it was still operating on two separate plans. One plan defaulted participants into a TDF, while the other defaulted them into a money market account. Kacsits said she and her team examined both lineups, fees, benchmarks and returns, and ultimately elected to make the TDF the sole default for the entire participant population.

At ADP Strategic Plan Services, the company switched its TDF series in its 3(38) lineup after a review last year, taking into account how participants were interacting with the plan. “We asked, ‘How are participants looking at funds? Do they have more saved for retirement than average? Are they more well paid or paid less than average?’ Those things went into our decision when deciding what glide path is more important,” Buccella said.

After asking these questions, the company found that participants were not staying in the plan after changing jobs or post-retirement. “A glide path that went on for 30 years past the target date didn’t make much of a difference,” Buccella noted.

He also discussed stable value funds and the use of collective investment trusts (CITs) as more employers report an interest in the funds due to their recent outperformance. Buccella said stable value funds require more due diligence, such as reviewing underlying assets, how the funds are managed, capacity and fees. “It’s an area where there are a lot of great financial advisers that can help plan sponsors with that,” he said.

No matter what investment fund or lineup a plan sponsor selects, both panelists emphasized the importance of regularly monitoring and annually reviewing fees and performance. Kacsits said the committee at COFCO International reviews the entire lineup quarterly and measures how it is performing against its benchmark, including the expense ratio. ADP Strategic Plan Services reviews its funds on a periodic basis and annually conducts an overall review of its investments and what is currently offered in the marketplace, according to Buccella.

During the panel, Buccella advised employers to regularly review a plan’s glide path and to document any decisions for the plan. “Looking at it once is not enough,” he added. “It should be an annual thing that you put on the list of to-dos in your committee meetings.”

Compliance June 24, 2021

Transamerica Agrees to Settle ERISA Suit

The settlement agreement includes both a $5.4 million payment and non-monetary relief.

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Transamerica and the trustees of its 401(k) plan have agreed to pay $5.4 million to settle an Employee Retirement Income Security Act (ERISA) lawsuit.

In addition, for a period of three years from the effective date of the settlement agreement, Transamerica has agreed to continue offering fiduciary training to its trustees. According to the settlement agreement, “The training will be conducted on a yearly basis by outside legal counsel or by the plan’s unaffiliated investment consultant, at Transamerica’s election. If a new trustee joins the trustees between annual fiduciary training sessions during the [three-year period], he shall be provided with a copy of the most recent fiduciary training materials as part of his onboarding.”

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Also, for that three-year period, the plan will continue to retain an unaffiliated investment consultant to provide independent investment consulting services to the trustees on approximately a quarterly basis. The defendants are not required to comply with these non-monetary provisions “should Congress, the Department of Labor [DOL] or any other applicable regulatory or self-regulatory body impose substantive requirements that render such compliance unduly burdensome, whether through statute, regulation, guidance or otherwise,” the settlement agreement states.

Participants in Transamerica’s retirement plan sued the company in late 2018, alleging that the plan has favored investment products managed by a Transamerica affiliate, to the detriment of participant performance.

The lawsuit also said, “Transamerica exacerbated plan participants’ losses by encouraging them to sign up for Transamerica’s Portfolio Xpress, a tool that automatically allocated participants’ money to Transamerica’s investment products.” Also named in the suit were trustees of the Aegon USA Inc. Profit Sharing Trust (which was renamed last year to be the Transamerica 401(k) Retirement Savings Trust), who were responsible for the selection and monitoring of the investments in the Transamerica plan. Aegon is the parent company of Transamerica.

In August 2019, a federal court judge refused to dismiss the case, finding that the new claims in the lawsuit were not claims that had been released in a previous lawsuit settlement and the plaintiffs had made sufficient pleadings.

According to the settlement agreement, the defendants deny any liability or wrongdoing, and Transamerica states that it is entering into the agreement solely to eliminate the burden and expense of protracted litigation.

A Transamerica spokesperson told PLANSPONSOR: “It is a matter of fact that this is not a self-dealing lawsuit. Plaintiffs made no claims in the lawsuit of a breach of the duty of loyalty or prohibited transactions. They made clear to the court that they were not pursuing self-dealing claims.”

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