Deals and People December 23, 2016

Retirement Industry People Moves

Lockton expands retirement business; Wagner Law Group comes to D.C.; USI acquires Ball Peoples; and more.
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Lockton Expands Retirement Business
 
Privately-held independent insurance broker Lockton is expanding its presence in the retirement services industry with the addition of Michael Duckett to its Washington, D.C. office. Duckett has worked for several major plan administrators including Principal and T. Rowe Price. He is versed in recordkeeping, communication, investment management and fiduciary oversight. He has designations as an Accredited Investment Fiduciary and a Certified Plan Fiduciary Advisor. Duckett is also recognized as one of the Top 50 Advisors Under 40 by NAPA Net, the magazine of the National Association of Plan Advisors.

“Changing regulation and an increasing number of employee lawsuits have made retirement management a key focus,” says Lockton’s Washington D.C. President Robert Connolly. “Our clients are looking to us to help them both care for their employees’ well-being and protect their business’s bottom line. Bringing expertise like Mike’s to the table helps us do that.”

“There are a lot of advisers who can talk investments,” says Pam Popp, Lockton’s National Retirement Practice president. “But there aren’t a lot who have seen retirement from all the angles that Mike has. He can not only help clients choose investments, he also understands the regulatory environment and the operational complexities of administering a retirement plan. That kind of holistic expertise makes a huge difference for employers who want to both take care of their people and manage risk.”

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NEXT: Virtus Investment Partners Acquires RidgeWorth

Virtus Investment Partners Acquires RidgeWorth

Virtus Investment Partners has entered an agreement to acquire RidgeWorth Investments. This multi-boutique asset management firm has $40.2 billion in assets managed by affiliated investment managers and unaffiliated subadvisers. The transaction increases Virtus' assets under management to $86.8 billion on a pro forma basis, the company said.

The acquisition will add complementary institutional-quality equity and fixed income strategies from RidgeWorth's boutique managers, who will continue to operate independently. The firm intends the transaction to diversify and expand Virtus' client base, particularly among institutional investors, while enhancing distribution resources in the institutional, retirement plan, private bank and registered investment adviser channels.

"The acquisition of RidgeWorth will give us increased scale, a wider range of strategies for institutional and individual investors, and broader distribution and client service resources, particularly for institutional clients," says George R. Aylward, president and chief executive officer of Virtus. "The combined company will have a stronger and more diversified business with the scale to better serve clients in a highly competitive industry."

The two companies have comparable business models, both offering clients an array of distinctive investment strategies from boutique affiliates with shared distribution and business support functions.

"This transaction will provide continuity for RidgeWorth's clients, who will continue to partner with the same investment teams they respect and appreciate while benefiting from the enhanced support of a larger, better resourced organization," says Aylward.

Ashi Parikh, CEO and chief investment officer of RidgeWorth adds: "We are very excited to join Virtus, a firm that shares our vision, culture and approach to offering investment solutions from boutique affiliates. This partnership marks an important milestone in RidgeWorth's journey as it facilitates the transition of RidgeWorth and its clients from a private equity-owned firm to an independent, publicly traded investment management company."

NEXT: Wagner Law Group Comes to D.C.

Wagner Law Group Comes to D.C.
 
Employee Retirement Income Security Act (ERISA) and employee benefits firm The Wagner Law Group has announced the opening of a new office in Washington, D.C., effective January 1, 2017.

"It is only fitting that a growing law firm at the forefront of some of the most complicated legal and regulatory landscapes, opens an office in our nation's capitol, and we are truly honored and excited to be able to do so with a staff of outstanding attorneys," says Managing Director Marcia Wagner.

The new office located at 800 Connecticut Avenue will be staffed with attorneys Dan Brandenburg and David Pickle and associate Seth Gaudreau along with an experienced support staff. Brandenburg is recognized as an expert in the areas of pension, 401(k) and welfare plans, executive compensation including plans for tax-exempt organizations, and executive employment. He has regularly represented clients before the Internal Revenue Service (IRS), the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC). He also counsels clients with respect to the IRS and DOL voluntary compliance programs as well as during audits and investigations initiated by the IRS, DOL and PBGC.

Pickle specializes in all aspects of ERISA Title I provisions including prohibited transactions and disclosure rules. His experience includes advising clients with respect to investment management services, investment transactions, mergers and acquisitions, and DOL investigations. His clients have included both plan sponsors and investment-related service providers. Gaudreau conducts legal research and drafts memoranda and briefs for ERISA. He also prepares ERISA-related governmental filings and is active in the firm's privacy and security law practice.

Next: USI Acquires Ball Peoples

USI Acquires Ball Peoples
 
USI Insurance Services (USI) has acquired Ball Peoples, an employee benefits advisory firm headquartered in Austin, Texas. Since 1975, Ball Peoples has been servicing clients throughout Central Texas and across the Southwest. The employees will remain at their Austin location. Terms of the transaction were not disclosed.

John D. Collado, USI Southwest regional chief executive officer, said: “This acquisition further strengthens our footprint as one of the top three retail employee benefits insurance brokerage firms in Texas, and increases our ability to deliver our clients a powerful arsenal of employee benefits services and solutions. The talented staff at Ball Peoples has a laser focus on helping organizations build a culture committed to employee benefits. This client centric approach closely aligns with the USI ONE Advantage, which is setting a new standard for customized risk management and benefit programs that generate positive economic impact for clients. Tom, Danny and their team will play an important role to further our employee benefits practice throughout the Southwest region, and we are excited to have them join the USI family.”

Thomas H. Ball III, co-owner, Ball Peoples, added: “For 42 years, our strategy has been based on a high-touch, service driven model where relationships matter and best in class solutions are delivered. Our clients will continue to benefit from this methodology, but now they can tap into USI’s robust products that, in addition to employee benefits, include property-casualty, retirement consulting and personal risk.”

NEXT: Wagner Law Group Adds Partner

Wagner Law Group Adds Partner

Dan Brandenburg has joined ERISA and employee benefits firm, The Wagner Law Group. He will be based out of the firm’s new office in Washington, D.C. Brandenburg is versed in the fields of pension, 401(k) and welfare plans, executive compensation including plans for tax-exempt organizations, and executive employment. He also has substantial experience with association-sponsored member service programs.  Brandenburg represents clients regularly before the Internal Revenue Service (IRS), the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC), and counsels clients with respect to the IRS and DOL voluntary compliance programs and audits and investigations initiated by the IRS, DOL and PBGC.

"The depth and breadth of Dan's ERISA practice and his outstanding reputation as an exceptional attorney are an obvious fit for The Wagner Law Group and we are excited to have him join our growing team," says Managing Director Marcia Wagner.

He received an LL.M. in taxation and a J.D. from Georgetown University Law Center. He earned his bachelor’s degree from Rutgers University, and is admitted to practice law in the District of Columbia. Prior to joining The Wagner Law Group, Dan was a partner at Saul Ewing LLP and the managing shareholder of Sanders, Schnabel & Brandenburg PC. Brandenburg has an AV peer review rating from Martindale-Hubbell, has been named to The Best Lawyers in America list for Employee Benefits and ERISA Law since 2001, and has also been selected as a Washington, D.C. Super Lawyer from 2007 to the present.
Compliance December 23, 2016

New 401(k) Excessive Fee Suit Filed Against Delta Air Lines

Among the charges is that, prior to 2011, the plan included too many, and duplicative, investment options.
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Participants in Delta Air Line’s Delta Family Care Savings Plan have filed a proposed class action lawsuit against the company, the plan’s administrative committee and other fiduciaries alleging violations of the Employee Retirement Income Security Act (ERISA) regarding excessive fees.

The complaint says given its size and prominent place in the marketplace, the plan had and has the ability to demand and obtain lower cost investment options from providers. “The Defendants, however, did not provide the participants in the Plan with the lowest cost investment options that easily were available to them. This resulted in a failure of the most fundamental of the Defendants’ fiduciary duties to the Plan participants,” the lawsuit says.

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Examples given in the complaint include: Defendants selected the fund Janus Forty S, with an expense ratio of 1.00, as an investment option, when the equivalent fund Janus Forty I, with an expense ratio of .60, was available; Janus Research T, with an expense ratio of .95, when Janus Research I, with an expense ratio of .78 was available; and PIMCO Low Duration ADM, with an expense ratio of .71, when PIMCO Low Duration D, with an expense ratio of .56 was available.

The plaintiffs cited research studies to argue that funds with higher fees are all but indefensible: they not only empirically fail to beat the market on a consistent basis, they are in fact mathematically unable to do so because the high fees cut into returns significantly, especially over time. “Essentially, high fees are apparently more likely to indicate bad funds than good ones,” the lawsuit says.

In addition, plaintiffs’ contend that a typical 401(k) plan offers roughly fourteen investment options, and note that defendants offered at least 200 investment options in the plan prior to 2011. The plaintiffs allege that many of these were functionally equivalent or otherwise duplicative and added nothing but confusion to the set of options available to participants. Even within each class of investments, defendants offered far more investment options than was reasonable. In addition, the plaintiffs say the defendants failed to monitor the investment options they offered, and instead allowed numerous poorly performing investment options to remain in the pool of available options year after year.

The lawsuit alleges that defendants’ conduct cost plaintiffs and the proposed class millions of dollars needlessly expended on excessive fees and costs.

NEXT: Excessive recordkeeping fees

In addition, the lawsuit claims that through their breach of their fiduciary duties the defendants allowed the plan to be charged costs and fees for administrative services like recordkeeping which were far in excess of what the plan should have paid. This, too, cost plaintiffs and the proposed class millions of dollars that could and should have been retained and invested in the participants’ retirement accounts, the lawsuit says.

The plaintiffs contend that revenue-sharing more often functions as sleight of hand to hide fees from plan participants, because it enables the mutual funds to present to participants investment options which appear to have especially low fees, even though those fees are generally included on the recordkeeping side instead. “Indeed, because the increased recordkeeping fees are generally not the focus of scrutiny, and because they generally provide for compensation based on the total size of the assets rather than a flat fee, … it is likely that revenue sharing actually results in higher total fees charged to the Plan, even while the participants believe that their fees have been lowered,” the lawsuit says.

In addition, the complaint notes if revenue-sharing is allocated based on the expense ratios of the underlying investments, then participants who choose investment options with higher expense ratios (e.g., 40 basis points) end up paying more for recordkeeping than participants who choose the equivalent investment options which have lower expense ratios (e.g., 10 basis points). Thus revenue sharing exacerbates the harm to plan participants that is already caused by inclusion of higher-cost investment options.

The lawsuit alleges that defendants failed to undertake a competitive bidding process for recordkeeping services, and while the defendants paid flat, per participant fees as direct compensation to Fidelity Investments for recordkeeping services, they also paid indirect compensation based on the amount of invested assets from 2010 through 2012. This indirect compensation ranged from 5 basis points to 55 basis points, depending on the mutual fund, with the most common fee being 35 basis points. “This decision resulted in excess and unnecessary fees charged to participants,” the complaint says.

“Fidelity had already been more than fairly compensated through direct payments, and thus indirect compensation through revenue sharing merely piled excess upon excess, with participants in the Plan bearing the cost,” the lawsuit continued.

Finally, the plaintiffs allege that the defendants agreed to revenue-sharing with Fidelity, but failed to limit and monitor the recordkeeper’s compensation. “Defendants thus allowed the recordkeeper to earn—and the Plan participants to pay—unreasonable and excessive compensation for recordkeeping services,” the complaint says.

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