Deals and People August 14, 2020

Retirement Industry People Moves

Hall Benefits Law announces changes to ERISA team and BNY Mellon elects governance expert to Board of Directors.

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Art by Subin Yang
Art by Subin Yang
Art by Subin Yang

Hall Benefits Law Announces Changes to ERISA Team

Hall Benefits Law (HBL) has added Compliance Counsel Keely Collins to its team of attorneys, while J.D. candidate Allison Richter is leaving the firm as a result of her completion of the firm’s first HBL Summer Intern Program.

Collins received her juris doctor from Widener University School of Law and earned her Master of Laws in taxation with a certificate in employee benefits from Villanova University School of Law. 

Richter supported the legal team for two months as she completed the firm’s first summer intern program.

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Collins, who joined the firm as compliance counsel mid-month, will partner with clients of all sizes to prepare them for external regulatory audits, represent them in board meetings, develop and manage bespoke employee benefits and compensation plans, and provide general and pension counsel. In addition to those responsibilities, Collins works directly with lead ERISA [Employee Retirement Income Security Act] counsel Robert Forman to help provide counsel to clients who use the firm’s pre-approved retirement plan document.

Principal Attorney Anne Tyler Hall responded to the hire stating, “Keely adds a depth of legal compliance experience and professionalism to the HBL team. She embodies HBL’s core value of providing exceptional work product and service for our clients, and she goes above and beyond to fulfill that mission. Keely is a welcome addition to the team and brings incredible passion to her role as compliance counsel here at Hall Benefits Law. With her drive to help businesses with their legal compliance needs, Keely is sure to provide additional value to every client she works with.”

Richter joined the HBL Summer Intern Program in June and worked closely with the legal team for two months before heading back to Washington, D.C., for her second year at George Washington University Law School. She assisted Hall Benefits Law team members with projects involving health and welfare benefits, retirement plans and executive compensation. She also worked closely with the firm’s attorneys to research regulations, analyze client issues and draft memoranda, including articles for publication.

Hall weighed in on the firm’s first intern, specifically highlighting Allison’s direct contributions over the summer: “Allison’s commitment and dedication to becoming an excellent ERISA practitioner has been evident in her work ethic and work product, most recently leading an internal education session on plan sponsor pitfalls relative to COBRA [Consolidated Omnibus Budget Reconciliation Act] notices and changes to e-disclosure rules.”

BNY Mellon Elects Governance Expert to Board of Directors

The Bank of New York Mellon Corp. has elected Ralph Izzo, chairman, president and CEO of Public Service Enterprise Group Incorporated (PSEG), as an independent director, effective August 10. 

With the addition of Izzo, BNY Mellon’s Board of Directors will have 11 directors, 10 of whom are independent. Izzo will serve on the Audit and Corporate Governance, Nominating and Social Responsibility Committees of BNY Mellon’s board.

“We are thrilled to welcome Ralph to our board,” says Todd Gibbons, CEO of BNY Mellon. “With wide-ranging expertise, from strategic planning, to finance and risk management, he will bring a variety of valuable insights.”

“Ralph’s extensive chief executive experience at a complex, publicly traded company, as well as his operations experience in a highly regulated industry, will complement and enhance the diverse experiences and backgrounds of the other members of our board,” adds Joseph Echevarria, chairman of the board. 

Izzo has served as chairman and chief executive officer of PSEG, a publicly traded diversified energy holding company, since April 2007. He has been the company’s president and a member of the board of directors of PSEG since October 2006. Previously, Izzo was president and chief operating officer of Public Service Electric and Gas Company (PSE&G), an operating subsidiary of PSEG. Since joining PSE&G in 1992, he has held several executive positions within the PSEG family of companies.  

Izzo received his bachelor’s and master’s degrees in mechanical engineering and his Doctor of Philosophy degree in applied physics from Columbia University. He also received a master’s degree, with a concentration in finance, from the Rutgers Graduate School of Management.

Compliance August 14, 2020

McKinsey Agrees to Settle Excessive Fee Lawsuit

In addition to a $39.5 million payment, the firm has agreed to a number of prospective steps to ensure reasonable expenses.

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Parties in a retirement plan excessive fee lawsuit filed last February have agreed to a $39.5 million settlement.

The original complaint named as defendants McKinsey & Co. Inc., MIO Partners and various John Does alleged to be fiduciaries under the Employee Retirement Income Security Act (ERISA). McKinsey sponsors two defined contribution (DC) retirement plans for its employees—the McKinsey & Company Profit-Sharing Retirement Plan and the McKinsey & Company Money Purchase Pension Plan. MIO is a registered investment adviser (RIA) firm wholly owned by McKinsey and is the plans’ investment manager by McKinsey’s appointment. MIO serves the plans by deciding which investment options should be selected and retained in the plans and also manages certain proprietary investment portfolios that it has retained as investment options in the plans.

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The plaintiff alleged that McKinsey and MIO made the plans “two of the most expensive—if not the most expensive—defined contribution plans in the country among plans of similar size.” According to the original complaint, as of 2015, the median annual cost of a 401(k) plan with more than $1 billion in assets was 0.27% of assets, and the 90th percentile mark was 0.51%. The plans’ annual cost was at least 3.74% of assets—more than 13 times the median and seven times the 90th percentile mark.

The complaint also states that MIO only gets paid if it offers its own proprietary investment portfolios in the plans, and that “MIO’s portfolios have high costs and are rife with other problems.” The plaintiff said MIO has failed to consider replacing its portfolios with superior alternatives. “Inclusion of MIO-managed investment options has enriched MIO substantially—since 2013, MIO’s annual compensation from the plans has ranged from $20 million to $36 million, or 0.64% to 0.94% of MIO-managed assets,” the complaint says.

McKinsey and its owners/partners were also accused of benefiting from the plans’ management. The complaint explains that McKinsey’s partners—current and former—have more than $4 billion invested with MIO through private funds outside the plans. “MIO routinely invests the plans’ portfolios alongside partners’ personal funds in order to subsidize or defray partners’ expenses in these funds. Indeed, the plans’ participants pay MIO annual management fees of close to 1% of the assets MIO oversees, yet MIO offers the exact same services, and makes the same investments, for McKinsey’s partners at no cost to the partners. As a result, the plans are effectively paying for the free investment services that MIO is providing to McKinsey’s partners. Had McKinsey’s partners simply paid their fair share of MIO’s expenses, the plans would have saved over $70 million in fees since 2013,” the complaint states.

In addition, the lawsuit alleged that McKinsey failed to appropriately monitor and control the plans’ recordkeeping expenses, and has paid a portion of these charges to itself. “Each participant pays approximately $95 per year or more for recordkeeping services (out of a total $160 annual administrative charge). This is more than twice the reasonable market rate for similarly sized plans (approximately $30 to $40 per participant), and McKinsey improperly retains around 25% of the recordkeeping charge for itself. Notably, while industry-wide recordkeeping expenses were cut in half on a per-participant between 2006 and 2016, the plans’ per-participant recordkeeping fee in 2017 was 50% higher than it was in 2006, despite significant growth in the number of participants that should have translated into lower per-participant fees,” the complaint says.

The defendants faced claims for breach of the ERISA fiduciary duties of loyalty and prudence and prohibited transactions under ERISA. McKinsey also faced a claim for failure to monitor other fiduciaries.

In addition to the $39.5 million payment, McKinsey has agreed to provide prospective relief, including:

  • For a period of no less than three years, McKinsey defendants will retain an independent investment consultant to provide ongoing review of the investment options in the plans, and review and approve any communications to participants regarding the plans’ investment options;
  • Also for a period of no less than three years, all expense reimbursements by the plans to McKinsey, MIO or any other affiliated person or entity will be reviewed and approved by an independent fiduciary—paid for by McKinsey—who will have final discretion to approve or reject reimbursements; and
  • Before the expiration of the current agreement between McKinsey and the plans’ recordkeeper, McKinsey will issue a request for proposals (RFP) for recordkeeping services.
The settlement agreement says it is not to be construed as evidence or admission of any wrongdoing by the defendants.

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