Retirement Plans Still Being Scrutinized by Plaintiffs' Attorneys

It seems nearly all types of plans and investment approaches have been challenged recently in the courts. Next year probably won’t be any different. 

“From stable value, to proprietary funds, to company stock, to excessive fees, to a mix of all of the above, there are also more plaintiffs law firms filing suits than ever,” warns David Levine, a principal at Groom Law Group specializing in the Employee Retirement Income Security Act (ERISA).

It’s been a busy year for litigators, Levine says, and there even seems to be a developing measure of competition among plaintiffs firms to organize and file complaints first, “to come up with new theories, and to move quickly.” Where does this leave sponsors, advisers and providers?

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“In short, we are in a world where every action could be put under the microscope—before we even gauge the impact of the fiduciary regulation on these lawsuits—and where a prudent process and contemporaneous documentation is more essential than ever,” Levine predicts.

One helpful exercise for retirement plan officials is to review recent court decisions for any potentially problematic shared practices. Levine also suggests plan officials developed trusted go-to resources for sound and responsive legal advice.

NEXT: The influential lawsuits in 2015

Presented below is just a sample of the defined contribution plan litigation to emerge or progress in 2015:

Pledger, et al., v. Reliance Trust Company, et al – Despite being a professional employer organization which provides human resources and business solutions to small- and medium-sized businesses throughout the United States, the Insperity company is accused of failing to engage in a proper process for the selection and retention of a plan recordkeeper for its own 401(k).

Sulyma v. Intel Corporation – In November a participant in retirement plans sponsored by Intel Corporation filed a lawsuit claiming custom-built investment portfolios within the plan are too heavily invested in alternatives and other imprudent investments.

Dennard v. Aegon USA – Another provider-focused lawsuit claims retirement plan provider and asset manager Aegon USA caused superfluous fees to be charged to its own retirement plan.

Urakhchin and Marfice v. Allianz Asset Management of America, et al – A lawsuit filed by two participants in an Allianz retirement plan claims the company and its asset management partners, including PIMCO, misused employees’ 401(k) plan assets for their own financial benefit.

Tibble v. Edison – A decision from the Supreme Court of the United States seemed to solidify the “ongoing duty to monitor” investments as a fiduciary duty that is separate and distinct from the duty to exercise prudence in selecting investments for use on a defined contribution plan investment menu.

Windsor and Obergefell decisions – A notice from the Internal Revenue Service gives guidance to plan sponsors, applying the Supreme Court’s recent same-sex marriage cases to retirement plans, as well as other benefits.

Spano vs. Boeing – In the end it was a rather abrupt conclusion to one of the original and longest-running examples of 401(k) excessive fee litigation. Plaintiffs in this particular case alleged that Boeing violated ERISA by permitting a variety of excessive fees to be charged to 401(k) plan participants. They also claimed that Boeing engaged in self-serving conflicts of interest, and permitted imprudent funds to be included in the company retirement plan.

The full archive of 2015 compliance coverage is online here

ICI Estimate Shows Lower Retirement Assets in Q3

A downward revision reflects new information used by the Investment Company Institute.

Total U.S. retirement assets were $23.5 trillion as of September 30, down 4.3% from the end of June, according to the Investment Company Institute (ICI). 

A new estimate of $24.5 trillion for June reflects a slight downward revision based on new information used by ICI. The total retirement market estimates reflect revisions to previously published data, ICI explains.

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Revisions to the Financial Accounts of the United States, published by the Federal Reserve Board, resulted in a substantial downward revision to assets of annuities held outside retirement plans for the past 10 to 15 years. Smaller revisions were made going back to 1992; and minor, mostly upward, revisions were made to estimates of 403(b) plan and IRA assets at life insurance companies from 2007 through the second quarter of 2015. In addition, newly released U.S. Department of Labor (DOL) Form 5500 data for 2013 were incorporated, resulting in slight downward revisions to defined contribution (DC) plan assets (both the “401(k) plans” and the “other private-sector DC plans” categories) and private-sector DB plan assets beginning in the first quarter of 2013.

The reported assets of federal pension plans for the first, second, and third quarters of 2015 are adjusted for U.S. Treasury financing activities undertaken in anticipation of hitting the legal limit on federal government borrowing. These actions have reduced the amount of Treasury securities reported on the balance sheet of federal government defined benefit (DB) plans, an effect which ICI anticipates will be fully reversed in the fourth quarter of 2015.

NEXT: Assets by plan type

Retirement assets accounted for 34% of all household financial assets in the United States at the end of the third quarter of 2015.

Assets in individual retirement accounts (IRAs) totaled $7.3 trillion at the end of the third quarter, a decrease of 4.8% from the end of the previous quarter. Defined contribution (DC) plan assets fell 4.1% in the third quarter, to $6.5 trillion. Government defined benefit (DB) plans—including federal, state, and local government plans—held $5 trillion in assets as of the end of September, a 3.9% decrease from the end of June. Private-sector DB plans held $2.8 trillion in assets at the end of the third quarter, and annuity reserves outside retirement accounts accounted for another $1.9 trillion.

Americans held $6.5 trillion in all employer-based DC retirement plans on September 30, of which $4.5 trillion was held in 401(k) plans. In addition, $504 billion was held in other private-sector DC plans, $842 billion in 403(b) plans, $255 billion in 457 plans, and $426 billion in the Federal Employees Retirement System’s Thrift Savings Plan (TSP). Mutual funds managed $3.5 trillion, or 54%, of assets held in DC plans at the end of September.

IRAs held $7.3 trillion in assets at the end of the third quarter of 2015, down 4.8% from the end of the second quarter. Forty-seven percent of IRA assets, or $3.4 trillion, was invested in mutual funds.

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