Benefits April 23, 2007

Sponsors Adopt New Strategies to Improve DC Offerings

April 23, 2007 (PLANSPONSOR.com) - A new report from Greenwich Associates reveals defined contribution plan sponsors are taking steps to improve their retirement plan offerings since DC plans are no longer considered supplemental to defined benefit offerings and are not providing financial security needed by retirees.
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“DC plan sponsors are adopting automatic enrollment, they are incorporating products that improve investment returns throughout the course of an employee’s working years, they are switching to institutional products that minimize fees and they are taking steps to maximize both their own contributions and those of participants,” said Greenwich Associates consultant Chris McNickle, in a press release. Plan sponsors are adopting new products and strategies as they realize their DC plans are now the most important aspect of their employees’ financial well-being in retirement.

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Roughly 20% of companies with DC plan assets of $250 million or more have adopted automatic enrollment and another 17% said they have plans to do so, Greenwich Associates found. Adoption of the automatic enrollment provision has been even more rapid within smaller plans, with 28% using automatic enrollment and another 24% planning to do so.

There is also a growing proportion of plans that are offering target retirement date and lifecycle funds as part of participants’ investment menu, the release said. Further, Greenwich Associates found employers are increasing their own contributions to employees’ DC accounts.

Some 95% of U.S. companies with plan assets of more than $250 million make matching contributions to their DC plans, as do 84% of smaller plans. Among large plans, nearly one in 10 said they increased their matching contributions over the past 12 months, and another 13% said they plan to increase contributions over the next one to three years. Among smaller plans, 12% have recently increased their contributions and 16% said they have plans to do so.

The report points out the focus on increasing the effectiveness of DC offerings is brought on by the combination of increased life spans, diminished DB offerings and the weakening of the social security system.

Compliance April 20, 2007

Xerox Company Stock Suit Survives First Challenge

April 20, 2007 (PLANSPONSOR.COM) - Xerox Corp. employees suing the company over its handling of their 401(k) investments in shares of company stock fell short of proving their allegations of a breach of fiduciary responsibility.
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But U.S. District JudgeAlvin W. Thompson of the U.S. District Court for the District of Connecticut told lawyers for the plaintiffs they could refile their lawsuit against Xerox, its present and former directors and officers, and members of various committees that administered the two Xerox 401(k) plans.

Thompson accepted an argument by Xerox that the suit failed to explain how each defendant was a fiduciary and how each purportedly breached his or her fiduciary duties. The court said the new lawsuit needed to fix that problem.

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The employees alleged in the lawsuit that during the class period running from May 12, 1997, to Nov. 15, 2002, the defendants breached their Employee Retirement Income Security Act (ERISA) fiduciary duties by retaining the Xerox Stock Fund as an investment option when it was imprudent because Xerox had purportedly engaged in accounting fraud that overstated the stock’s value.

Among other things, the suit charged that the defendants breached their duties under ERISA by not giving employees investing in the Xerox Stock Fund complete and accurate information about Xerox. According to the court, the defendants argued that the employees were attempting to impose on them a duty to provide investment advice.

“[A] duty to inform participants is not the same as a duty to provide investment advice,” Thompson declared in his ruling.

Also, the defendants charged they did not exercise authority or control with respect to investment in the Xerox Stock Fund, so they were not acting as fiduciaries, because the decision to invest in the fund was made by the participants themselves.

But, according to Thompson, participants could not have exercised control within the meaning of ERISA Section 404(c) unless the plan fiduciaries provided them with complete and accurate information.   

The employees alleged that Xerox had made false public statements and filed false Securities and Exchange Commission (SEC) filings that were later disseminated to employees.

While it is true that the preparation and filing of documents with the SEC and making statements in press releases is not a fiduciary act in and of itself, “that fact does not mean that statements in those documents cannot become fiduciary representations if they are disseminated to Plan participants and beneficiaries,” Thompson pointed out.

The case is In re Xerox Corp. ERISA Litigation, D. Conn., No. 3:02cv01138 (AWT), 4/17/07.

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