Reader Responses February 23, 2015

SURVEY SAYS: Retirement Plan Committees

To do their job well, retirement plan committees need to keep up with the latest plan design and investment trends.
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Last week, I asked NewsDash readers, “Do you think your company’s retirement plan committee is in tune with the latest trends? Do you think it’s helpful for non-executive employees to serve on retirement plan committees?”

The majority of respondents serve (87.5%) in a plan sponsor role; 2.5% are advisers or consultants, and 10% serve in a TPA/recordkeeper/investment manager role.

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The good news is 73.2% of responding readers think their retirement plan committees are in tune with the latest trends in plan design and investments. However, nearly 22% don’t think their committees are in tune with the latest trends, and 4.9% reported they do not have a retirement plan committee.

More than 20% of respondents said the most recent plan design improvement their company’s retirement plan committee approved or implemented was a move to lower-fee investment funds, while 18% indicated it was the addition of investment choices other than target-date funds, managed accounts or lifetime income options. Automatic enrollment and a change in investment strategy for their defined benefit plan were each selected by more than 10% of respondents.

Nearly 8% of readers responding to the survey said the most recent plan design improvement their company’s retirement plan committee approved or implemented was automatic deferral escalation; 5% each indicated it was the addition of target-date funds or managed accounts and allowing involuntary cashouts of small plan balances; and 3% each reported it was the addition of a lifetime income investment strategy and a change to the pension benefit formula.

Eighteen percent of responding readers selected “other” when asked the most recent plan design improvement their company’s retirement plan committee approved or implemented. Those responses included:

  • Moving to a new provider with lower fees;
  • Allow earlier participation for new employees;
  • Outsourcing the plan “because we do not have the latest trends;”
  • Selection of new provider for creating target-date funds;
  • Addition of global funds; and
  • Change to an all index-fund lineup.

One reader said, “Our committee covers all our plans with assets >$75m, which is approximately 20 plans. Because of this the discussions are much more varied than the list presented above.”

Sixty percent of responding readers think it is helpful to allow non-executive employees to serve on retirement plan committees, while one-quarter say it depends on the employee demographics or size of employer. More than 12% think it is not helpful to allow non-executive employees to serve on retirement plan committees, and 2.5% indicated they don’t know.

The need for non-executive employees on retirement plan committees was expressed emphatically by many readers who chose to share comments, though one expressed that it was not a good idea. Others commented on what their retirement plan committees know, not just about trends, but about their fiduciary duties. Editor’s Choice goes to the reader who said, “Think herding cats. It is not their main job and is hard to keep them informed of the latest trends and what current employees are up to.”

A big thank you to all who responded to the survey!

Verbatim 

There is a crucial need to include rank and file members on investment plan committees. There is just too much of a culture gap with executives who believe they know just a little too much about their plan demographics. It's also been my experience that higher-level executives have so little time to devote to committee business; they aren't living up to their fiduciary responsibilities.

A LONG TERM NON-EXECUTIVE EMPLOYEE CAN ADD VALUE TO ANY COMMITTEE.

We already had incorporated many of the plan designs above. So no real recent changes.

Most don't understand that they are fiduciaries. Including only executives makes it hard to get perspective on why staff isn't participating.

Our Committee members represent various business units within our company. Therefore most of them know nothing of retirement trends - it is up to us to educate them and help them make good decisions about our plans.

Having non-executives on the Retirement Committee is not only a good idea, it's essential.

My company stays aware, but doesn't jump on any "hot" items

We have a cross functional group of employees on our committee. We feel everyone (not just management) should have a say about their retirement plan.

We have had the committee with and without non-executive employees and I found that when non-executives employees were on the committee they came with their own agenda and did not look to serve the entire plan population.

Considering the members of our investment committee consider our 401(k) as no more than a supplement to their many other investments and compensation structure it would be certainly be nice for someone who valued the plan to be on the committee.

Credit for our success goes to our consultant. They are great advisers, and have made a great effort to educate us on our fiduciary responsibilities!

"What's up with the market." "Hey, I thought there was food at this meeting."

Think herding cats. It is not their main job and is hard to keep them informed of the latest trends and what current employees are up to.

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Asset International or its affiliates.
Compliance February 20, 2015

Long-Running Lockheed Martin Fee Case Settled

Plaintiffs’ attorney Jerry Schlichter says the settlement is the largest result for a 401(k) excessive fee claim ever levied against a single employer in the United States.
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A $62 million settlement between Lockheed Martin and participants in its 401(k) plan brings to rest a nearly decade-old complaint arguing Lockheed failed to adequately negotiate for lower plan fees.

The settlement also includes a range of non-monetary relief provisions to ensure compliance with the settlement and enhance the 401(k) plan for the benefit of Lockheed Martin employees and retirees. It must be approved by the U.S. District Court for the Southern District of Illinois before taking effect.

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Industry practitioners have long followed the case, referred to as Abbott v. Lockheed, due to the large size of the plaintiff class (more than 100,000 participants) and the substantial monetary damages sought by plaintiffs’ attorney, Jerry Schlichter, of Schlichter Bogard and Denton.

In a statement announcing the pending settlement agreement, Schlichter says Lockheed employees and retirees will “benefit significantly from the use of competitive bids for services to their plan, reporting to the court, assuring compliance, a greater degree of transparency, and lower overall costs.” Schlichter also claims the settlement is the largest result for a 401(k) excessive fee claim ever levied against a single employer in the United States.

The initial complaint was filed September 11, 2006. Plaintiffs alleged that Lockheed Martin breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) when it imprudently managed and invested plan participants’ retirement savings in funds that charged excessively high fees that diminished returns. Further, they alleged that Lockheed Martin allowed an unreasonably high level of participants’ retirement assets to be held in low-yielding money market funds of State Street Bank & Trust, with whom Lockheed Martin had multiple business relationships. The plaintiffs also alleged that they were charged excessive recordkeeping fees.

Lockheed Martin denied all of the allegations and contends it complied in all respects with the law. In the settlement, Lockheed Martin has agreed to initiatives designed to strengthen its 401(k) plan as part of the non-monetary relief.

Court documents show Lockheed has agreed to file annually with the district court a notice that assures compliance with the settlement. The notice includes monthly evaluations on the average portion of the plan’s stable value fund that is allocated to money market instruments; monthly evaluations on the average portion of the plan’s company stock funds that are allocated to cash equivalents; and monthly reports obtained from Morningstar, summarizing the characteristics of the funds with respect to performance, among other metrics.

Lockheed Martin must also receive bids from at least three third-party recordkeeping services for the Lockheed Martin savings plan. The recordkeepers providing bids must currently be serving 401(k)s with assets greater than $5 billion. The bids and the final selection of a recordkeeper must be reported to the court. 

Finally, Lockheed Martin will offer funds that have the lowest expense ratios, as applicable. Lockheed Martin will also consider the use of collective investment trust or separately managed accounts. Under the settlement, the district court will retain jurisdiction to enforce the settlement terms for three years.

The full text of the settlement agreement is here. 

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