The Rosenbaum Law Firm P.C. Blog

A U.S. District Court judge threw out a case against Microsoft which claimed that the BlackRock LifePath Index Funds suite of target-date funds was an imprudent investment choice for their plan participants.

Plaintiff plan participants claimed Microsoft selected BlackRock TDFs that offered lower fees but were not performing as well as comparative TDFs. The claim was one of a bunch of lawsuits filed by the Miller Shah law firm against companies who offered the TDF, including Booz Hamilton, Cisco, Citigroup and Stanley Black & Decker.

The judge claims that the plaintiffs failed to prove that comparative TDFs outperformed BlackRock’s funds, and that it is not clear plan participants would have invested in a different TDF if other options had been given.

The judge also claimed that the plaintiffs failed to show that Microsoft breached its fiduciary duty under ERISA by not divesting from the BlackRock TDFs.

With the new Department of Labor (DOL) rules on ESG funds, it should be no shock that mutual fund companies starting mutual fund offerings for 401(k) fund lineups.

Putnam has launched the Putnam Sustainable Retirement Funds that invest in actively managed, sustainable, and ESG-focused exchange-traded funds, and the funds are using a similar glide path as the firm’s other target-date offering, called Putnam Retirement Advantage.

Will this niche product that is subject to the whims of who is occupying the White House be successful? That is for time to decide.

My latest article for plan providers can be found here.

While the Biden administration’s Department of Labor (DOL) final environmental, social, and governance (ESG) rule went into effect, I think it’s much to do about nothing. I think most advisors will not offer an ESG choice on a fund lineup and even if they do, they are just going to get very little investment by plan participants.

The DOL’s final rule on ESG allows plan fiduciaries to incorporate ESG factors into their investment options but doesn’t require them to do so. Out of dozens of plan sponsor clients, I only know one plan that offers an ESG fund. In the end, is it worth all this fighting over a rule that will likely be jettisoned if a Republican takes the White House in the 2024 elections? I don’t think so, just sounds like wasted energy.

I like state mandates for retirement plan coverage, because it increases interest in employers sponsoring 401(k) plans. I’m of the opinion that when push comes to shove, employers would rather sponsor their own 401(k) plan or join a pooled employer plan, rather than dealing with a State sponsored IRA program.

Data from Icon, suggests that 70 percent of employees are not interested in these plans and with those covered under California’s CalSavers program, 37% of employees opted out of saving under the auto enrollment feature.

OneDigital announced the acquisition of Florida Pension Group. Based in St. Johns, Fla., Florida Pension Group (FPG)  provides retirement plan services to over 100 businesses and with more than $500 million assets under management.

With the deal, OneDigital’s assets under management is increased to approximately $108.9 billion, representing over one million participants and 41,000 individual accounts.

COVID, inflation, and a possible recession, all good reasons why hardship distributions are up.

According to Fidelity, the percentage of 401(k) participants taking hardship withdrawals from their accounts rose to 2.4% in 2022, up from 1.9% in 2021.

Fidelity claims that it represents the highest share of hardship withdrawals they have ever recorded, which noted the share typically ranges from 2% to 2.3%.

Vanguard also recorded a rise in hardship withdrawals in 2022. About 2.8% of participants in its plans made hardship distributions in 2022, up from 2.1% in 2021.

When I was at law school, I was the editor of the student magazine there and I broke the story about a scandal at one of the law journals. The editor-in-chief was implicated and she gave me a letter from her lawyer, asking for all my sources, who I talked to, and everything but my name, rank, and serial number. This was the first lawsuit threat that I got and I was hyperventilating. Then I looked down at my desk and noticed that the work number for this editor-in-chief was the same phone number as her attorney and this attorney was in international law, not libel. I have been threatened with litigation over one of the payroll provider Third-party administrator articles I write annually (except the 11th annual edition this Spring). The point is that clients and non-clients can have a threatening lawyer to you all the time.

Occasionally, these letters are serious especially if you have serious liability exposure. Most of the time, it’s just used as a threat to get a better result than by doing nothing. When I got that letter in law school and I gave it to the Dean, he said I should settle immediately. I think when you get a letter from a lawyer, speak to a lawyer. They will certainly help you gauge the seriousness of the matter and what the response should be. I know attorneys are expensive (except me), but I think the greatest mistake is thinking you can handle a legal threat on your own.

That lawyer letter is like playing poker. Most of the time it’s a bluff and sometimes it’s not, you need someone who can tell the risks and what the response should be. If you get a letter from a lawyer, you know where to find me.

As a 401(k) plan sponsor, you need to make sure that all your plan providers understand any ownership interests in other companies that you may have and make a determination whether those interests constitute a controlled group or affiliated service group.

The problem is that if you don’t do the analysis, you may run afoul of the qualification rules because controlled and affiliated service rules treat the members of these groups as a single employer for most purposes. So if your company is a part of these groups and you do nothing, you may have a huge coverage problem if the other companies don’t have a similar retirement plan. Even if they do have similar plans, there could be discrimination testing problems since all companies need to be tested as one.

So when you get the census information, make sure you answer correctly when it comes to the questionnaire asking you about other ownership interests.

My latest article for JDSupra.com can be found here.