The Rosenbaum Law Firm P.C. Blog

My newsletter for retirement plan providers can be found here

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

My latest newsletter can be found here.

When an airplane stalls, it’s no longer able to produce lift. When this occurs, there’s an insufficient amount of air traveling under the airplane’s wings to keep it up. As a result, the airplane will drop, thereby reducing its altitude, until the angle of attack is correctly adjusted. Unfortunately, it’s been the cause of too many jets crashes over the years.

The airplane stall reminds me of the dying organization and its inability to correct itself, so it’s in its stall. Unlike a jet airplane, there is no warning to an organization that they’re in a stall. They will continue to fail and will have no idea that they will have a crash of their own. Maybe it’s arrogance or maybe it’s organizational paralysis, but dying organizations have such difficulty in charting a new course. What worked 40 years ago may not work today, yet the dying organization never sees it.

Reliance Trust has settled one of the largest 401(k) excessive suit settlements in their role in the Insperity 401(k) plan. The price tag of the settlement is $39.8 million.

The case came from a case involving Reliance Trust and its role regarding the Insperity 401(k) Plan.

The suit alleged that Reliance, Insperity, Inc., Insperity Holdings, Inc., and Insperity Retirement Services, L.P., “breached their fiduciary duties and conducted prohibited transactions under ERISA by:

1. selecting untested proprietary funds ( the ‘Horizon Funds’) as investment options for the Plan and retaining those funds despite their poor performance, which benefited Defendants at the expense of participants”;
2. paying Insperity Retirement Services, the Plan’s recordkeeper, excessive administrative expenses;
3. providing to the Plan investment options that contained unreasonable management fees when cheaper versions of the same investments were available to the Plan, as were other high-quality, low-­cost institutional alternatives;
4. retaining a minimally returning money market fund;
5. failing to properly monitor the Plan’s fiduciaries;
6. engaging in prohibited transactions with a party in interest by putting proprietary investments in the Plan, causing the Plan to pay unreasonable compensation to Insperity Retirement Services, and providing the Plan unduly expensive investment options; and
7. engaging in prohibited fiduciary self-dealing through the use of proprietary investment options in the Plan and the use of Insperity Retirement Services as the Plan’s recordkeeper.

Not surprising most of us, the Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) announced that it won’t enforce recently published rules on Environmental, social, and governance (ESG) investments and proxy voting rights.

The DOL said that it won’t enforce either final rule or pursue enforcement actions against any plan fiduciary for failing to comply with them.

The DOL published its final rule on retirement plan investing, “Financial Factors in Selecting Plan Investments,” in November. The final rule said plan fiduciaries should select investments and investment courses of action based solely on consideration of “pecuniary,” or financial, factors. This rule essentially would curb the use of ESG funds.

The DOL published its final rule “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” in December. It addressed obligations of plan fiduciaries under the Employee Retirement Income Security Act (ERISA) when voting in connection with plan investments in shares of stock.

The beauty of fee disclosure regulations and technological breakthroughs is that 401(k) fees have been sliding. Even 9 years after the promulgations of the fee disclosure regulations, it’s still sliding.

The new release of the 401(k) Averages Book shows that the average total plan cost for a small retirement plan (100 participants/$5,000,000 assets) declined from 1.23% to 1.20% over the past year, while the average total plan cost for a large retirement plan (1,000 participants/$50,000,000 assets) declined from 0.91% to 0.90%.

1-3 basis points aren’t a big deal, but it’s indicative of a trend towards lower fees even with consolidation in the 401(k) business.

When I was younger, I was a pessimist. Everything to me, like a bad grade in Civil Procedure I was the end of the world and I realized eventually, that it wasn’t. I learned optimism is easier to manage than pessimism.

A recent survey by Rebalance shows that almost 75% of Americans surveyed do not know how much they are required to pay in fees to manage their retirement accounts. Over half of Americans surveyed (57%) falsely believe that they pay either no fees or very low fees, to maintain their retirement investment accounts. Also, nearly one-quarter don’t even know how much they pay in fees.

Being now an optimist, while their numbers aren’t great, it was worse when plan sponsors didn’t think they paid anything for plan administration. Plan sponsors now get fee disclosures and plan participants also get fee disclosures on daily valued 401(k) plans. The survey clearly shows that we still have a job to do in terms of education and communication, but it’s better than it used to be.

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

My latest article forJDSupra.com can be found here.