The Rosenbaum Law Firm P.C. Blog

A former participant in the L Brands 401(k) Savings and Retirement Plan is suing the plan sponsor for breaching their fiduciary duty under the Employee Retirement Income Security Act (ERISA) by allowing excessive fees for recordkeeping and investments. L Brands is the parent company of Victoria’s Secret and Bath and Body Works.

The lawsuit notes that the 401(k) Averages Book shows the average cost for recordkeeping and administration in 2017 for plans that were much smaller than L Brands’ plan was $35 per participant, while participants in the L Brands plan were paying $56 per participant.

The plan has approximately $1.6 billion in assets and 33,761 participants.

The lawsuit also alleges that from 2014 through 2019, the plan paid out investment management fees of 0.38% to 0.46% of its total assets, higher than the average of 0.28% for plans with more than $1 billion in assets. The lawsuit also accuses plan fiduciaries of failing to use the least expensive share classes for mutual funds on the 401(k) plan’s investment menu.

I find these cases are a fill in the blank type case where it merely alleges that the plan costs are higher, but they still have to prove that paying higher fees was an actual breach of fiduciary duty.

I always look at the bigger picture and I’m concerned about issues that are 5-10 years down the pike. This is what you do when you have 20+ plus years left before retirement. I’ve always been a forward thinker, which often makes me rub badly against people who live in the past.

One of the greatest threats to the retirement plan business is student debt. 44 million Americans now owe an estimated $1.67 trillion in student debt. I remember talking to the law school dean at my alma mater and she told me that with room and board, all in tuition was $75,000 a year and that was 4 years ago. Imagine trying to service a $225,000 debt (not even including anything owed for college). When you have that much debt, how can you save for retirement?

I’m not suggesting that the Federal government forgive all that debt (including the $20,000 or so that I still owe), but I’m suggesting that unless something is done, people are going to save less for retirement. The problem is that with less people saving, the industry suffers as it’s too dependent on plan assets.

DeMoulas Super Markets settled for $17.5 million in a class-action lawsuit regarding its profit-sharing plan that didn’t have a 401(k) feature.

The problem in the case was that the Super Market invested assets of the plan too conservatively for its employee. The profit-sharing plan had approximately 11,000 to 13,000 and between $580 million and $756 million in assets between 2013 and 2017. The profit-sharing plan contained only one investment into which participants were automatically invested. The plan’s investment policy statement (IPS) called for 70% of participants’ assets to be automatically allocated into domestic fixed income options and 30% to be put into equities.

The default target allocations might have been good for someone nearing retirement, but not so great for someone who was decades away from retirement. I’m just surprised that a profit-sharing plan that was apparently trustee directed, would have such an allocation like that.

According to the Office of Management and Budget website, the Labor Department on advised them of its final rule on its proposed advice package, “Improving Investment Advice for Workers & Retirees.” The new fiduciary rule has restored the 1975 five-part test on the conditions for advice to constitute “investment advice” and proposes a new prohibited transaction exemption allowing investment advice fiduciaries under ERISA to receive compensation, including as a result of advice to roll over assets from a plan to an IRA.

With a new administration getting sworn in on January 20^th, the questions are whether this rule will be implemented or if it will be, for how long will it survive before it gets replaced by a President Biden run Labor Department?

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

To read my latest article on JDSupra.com, please click here.

The CARES act allowed 401(k) participants easier access to their account balances,m during the coronavirus pandemic.

401(k) investors pulled a median of $12,000 from their account in the form of a “coronavirus-related distribution,” according to a new Vanguard review of their clients’ data.

Only 4.5% of Vanguard 401(k) investors took a coronavirus distribution between March and September, which equates to almost 187,000 participants available to about 4.2 million of their 401(k) participants.

Form PR is the form that the Department of Labor (DOL) has required for pooled plan providers (PPP). For a form that needs to be filed by someone who wants to be a PPP, it’s not that long and very short on details for someone who wants to be responsible for millions and millions of plan assets.

With short details and not a lot of verification, my concern is that pooled employer plans will have some unsavory people as PPPs.

As some people may or may not know, my affiliated company, Austin 3(16) Fiduciary Limited has filed to be a pooled plan provider (PPP) with several pooled employer plans (PEPs) in development.

So if you’re in the need of an independent PPP, give me a holler.

In terms of the 401(k) plan business, I think the hype over pooled employer plans (PEP) will be the most over hype since the release of Crystal Pepsi.

I don’t believe PEPs will eliminate the need for single-employer plans because I don’t think the hype will ever come close to the interest in them by plan sponsors. The idea behind PEPs is cost savings and delegation of fiduciary liability. Only the latter will materialize.

Principal (in its PEP announcement) says 38% of defined contribution plan sponsors say they might consider joining a PEP or a multiple employer plan (MEP) in the next two years. I don’t believe 38% of plan sponsors know what a PEP is.