TDF Analysis Is Par For The Course

As part of an analysis, Fidelity Investments compared average asset allocations of participants to an age-based Target Date Fund and they found that nearly a quarter (23%) of 401(k) savers still have a higher percentage of equities than recommended, including 7% who are 100% invested in equity.

This should shock no one. Again, I always believe that participants are ill-equipped to make sound investment decisions and this analysis is consistent with that. As an industry, we still don’t do enough in educating plan participants.

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Prudential is latest proprietary fund defendant

One of my favorite sayings is that you should never make yourself a target, but when you are a mutual fund company and you use your own proprietary funds as an investment option in your 401(k) plan, you are certainly a target for the ERISA litigators as part of a class-action lawsuit.

Prudential now faces a self-dealing lawsuit filed by participants in its defined contribution retirement plan, alleging various fiduciary breaches under the Employee Retirement Income Security Act (ERISA). The lawsuit alleges that Prudential put their interests ahead of those of the plan “by choosing investment products and pension plan services offered and managed by Prudential subsidiaries and affiliates, which generated substantial revenues for Prudential at great cost to the plan.

My feeling on these type of cases is that Prudential doesn’t put proprietary funds in their plan to make money off their employees, they do so for appearances’ sake. It reminds me of the joke where restaurant workers order takeout for lunch, it looks bad. Inconsistent with the joke, Prudential using other fund family products and not their own proprietary funds look bad too.’

The problem for many of these companies is that the cost of appearances will increase, thanks to the cost of defending class action lawsuits like this.

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How You Should Deal With Missing Plan Participants

My latest article for can be found here.

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Great 401(k) Ideas At The Time That Look Bad Now

My latest article for can be found here.

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Associations and MEPs

I have worked with several associations in setting up a multiple employer plan (MEP) and even more, that didn’t want to start one.

As I often discuss, starting a MEP isn’t easy because of the times it takes to grow assets and become viable. For associations, a MEP could be another way of showing value for association memberships, but the association may be wary of the work that is involved. There will always be liability issues of being a fiduciary of any kind and the question of whether it really will be of value to them, especially in terms of membership interest and revenue.

There is no slam dunk and every association is different because the dynamics with every organization is different. However, if you have contacts with the powers that be at these associations, I think this could be a tremendous thing.

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Make sure what you sell works

At home, I have Verizon FIOS for TV and the Internet and that was after having my cable provider, Optimum for about 13 years. A few months back, I was enticed to re-sign with Optimum and their new Altice converter box/router. When it came the day of installation, the Altice system failed during installation and the installer told me that the Altice system was buggy and wouldn’t be great for another 4 months, so I canceled the installation.

As a plan provider, you can’t afford something buggy that won’t work. Whether it’s your website or an app or any type of system where plan sponsors have an interface, you can’t afford to look bad in front of clients and other providers. You only get one chance to get it right and that’s what beta testing is all about.

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Get the best person for the job, period.

I’m a long-suffering fan of the Mets and over the past two years, I’ve had to deal with the underwhelming leadership of Mickey Callaway as the team’s manager. Callaway was never a manager and it showed. He was a successful pitching coach of the Cleveland Indians and he did a heck of a job in mismanaging the rotation and bullpen as Mets manager. So when Mickey was fired, the hope was that the Mets would hire an inexperienced manager. Well, they didn’t. They picked future Hall of Famer and former Met Carlos Beltran. I knew that successful managers weren’t going to get the job because the General Manager wouldn’t be able to control a Joe Girardi or Buck Showalter. Since Brodie Van Wegeman was going to pick the manager as general manager, he was going to pick a candidate that he could control.

The point is that when hiring employees, hire the best people for the job. Never let your ego or standing get in the way of hiring the best candidates available, period. If you’re incompetent and you just want to hire employees that are worse than you, they’re still going to eventually find out that you’re not up to the task.

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The thing about stealing plan assets

I have been an ERISA attorney for 21 years now and the biggest thing that amazes me is when a fiduciary to a plan steals money from a 401(k) plan. I’ve seen plan sponsors do it, I’ve seen employees do it, and I’ve seen plan providers do it. I knew Matt Hutcheson and Jeff Richie.

What amazes me about it is that eventually if you steal, you will be found out. Stealing millions or even thousands of dollars will be eventually detected. You have a better shot of wearing pantyhose on your head and robbing a bank in getting away with it than stealing from a 401(k) trust where your fingerprints will be everywhere.

So don’t steal, it will never work out.

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Let’s be honest about teachers and their 403(b) plans

Non-ERISA 403(b) plans are the last stand for poorly run, highly expensive retirement plans. It is still the wild, wild West because, without ERISA coverage, there is no Department of Labor support in fee disclosures and avoiding other abuses. Thanks to the nature of 403(b) space, multiple high-cost providers compete at every school district in New York. Depending on the district, a school district may have 6-10 providers to choose from and that only drives up costs so only the most expensive providers can compete. Many years ago, I worked with a teachers union and their hope for an endorsed program. They looked at all the providers and when the providers realized that they would have to compete on the level of hundreds and hundreds of school districts, only the high cost, annuity based providers were still interested.

The problem with non-ERISA 403(b) plans is that it leaves the individual states to help teachers out and most have punted the ball. Thankfully, New York might be an agent of change. The New York Department of Financial Services has opened an industry-wide investigation. The state agency. has issued requests for information from insurers on their policies and procedures around 403(b) fees and how these retirement programs are being marketed to teachers. This might be the impetus to change the last stand of high-cost retirement programs and teachers deserve better.

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Goldman Sachs sued for using proprietary funds in their 401(k) plan

Goldman Sachs has been sued for the alleged “unlawful” management of its company 401(k) plan for using their in-house actively managed proprietary mutual funds.

A participant in the $7.5 billion 401(k) plan sued Goldman Sachs, claiming the firm breached its fiduciary duties under federal retirement law by retaining costly and underperforming proprietary investments in its 401(k) plan.

It should be noted that Goldman removed its proprietary mutual funds from its 401(k) plan in 2017, but the plaintiff claims it did so only after legal rulings against other financial services firms highlighted its liability risk.

As I will always note, any mutual fund company using their proprietary funds in their 401(k) plan are a target of litigation.

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