My latest article for JDSupra.com can be found here.
My latest article for JDSupra.com can be found here.
My grandmother always said that life doesn’t go to plan. She said that years before her death and years before I decided to host a national conference. When you start planning a national conference 10 months in advance, you don’t think it was going to be impacted by a pandemic. Attendance was on the low side, but I was able to hold it before everything shut down. I hope NAPA and other 401(k) industry conferences can take place and I wish you all the best of health.
Life throws you a curveball at times in business and you have to learn how to hit the curve or you will strikeout. You have to roll with the punches. Whether it’s the market or changes in the industry or bigger competition, you have to deal with when your plan doesn’t go through the way you thought it would.
The biggest change with the SECURE Act is that long term part-time employees will be eligible to partake n the deferral component of the plan. Employees who complete 500 hours of service or more for 3 consecutive years will be eligible, even if the plan’s eligibility had previously excluded them.
Plans have to start counting hours for these part-time employees in 2021 with the idea that these part-time employees will start participating in 2024.
The cost of this new inclusion will be that some plans will have to get an audit for their plan, which they may not have had if there was no change. Generally, plans with at least 100 participants on the first day of the plan year must engage an independent accountant to perform an audit of the plan’s financial statements. The audit report, financial statements, note disclosures, and supplementary schedules are filed as an attachment to the plan’s Form 5500 filing. A transitional election is available that allows growing plans to postpone the audit if the participant count is between 80-120 on the first day of the plan year, and the sponsor elects to continue filing a Form 5500 for the same size plan as they did in the previous year. The problem is that the change allowing part-timers to partake in the plan may make certain plan sponsors crossing that 120 threshold. That’s a cost that will only start in 2024, but that is something to consider.
As I’ve said, plan provider mergers will continue and have sped up ever since fee disclosure regulations were implemented in 2012.
Aon and Willis Towers Watson announced a plan to merge in a reported $30 billion all-stock transaction, resulting in a combined equity value of approximately $80 billion. The combined firm anticipates savings of $267 million in the first full year of the combination, reaching $600 million in the second full year, and a full $800 million in the third year. In English, that means people will lose jobs where its duplicative between the two companies.
I wasn’t around the Spanish Flu epidemic. My grandfather was and his older sister died of it at age 18 in 1918. This coronavirus isn’t as deadly as the Spanish Flu and we have the technology to limit the suffering and the deaths. That is of little solace for us with kids who are not in schools, for us who know have to work from home, and for the events that are going to have to be canceled.
What we need to do is to keep things in perspective. We will fare far better than those who went through the Spanish Flu and the bubonic plague. We live in a country with the resources to combat a pandemic, we just have to be careful and vigilant. The 401(k) industry will probably suffer short term in terms of stock market losses and potential plan sponsors not having the biggest or the stomach in starting a retirement plan. We’ve been through similar challenges in the past with 9/11 and the housing mess. We’re dealing with a lot on our plate, but I think we will navigate this challenge and we will end up being stronger for it.
CenturyLink successfully defended the class-action lawsuit filed against them.
A federal judge granted CenturyLink’s motion for summary judgment, finding that they didn’t violate ERISA. The plaintiffs alleged CenturyLink breached its fiduciary duty under ERISA by poorly designing and failing to monitor the large-cap fund used within the plan.
CenturyLink’s Dollars and Sense 401(k) Plan has assets of $5.1 billion with 43,000 participants at the end of 2018. The case was all about allegations that CenturyLink Investment Management Active Large Cap U.S. Stock Fund was imprudently designed.
The plaintiffs alleged the fund failed to keep pace with its benchmark, the Russell 1000 Stock Index. The fund used a multi-manager design, with portions of the assets managed by Cornerstone Investment Partners, Fiduciary Management, Ivy Investment Management Company, and Systematic Financial Management, the plaintiffs wrote in the complaint. Some of the assets were also invested in the T. Rowe Price Institutional Growth Fund and the State Street Global Advisors Russell Large Cap Index Fund, according to the complaint.
The court didn’t want to second guess CenturyLink and it’s clear that lagging returns isn’t enough to show that there is a breach of a plan sponsor’s fiduciary duty.
A lawsuit against the Invesco 401(k) plan has been settled for $3.47 million.
Also, Invesco agreed to modify the investment options offered through the plan’s self-directed brokerage account option so that plan participants will be permitted to invest in non-proprietary exchange-traded funds (ETFs) in addition to the proprietary ETFs offered to participants.
As I always say, offering your proprietary products in your 401(k) plan is going to make you a target for a class-action lawsuit.
A plan provider once asked me if I had written a full-blown article on why trustee directed 401(k) plans are better than participant-directed plans. I haven’t even if I believed in it (which I do), but it’s not going to get many eyeballs because everyone has been programmed over the last 20 years to offer participant-directed plans.
Trustee directed plans are better than participant-directed plans for a variety of reasons and the number one reason is that trustees are better equipped to make investment decisions than participants, almost all of the time. While trustee directed plans are better, it reminds me of how Betamax was a better VCR than VHS. It didn’t matter because the public dictated that VHS was the better format for a variety of reasons (multiple manufacturers made VHS while only Sony made Beta and Betamax tape was only 60 minutes originally).
To be successful in this business, you need to understand what the client wants. Don’t think multiple employer plans if the public wants pooled employer plans or vice versa. You need to be flexible to make it and stubbornness doesn’t help anyone.
I will always say that the plan providers who proclaim that they will make me rich have failed to do so. There is nothing wrong with dreams of retirement plan revenue gold, but you can’t afford to let that dream become a fantasy.
The difference between a dream and fantasy is actual work. Dreams are possible with actual hard work and fantasies require absolutely no work. Both fantasies and dreams create a level of expectation, but it is the dream that can meet the expectation. Fantasies never meet that expectation because nothing is done.
When dealing with expectations, you need to set a level for your partners and your clients that is achievable and is achieved. There is nothing worse than going six months with one excuse after another as to why you cant deliver what you initially promised.