The Rosenbaum Law Firm P.C. Blog

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.

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

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.

As long as there are 401(k) plan sponsors who don’t show concern over cost, there will always be ERISA litigators that will take a bite.

The Vail Corporation has been sued for excessive fees in their Vail Resorts 401(k) Retirement Plan.

The lawsuit alleges that 18 of the 27 mutual fund share classes available within the plan, the mutual fund company offered a different share class that charged lower fees.  The complaint noted the data regarding fees and performance taken from Morningstar.com showed that the T. Rowe Price Retirement 2005 fund used by the plan charged 53 basis points (bps), while the I share class of the same fund charged 41 bps.

In 2017, the plan’s expenses amounted to .73% of assets under management, or $314 per participant. The lawsuit alleges that the plan’s expenses are nearly double those of the mean among similar plans with 5-10,000 participants of $179 per participant and .2% of assets under management.

I loved the scene in the movie Donnie Brasco where the gang needs to make money for their boss’ take and they’re trying to hammer money out of a parking meter. In similar news, Fidelity has changed its focus on rollovers for the plans they serve as third party administrator.

Fidelity Investments has reversed its long-standing push for 401(k) rollovers by agreeing to advise assets from former participants that stay with their plan sponsor clients. They say it’s because too many ex-employees refuse to fill out forms or deal with their old HR department. It probably has to do with the thinning margins from rollover accounts, especially with the elimination of commissions industry-wide.

Fidelity will only allow investors to keep advised assets in place if they put their assets in the firm’s in-house target-date funds.

In terms of 401(k) books, one of the best for your practice is the 401(k) Averages Book. It’s like the Beckett Baseball Card Guide for 401(k) plans and is a great barometer in judging fees.

The new edition of the book shows that the average total plan cost for a small retirement plan (defined as 100 participants and $ 5million assets) declined from 1.24% to 1.23% over the past year.

The small plan with $5 million in assets costs 1.23%, while the plan with $50 million in assets is 0.91%. Most plans saw a year over year decrease in total investment costs of between 0.01% and 0.03%.

For further information, pick up a copy.

In a unanimous decision in the Intel Corp. Investment Policy Committee v. Sulyma case, the Supreme Court refused to limit the timeframe in which participants could bring a lawsuit challenging the investment decisions made by plan fiduciaries. While ERISA provides only a three-year statute of limitations when participants have “actual knowledge” of an alleged breach or violation, the Court opined that this shorter period isn’t applicable when the participant in question didn’t read or didn’t recall having read all the relevant information about the investments provided by the plan. In those situations, the Court ruled that a longer six-year statute of limitations applies. This decision opens employers and retirement plan fiduciaries up to an increased risk of litigation while increasing the standard for evaluating breach claims and class action certifications.

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