Sunday, February 07, 2021

Could the Super Bowl Batter or Burnish Your 401(k)?

Will your 401(k) be bumped up by a Buccaneers victory—or chipped by the Chiefs?

That’s what adherents of the so-called Super Bowl Theory would likely conclude, after all. The theory is that when a team from the old National Football League wins the Super Bowl, the S&P 500 will rise, and when a team from the old American Football League prevails, stock prices will fall.

It’s a “theory” that has been found to be correct nearly 80% of the time—for 40 of the 54 Super Bowls, in fact. 

Not that it hasn’t had its shortcomings. One need look back no further than last year’s win by the AFC’s Kansas City Chiefs (yes, these Kansas City Chiefs) over the NFC Champion San Francisco 49ers to refute the applicability (or did your 401(k) miss that 18.4% rise in the S&P 500?). Or how about the year before that when the AFC’s New England Patriots (who once were the AFL’s Boston Patriots) bested the NFC champion Los Angeles Rams (the S&P 500 was up more than 30% in 2019).

Or, looking the other way, the year before that a win by the NFC champion Philadelphia Eagles against the AFC Champion Patriots turned out to be a loser, marketwise, with the S&P 500 down more than 6% (though for most of the year it was quite a different story). Ditto the year before when the epic comeback by those same AFC Champion Patriots against the then-NFC champion Atlanta Falcons failed to forestall a 2017 market surge. 

Now, one might think that the real “spoiler” to this market “theory” is the New England Patriots—but the year before that, the AFC’s (and original AFL) Broncos’ 24-10 victory over the Carolina Panthers, who represented the NFC, also proved to be an “exception.”

Market Makings

You might well wonder why, in view of that consistent string of “exceptions” that we’re still talking about this “theory”—but, as it turns out, that’s been an unusual (albeit consistent) break in the streak that was sustained in 2015 following Super Bowl XLIX, when the AFC’s New England Patriots (yes, they show up a lot) bested the Seattle Seahawks 28-24 to earn their fourth Super Bowl title. It also “worked” in 2014, when the Seahawks bumped off the legacy AFL Denver Broncos, and in 2013, when a dramatic fourth-quarter comeback rescued a victory by the Baltimore Ravens– who, though representing the AFC, are technically a legacy NFL team via their Cleveland Browns roots (yes, they moved to Baltimore in 1995—though the NFL still views them as an expansion team—filling the hole left by the Colts’ 1984 “dead of night” move to Indianapolis. The Browns, sadly, are still waiting for a Super Bowl trip[i]). 

Admittedly, the fact that the markets fared well in 2013 was hardly a true test of the Super Bowl Theory since, as it turned out, both teams in Super Bowl XLVII—the Ravens and the San Francisco 49ers—were NFL legacy teams.

However, consider that in 2012 a team from the old NFL (the New York Giants) took on—and took down—one from the old AFL (the New England Patriots—yes, those New England Patriots). And, in fact, 2012 was a pretty good year for stocks.

Steel ‘Curtains’?

On the other hand, the year before that, the Pittsburgh Steelers (representing the American Football Conference) took on the National Football Conference’s Green Bay Packers—two teams that had some of the oldest, deepest and, yes, most “storied” NFL roots, with the Steelers formed in 1933 (as the Pittsburgh Pirates) and the Packers founded in 1919. According to the Super Bowl Theory, 2011 should have been a good year for stocks (because, regardless of who won, a legacy NFL team would prevail). 

But as some may recall, while the Dow gained ground for the year, the S&P 500 was, well, flat.

And then there was the string of Super Bowls where the contests were all between legacy NFL teams (thus, no matter who won, the markets should have risen):

  • 2006, when the Steelers bested the Seattle Seahawks;
  • 2007, when the Indianapolis Colts (those old Baltimore Colts) beat the Chicago Bears 29-17;
  • 2009, when the Pittsburgh Steelers took on the Arizona Cardinals (who had once been the NFL’s St. Louis Cardinals); and
  • 2010, when the New Orleans Saints bested the Indianapolis Colts, who, as we’ve already noted, had roots dating back to the NFL legacy Baltimore Colts.

Sure enough, the markets were higher in each of those years.

As for 2008? Well, that was the year that the NFC’s New York Giants upended the hopes of the AFL-legacy Patriots (yes, those Patriots) for a perfect season, but it didn’t do any favors for the stock market. In fact, that was the last time that the Super Bowl Theory didn’t “work” (well, until this past year—oh, and the year before that—and the year before…).

Patriot Gains

Times were better for Patriots fans in 2005, when they bested the NFC’s Philadelphia Eagles 24-21. Indeed, according to the Super Bowl Theory, the markets should have been down that year—but the S&P 500 rose 2.55%.

Of course, Super Bowl Theory proponents would tell you that the 2002 win by the New England Patriots accurately foretold the continuation of the bear market into a third year (at the time, the first accurate result in five years). But the Patriots’ 2004 Super Bowl win against the Carolina Panthers (the one that probably nobody except Patriots fans and disappointed Panthers advocates remember because it was overshadowed by Janet Jackson’s infamous “wardrobe malfunction”) failed to anticipate a fall rally that helped push the S&P 500 to a near 9% gain that year, sacking the indicator for another loss (couldn’t resist).

Bronco ‘Busters’

Consider also that despite victories by the AFL-legacy Denver Broncos in 1998 and 1999, the S&P 500 continued its winning ways, while victories by the NFL-legacy St. Louis (by way of Los Angeles) Rams (that have since returned to the City of Angels) and the Baltimore Ravens (those former “Browns”) did nothing to dispel the bear markets of 2000 and 2001, respectively.

In fact, the Super Bowl Theory “worked” 28 times between 1967 and 1997, then went 0-4 between 1998 and 2001, only to get back on track from 2002 on (though “purists” still dispute how to interpret Tampa Bay’s 2003 victory, since the Buccaneers spent their first NFL season in the AFC before moving to the NFC). 

Indeed, the Buccaneers’ move to the NFC was part of a swap with the Seattle Seahawks, who did, in fact, enter the NFL as an NFC team in 1976 but shuttled quickly over to the AFC (where they remained through 2001) before returning to the NFC.[ii] And, not having entered the league until 1976, regardless of when they began, can the Seahawks truly be considered a “legacy” NFL squad? 

Bear in mind as well, that in 2006, when the Seahawks made their first Super Bowl appearance—and lost—the S&P 500 gained nearly 16%.

As for Sunday’s contest, the Buccaneers have been here before—but while it’s been a while for the team, QB Tom Brady certainly knows his way around a Super Bowl (playing in nine of them—and with this one, regardless of outcome, he’ll be the oldest player to suit up for that game)—and they’re not only the home team, they’re actually the first home team in Super Bowl history to actually play in their home stadium. Just to confuse matters a bit, they have exercised their prerogative as the home team to choose their jersey—and they have elected to wear their white “away” jerseys (and pewter pants). That happens to be the jersey they have won throughout the playoffs, having played all of their games to this point “on the road”—the first wild card team to make it to the Super Bowl since the 2010-11 Green Bay Packers. 

The Chiefs have been here before as well—as recently as a year ago (though before that, not since Super Bowl IV), and they’ll be wearing the same red “home” jerseys (and white pants) they wore in Super Bowl 54. In case you’re wondering why that matters, dating back to 2005 with the Patriots in Super Bowl XXXIX, the team wearing white jerseys has won 12 times. Though not last year, of course.

All in all, it looks like it should be a good game. 

And that—whether you are a proponent of the Super Bowl Theory or not—would be one in which regardless of which team wins, we all do!

- Nevin E. Adams, JD

[i] Four current NFL teams have never appeared in a Super Bowl, including franchises that have relocated or been renamed: the Cleveland Browns, Detroit Lions, Jacksonville Jaguars, and Houston Texans, though both the Browns (1950, 1954, 1955, 1964) and Lions (1935, 1952, 1953, 1957) had won NFL Championship Games prior to the advent of the Super Bowl.

[ii] Note: Seattle is the only team to have played in both the AFC and NFC Championship games, having relocated from the AFC to the NFC during league realignment prior to the 2002 season. The Seahawks are the only NFL team to switch conferences twice in the post-merger era. The franchise began play in 1976 in the NFC West division but switched conferences with the Buccaneers after one season and joined the AFC West.

Saturday, February 06, 2021

Groundhog "Ways"

February 2 is the day upon which America turns its attention to Punxsutawney, PA (and what seems to be a rapidly expanding array of Punxsutawney Phil wannabes) to get a read on the duration of winter.

The theory, of course, is that if your local groundhog sees his (or her?) shadow when he/she emerges from his/her burrow, it will send him/her scurrying back inside, and with that action foretell six more weeks of winter, whereas no shadow portends a timely/early spring. However, like weather forecasters everywhere, Phil is often wrong in his predictions. Indeed, by some estimates (and going back to 1887) he’s only been right… 39% of the time (and since 1969, only about 36%[i]).

As complicated as it surely must be to accurately predict the end of winter, that at least is an event in the relatively near term. And one that (for Punxsutawney Prognostication, anyway) requires only the emergence from one’s burrow. Predicting retirement outcomes… well, that’s a whole other thing. 

Surveys routinely show that most Americans have not even tried to guess how much money they will need to live on in retirement, much less actually made an educated guess. In fact, according to the Employee Benefit Research Institute/Greenwald & Associates’ 2020 Retirement Confidence Survey, just over 4 in 10 (44%) have (ever) estimated how much income they and your spouses would need each month in retirement. That’s a pretty consistent finding from the RCS, which began asking that question way back in 1993.

Worse—and this data point was not in the 2020 RCS—when you ask how people had made some kind of assessment of their retirement income needs, a jaw-droppingly large percentage indicated they… guessed.

Guessing might well be deemed a superior approach than ignoring the matter altogether, but consider that heading toward “retirement”[ii] with no idea of how much you might need is a bit like going on a long trip in an unfamiliar vehicle with a fuel gauge that isn’t working—oh, and with no real certainty as to exactly where you’re going, or when you need to get there. 

Many allow themselves the luxury of postponing this focus for another day—ignoring two harsh realities. The first is that time is (literally) money—the longer it’s put off, the steeper the financial “hole” to fill. Second—and one that ignores several harsh realities of its own—thinking that date of “retirement” will be of our choosing.[iii] If nothing else, the events of the past year should serve as a fresh reminder of that point (see also 6 Things People Get Wrong About Retirement).

Several years back, the RCS asked individuals how much they need to save each year from now until they retire so they can live comfortably in retirement. One out of five put that figure at between 20% and 29%, and nearly one-quarter (23%) cited a target of 30% or more. Those targets are larger than one might expect, and larger than the actual savings reported by RCS respondents would indicate.[iv]

All of which brings to mind this question: Were the savings projections so high because so many workers didn’t do a savings needs calculation—or did participants avoid doing a savings needs calculation because they thought the results would be too high?

Or both?

Let’s face it, if you’ve never tried to figure out how much you’ll need to live in retirement, you may not live very comfortably in retirement. 

And you don’t need to consult a Pennsylvania groundhog to know that could make for a really long retirement “winter.” 

- Nevin E. Adams, JD

[i] Which still seems to put him ahead of most local weather forecasts.

[ii] And we are all, one way or another, even if you want to just think of it as a time post-employment.

[iii] Fewer than half of the retiree respondents to the RCS retired “about when” they had planned, and only 6% later than planned. Roughly half—and this has been true through the long life of the RCS—retired earlier than expected.  

[iv] And considerably larger than the record high savings numbers reported in the Plan Sponsor Council of America’s Annual Survey.

Saturday, January 30, 2021

Mile "Markers"

It may just be because I’ve got a birthday this week, but it would be hard to miss all the “fuss” about age and retirement during the NFL playoffs, a topic that now seems sure to carry on into the Super Bowl.

This past weekend we got to see two “old” quarterbacks fight it out for the NFC title—Tom Brady (43) and Aaron Rodgers (37)—and two young quarterbacks—Josh Allen (24) and Patrick Mahomes (25) lead their teams in the AFC championship. The inevitable comparisons will surely now carry into Super Bowl 55, as Brady becomes the oldest quarterback to reach that pinnacle (he was already tied with Peyton Manning for that status) and Mahomes (already) one of the youngest. (Ben Roethlisberger, at 23, holds the distinction of being the youngest, having wrested it in 2006 from… Tom Brady.) 

Their ages notwithstanding, this past weekend it seems fair to say that Brady played with the skill and energy of a younger man (even a younger version of himself), while Mahomes demonstrated the maturity and field generalship of one much older.

One’s age is a notoriously unreliable marker for progress and maturity, and yet it often serves as a milestone for many of our significant life points. For example, there’s the age at which you begin school (when that wasn’t a stay-at-home experience), that all-important 13th birthday when one becomes a teenager, the age at which you are permitted to drive (one that generally also “ages” your parents), the age at which you can vote… and, of course, the one after which you can expect to be “carded” without incident. Prior to those “markers,” new parents can likely recite for you the various developmental timetables at which infants are expected to crawl, walk, talk and sleep through the night (the latter a particularly valued milestone). 

The preparation for retirement also has key milestones. ERISA provides certain age (and service) parameters for participation, of course, but down the road there’s: 

  • age 50, when you can “catch up” on contributions you might have missed making when you had other obligations; 
  • age 59½, when you can make untaxed savings without subtracting from them that 10% penalty for “early” withdrawal;
  • age 62, when many (still) decide to begin drawing Social Security; and
  • age 65, which is (still) considered to be something of an official age for retirement (even though those who are now that age will find that Social Security considers your full retirement age to be age 66 and change). 

More recently, we now have 72 (not so long ago, 70½), the age at which the IRS insists that you begin drawing what it deems to be a required minimum distribution of those as-yet-untaxed retirement savings.

Milestones—those numbered markers you can find along most major highways these days—date back to the early days of the Roman Empire. They were not only designed to tell you how far, but also to confirm that you were on the right road—and to provide some sense of the distance remaining to the desired destination. They can, of course, also serve as a handy reference point on traffic issues ahead.

For those on that road to retirement—and those who help them get there—these milestones can provide a valuable reminder of the opportunity, if not the need, to reassess and (re)evaluate regularly. 

However, they should also remind us all that this is a journey—one that has not only mileposts along the way, but a destination—and one where the timing of arrival may well be dictated by factors other than age, and beyond our control.

- Nevin E. Adams, JD

Saturday, January 23, 2021

"Missing" Inaction?

Recent DOL guidance on missing participants seems to fall short of what plan fiduciaries want/need—but may offer fiduciaries some key insights to avoid future problems.

On Jan. 12, 2021, the Department of Labor (DOL) released a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

Arguably the guidance, while welcome, is less than plan sponsors might have wished (and previously asked) for—and it concerns an issue that most plan sponsors of my acquaintance continue to insist isn’t one, though the Labor Department is clearly of a different mind. In fact, in the first of the three pieces of guidance, the Employee Benefit Security Administration (EBSA) cautions: “The first step in addressing any problem often is knowing that there is one.”[i]

The “issue,” of course, is fulfilling the fiduciary obligation to not only keep accurate records, but to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. The question—and one that it seems remains, following the “guidance”—is, what are the “appropriate” steps?

To that end, the first document in the trio—titled “Missing Participants—Best Practices for Pension Plans”—purports to outline just that, the “best” practices. That’s helpful, of course—and if the steps outlined are familiar ground to most (and by no means the “safe harbor” that folks are hoping to get), it is perhaps at least nice to have the bulleted list. 

However, that it is issued alongside a Compliance Assistance Release (which, among other things, also describes the types of records and documents that EBSA has requested during its investigations in the recordkeeping or administration of benefits for terminated vested participants and beneficiaries and the red flags that it looks for) should heighten attention, even though the third component—a Field Assistance Bulletin—actually provides a temporary enforcement policy under which DOL will not pursue a fiduciary breach claim against a plan fiduciary that transfers the accounts of missing participants in a terminating DC plan to the Pension Benefit Guaranty Corporation (PBGC) as part of the PBGC’s missing participant program. 

All in all, it feels like something of a “warning”—alongside a checklist of things to look for in determining if, in fact, a plan fiduciary is living up to ERISA’s standard of care with regard to ensuring that those who have earned those promised benefits actually receive them.

In fact, the guidance does make certain “allowances.” For example, it notes that “not every practice below is necessarily appropriate for every plan,” and that “responsible plan fiduciaries should consider what practices will yield the best results in a cost effective manner for their plan’s particular participant population.” It also acknowledges that, “in deciding what steps are appropriate, plan fiduciaries should also consider the size of a participant’s accrued benefit and account balance as well as the cost of search efforts,” and that “the specific steps taken to locate a missing participant, or to obtain instructions from a nonresponsive participant, will depend on facts and circumstances particular to a plan and participant.”

That said, it also notes as a “best practice” that plan fiduciaries should have in place a written policy with respect to the plan's procedures on locating missing participants. 

And, taken in totality, as far as “guidance,” it’s hard not to see a cautionary element—and sense that the Labor Department is effectively cautioning plan fiduciaries/advisors that if such a policy is currently “missing” from your current plan toolkit—well, you might be well-advised to (re)consider it.

- Nevin E. Adams, JD

[i] In fairness, In unveiling the guidance, Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”

Thursday, December 31, 2020

2020 "Hindsight"

At the end of every year, and as we approach a new one, it’s natural to look back at experiences and lessons learned—and to ponder ways to apply them productively going forward.
Here’s some thoughts from 2020 that I hope will help you do just that.

3 Things That (Seem to) Scare Plan Sponsors

Halloween is the time of year when one’s thoughts turn to trick-or-treat, ghosts and goblins, and things that go bump in the night. And sometimes it’s just a good time to think about the things that give us pause—that cause a chill to run down our spine. In that category, here are three things to ponder…

3 Retirement Income Impacts That Can Impact Retirement Income 

Most of the focus on retirement savings is on those who haven’t saved enough, or who lack access to the platforms to make saving enough easy. But even those that have done the “right” things can nonetheless have their retirement planning realities tripped up. Here are three retirement income impacts of which (even) “good” retirement savers should be aware.

5 Things People Miss (or Get Wrong) About the CARES Act 

Written when the legislation was less than a week old, and amidst the scramble for answers and action(s)—well, it’s inevitable that some things will get overlooked, and other important things will be misconstrued. Here are five things you’ll (still) want to keep straight. 

5 Steps to Cyber Security 

Recent reports of 401(k) thefts and an ongoing concern about cyber security (should) have everybody on the alert. Here’s some things you, your plan sponsor clients, and their participants should check out—now. 

The Best Defense(s)

In a year full of challenges for plans and plan sponsors alike, we’ve seen a spate of litigation against retirement programs like none in recent memory. So, what’s a plan fiduciary to do? 

10 Things You Might Have Missed About E-Delivery 

The long Memorial Day weekend notwithstanding, many hadn’t yet delved deeply into the Labor Department’s final rule on default electronic disclosure. Regardless, here are some things you might (still) have missed. 

5 Ways to a ‘Better’ HSA

There are lessons in positioning and behavioral finance that we “learned” years ago with 401(k)s that might still be holding back the effective utilization of health savings accounts. 

The Next Chapter

Life has many lessons to teach us, some more painful than others—and some we’d just as soon be spared. But for the graduates of 2020—well, theirs is surely a unique time. So, if you have a graduate—or if you are a graduate—or if you have been a graduate—here are some thoughts…

Wishing you all a very happy, prosperous, and (at some point) “normal” New Year!


Thursday, December 24, 2020

A Retirement Savings Santa?

Once upon a time, as Christmas neared, it was not uncommon for my wife and I to caution our occasionally misbehaving brood that they had best be attentive to how their (not uncommon) misbehavior might be viewed by the big guy at the North Pole.

In support of that notion, a few years back—well, now it’s quite a few years back—when my kids still believed in the (SPOILER ALERT) reality of Santa Claus, we discovered an ingenious website that purported to offer a real-time assessment of their “naughty or nice” status.

No amount of threats or admonishments—in fact, nothing we ever said or did—ever managed to have the impact of that website—if not on their behaviors (they were kids, after all), then certainly on the level of their concern about the consequences. In fact, in one of his final years as a “believer,” my son (who, it must be acknowledged, had been particularly “naughty” that year) was on the verge of tears, panic-stricken– following a particularly worrisome “reading”—not that he’d misbehaved, and certainly not that he’d disappointed his parents—but that he'd find nothing under the Christmas tree but the lumps of coal[i] he so surely “deserved.”

Every year about this time we read survey after survey recounting the “bad” savings behaviors of American workers. And, despite the regularity of these findings, must of those responding to the ubiquitous surveys about their (lack of) retirement confidence and (lack of) preparations don’t offer much, if anything, in the way of rational responses to those shortcomings (even) they (apparently) see the connection between their retirement needs and their savings behaviors. 

Now, arguably in this pandemic-driven year those pressures have been magnified—but this is not a new concern. Indeed, the reality has long been that a significant number will, when asked to assess their retirement confidence, generally acknowledge that there are things they could—and know they should have—done differently. 

So if they know they’ve been “bad”—why don’t they do anything about it? Well, some certainly can’t—or can’t for a time—but most who respond to these surveys seem to fall in another category. It’s not that they actually believe in a retirement version of St. Nick, though that’s essentially how they seem to (mis)behave. They carry on as though, somehow, these “naughty” savings behaviors throughout the year(s) notwithstanding, they'll be able to pull the wool over the eyes of a myopic, portly old gentleman in a red snowsuit—that at their retirement date, despite their lack of attentiveness during the year(s), a benevolent elf will descend their chimneys with a bag full of cold cash from the North Pole.

Unfortunately, like my son in that week before Christmas, many worry too late to influence the outcome.

The volume of presents under our Christmas tree never really had anything to do with our kids’ behavior, of course. As parents, we nurtured their belief in Santa Claus as long as we thought we could (without subjecting them to the ridicule of their classmates), not because we truly expected it to modify their behavior (though we hoped, from time to time), but because we believed that children should have a chance to believe, if only for a little while, in those kinds of possibilities.

We all live in a world of possibilities, of course. But as adults we realize—or should—that those possibilities are frequently bounded in by the reality of our behaviors, as well as our circumstances. And while this is a season of giving, of coming together, of sharing with others, it is also a time of year when we should all be making a list and checking it twice—taking note, and making changes to what is “naughty and nice” about our personal behaviors—including our savings behaviors.

Yes, Virginia,[ii] as it turns out, there is a retirement savings Santa Claus—but he looks a lot like you, assisted by “helpers” like your workplace retirement plan, your employer’s matching contributions—and your trusted retirement plan advisors and providers.

Happy Holidays!

- Nevin E. Adams, JD

P.S.: Believe it or not, the Naughty or Nice website is still online, at Maybe it can help with your kids!

[i] In case you’re curious about that reference…

[ii] In case you’re curious as to that reference…

Saturday, December 19, 2020

The 'Terror' of 401(k) Litigation

So much of our lives have been disrupted by the COVID-19 pandemic—but the pace of 401(k) litigation, it seems, has, if anything, accelerated.

Now, some may find the label “terror” in the title extreme. In fact, it hadn’t really occurred to me until I read the response of defendants to a suit slapped on Genentech Inc. and the plan fiduciaries of its $7.6 billion 401(k) plan in early October. In a response to that excessive fee suit, the defendants’ attorneys referred to this suit—and others like it—as “an in terrorem attack on fiduciaries and employers seeking sweeping monetary and injunctive relief geared toward disrupting employee benefit relationships and causing protracted, expensive litigation.” 

“In terrorem,” Latin for “into/about fear,” has a legal context—a legal threat, really—one generally voiced in hope of compelling an action (or lack of action) without resorting to a lawsuit or criminal prosecution. It normally arises in regard to a provision in a will which threatens that if anyone challenges the legality of the will or any part of it, then that person will be cut off or given only a dollar, rather than what is left to them in the will. 

While that may (or may not) be an accurate characterization of that particular litigation, the motivations of the plaintiffs’ bar on these matters are surely as diverse as the plans and plan designs they challenge, if not the experience, expertise and expectations of the individual firms themselves. Indeed, having had the opportunity to discuss these matters with a few over the years, I am persuaded that some at least are indeed fighting what they honestly believe is the “good fight.”[i] They see evidence of inattentive fiduciaries manipulated (or motivated) by unscrupulous providers, sometimes over a period of years, if not decades, all to the financial detriment of participants who must work (and save) all the more to compensate for the “theft.”  

However, in the process they have sought to create presumptions of imprudence that (IMO) aren’t. They’d have us (or more precisely, a judge) believe that active management is not only inherently inferior to passive approaches, but unacceptable, that RFPs not only must be conducted, but at a minimum must be conducted on a 3-year cycle, to accept that recordkeeping fees are prudent only if assessed as a function of participant count (as though size and complexity of the plan’s investments and design shouldn’t be a consideration), that extrapolated averages of published plan fees are sufficient to set a benchmark of reasonability, that a stable value option is superior to money market, except when money market is better than stable value, that they provide too many options for participants to choose from… or too few. Indeed, as the defendants in the Genentech response note, “Fiduciaries that manage 401(k) plans are getting sued no matter what they do.”  

When the dust “settles” in these cases—sometimes over decades, but of late more rapidly—most still produce nothing but a monetary “arrangement”—the amount nearly always significantly less than the damages alleged, and the per participant recovery relatively small.[ii] The plaintiffs’ attorneys get somewhere between 25% and a third of that recovery—which is deemed reasonable[iii] since they often labor long and without compensation until a settlement or adjudication is reached, though it is often tens of millions of dollars when it happens. 

Those suits that do go to trial generally seem to turn out in favor of the plan fiduciary(ies), either because the substance behind the plaintiffs’ claims is found to be insufficient, or the actions of the plan fiduciaries are determined to clear the admittedly high bar of ERISA’s prudence. It’s easy to overlook that result because, as human beings, we are inclined to see a settlement in manners as heinous as those alleged as an admission of culpability, if not guilt, whatever the legal disclaimers. Regardless, while the proceeds that flow to the plaintiffs’ counsel surely offset the investment of time and effort getting to that point, there’s little question that some of it simply goes to funding the next suit… 

As with any apparently profitable enterprise, this current wave of 401(k) litigation has attracted new entrants—and copycats—not only in actions, but in the very language employed in their filings. Based on their record to date, it’s doubtful that they will enjoy much success under the full scrutiny of adjudication—but then, that may not be their objective.  

Ultimately it takes time, patience—and yes, money—to stand up to this threat. 

But here’s hoping that, knowing the threat exists, plan fiduciaries continue to take the time to be thoughtful, deliberate and, yes, prudent in the exercise of their critical duties, that they take the time to document that work—that they do so with the involvement and engagement of wise counsel—that they find ways to share the fruits of that diligence with those they serve—and that in so doing, they deprive the plaintiffs’ bar of any rational basis upon which to bring, much less prevail in, these pursuits.

- Nevin E. Adams, JD


[i] There’s no question that 401(k) fees have declined over the years—and while the plaintiffs’ bar would surely like—and some are, perhaps entitled—to claim credit for at least some of that, fees decline for any number of reasons, though plan fiduciaries, writ large, are more sensitive to the issue these days. Then again, the costs of this litigation are being paid by someone, and insurers have not traditionally been known to long absorb the impact of such things to their bottom line—indeed, some have already taken to asking pointed questions of employers in the course of questionnaires that would seem to have little to do directly with the insurance coverage sought. 

[ii] The named plaintiff(s) generally are accorded $10,000 to $25,000 each for their time and trouble in representing the class.

[iii] Though that never takes into account the time, effort, expense and opportunity costs for the employers that must devote time and treasure to the litigation.