Nevin's Data "Points"

 This is the time of year when resolutions for the cessation of bad behaviors and the beginning of better ones are in vogue. Here are three for plan fiduciaries for 2023. Develop a plan budget. Most financially-focused New Year’s Resolutions focus on spending (less) or saving (more)—and the really thoughtful ones do both—all tied around the development of a budget that aligns what we have to spend with what we actually spend.  Most (many?) plans have a budget when it comes to the expenditures that require corporate funding.  Less clear is how many establish some kind of budget when it comes to what participants have to spend.  Now, granted, what they pay will vary based on any number of …variables—but an essential part of ensuring that the fees paid by the plan (for the services provided to the plan) is knowing how much—and for what.  At some level that means not only keeping an eye on things like expense ratios, the options with revenue-sharin...

Whoever said ignorance was bliss surely wasn’t talking about fiduciary litigation. While I’ve had the opportunity over the past decade and change to peruse plenty of filings and findings related to excessive fee suits, the recent amended filing in a case against New York University (NYU) included something new – a long list of statements and acknowledgements by plan fiduciaries that, according to the plaintiffs, “displayed an alarming lack of understanding of basic terms and principles in investment management and fiduciary best practices.” Indeed, one of the plan committee members was called out for their “remarkable unawareness of basic facts” relating to the plan. Now, one must take care in accepting the assertions in litigation at face value, and it’s too early to say if they – along with a response by the defendants – will carry the day with a judge. Still, it’s hard, more than a decade after the first of the so-called excessive fee cases were filed, to believe ...

Last week another of the so-called excessive fee lawsuits was settled – not adjudicated, mind you. Here are some factors that the targets of these lawsuits seem to have in common. Now, in fairness, most of these cases haven’t actually gone to court – and, by my count, most of the ones that actually get to court are won by the employers/plan sponsors. Even the Tibble case , which drew so much attention when it made it to the Supreme Court, eventually came out in favor of the plan sponsors (though they “lost” the Supreme Court decision). However, a lot of litigation has been filed over the past decade, and millions of dollars spent — reminding me of an old mentor’s admonition that you can spend a lot of money in court being “right.” That so many employers have decided that it is “cheaper” to settle for millions of dollars gives you some idea of the magnitude of these challenges. So, with that in mind – and with apologies to Jeff (“you might be a redneck…”) Foxworthy: Your plan m...

RFPs, or requests for proposals, come in all shapes and sizes. Mostly they are long, drawn out affairs, frequently copied from templates drawn up to capture a broad sense of capabilities. The problem is, for most plan sponsors it’s akin to going shopping for a car armed with Chilton’s auto repair manual (that said, if you need one, a quick Google search on “401k RFP” will turn up plenty). So, aside from all the general information that you’ll want to get from every provider during the RFP process – the size of their business, the quality, tenure and turnover of their key staff, their capabilities, service structure, years and investment in “the business,” fees, services offered and references, there are some questions that aren’t in every RFP — but to which the answers can be enlightening. 1. What plan design changes would you recommend, and why? This question has two payoffs. First, in order to recommend changes, they have to know what your current plan looks like. Secondly, it...

Two things have been overlooked by many people in the days leading up to the Supreme Court’s decision in Tibble v. Edison International and the weeks thereafter: (1) most of the wrongs 1 initially alleged did not survive the judgment of the district court ; and (2) only a single issue — the determination as to how to apply ERISA’s statute of limitations to fund selection — was before the nation’s highest court. While the Supreme Court rejected the notion that an initial fund review was sufficient in the absence of significant changes in circumstance to preclude the need for an ongoing assessment, the defendants in Tibble did a lot of things right that many plans don’t. Here are five: 1. They had a plan investment committee. ERISA only requires that the named fiduciary (and there must be one of those) make decisions regarding the plan that are in the best interests of plan participants and beneficiaries, and that are the types of decisions that a prudent expert would make about...

Ours is a complex business. For one thing, it’s fraught with potential peril for inattentive plan fiduciaries, many of whom find themselves tasked with the responsibilities of the role (frequently as part of a much wider range of responsibilities) with little in the way of background, training or explanation to help. And then you have the defendants in the Tibble v. Edison International case: a large ($2 billion-plus) plan that not only had an investment committee, but also one separate from the benefits administration function. Moreover, that investment committee had access to the services of an investment advisor (Hewitt’s investment consulting arm) to review, select and monitor funds and, according to the findings of the lower courts, a review process that was attentive to the requirements of an investment policy statement (IPS). What they did not do was ask about the availability of lower-priced institutional shares. However, that wasn’t the issue before the U.S. Supreme Cou...

The Nov. 7 issue of The   New York Times included a story about “ Finding, and Battling, Hidden Costs of 401(k) Plans .” The story focused primarily on the plight of Ronald Tussey, the named plaintiff in Tussey v. ABB, Inc. , one of the so-called “excess fee” revenue sharing cases. Tussey, now 70, claims that he was told that his retirement plan was “free,” even though, according to the Times article, “middlemen 1 were deducting expenses from his savings.” The story also notes that Tussey “never thought that his retirement plan might be flawed,” and that “he trusted his company so much he kept his money in his 401(k) long after he left.” Over the years, I have been astounded at the allegations of fiduciary misconduct in these revenue-sharing cases. Each has its own flavor, of course, but for the most part they have struck me not so much as the outcomes of bad acts, per se, but rather steps that should have been taken in keeping with their fiduciary duty to ensure that t...

There was another judicial decision in another revenue-sharing case earlier this month—and another victory for a plan sponsor. The case was Loomis v. Exelon (see Another Plan Sponsor Win on Revenue-Sharing ), a case argued before the 7th U.S. Circuit Court of Appeals, which had previously weighed in on the case that appears to be setting the tone in most of these cases, “Hecker v. Deere & Co.” Hecker, as you may recall, involved a situation with a large, multi-billion-dollar plan that offered its participants access to a couple of dozen funds from a single provider alongside a self-directed brokerage window that afforded access to funds beyond that. The 7th Circuit dismissed that challenge, finding that the competitive forces of the market were sufficient to ensure reasonable fee levels for the specific funds on the menu, and that, if the participants felt otherwise, they could always pursue other options via the brokerage window. In Exelon, there was no brokerage window, though ...

The underlying theme of last week’s PLANSPONSOR National Conference was “measuring up,” a reference not only to the need to measure the performance and outputs of a retirement plan’s designs, but also to the opportunity to increase and enhance it in the process. Of late, fees are very much on everyone’s mind, as we all prepare for a new series of plan, and ultimately, participant, disclosures. Just ahead of those disclosures, the industry has launched a new generation of plan fee benchmarking services. Each looks at different things, each has its own set of weightings and assumptions, and each draws from a different source. But for my money, here are 10 things you should know about any service that purports to help you benchmark your plan: What is the source of the database that serves as a point of comparison? Is the database itself large enough to be relevant? Does it include relevant points of comparison with your program in terms of plan size, industry, and/or geographic loca...

Without question the retirement plan industry has prospered from the long-standing practice of relying heavily – and in some situations, completely - on asset-based fees. Now, you can certainly argue that that has resulted in plans paying for services they would not otherwise have engaged, and that it has, in some cases, led to plans paying more than they might if they had been more cognizant of the dollars expended. Indeed, one can argue that the imbedding of those fees inside the fund structure has made it easy, perhaps too easy, for the industry to collect its tolls without drawing the kind of scrutiny they were entitled to. On the other hand, that structure has made it easier for the industry to provide a broad-based level of sophisticated services to plans of all sizes, and has doubtless made it possible for plans to contemplate hiring an adviser that, regardless of the need and/or benefit, would otherwise have been discouraged by an explicit charge for those services. That said...

Plan sponsors spend a lot of time wondering—and worrying—about the “right” way to do things. They rely on the guidance of experts, the insights of publications like ours, the black—though often gray—letter of the law, and sometimes they must rely on the occasionally contradictory adjudications of the courts. Those contradictions have been much in evidence in the series of 401(k) revenue-sharing lawsuits, which, IMHO, continue to suffer from what seems to be a confusing “flexibility” in judicial discernment regarding the standards of fiduciary responsibility and application of ERISA’s 404(c) safe harbors. In fact, it is only a matter of time until some plan sponsor somewhere files an injury claim for whiplash incurred from simply trying to keep up with the direction of these decisions. The most recent example was the case of Gerald George vs. Kraft Foods Global (see Appellate Court Sends Back Kraft Fee Case ), a case the 7th U.S. Circuit Court of Appeals remanded (albeit in a split ...

As Valentine’s Day looms, you have perhaps seen those increasingly ubiquitous advertisements for a certain online florist. Now, I’ve used that particular service on many an occasion over the past several years; they are not only convenient, they deliver a quality product, and on time (yes, some “assembly” is required). In sum, I’ve used them before and will doubtless use them again. That said, if you’ve been lured to their Web site by their ads touting a dozen roses for $19.99—well, let’s just say you could be in for a surprise. See, that advertised price doesn’t include a vase (well, not a pretty one, anyway), the delivery charge (which, depending on when you want it delivered, adds another 50%, or more, to the price), not to mention the standard “care & handling” charge of $3 (regardless of when you want it delivered). A guaranteed morning delivery on Valentine’s Day is another $15. Oh, and if you’ve procrastinated until the last week or so, you’ll find an additional $9.99 ch...

Last week, the Department of Labor reissued its proposed regulation on participant fee disclosure. Those familiar with the last proposal (put out by the prior Administration—see “ EBSA Finishes Regulatory Package with Participant Disclosure Proposal ”) will doubtless find this one to be a modest improvement (see “ EBSA Releases Final 401(k) Fee Disclosure Rule ”). Aside from the passage of time, this version incorporates additional input from the retirement plan community, financial services regulators, and even participant focus groups—most of it good, and all of it interesting. 1 The rule itself is worth a read for, IMHO, it offers valuable insights not only into the suggestions made, but into the Labor Department’s reaction and response to those comments. As always, the devil lies in the final details, but one senses a strong interest in balancing the desire to give participants more information to make better decisions with the practical realities attendant in providing trans...

Last week I mentioned a revenue-sharing case that could have far-reaching implications. That case, Tibble v. Edison International, was decided earlier this month (see “ Court Buys Retail vs. Institutional Share Fee Claims ”) and, IMHO, is a very interesting case for several reasons: First, most of these cases have been tossed before they actually got to trial; second, this one was decided in the plaintiff/participant’s favor (and that’s a rarer occurrence than much of the coverage and “chatter” would indicate). Moreover, here the court was far less deferential to the plan fiduciary decisions than other districts have been1. But what I found most interesting about this case wasn’t the decision or the court’s rationale, though both will certainly have ramifications beyond this case. Nor, in large part, were the plaintiffs’ arguments any more compelling than in previous actions. In fact, like many of the revenue-sharing/excessive-fee cases filed since 2006, the plaintiffs here made a...

For all the fuss about fees, a recent friend of the court filing by the Department of Labor reminds us that it’s not just what you pay, it’s what you get for what you pay. The amicus brief had the DoL once again weighing in on another in the series of revenue-sharing suits that have kept the industry stirred up since the first wave was filed in 2006. Once again, the DoL was expressing its sense that there were real, and triable, issues in the case, this one involving Exelon Corporation (see “ Solis Asks Court to Overturn Exelon Excessive Fee Case Decision ”). The DoL had previously expressed similar concerns about a similar dismissal in the same judicial district in a case involving Deere & Co. (see “ Hecker Fee Case Prompts Exelon Suit Dismissal ”)—a dismissal that was affirmed by the appellate court, and that the U.S. Supreme Court has refused to reconsider. Those concerns weren’t enough to influence the appellate court in the Hecker case, though it did result in a judicial ad...