Compliance August 15, 2016

Four Other 403(b) Plan Excessive Fee Suits Filed

All lawsuits accuse major universities of not using their bargaining power to get lower fees for recordkeeping and investments.
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Excessive fee lawsuits have been filed against 403(b) plans of Emory University, the University of Pennsylvania, Johns Hopkins University and Vanderbilt University.

The complaints are nearly identical to those filed against MIT, New York University, Yale and Duke University, alleging that instead of using the plans’ bargaining power to benefit participants and beneficiaries, the defendants allowed unreasonable expenses to be charged to participants for administration of the plans, and retained high-cost and poor-performing investments compared to available alternatives. And, the suits call out the traditional 403(b) plan model of offering multiple funds (fund lineups of the plans in the suit ranged from 78 to more than 400), including individual annuities, and using multiple recordkeepers.

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The cases accuse the plans of not performing a competitive bidding process to consolidate recordkeepers and/or negotiate better recordkeeping fees. They also allege the plans used revenue-sharing.

However, in the case of Henderson v. Emory University, Mary L. Cahill, the current vice president of Investments and chief investment officer of the university is singled out as a defendant. Cahill is responsible for approving investment selections for the Emory University Retirement Plan and the Emory Healthcare, Inc. Retirement Savings and Matching Plan as recommended by Emory Investment Management. The case seems to say that Cahill should have known better than approving so many investments and expensive investments, noting that before joining Emory, she was deputy chief investment officer at Xerox Corporation where she was responsible for developing, recommending and implementing investment alternatives for Xerox’s $12 billion in defined benefit and defined contribution plan assets.

The lawsuit also notes that, in contrast to the administration of the other plans, the Emory Clinic, Inc. Retirement Savings Plan—a 403(b) plan with only $310.4 million in assets and 2,231 participants has a single recordkeeper and invested in lower-cost share classes than the other plans for many of the same mutual fund options offered to participants.

In addition, the Emory complaint says defendants allowed participants to be charged asset-based fees for recordkeeping, instead of flat per-participant rates. “Because revenue sharing payments are asset-based, the already excessive compensation paid to the Plans’ recordkeepers became even more excessive as the Plans’ assets grew, even though the administrative services provided to the Plans remained the same,” it states.

In the Cassell v. Vanderbilt University complaint, it is noted that in April 2015, Vanderbilt consolidated from four recordkeepers to one. However, the compliant questions why it took the university so long to do so. “There was no loyal or prudent reason that Defendants failed to engage in such process long before April 2015, and before 2009,” the compliant says.

The complaint in Kelly, et. al. v. The Johns Hopkins University is here.

The complaint in Sweda v. The University of Pennsylvania is here.

Products August 15, 2016

Nationwide Offers Advisers Small Plan Investment Fiduciary Services

Advisers can help small employers minimize investment fiduciary risk through LPL's 3(38) Small Market Solution service.
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Nationwide now offers advisers access to a turnkey solution that helps small employers minimize investment fiduciary risk while maximizing efficiency through LPL’s 3(38) Small Market Solution service.

Through the plan’s 3(38) investment fiduciary service, LPL Financial acts with discretionary authority over the plan’s investment selection and ongoing monitoring and offers employers assistance with a number of administrative functions. The Small Market Solution also features enrollment in Worksite Financial Solutions, a guidance-based, beginning-to-end retirement solution designed to help employees create confidence in their financial life.

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Worksite Financial includes four custom solutions tailored to meet the needs of employees throughout the life of the plan:

  • Employee Engagement Solution – This solution helps employees get started with their plan by providing assistance in the enrollment process and helping them consolidate retirement assets.
  • Employee Advice Solution – This managed account option creates a customized retirement strategy based on the employee’s current financial situation and future retirement goals. It implements the strategy and provides ongoing professional account management, rebalancing the account as needed.
  • Employee Education Solution – This holistic wellness solution includes tools and educational resources that inspire employees to take action toward saving for a healthy retirement.
  • Employee Transition Solution – This solution enables employees to keep their retirement planning on track during times of career transition, featuring early separation counseling, retirement counseling, and rollover education and guidance.
“With access to LPL’s Small Market Solution, small business owners are enabled to serve retirement plans cost effectively,” says David Reich, LPL executive vice president and head of Retirement Partners. “We are proud to be able to put LPL’s size and scale to work to offer the tools and resources that can help firms such as Nationwide in the delivery of retirement plan solutions to its clients.”

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