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Capitol News | PLANADVISER September/October 2016

Capitol News

An adviser eye on Washington

By PLANADVISER Staff editors@assetinternational.com | September/October 2016
Art by Kyle Stecker

Allianz Self-Dealing Suit Survives Dismissal Attempt
The U.S. District Court for the Central District of California has mainly denied a motion from Allianz Asset Management to dismiss a self-dealing Employee Retirement Income Security Act (ERISA) lawsuit.

Plaintiffs in the case originally leveled a host of complaints against two sets of defendants overseeing the Allianz Asset Management 401(k) plan, suggesting that the “total plan cost of 0.77% is outrageously high for a defined contribution [DC] plan with over $500 million in assets.”

Named in the complaint are Allianz Asset Management of America—both AAM-LP and AAM-LLC—as well as “the Committee of the Allianz Asset Management of America, L.P. 401(k) Savings and Retirement Plan … [CEO and AAM Managing Director] John Maney … and John Does 1 to 30 … who improperly managed plan assets for the benefit of themselves and their affiliates instead of the plan and its participants.” Several participating employers and companies within the Allianz family are also named in the complaint.

Lead plaintiffs Aleksandr Urakhchin and Nathan Marfice filed their claims in the U.S. District Court for the Central District of California, seeking an order for Allianz and company “to remedy breaches of fiduciary duties and unlawful self-dealing.” Plaintiffs seek to recover the financial losses suffered by the plan through improper fees and self-dealing, and to obtain injunctive and other equitable relief from the defendants, as provided by ERISA. Allianz quickly moved with a motion to dismiss the complaint, leading to the current decision.

Another 401(k) Self-Dealing Lawsuit Filed
A participant in the Franklin Templeton 401(k) plan has sued Franklin Resources and the plan’s investment committee, alleging that defendants breached their fiduciary duties by causing the plan to invest in funds offered and managed by Franklin Templeton when better-performing and lower-cost funds were available.

In addition, the lawsuit claims the defendants were motivated to cause the plan to invest in Franklin Funds to benefit Franklin Templeton’s investment management business.

According to the complaint, all 40 mutual funds offered by the plan are managed by Franklin Templeton or its subsidiaries.

The lawsuit says the funds’ fees are and were significantly higher than the fees for alternative mutual funds with similar investment styles—such as Vanguard Institutional Funds—that were readily available as plan investment options throughout the relevant time. According to the complaint, fees charged for funds in Franklin Templeton’s plan ranged from 57% to 1,275% higher than comparable Vanguard funds.

Bill Addresses PBGC Premium Budget Issue
Senator Mike Enzi, R-Wyoming, has introduced S.3240, described as a bill to prohibit the use of premiums paid to the Pension Benefit Guaranty Corporation (PBGC) as an offset for other federal spending.

Pension insurance premiums that are paid by employers to the PBGC are included in the federal budget and are considered “on-budget.” This gives the illusion that this revenue can be used for general government spending, even though these premiums cannot be allocated to other government programs besides the PBGC benefit pension plans, the senator explains.

In recent years, Congress has raised the PBGC premiums several times to offset increased spending, most lately by $7.65 billion, through 2025, in the Bipartisan Budget Act of 2015.

Confronting these challenges, S.3240 would ensure that premiums paid to the PBGC are no longer counted as general fund revenue, eliminating the motivation for legislators to raise premiums in order to pay for unrelated initiatives and programs.

Congressman Introduces Save Our Social Security Act
Representative Reid Ribble, R-Wisconsin, has introduced the Save Our Social Security Act in order to make Social Security solvent for another 75 years. This year, Social Security will spend $15.7 billion more than it collects in taxes, Ribble notes. At this rate, the fund will run dry by 2034, resulting in benefit cuts that year of 21% for each senior. The legislation proposes to close the collection/spending gap through progressive revenue, progressive benefit changes and an increase in the retirement age.