Compliance January 28, 2010

Kraft Excessive Fee Case Thrown Out

A federal judge in Illinois has turned away allegations by 401(k) participants at Kraft Foods Global that recordkeeping fees paid to Hewitt Associates were too high and the company stock fund was improperly unitized.
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With those rulings, U.S. Magistrate Judge Sidney I. Schenkier of the U.S. District Court for the Northern District of Illinois threw out the excessive fee suit regarding the Kraft Foods Global Inc. Thrift Plan (see “Court Moves Forward Kraft Foods Excessive Fee Suit“).

In granting the defense request to dismiss the suit, Schenkier found that:

  • Hewitt’s recordkeeping fees were in line with industry standards and were properly disclosed to participants via, among other things, messages of encouragement that participants should consider the fees when making investment decisions. The employees alleged that during its tenure as recordkeeper, Hewitt received $28 million in “excessive” recordkeeping fees.
  • Kraft plan fiduciaries regularly reviewed their relationship with Hewitt.
  • Kraft’s decision to unitize the company stock funds was common in other 401(k) plans and not improper, rejecting plaintiffs’ assertion that the setup was “inherently imprudent.” Schenkier wrote: “Here, the undisputed facts show that defendants used a reasoned decisionmaking process to determine the structure of the plan’s company stock funds and to maintain an adequate amount of cash to meet the demands of trading in the funds, and defendants disclosed adequate details of these facts to the participants.”
  • There was no wrongdoing in allowing State Street to get part of its compensation from keeping the “float” on participants’ benefits.


Schenkier pointed out that fiduciaries are frequently faced with competing interests and goals and are only required under the Employee Retirement Income Security Act (ERISA) to apply a prudent process in their plan management. “Often, no one decision will simultaneously advance all goals,” Schenkier wrote. “That is why the requirement that a fiduciary act prudently mandates that he or she use a ‘reasoned decisionmaking’ process … and not that the choice resulting from that process be one that all will agree was the optimal one.”

According to the court, between 2000 and 2006, Kraft’s plan had between 37,000 and 55,000 participants and held between $2.7 billion and $5.4 billion in assets.

The latest court ruling is available here.

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Data & Research January 28, 2010

Recession Has Taken Toll on Employee Retirement and Benefits

More than half (52%) of respondents to a Towers Watson survey said the percentage of their employees working past their desired retirement age is higher than it was before the financial crisis.
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Nearly one-third (31%) said they expect that percentage will be even higher next year, according to a press release.

In addition, 30% of companies reported employees have on average reduced their contributions to 401(k) plans from pre-financial crisis levels, and 51% have seen an increase in employees’ hardship withdrawals from pre-financial crisis levels. Almost half (48%) of U.S. respondents said employees had shifted 401(k) plan allocations out of equities; however, 37% expect employees to shift back toward equities a year from now, the survey found.

Thirty-two percent of companies reported that their employees’ cost of health care coverage is higher now than it was before the financial crisis, and 38% indicated they think it will be even higher a year from now.

While 28% of employers expect that, a year from now, they will put more emphasis on ensuring benefits provide a desired level of security for employees, the survey found much larger numbers of respondents expect to increase their focus on controlling and reducing benefit costs (53%) and managing the risk and volatility of those costs (49%).

The survey, based on responses from 118 mostly large employers in the United States and 459 employers globally, was conducted in early January.

The survey report is available here.

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