Compliance December 26, 2013

DOL Seeks Removal of 401(k) Trustee

The Department of Labor (DOL) hopes to remove the trustee of a 401(k) plan based in Elgin, Illinois.
Reported by

In December, the DOL filed a lawsuit, Perez v. Aguirre et al. (docket number: 1:13-cv-08948), in the U.S. District Court for the Northern District of Illinois, Eastern Division. The suit names Eugene Aguirre, as well as the Sunstrand Electric Company Inc. Employees 401(k) Profit Sharing Plan and Trust, as defendants. 

The suit alleges that since August 2010, Aguirre, the sole trustee to the Sunstrand Electric Company Inc. Employees 401(k) Profit Sharing Plan and Trust, failed to administer the plan. This included failure to properly authorize distributions to plan participants and beneficiaries. As a result, participants have not been able to obtain distributions of their account balances, totaling $100,734, from the plan.

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It is further alleged by the DOL that in failing to administer the plan, Aguirre failed to discharge his duties solely in the interest of the participants and beneficiaries, for the exclusive purpose of providing benefits to participants and beneficiaries, and to defray reasonable expenses for plan administration, all of which violates the Employee Retirement Income Security Act (ERISA).

The suit asks that Aguirre be prevented from violating ERISA in the future by removing him from his position as plan trustee; removing Sunstrand from its position as plan administrator; permanently enjoining Aguirre and Sunstrand from serving as fiduciaries or service providers to any ERISA-covered plan; appointing an independent fiduciary to distribute the plan’s assets and then terminate the plan; and ordering Aguirre to pay all reasonable fees and expenses incurred by the independent fiduciary in administering and terminating the plan.

According the DOL, the plan had nine participants as of October 15, 2012.

The full text of the DOL suit can be downloaded here.  

Data & Research December 24, 2013

More Choose TDFs for the Long Run

Greater numbers of 401(k) participants are investing in target-date funds over the long term, says a new report.
Reported by

At year-end 2012, 41% of 401(k) participants held target-date funds, according to “401(k) Plan Asset Allocation, Account Balances and Loan Activity in 2012,” a report jointly released by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI).

This figure represents an increase from 39% in 2011 and 19% in 2006. In addition, 15% of the assets noted in an EBRI/ICI database covering 401(k) plans were invested in target-date funds at year-end 2012, up from 13% in 2011 and 5% in 2006.

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The report notes that at year-end 2012, 61% of 401(k) plan participants’ accounts were invested in equities—through equity funds, the equity portion of target-date funds, the equity portion of balanced funds, and company stock. The report shows younger 401(k) plan participants had higher concentrations in equities—nearly three-quarters of 401(k) assets among participants in their 20s or 30s—compared with older participants. Participants in their 60s had less than half of their 401(k) assets invested in equities.

“Fears that retirement savers would abandon equities in the wake of the financial crisis have not been borne out by the data,” says Sarah Holden, ICI senior director of retirement and investor research. “And, target-date funds are playing an important role for 401(k) investors, particularly for younger participants, by maintaining age-appropriate concentrations in equities.”

Data from the report indicates that target-date fund use varies with age. Younger participants, for example, are more likely to hold target-date funds and such funds tend to represent a much larger share of their 401(k) assets. At year-end 2012, 52% of 401(k) participants in their 20s had target-date funds, with those funds making up 34% of their 401(k) assets.

“More new or recent hires invested their 401(k) assets in balanced funds, including target-date funds,” notes Jack VanDerhei, EBRI research director. “At year-end 2012, nearly 54% of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with about 7% in 1998. A significant subset of that balanced fund category is invested in target-date funds.” The report notes that at year-end 2012, 43% of the account balances of recently hired participants in their 20s were invested in target-date funds, compared with 40% at year-end 2011.

The report also shows that at year-end 2012, 21% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from the prior three years (2009 to 2011), although slightly elevated compared with prior to the financial crisis (2006 to 2008).

Age, tenure and a number of other factors impact an individual’s account balance at any point in time, according to the report. In addition, the 401(k) account balance for an individual’s current job was typically found to be just one of a number of retirement resources that he or she will accrue over a working career, including Social Security.

At year-end 2012, the average 401(k) participant account balance was $63,929 and the median account balance was $17,630, with wide variation reflecting the many variables in retirement saving, including participant age, tenure, salary, contribution behavior, rollovers from other plans, asset allocation, withdrawals, loan activity, and employer contribution rates. Older participants and those with longer tenure tend to have higher 401(k) balances at their current employers. For example, at year-end 2012, the average account balance among 401(k) plan participants in their 60s with more than 30 years of tenure was $224,287.

The report is based on data from the EBRI/ICI database of employer-sponsored 401(k) plans. For 2012, the database includes statistical information on 24 million 401(k) plan participants in 64,619 plans, which held $1.536 trillion in assets.

More information about the report can be found in the December 2013 EBRI Issue Brief and the December 2013 ICI Research Perspective.

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