The Department of Labor (DOL) has received court authorization to compel the trustee of a profit-sharing plan in Aiea, Hawaii to restore mismanaged plan assets.
A consent judgment has been secured for cement construction
and contracting company Reef Development of Hawaii Inc. and its president,
Samuel Sanchez Aguirre. An investigation by the DOL’s Employee Benefits
Security Administration (EBSA) found that Aguirre, who was acting as trustee to
the company’s profit-sharing plan, violated the Employee Retirement Income
Security Act (ERISA) by mismanaging plan assets, which resulted in more than
$700,000 in lost principal, plus approximately $303,000 in lost interest.
EBSA investigators found that Aguirre neglected his
fiduciary responsibilities by not acting carefully in the selection and
monitoring of investments made on behalf of the plan. This lack of due
diligence prior to making investments violates ERISA’s requirements of acting
solely in the interest of participants and beneficiaries of the plan.
The investigation revealed that Aguirre directed $550,000 to
shares of a Texas-based company that later filed for bankruptcy and was exposed
as a Ponzi scheme. The plan also suffered a loss of $950,000 in debt
instruments invested in a hotel restoration project that was foreclosed upon.
The EBSA investigation, which began in April 2011, surveyed
plan activity between 2006 and 2011. It found that 50 plan participants were
affected by Aguirre’s investment choices.
The consent judgment and order obtained by the DOL requires
Aguirre to restore $463,236 in losses to the plan attributable to nonfiduciary
participants within 30 days of the judgment’s filing. Once the funds have been
restored, Aguirre and the fiduciaries will terminate the plan and disburse the
funds.
Once the plan is terminated, Aguirre is permanently banned
from serving as a fiduciary or service provider to any employee benefit plan
that is subject to ERISA. He has been assessed a penalty that is equal to 20%
of the recovery amount, or $92,647.
According
to the DOL, Reef Development of Hawaii specializes in cement work, restoration
and additions to property, and commercial developments.
By using this site you agree to our network wide Privacy Policy.
Move beyond flat metrics such as participation levels and
deferral rates. Analyze all participant behaviors that ultimately drive
retirement outcomes, and develop sophisticated metrics and interventions to
improve those outcomes.
2) Take a Broader,
Sophisticated Approach to Investment Risk. A delegated investment solution
may help manage risk through the lens of plan participants.
Research in behavioral finance has shown that risk
management involves more than just the prudent selection of a diverse set of
investment options. Employees can be supported by tailoring a plan’s investment
risk profile to participant demographics. If resource constraints exist, plan
sponsors need to consider the appropriateness of employing a delegated
investment solution for all or part of the plan. A delegated approach to
developing a demographically based investment strategy leverages time while
transferring fiduciary risk.
3) Understanding
Target-Date Fund Fiduciary Responsibility. The Department of Labor (DOL)
may be watching.
As an increasingly popular asset class within DC plans,
target-date funds (TDFs) have come under heightened scrutiny by the DOL. Plan
sponsors need to consider whether or not the target-date funds in their plan
will lead to the desired retirement outcomes for the plan’s participant base.
Plan sponsors should review and document the evaluation of these options based
on the DOL’s Target-Date Retirement Fund Tips for Plan Fiduciaries.
4) Saying Goodbye to
Revenue Sharing. Paying administrative fees based on each fund’s level of
revenue sharing may not stand up to scrutiny.
A
red flag arises if some participants pay higher administrative costs simply
because their fund options carry revenue sharing. Achieve transparency and
level allocation of administrative fees by reducing or eliminating revenue
sharing, or by allocating it back to participants.
5) Considering the
Impact of Inflation on Participants’ Retirement Readiness. Don't let
inflation erode outcomes.
Despite the low interest rate environment from 2000 to 2013,
participants’ purchasing power decreased by more than 20%, according to
research by Mercer. Purchasing power erosion and its effect on retirement
readiness can lead to work force planning issues. Plan sponsors can help
participants address this risk by assessing the appropriateness of offering a
diversified inflation option within the plan.
6) Helping
Participants Sleep at Night. Financial wellness can promote a more
productive work force.
Employees face significant financial burdens throughout
their working lifetimes, from home buying to college saving to retirement
preparation. Plan sponsors helping employees put their financial house in order
not only helps them save for retirement, but can also improve engagement and
decrease stress levels.
7) Addressing the
Diversification Challenge. Consider implementing custom funds to increase
participant diversification while keeping the investment lineup lean.
In an effort to avoid participant confusion and investment
choice overload, 60% of plan sponsors offer participants fewer than 15
investment choices and many are looking to reduce that number to 10 or less.
Custom funds can provide participants with access to greater diversification
through exposure to alternatives, opportunistic fixed income and real asset
strategies without adding complexity to their investment decisionmaking
process.
8) Reassessing the
Market. The evolution of the DC market has driven changes in vendor
position, strategy and focus.
How long has it been since the plan was put out to bid? In
response to market pressures and financial constraints, many vendors have
changed their strategy and target market. At the same time, plans have grown
and their needs have evolved. It may be time to explore what else is out there.
9) Thinking Beyond
Borders. Globalization is here.
International markets make up a larger percentage of the
investable universe than U.S. markets. According to Mercer, delivering
streamlined access to global investment opportunities across the asset class
spectrum helps address participant behavioral biases, leading to improved asset
allocation decisions and ultimately enhanced retirement outcomes.
10) Keep Pushing the
Communication Envelope. Employees are accessing information in new ways and
plan communications need to keep pace.
Employees are increasingly using mobile technology, and the
best communicators are engaged in generational targeting and strategies based
on behavioral finance. Looking ahead, the success of gamification in education
and employee training can be applied by plan sponsors to retirement and
financial education. Mercer recommends that plan sponsors assess how new
approaches to communications and targeting can more effectively reach the
various populations within the plan to help drive engagement.
Mercer
is a provider of talent, health, retirement and investment services.