Compliance November 12, 2014

Supreme Court Denies Review of Tussey Fee Case

The U.S. Supreme Court has denied a request to review an appellate court's decision in a case concerning retirement plan recordkeepers and fees.
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The law firm of Schlichter, Bogard & Denton petitioned the U.S. Supreme Court for a “writ of certiorari” in Tussey v. ABB, Inc.

The 8th U.S. Circuit Court of Appeals agreed with a district court finding that the ABB fiduciaries breached their duties to the plan by failing to diligently investigate Fidelity and monitor plan recordkeeping costs, but it agreed with Fidelity and ABB that the district court relied on hindsight in its ruling that the switch from the Vanguard Wellington fund to Fidelity Freedom funds violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA). Fidelity was also found not liable for breaches concerning its use of “float” income.

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Schlichter recently told PLANSPONSOR, his appeal to the Supreme Court contends it is inappropriate to give such discretion to plan fiduciaries that have already been proven by the same appeals court (and as part of the same case, no less) to have breached their fiduciary duty. The plan fiduciaries have already been shown to have made decisions that were not in the participants’ best interest, he says, so why should their motives for switching to the Fidelity funds be interpreted charitably by the court? 

The Supreme Court did not give a reason why it will not review the Tussey case. Last month, it agreed to review another case involving fees and monitoring of a retirement plan, Tibble v. Edison. The issue in that appeal is whether the Employee Retirement Income Security Act (ERISA) statute of limitations applies to the duty to monitor investment funds of the plan.

Data & Research November 12, 2014

Small Business Owners Often Overestimate Ability to Retire

A majority (52%) of small business owners state they are either “very” or “fairly” well prepared for retirement, according to a study by The Guardian Insurance & Annuity Company (GIAC).
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The study suggests there is an increasing number of small business owners (SBOs) planning to use small business equity to help fund their own retirement. Thirty-five percent of SBOs polled by GIAC state they started their business specifically to fund their retirement, up from 25% in 2011. Thirty-nine percent believe they can retire earlier than planned due to their small business, up from 31% in 2011. 

One troubling finding from the study shows 35% of SBOs today are relying on the sale of their business in order to be fully prepared for retirement. But amid their confidence about retirement security, only 17% have actually taken steps to identify potential buyers for their businesses. This exposes a disconnect between retirement preparedness and aspirations among SBOs, GIAC observes. 

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Overall, SBOs polled for the study are risk-tolerant and feel that having their own business is the best way to create the wealth they want. However, more planning is necessary in order for these aspirations to match their retirement needs.

“Many small business owners are counting on the sale of their business to fund their retirement, but this expectation comes with a great deal of risk,” says Douglas Dubitsky, vice president, Guardian Retirement Solutions. “The best approach is to work with the right financial professional who will design a customized plan and provide a clear understanding of how it will meet their retirement goals.”

Half of the respondents report they spoke to their financial adviser when building a retirement outlook. Additionally, 84% say they are very satisfied or satisfied with their financial adviser, and 83% plan to keep their adviser when they retire. SBOs who use a financial adviser are more confident in their ability to sell their business and retire successfully, GIAC says. 

The survey denotes a disparity in responses depending on gender, as 45% of women SBOs confess they are confident about and financially prepared for retirement, compared to 56% of men. Additionally, women are more likely to prefer an adviser who pushes them toward their goals (33%), compared to men (23%). Men are more likely to want an adviser who is creative and takes calculated risks (28%) compared to women (21%).

“Women SBOs can do more to prepare for retirement and feel as confident as their male counterparts,” Dubitsky says. “A retirement savings plan is an essential tool for any small business owner’s financial security. Yet, it needs to be put into motion many years before retirement.”

The full results of the “Small Business Owners Retirement Readiness Study” are available here.

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