Compliance February 26, 2015

Court Orders Additional Recovery of Misused Pension Funds

A federal court has ordered a fiduciary to repay $300,000 to a number of pension plans, for which the Department of Labor sued over misuse of assets.
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The U.S. District Court for the Eastern District of Kentucky has issued a consent judgment against George Hofmeister, trustee of several pension plans.

Hofmeister has been ordered to repay $300,000 to the plans sponsored by TPOP LLC, formerly known as Metavation LLC; Fairfield Castings LLC, formerly known as Revstone Castings Fairfield LLC; and Fourslides Inc. Hofmeister is also banned from being a fiduciary or service provider to employee benefit plans under the Employee Retirement Income Security Act (ERISA).

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Consent judgments were previously issued against William Tweardy and Nelson Clemmens, members of the investment committee for the Metavation LLC of Southfield, Michigan, and Fairfield LLC of Fairfield, Iowa, pension plans. Consent judgments were also obtained against Robert La Courciere and Pamela Babbish, former trustees of the Fourslides Inc. pension plan. 

More than $12 million has been recovered after investigations by the U.S. Department of Labor resulted in court orders and injunctions against Hofmeister and other fiduciaries. A series of lawsuits alleges that, among others, Hofmeister, Bernard Tew, investment service provider Bluegrass Investment Management LLC, investment service provider Tew Enterprises LLC, Metavation, Fairfield, Fourslides, Tweardy, and Clemmens improperly used pension funds. Judgments against the remaining defendants are being sought by the department in ongoing litigation.

Investigators found improper use of plan assets for the purchase and lease of company property, the prohibited purchase of customer notes from affiliated companies, the prohibited transfer of assets in favor of a party-in-interest, the payment of excessive fees to service providers. Other violations are also alleged. 

In July 2013, the court issued a preliminary injunction removing Hofmeister, Tew, and Bluegrass from exercising management or control of the pension plans, and appointed Fiduciary Counselors, investment advisers in Washington, D.C, to independently administer the plans.

Metavation, Fairfield, Fourslides, Revstone and their affiliated companies, design and manufacture components used in the transportation and heavy-truck industries. Revstone and its various affiliates, including Metavation and Fairfield, were directed by Hofmeister and owned by the irrevocable trusts of Hofmeister’s children.

Products February 26, 2015

Vanguard Adds to Low-Fee TDF Lineup

A new fund series from Vanguard features an estimated expense ratio of 10 basis points and will be offered to institutional investors meeting a $100 million initial investment requirement.
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The funds are known as Vanguard’s Institutional Target Retirement Funds and are expected to launch by the end of the second quarter 2015.

“Single-fund options have revolutionized the retirement savings landscape,” notes Vanguard CEO Bill McNabb. “Professionally managed, diversified investment options such as Target Retirement Funds have helped enhance the future financial security of investors by providing a sophisticated asset allocation and a disciplined, long-term strategy in an all-in-one-fund offering.”

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McNabb says more than half of participants in 401(k) retirement plans at Vanguard invest in a target-date fund (TDF), and 86% of 401(k) and other defined contribution plans administered by Vanguard offer a TDF option. The firm hopes the products will help defined contribution plan investors improve portfolio diversification.

Vanguard also announced plans to increase the international exposure in some of its asset-allocation solutions. The international equity allocation of Vanguard’s current lineup of Target Retirement Funds and LifeStrategy Funds will increase to 40% from 30%, and the international fixed-income allocation will increase to 30% from 20%.

“International holdings are a valuable diversifier in a balanced portfolio, giving shareholders exposure to return streams that don’t move in lockstep with the U.S. markets,” adds Tim Buckley, Vanguard chief investment officer. He says Vanguard research demonstrates that non-U.S. equities can enhance the returns of U.S. equities on average over time, while the primary factors driving international bond prices are relatively uncorrelated to the same factors for U.S. bonds, also providing a diversification benefit.

The overall strategic asset allocation and glide path of the current lineup of Target Retirement Funds will not change, Vanguard says. The expense ratios of the Target Retirement Funds, ranging from 0.16% to 0.18%, are not expected to change with the added international exposure. Investment allocation changes are expected to be complete by year-end.

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