Data & Research March 22, 2016

Providers of TDF Products Limited

More than three of every five dollars invested in a target-date mutual fund or CIT is controlled by one of only three financial services firms, research found.
Reported by

Sway Research’s first in-depth study of the target-date fund (TDF) space based on detailed analysis of more than 120 mutual fund and collective investment trust (CIT)-based target-date series finds these funds had nearly $1.1 trillion in assets at the end of 2015.

Nearly 90% of the assets in target-date mutual funds and CITs are controlled by products that invest only in the proprietary funds of the series sponsor. The research also found more than four in five TDF dollars are invested in a series that features a “through” retirement glide path, though the term “through” is very much subjective, as more than half of these assets are in products that realize their equity landing point (the point at which they reach their lowest equity allocation) within 15 years of reaching the target date.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Although there is a wide range of options for tactical glide path deviation, almost all of the assets are held in products with a range of 10% or less.

The study reveals that as of the end of 2015, more than three of every five dollars invested in a target-date mutual fund or CIT is controlled by one of only three financial services firms—Vanguard, Fidelity, and T. Rowe Price. Not coincidentally, each of these firms also possesses a defined contribution (DC) recordkeeping business. Vanguard is the most dominant TDF player, managing nearly one-third of the $1.1 trillion of TDF assets within its proprietary offerings.

Only a handful of asset managers that lack a DC recordkeeping business or branded product have achieved a substantial share of TDF assets. BlackRock is the only firm among the top-10 in market share that does not have a DC product or platform.

The report lays out the competitive landscape and opportunities within the TDF space, while also providing insights into the product design features that have generated the most market share. Information about how to order the report is at http://www.swayresearch.com/research/.

Compliance March 22, 2016

Question of Timing Focus of Top Hat Plan Lawsuit

Because an appellate court found claims against Marriott's plan were time-barred, it did not consider the question of whether the plan was a top hat plan.
Reported by

The 4th U.S. Circuit Court of Appeals granted summary judgment to Marriott International in a lawsuit claiming that its Stock and Cash Incentive Plan was not a top hat plan and was subject to vesting requirements of the Employee Retirement Income Security Act (ERISA).

The plaintiffs in the case—former participants in the plan—argued that the plan was not a top hat plan originally because it did not cover only a select group of management or highly compensated employees, as defined by ERISA. At one time the plan covered more than 2,500 employees, but it was amended after a Department of Labor (DOL) 1990 advisory opinion letter, and after that covered only about 100 employees. The plan used a prorated vesting schedule based on each participant’s time until he or she reached age 65. The plaintiffs in the case did not fully vest in their benefits because they left employment before reaching age 65.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

However, although an amicus brief was filed by the DOL reiterating this definition, the court did not focus on whether the plan was a top hat plan, but focused on Marriott’s appeal that a district court erred in finding the claim “timely.”  The court noted that except for breach of fiduciary duty claims, ERISA contains no specific statute of limitations, and it therefore looked to state law to find the most analogous limitations period. It found that Maryland’s three-year statute of limitations for contract actions applies.

A district court had determined that an ERISA cause of action does not accrue until a claim of benefits has been made and formally denied, but the appellate court said the district court applied the wrong analysis. In a previous case, the 4th Circuit found that “a formal denial is not required if there has already been a repudiation of benefits by the fiduciary which was clear and made know to the beneficiary.”

With this in mind, the court found that a 1978 prospectus of the plan clearly stated that it was intended to be a top hat plan and did not need to comply with ERISA vesting requirements. The same language was included in prospectuses distributed in 1980, 1986 and 1991.

Since it found that the plaintiffs’ claims were untimely, it reversed a district court opinion and granted summary judgment to Marriott. However, the appellate court noted that since it did not reach the question of whether Marriott’s plan was a valid top hat plan, it vacated the district court’s decision on that. There may be more to come on this case.

The opinion in Bond v. Marriott International is here.

«