Compliance July 12, 2017

ERISA Lawsuit Filed Against MFS

The complaint alleges fiduciary breaches of ERISA with regards to MFS offering its proprietary funds in its 401(k) plans.
Reported by

A participant in the Massachusetts Financial Services Company Defined Contribution Plan and the Massachusetts Financial Services Company MFSavings Retirement Plan has filed a lawsuit under the Employee Retirement Income Security Act (ERISA), alleging Massachusetts Financial Services Company (MFS), its retirement committee and retirement investment committee breached their fiduciary duties and engaged in prohibited transactions with respect to the plans in violation of ERISA.

The complaint says, “For financial service companies like MFS, the potential for imprudent and disloyal conduct is especially high, because the plan’s fiduciaries are in a position to benefit the company through the plan’s investment decisions by, for example, filling the plan with higher-cost proprietary investment products that a disinterested fiduciary would not choose.” The suit claims the defendants did just this, using the plans “as an opportunity to promote MFS’s mutual fund business and maximize profits at the expense of the plans and their participants.”

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“We stand firmly behind the investment offerings in our employee retirement plans and our process in selecting these options,” Dan Flaherty, AVP and senior public relations manager at MFS, told PLANADVISER.

According to the complaint, the defendants loaded the plans primarily with MFS’s investment offerings, without investigating whether plan participants would be better served by investments managed by unaffiliated companies. The lawsuit contends the retention of these proprietary mutual funds has cost plan participants millions of dollars in excess fees. For example, it says, in 2012, the plans’ total expenses were approximately 91% higher than the median total costs for retirement plans with between $500 million and $1 billion in assets. The plans had a combined $515,246,820 in assets as of the end of 2012.

The lawsuit also accuses the defendants of failing to select the least expensive share class available for the plan’s designated investment alternatives, failed to investigate the use of separate accounts and collective trusts as alternatives to mutual funds, and failed to monitor and control recordkeeping expenses. It says the defendants also failed to remove poorly performing investments from the plan.

The complaint not only calls out MFS proprietary funds, but also Russell LifePoints Mutual Funds offered in the plans for which an MFS affiliate served as a subadviser for numerous funds that comprised a significant percentage of the Russell funds.

Data & Research July 12, 2017

HSA Owners Missing Out on Long-Term Health Care Savings

Owners of health savings accounts (HSAs) are primarily using them for immediate needs, EBRI finds.
Reported by

Owners of health savings accounts (HSAs) are primarily using them for immediate needs, such as deductibles, coinsurance and copayments, according to the Employee Benefit Research Institute (EBRI). Thus, they are using HSAs more like checking accounts than investment vehicles, EBRI says.

With 96% of HSA holders investing their money in cash, HSA owners are grossly missing out on the tax benefits of any interest or capital earnings on assets in the accounts building up tax free, EBRI says.

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Average total contributions in 2016, from both individuals and employers, were $2,922, just above the minimum allowable deductible amount for family coverage but less than one half of the allowable contribution maximum for family coverage. Sixty-three percent of account holders withdrew funds, and those withdrawals averaged $1,771.

The rollover feature of HSAs enables account holders to build up a balance for unexpected major medical expenses—in the near future and/or for retirement. Accounts opened in 2004 or earlier had an average 2016 year-end balance of $14,873, while those opened in 2016 had a year-end balance of $1,027. In addition, annual 2016 contributions are higher the longer an account owner had an account. Among those who opened their account in 2005, average contributions in 2016 were $3,658, but among those who opened their account in 2016, contributions averaged $1,290.

The EBRI report notes that over time, HSA owners appear to see the value in investing. In 2016, 11% of accounts opened in 2005 had investments other than cash, compared to only 1% among those opened in 2016.

The full report may be downloaded from here.

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