Data & Research November 20, 2017

Six Ways to Up the Ante on DC Plans

If the plan is not already automatically enrolling participants and escalating their deferrals each year, AB says, it should be.

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While some plan sponsors may be waiting for Washington to settle on new tax regulations for defined contribution (DC) plans, there are steps that they can be taking to improve their plans now, AB says in a new blog, “Six Steps to Take DC Plans to the Next Level.”

The first step, AB says, is to replace proprietary target-date funds (TDFs) from recordkeepers as the qualified default investment alternative (QDIA) with TDFs that use open architecture, and, in some cases, lower cost collective investment trusts, customized glide paths and in-plan guaranteed lifetime income.

If the plan is not already automatically enrolling participants and escalating their deferrals each year, AB says, it should be. Thirdly, sponsors should consider offering a financial wellness program to prompt their participants to become more engaged.

While using a QDIA and automatic enrollment are beneficial, AB says, sponsors should also revisit their investment lineup for those participants who want to select their own investments.

Fifth, sponsors should make sure that their retirement committees receive fiduciary training, and sixth, hire an adviser or consultant, if they aren’t already working with one. “This is especially important for plans with less than $50 million in assets,” AB says. “Smaller-size plans that employ a financial adviser fare much better than those that don’t—showing higher participation rates, higher average savings among participants and more participants improving their retirement readiness.”

Compliance November 20, 2017

First Bankers Trust Settles Three ERISA Suits

The lawsuits alleged that First Bankers Trust violated the Employee Retirement Income Security Act when it approved stock purchases by three employee stock ownership plans.

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The U.S. Department of Labor (DOL) has reached agreements to resolve three lawsuits with First Bankers Trust Services Inc. (FBTS), involving the approval of stock purchases for three ESOPs.

According to DOL allegations, FBTS violated the Employee Retirement Income Security Act (ERISA) when it approved stock purchases by three employee stock ownership plans (ESOPs). As part of the agreements, FBTS will pay $15.75 million to the plans and reform its procedures for handling ESOP transactions.

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By way of background, the DOL initially filed suit against FBTS in 2012 in the U.S. District Courts for the Southern District of New York and the District of New Jersey. The lawsuits followed investigations by the New York office of the Department’s Employee Benefits Security Administration (EBSA) into the FBTS decisions to authorize ESOPs sponsored by Maran Inc., Rembar Co. Inc., and SJP Group, Inc., to purchase stock in their respective companies. FBTS will pay $8 million to the SJP ESOP; $6.6 million to the Maran ESOP; and $1.1 million to the Rembar ESOP.

Jeffrey S. Rogoff, DOL regional solicitor of labor, says the settlements provide “not only for reimbursement to these ESOPs and their participants—they commit First Bankers Trust Services to clear procedures to enhance and ensure proper compliance in the future.”

DOL reports FBTS served as a trustee and fiduciary of the ESOP in each of these three cases, charged under ERISA with ensuring that the ESOP paid no more than fair market value for the employer stock. The department alleged in all three cases that FBTS approved transactions without undertaking the due diligence required of an ERISA fiduciary, and ultimately caused the ESOPs to overpay by millions of dollars for the stock they purchased.

The case involving the SJP ESOP resulted in a 17-day trial in district court in New Jersey, with the court reaching the determination that FBTS breached its duties of prudence and loyalty when it caused the ESOP to overpay for shares of SJP’s stock. The Maran case was the subject of a two-week trial before the New York district court in April 2017, but no judgment had been returned as the parties discussed settlement. The Rembar case was awaiting trial in New York.

DOL explains that, as part of the settlement of the Maran case, FBTS also agreed to follow specific policies and procedures when it acts as a trustee or fiduciary to an ESOP that is purchasing, selling, or considering the purchase or sale of employer securities that are not publicly traded. These policies and procedures include “requirements for the selection and oversight of a valuation adviser, the analysis required as part of the fiduciary review process, and the documentation of the valuation analysis.”

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