Products March 25, 2019

Bank of America Introduces 3(38) Investment Management Offering

According to Stacy Bucchere, head of defined contribution at Bank of America, 4,100 Merrill Designated Advisors have completed designation requirements and will be able to provide either 3(21) investment adviser or 3(38) investment manager services.

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In 2017, Bank of America launched Fiduciary Advisory Services (FAS) for Merrill Designated Advisors to offer 3(21) non-discretionary services to plan sponsor clients. Based on the success of the offering and by the request of institutional clients, Bank of America has now announced the introduction of a 3(38) discretionary offering.

Stacy Bucchere, head of defined contribution at Bank of America, says the firm has been getting direct requests from clients. “Overall plan sponsors are looking for ways to be a better fiduciary, especially for plans with $10 million in assets and below; 3(38) service is in demand. Plan sponsors want to gain efficiency in operating their business and delegate responsibility for their retirement plans,” he says.

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“The new offering will provide plan sponsor clients a choice in how they want to work with us,” Bucchere adds. “The expanded FAS solutions will provide clients with the choice of two service models based on whether they want to maintain or delegate investment discretion.”

Some retirement industry professionals say plan sponsors have a hard time completely giving up investment decisions. According to Bucchere, with Bank of America’s offering, plan sponsors will still have input. “We will have three menus—core menu, core plus and expanded menu—and depending on the demographics and investment acumen of participants, plan sponsors will have choice. The difference in the choices is the number of asset classes available. They also will have a choice for a stable value or money market fund, as well as target-date or balanced funds,” she explains.

By participating in the FAS program, plan sponsors also benefit from the expertise of the chief investment office, and specifically its due diligence team, which has 62 investment professionals who conduct quantitative and qualitative analysis to evaluate and select investment strategies. Plan sponsors will work with Merrill Designated Advisors specialized in this area and sophisticated reporting.

According to Bucchere, 4,100 Designated Advisors have completed designation requirements and will be able to provide either 3(21) investment adviser or 3(38) investment manager services.

“This will be beneficial to plan participants, as defined contribution plans are increasingly more important [to saving for retirement]. This offering, along with other services, is to help ensure good outcomes for participants in the plans we serve—the core of what we do,” Bucchere says.
Compliance March 25, 2019

Parties Propose Settlement on Eve of Eaton Vance ERISA Hearing

The lawsuit accuses Eaton Vance defendants of unlawful self-dealing with respect to a company retirement plan, in violation of ERISA and to the detriment of participants and beneficiaries.

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A motion filed in the U.S. District Court for the District of Massachusetts could bring to a close a class action Employee Retirement Income Security Act (ERISA) self-dealing lawsuit filed by participants in an Eaton Vance retirement plan.

The joint motion requests the judge in the case stay further proceedings—including a hearing scheduled for today, March 25. According to the motion, lead plaintiff Shannon Price, individually and on behalf of the class and the plan, has agreed to a proposed settlement, as have defendants Eaton Vance Corporation, Eaton Vance Management, the Eaton Vance Investment Committee, and some 30 individual defendants.

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Today’s hearing would have addressed the defendants’ motion to dismiss for failure to state a claim regarding counts VII, VIII, and IX of the complaint.

In support of the stay motion, the parties state they have reached an agreement in principle to settle this action on a class-wide basis. Further, according to the motion, the parties will “work diligently to prepare and submit a motion for preliminary approval of the anticipated class settlement.”

“In the event that the parties are unable to reach a final agreement to settle this action, they will promptly notify the court,” the motion states. “The parties request that the court vacate the date now on the calendar for the March 25, 2019, hearing on motion to dismiss for failure to state a claim counts VII, VIII, and IX of the complaint, and stay further proceedings in this action pending the parties’ submission of a motion for preliminary approval of the anticipated class settlement. The parties anticipate that they will be in a position to make that submission to the Court within 45 days.”

The text of the lawsuit alleges that Eaton Vance “used the entire plan as a test laboratory and vehicle for self-gain.”

“Instead of leveraging its investment expertise to select prudent investment options on the open market, Eaton Vance filled the plan with funds that Eaton Vance managed,” the compliant states. “Of the 42 non-money market investments strategies on the plan, 35 were managed by one of the Eaton Vance defendants. Moreover, Eaton Vance proprietary funds were the exclusive actively managed investment strategies available on the plan. As of December 31, 2016, the Plan had $434,848,484 in assets under management, approximately 80% of which were invested in Eaton Vance funds.”

The details of the settlement will be made available when the parties file their formal settlement motion with the court, in about a month and a half. In the meantime, context for this settlement decision can be found in the recently filed settlement agreement struck in a similar case by BB&T. Apart from tens of millions of dollars in monetary compensation, the employer in that case agreed to “significant future relief in terms of scope and duration while also securing additional commitments for participants’ benefit.” In particular, the fiduciaries agreed to engage a consulting firm to conduct a request for proposal for investment consulting firms that are unaffiliated with BB&T and engage an investment consultant to provide independent consulting services to the plan. Among other matters, during the two year period following entry of the final order, BB&T will rebate to the plan participants any 12b-1 fees, sub-ta fees, or other monetary compensation that any mutual fund company pays or extends to the plan’s recordkeeper based on the plan’s investments; and if, during a two-year time period following the entry of the final order, BB&T decides to charge plan participants a periodic fee for recordkeeping services, the plan fiduciaries will conduct a request for proposal for the provision of recordkeeping and administrative services.

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