Compliance October 4, 2022

Settlement Reached with Couple that Lost Millions in Profit-Sharing Plan

The pair will pay more than $2 million to settle claims they invested assets in companies in which they had significant financial interest and in ways that would personally benefit them.

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The Department of Labor and the fiduciaries of the New Jersey-based design firm InterArch have agreed to a settlement following an investigation from the department’s Employee Benefits Security Administration.

The EBSA determined that InterArch, its CEO, Shirley Hill, and her husband, Vernon Hill, must pay more than $2 million to restore mismanaged assets to the company’s retirement plan and in penalties as part of the settlement, according to a release from the agency. The pair were accused of violating their fiduciary duties under the Employee Retirement Income Security Act, leading to the mismanagement of plan assets that allegedly resulted in significant losses.

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According to the EBSA, from at least August 2016, through the plan’s June 2020 termination, the fiduciaries invested as much as 70% of the plan’s assets in the stock of Metro Bank PLC, where Vernon Hill was the chairman. Additionally, the defendants allegedly invested at least 13% of the plan’s assets in the stock of Republic First Bancorp Inc., where Vernon Hill was a senior leader.

The defendants were accused of failing to diversify the plan’s holdings during this period, even as the share prices for both Metro Bank and Republic Bank fluctuated significantly before it fell drastically in value, resulting in millions of dollars in losses to the plan.

Following EBSA’s investigation, the department’s Office of the Solicitor in New York filed a complaint in the U.S. District Court for the District of New Jersey alleging that InterArch and the two individual fiduciaries engaged in self-dealing and violated their duties of loyalty and prudence and their duty to diversify, which caused the plan to enter into prohibited transactions.

The court entered a consent judgment and order on September 23, requiring InterArch Inc. and its fiduciaries, the Hills to pay $1,836,853 to plan participants and $183,685 in penalties to resolve the allegations, the release states. The judgment also bars the Hills from serving as fiduciaries of any ERISA-covered employee benefit plans in the future.

InterArch Inc. and the Hills will additionally pay about $1.1 million to the retirement plan to resolve a separate but related private class action lawsuit filed by a former employee and those similarly situated in the U.S. District Court for the District of New Jersey on May 27, 2020, the release states. A proposed settlement was reached in the private class action lawsuit, which alleged similar ERISA violations as the department’s complaint.

In total, between the department’s settlement and the private class action lawsuit settlement, more than $3 million will be restored to the retirement plan.

Client Service October 4, 2022

Participant Data is Key to Developing Better Financial Wellness Programs

Participants are comfortable with providing a variety of personal data points to their financial advisers, in the hopes that they will, in turn, receive more personalized and relevant financial advice.

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In an increasingly digital age, most 401(k) participants are either “comfortable” or “very comfortable” providing many distinct personal data points to their plan providers, according to a new report from Cerulli.

Individuals are willing to turn over their personal information to service and platform providers, as long as that data is being used to personalize their investment advice and financial wellness experience, according to Cerulli’s “U.S. Asset and Wealth Management” report. Without a holistic view of a participant’s financial situation, financial wellness experiences can feel generic and less relevant to the end user’s circumstances.

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Plan providers are leveraging this data to construct a more detailed financial profile for individual participants on their platforms, delivering more personalized in-plan financial wellness, coaching, and portfolio management experiences, the report states. This has also helped plan advisers create more informed plan design recommendations for their plan sponsor clients and allowed for providers to anticipate and address their participants’ broader financial needs.

Participants are sharing more personal data about themselves and are more likely to turn to financial professionals above other sources of investing information and advice except for “myself” or a spouse/partner, with use of financial professionals up to 71% in 2021 vs. 68% in 2010, according to a Hearts & Wallets report. Use of paid financial professionals is now at 47%. Use of “other” types of financial professionals is at 64% today, including phone-based mutual fund companies or online brokerage representatives, accountants, bank representatives and insurance representatives.

Participants are either “comfortable” or “very comfortable” sharing information on their gender (91%), race or ethnicity (88%), household income (85%), expected retirement age (82%), family structure (83%), retirement savings/account balances (75%) and non-retirement savings/account balances (70%), the report states. They have also shared data, though sometimes less often, on credit card debt, weight/body mass index, smoking status, chronic health conditions and student loan debt.

Plan advisers and sponsors dedicate significant resources to helping participants address their financial situations more holistically and solve their “next dollar” problems, the report states. The vast majority (94%) of recordkeepers offer a financial wellness program, whether a proprietary program, a third-party program, or a combination. Yet there are no universal criteria for what constitutes a financial wellness program, and the structure and efficacy of these programs can differ from one provider to another.

While some providers offer data-driven, interactive, user-friendly programs that allow participants to make informed decisions in a holistic context, others offer more fragmented solutions, the report states. Holistic, user-friendly financial guidance and advice engagements not only enhance the competitive positioning recordkeepers offer to plan sponsors, but also help providers gain a deeper understanding of the participants on their platform, deliver more meaningful, impactful engagements, and proactively anticipate the needs of investors.

According to Hearts & Wallets, 65% of households in 2021 say they want to make decisions and manage money on their own with the preference to delegate dropping to 12% in 2021 from 20% in 2010. There is a bit of a disconnect, however, with 60% of households who prefer self-direction using some type of financial professional. An increasing number of Americans rely on multiple information sources, with 43% of households using seven or more sources today, nearly triple the 14% of households in 2010.

Cerulli suggests providers use participant data to create messaging, schedule touchpoints and deliver engagement that resonates with participants. Providers can leverage complete participant profiles by making participants aware of investment products, savings accounts, individual retirement accounts and other services that are more likely to address their needs at that point in time. An example could be recordkeepers or advisers targeting high-balance participants nearing retirement as a potential fit for their wealth management business.

Cerulli recommends recordkeepers use participant engagements, both virtual and phone-based, as opportunities to flesh out participant profiles. Within this context, providers can ask thoughtful questions about participants’ financial concerns, goals, and recent life changes to update their existing participant profiles.

Having this much personal data could lead to misuse and comes with considerable risk, the report warns. Some sponsors have expressed concerns with how recordkeepers and other plan providers use their participant’s sensitive personal information, with several recordkeepers accused of inappropriately cross-selling participant data. Defined contribution plans are also seen as attractive targets for cybercriminals.

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