Compliance November 4, 2020

Another Self-Dealing ERISA Fiduciary Breach Lawsuit Filed

The lead plaintiff in the suit says her employer, a large financial services company, has inappropriately prioritized its own investments within a profit sharing retirement plan offered to employees.

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Northern Trust is the latest financial services company to face an Employee Retirement Income Security Act (ERISA) legal challenge, this one filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

The plaintiff in the case was an employee of Northern Trust. The suit states that the defendants, which include the Northern Trust Co. itself as well as its retirement plan committee, “failed to regularly monitor plan investments and remove ones that became imprudent.” The lawsuit further alleges that the defendants “loaded the plan” with poorly performing proprietary funds, called the Northern Trust Focus Target Retirement Trusts, and then kept these funds on the plan’s investment menu throughout the class period, despite their continued underperformance.

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Many similar ERISA lawsuits have been filed against financial services providers in the past several years, and the results have been mixed. Some cases have delivered complex but potentially instructive rulings that have in turns favored plaintiffs and defendants, while others have ended with sizable settlements from which broader legal conclusions cannot reliably be derived. Northern Trust has not yet responded to a request for comment on the new lawsuit.

“Despite a market flush with better-performing alternatives, defendants selected the Northern Trust Focus Funds to be the plan’s target-date asset class investment option,” the lawsuit claims. “The Northern Trust Focus Funds have significantly underperformed their benchmark indices and comparable target-date funds since Northern Trust launched them in 2010. For nearly a decade, the Northern Trust Focus Funds have performed worse than 70% to 90% of peer funds. Still, defendants refuse to remove the Northern Trust Focus Funds from the plan’s menu of retirement investment options.”

According to the complaint, which covers a class period of November 2, 2014, to December 31, 2019, the defendants selected the Northern Trust Focus Funds as the plan’s qualified default investment option.

“Defendants’ disloyal and imprudent decision to keep offering the Northern Trust Focus Funds in the plan has had a large and tangible impact on plan participants’ retirement accounts,” the complaint states. “Based on an analysis of data compiled by Morningstar Inc., plaintiff projects the plan lost upward of $34 million in retirement savings since 2014 because of defendants’ decision to retain the Northern Trust Focus Funds in the plan, instead of removing them.”

The text of the complaint alleges that the Northern Trust Focus Funds are the only target-date retirement investing options in the plan. The plaintiff says this means participants in the plan who want to invest in a target-date strategy have no choices other than the Northern Trust Focus Funds.

“Since their inception in 2010, the Northern Trust Focus Funds have experienced nearly a decade of continuous underperformance,” the lawsuit states. “Still, defendants have failed to remove the Northern Trust Focus Funds from the plan. During the proposed class period here, defendants even added the Northern Trust 2060 Fund to the plan’s mix. A reasonable investigation by defendants would have revealed the Focus Funds’ chronic underperformance and prompted defendants to remove and replace them with superior options.”

The full text of the lawsuit is available here.

Data & Research November 3, 2020

Workers Concerned About How Election Day Will Impact Retirement Savings

A Lincoln Financial report also finds some workers are uncertain or confused when it comes to how they should prepare their retirement plans ahead of election results.

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As Americans await Election Day results, a Lincoln Financial Group report examined the potential effects of the presidential election on retirement savings.

According to the report, the majority of both Democratic and Republican workers are preparing or planning to prepare for any impact that election night could have on their investments or retirement accounts. Fifty-two percent of Democrats said they are preparing for an impact to their retirement account, while 54% of Republicans noted the same.

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When asked what would impact their ability to stay on track with their retirement savings and future financial goals, 34% of Republicans said the outcome of the election would hinder their savings, 24% of Democrats said having a better understand of the products and solutions available to them would help them, and 42% of independents reported having more time and/or money would help.

Along with those concerns, the Lincoln Financial report also finds some workers are uncertain or confused when it comes to how they should prepare their retirement plans ahead of the election results. About one in 10 say they would like to be planning, but they don’t know what they should be doing.

However, despite their trepidations and anxieties on election night, Americans are feeling hopeful about their financial planning in the current market, according to the study. It’s possible their worries are being addressed with the help of a financial planner or adviser. Workers are speaking to financial professionals and making changes to their retirement accounts, including by looking at current investments, says Liz Casals, vice president of consumer insights for Lincoln Financial Group, in an interview with PLANADVISER.

Financial worries have been an ongoing trend in 2020, and not just as a result of the election. COVID-19 led many workers to feel financially stressed earlier this year. According to Lincoln’s Monthly Consumer Sentiment Tracker released in July, 41% of full-time employed U.S. adults said they would like to save more for retirement as a result of the crisis. Thirty-five percent said they would expand emergency savings, and 30% reported they would create or revise their budgets.

Numbers were similar for those who were employed but earning less as a result of COVID-19. Thirty-eight percent said they wanted to save more for retirement, 35% wanted to add to emergency savings and 27% said they would create or revise their budget.

Regardless of political affiliation, workers are thinking more about financial planning as a result of the pandemic, the Lincoln Financial study finds. Forty percent of Democrats are taking their financial planning more seriously due to COVID-19, and 39% of Republicans and 35% of independents are doing the same.

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