Compliance August 15, 2023

Another BlackRock TDF ERISA Challenge is Dismissed

An ERISA lawsuit alleging TDF underperformance by the asset manager for Cisco 401(k) participants has been dismissed.

Reported by


A federal court in California dismissed a breach of fiduciary duty lawsuit brought against Cisco under the Employee Retirement Income Security Act, though plaintiffs were given the opportunity to amend their lawsuit.

This case is one of a series of lawsuits brought by the Miller Shah law firm which alleges that BlackRock Inc.’s LifePath target-date-fund suite underperformed other TDFs in the market and that sponsors that selected the TDF series as their QDIA only did so to pursue lower fees, not with overall performance in mind.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The case, Robert Bracalente vs. Cisco Systems, was heard in the US District Court for the Northern District of California San Jose Division.

Miller Shah did not respond to a request for comment.

In addition to Cisco, similar complaints brought against Microsoft, Capital One, Booz Allen Hamilton, and Advance Publications have also been dismissed.

District Court Judge Edward J. Davila explained that the BlackRock fund series underperforming other TDFs from 2016 to 2021, such as those offered by Vanguard or T. Rowe Price, does not automatically make selection of the BlackRock funds an imprudent one. “Merely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision,” Davila wrote in the decision.

According to the judge, in order for ERISA fiduciary duty to apply to investment underperformance, it must be accompanied by other facts, such as evidence of an imprudent process: “to the extent Plaintiffs attempt to state an ERISA claim for imprudence based solely on the BlackRock TDFs’ underperformance, the Court cannot reasonably infer from underperformance alone that the BlackRock TDFs were imprudent investments.”

Further, fiduciaries are not required to select the highest performing investments, and there are a range of choices that are consistent with prudence, Davila wrote:  “The Supreme Court has recognized that ‘the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.’”

Davila continued, “’underperformance-only’ theory, however, would flatten this nuanced prudence evaluation into a one-dimensional comparison that considers only the funds’ three- and five-year performance data.”

The court also noted that though the class period ended in 2021, starting in the first quarter of 2022, the BlackRock TDF series outperformed the competitors listed in the lawsuit, underscoring the role of TDFs as a long-term investment. It would also lend support to the arguments found in industry amicus briefs that the plaintiffs in these cases were cherry picking the time periods to which their claims pertained.

Davila also signaled that he was aware of other U.S. district courts that rejected the same arguments in similar cases and that this influenced his decision.

“It is also worth noting that at least two other district courts have recently dismissed ERISA complaints with near-identical allegations also relating to the same BlackRock TDFs and their disappointing three- and five-year performance data,” Davila wrote.

 

Data & Research August 15, 2023

Florida, Georgia, and Rhode Island Rank Lowest for Employer-Sponsored Retirement Plans

Iowa, Idaho, and Montana came out on top when it comes to accessibility to workplace 401(k)s, according to analysis from the Economic Innovation Group.

Reported by


Florida, Georgia, and Rhode Island have the lowest rates of access to employer-provided retirement plans nationally, lagging behind national leaders by as much as 25%, according to recent research from the DC-based Economic Innovation Group.

The findings are based on an analysis of state-level data from the Bureau of Labor Statistics’ population survey, as of 2021 year end. States with the lowest share of workers who have access to a plan were Florida (33%), Georgia (37%), and Rhode Island (38%). Those figures lag well behind the national state leaders in terms of access, which are: Iowa (58%), Idaho (57%), and Montana (55%), according to EIG associate economist Ben Glasner.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

These numbers compare to a national state average of 46% of employees with access to a workplace plan, according to EIG’s findings. This policy and lobby group cites this data as an argument for a federally-sponsored national retirement program.

“Far too many U.S. workers—particularly low-income individuals—slip through the gaps in the current retirement system, leaving millions across the country with inadequate savings,” Glasner wrote in the report. “Retirement accounts are the largest source of aggregate fungible wealth for American households and are an important tool to build a nest egg for the future. Unfortunately, access to employer-provided retirement plans remains deeply divided across earning levels and regions of the country.”

In its regional analysis of workplace retirement plans, EIG found that the Midwest had the highest rates of access at 49%. The southern states came in last at 42%, according to the report.

As of the most recent count this year, 18 states have enacted mandatory or state-facilitated retirement plans for businesses. None of either the top or bottom states listed in EIG’s report have state-facilitated plans; Virginia is the only southern state with a mandatory plan.

Even when workers are offered a workplace retirement plan, there is still a significant gap between access as well as participation when compared to the rest of the workforce, according to EIG.

Of those workers making $37,000 or less per year, 30% have access to an employer-provided plan. And among that group, just 19% participate in the plan, as compared to 37% of the total workforce, EIG wrote.

“The large and persistent gap in participation points to the difficulties many low-income workers have setting aside savings for retirement even when plans are available to them,” EIG wrote. “Policymakers aiming to close the retirement savings gap must therefore confront a two-pronged challenge: opening up access and increasing participation. Simply encouraging greater access to retirement plans may not be enough to increase take-up among low-income workers, particularly when every dollar is tight.”

EIG positions its findings to back bipartisan retirement legislation proposed last year called the Retirement Savings for America Act. The act proposes a national government-sponsored retirement program that would include automatic enrollment and federal matching for employee contributions.

The EIG and its push for a federal retirement plan was called out for conflicting with the private retirement industry by leaders of the National Association of Plan Advisors at their annual conference in San Diego.

Brian Graff, executive director and CEO of NAPA, noted that the program would undercut legislation already underway to help reduce the coverage gap, including the sweeping retirement legislation in SECURE 2.0 that will bring further incentives as well as mandates to retirement plan sponsors in coming years.

Corrects mispelled name in fourth paragraph.

«