The Markets July 24, 2017

Delaying Fiduciary Rule Estimated to Cost Retirement Savers $7.3B

This is the loss to investors over the next 30 years, the Economic Policy Institute says.
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Delaying the Department of Labor’s (DOL’s) fiduciary rule any further will cost retirement plan savers $7.3 billion over the next 30 years, the Economic Policy Institute maintains. Delays that the Trump administration has already instituted will already cost retirement plan savers $7.6 billion over the next 30 years, according to the Institute.

“Any delay will be enormously expensive to retirement savers—and not just during the period of the delay,” says Economic Policy Institute Policy Director Heidi Shierholz. “The losses that retirement savers experience from being steered toward higher-cost investment products during the delay would not be recovered and would continue to compound. The only beneficiary of President Trump’s move to delay this rule is the financial services industry, which wants to continue to take advantage of retirement savers for as long as possible.”

Shierholz says that the rule would eliminate the loopholes that currently permit advisers to recommend higher-cost investment products that reward them with higher commissions but lower returns for their clients. She claims it is a thinly veiled tactic to kill or weaken the rule for the Trump administration to say it needs time to assess whether the rule would impede Americans’ ability to obtain retirement advice.

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Compliance July 24, 2017

Trustee Ordered to Sell Real Estate to Replay Plan

A federal district court ordered a profit-sharing plan trustee to sell personal real estate to meet restitution requirements, after the trustee failed to ensure proper diversification and liquidity of plan assets.
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Based on an investigation conducted by the Employee Benefits Security Administration (EBSA), the U.S. Secretary of Labor filed a civil complaint against Ditch Witch Equipment of Tennessee Inc., an underground utility construction equipment company, and Aubrey Needham, trustee of the company’s profit-sharing plan during the relevant time period.

The department alleged that Needham “acted imprudently when he authorized the investment of plan assets, primarily on margin, in stock warrants and derivative securities without conducting any due diligence or consideration of the investments’ impact on the plan’s level of diversification, liquidity needs or funding objectives.”

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At various times between 2006 and 2009, according to EBSA findings, the plan was 100% invested in stock warrants.    

Following EBSA’s complaint to the U.S. District Court for the Eastern District of Tennessee, Knoxville Division, the court granted the secretary’s motion for summary judgment and referred the issues of monetary damage and injunctive relief to a magistrate judge for consideration. Through a consent order and judgment entered July 6, 2017, the court ordered Needham to make restitution of $195,084 to the plan, to sell personal real estate in Blount County, Tennessee, to help achieve restitution to the plan, and appointed a successor fiduciary to distribute plan assets among the non-fiduciary participants and terminate the plan.

The order also enjoins Ditch Witch and Needham permanently from acting as a fiduciary, trustee, agent or representative in any capacity to any employee benefit plan as defined by the Employee Retirement Income Security Act of 1974.

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