More than ever before, it seems, American workers are looking for and are receptive to receiving retirement planning advice. Across the board, the 2021 numbers are up from last year, suggesting that the shock of the COVID-19 pandemic might have shifted people’s views on advice.
According to Charles Schwab’s “2021 401(k) Participant Study,” more than six in 10 participants (61%) believe their financial situation warrants professional advice, an increase compared with 2020 (50%). Forty-four percent want help calculating how much to save for retirement. And 39% want specific advice on how to invest in their 401(k)s.
Furthermore, 35% want help figuring out an income stream at retirement, and 33% want help determining the best age to retire. Twenty-two percent, each, want help with figuring out how to catch up to their retirement savings goals and managing their expenses so that they can save more for retirement.
Forty percent said they are confident in making financial decisions on their own—but 56% want professional help.
Likewise, participants surveyed for J.P. Morgan’s sixth biennial “Defined Contribution (DC) Plan Participant Survey” report needing direction. More than half (51%) say they are willing to spend time planning for retirement but don’t know where to start. Sixty-two percent wish they could completely hand over retirement planning to an expert.
Three-quarters of participants report they want help with contribution advice and 53% want help with selecting investments. Eighty-five percent indicate they want help with post-retirement income.
In addition to retirement planning, two-thirds of respondents to the J.P. Morgan survey say they think employers should provide access to financial professional help. Seventy-nine percent say they would meet with a financial coach available through their employer.
The Schwab 401(k) Participant study was conducted for Schwab Retirement Plan Services Inc. by Logica Research from April 1 through April 15, among 1,000 401(k) plan participants.
The J.P. Morgan study was fielded in January by Greenwald Research among 1,281 DC plan participants. More findings can be found here.
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A federal district court judge has denied dismissal of two claims in a lawsuit against Prime Healthcare Services.
Current and former participants of the Prime Healthcare Services Inc. 401(k) Plan filed a proposed class action lawsuit last year against the company and its 401(k) plan committee alleging they failed to fully disclose the expenses and risk of the plan’s investment options to participants; selected and retained high-cost, poorly performing investment options; and allowed unreasonable expenses for recordkeeping.
A considerable amount of space in the complaint is dedicated to challenging the plan’s offering of the Fidelity Freedom Funds target-date fund (TDF) suite. The lawsuit alleges that the defendants failed to compare the actively managed Fidelity Freedom Funds to the passively managed Freedom Index Funds TDF suite and consider their respective merits and features. The complaint says the actively managed TDF suite was riskier and more expensive than the index suite.
In her discussion regarding her reasoning for allowing the breach of Employee Retirement Income Security Act (ERISA) fiduciary duties claim to move forward, Judge Josephine L. Staton of the U.S. District Court for the Central District of California noted that of the 29 Fidelity funds in the active TDF suite, 17 of them trailed their respective benchmarks over their respective lifetimes as of September 2020.
According to the court document, the active suite also had a significantly higher expense ratio than the index suite, despite consistently underperforming the index suite based on three- and five-year annualized returns. The active suite further underwent a “strategy overhaul” in 2013 and 2014 that gave its managers discretion to deviate from glide path allocations to time market shifts to locate underpriced securities. As a result of this “history of underperformance, frequent strategy changes and rising risk,” investors began to lose confidence in the active suite, as indicated by significant capital outflow; in 2018, the series experienced approximately $5.4 billion in net outflows, and the plaintiffs allege that nearly $16 billion has been withdrawn from the fund family over four years prior to 2018. The defendants continued to use the active suite as the plan’s qualified default investment alternative (QDIA) for as long as it was an option in the plan’s investment menu.
Staton found these allegations sufficient to plausibly allege that the defendants failed to act “‘with the care, skill, prudence and diligence’ that a prudent person ‘acting in a like capacity and familiar with such matters’ would use.”
The defendants argued that the complaint does not include any allegations about the process plan fiduciaries used to select the Freedom Fund TDFs as opposed to the index TDFs or other types of investments. But Staton agreed with the plaintiffs that “to state a claim for breach of fiduciary duty [under ERISA], a complaint does not need to contain factual allegations that refer directly to the fiduciary’s knowledge, methods or investigations at the relevant times.” She found the allegations sufficient to allow a reasonable inference of a flawed process.
The defendants also argued that the plan fiduciaries removed the active suite from the plan in 2019 and that the plaintiffs do not allege any facts showing the defendants acted imprudently with regard to the active suite during the period the plan actually held those funds. For example, the defendants point out that the three- and five-year performance analysis in the complaint is based on data as of September 20, 2020, which would include a period of time during which the plan did not offer the active suite. Staton said that at the pleading stage, this data is sufficient to support an inference that the active suite was consistently underperforming the index suite during the relevant time period. In addition, she found that the plaintiffs did allege additional facts supporting an inference of imprudence preceding the plan’s removal of the active suite.
Lastly, regarding the breach of fiduciary duties claim, the defendants argued that “courts routinely reject attempts to create an inference of an imprudent process through comparisons of the performance and fees of actively managed funds to those of passively managed funds.” Staton agreed that, where plaintiffs allege “‘a prudent fiduciary in like circumstances would have selected a different fund based on the cost or performance of the selected fund,’ they must provide a sound basis for comparison—a meaningful benchmark.” However, citing prior case law, she said, “Courts have specifically held that the determination of the appropriate benchmark for a fund is not a question properly resolved at the motion to dismiss stage.”
Regarding the plaintiffs’ failure to monitor co-fiduciaries claim, Staton noted that the defendants argued that this claim is derivative of the plaintiffs’ first claim and must be dismissed if they cannot adequately plead an underlying breach of fiduciary duty. However, because Staton found that the plaintiffs did adequately plead their first claim, she declined to dismiss the failure to monitor claim on this basis.
Staton did, however, grant the defendants’ motion to dismiss the plaintiffs’ third claim which alleged that “in the alternative, to the extent that any of the defendants are not deemed a fiduciary or co-fiduciary under ERISA,” they are liable for participating “in a knowing breach of trust.”
Staton gave the plaintiffs 21 days to amend their complaint to address the deficiencies she identified in her discussion.
