Data & Research March 5, 2019

Participants Report Being Knowledgeable About Retirement Plans

Just over six out of 10, 61.6%, said they engage with their retirement plan, according to a survey by Vestwell.

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Nearly eight out of 10 participants, 76.7%, in 401(k) or 403(b) plans are saving more than 4%, according to a survey by Vestwell summarized in its report, “The Retirement Advantage.”

Additionally, 59.5% say they are comfortable with their knowledge about their retirement plan, and 64.7% know they need to save 10% of their salary or more for a comfortable retirement. More than two-thirds, 67.3%, said they know where to find their retirement plan fees. Just over six out of 10, 61.6%, said they engage with their retirement plan. Only 33.5% said they wish they understood more about retirement planning.

However, only 25.7% of those between the ages of 25 and 34 are saving more than 10%, and 44.2% of those between the ages of 55 and 64 are saving this much.

Simple participant education ideas can make a great impact, according to Vestwell; after hearing one Investopedia statistic about the benefit of saving early, 21.7% of respondents said they plan to increase their retirement plan contribution. Another 26.4 said it made them rethink their deferral rate but could not afford to increase it.

Nearly all of those surveyed, 92.9%, said it is important or very important to have enough money to retire at or before age 65. Overall, 42% of Americans have less than $10,000 saved for retirement, but those with access to a retirement plan appear to be putting away much more than that, Vestwell says.

Vestwell’s findings from its survey of 672 employees, conducted in February, can be downloaded here.

Compliance March 5, 2019

Fiduciaries Get Final Win in Lawsuit Over Disney 401(k) Investment in Sequoia Fund

In their second amended complaint, the plaintiffs argued that the Sequoia Fund purported to be a value fund, but increased investments in Valeant Pharmaceuticals created a “clear indicia of a growth stock,” and did not meet the Sequoia Fund’s purported investing criteria of seeking out value stocks.

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A federal appellate court has affirmed a lower court decision in a lawsuit against Fidelity Management Trust Company as a fiduciary to the Disney Savings and Investment Plan that retirement plan participants failed to prove that continuing to offer the Sequoia Fund as an investment option in the plan was a breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA).

In their second amended complaint, the plaintiffs argued that the Sequoia Fund purported to be a value fund, but increased investments in Valeant Pharmaceuticals—which saw a decline in stock value after its accounting practices and investment strategies were called into question—created a “clear indicia of a growth stock,” and did not meet the Sequoia Fund’s purported investing criteria of seeking out value stocks. They argued that plan fiduciaries should have moved, even before the Valeant accounting issues and subsequent losses, to vacate the plan’s investment in the fund, according to their duties of prudence and loyalty under ERISA.

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In its opinion, the 9th U.S. Circuit Court of Appeals said as a general matter, allegations based solely on publicly available information that a stock is excessively risky in light of its price do not state a claim for breach of the ERISA duty of prudence.

In addition, the appellate court found that Sequoia’s investment and concentration in Valeant was facially consistent with the retirement plan documents, noting that both the plan’s summary plan description and Sequoia’s 2015 Prospectus note that Sequoia is “non-diversified” and there are risks associated with Sequoia’s investment strategy. To the extent that the plan documents even distinguish between “value” and “growth,” the 9th Circuit agreed with the District Court that these words were used simply to “describe [Sequoia’s] investments; not to also convey [its] overall investment strategy.”  

To find otherwise—that the documents’ use of these terms imposed material limitations on Sequoia’s investment strategy—would require drawing “unreasonable inferences,” the appellate court said.

Finally, the 9th Circuit also agreed with the District Court that allowing plaintiffs to file another amended complaint would be futile.

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