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Reported by PLANADVISER Staff
Art by Yinfan HuangBeneficiary Designation Case Turns on Plan DocumentsA thorny Employee Retirement Income Security Act (ERISA) dispute bouncing around the federal courts—Becker v. Mays-Williams—highlights the importance of precision in retirement plan documentation and communications.
The case reaches back decades to when the participant, an employee of Xerox Corp., first formally designated his wife as his beneficiary for two ERISA plans, committing this to writing in plan documentation. After the couple later divorced, the man “moved to designate his son as his beneficiary over the telephone but did not sign and return beneficiary designation forms,” case documents show.
The U.S. District Court for the Western District Of Washington (State) agrees with the participant’s son in that “the governing plan documents permit unmarried participants to change their beneficiary designations by telephone,” essentially because the plan documents do not name a specific or mandatory pathway for making a beneficiary change.
MassMutual Sued Over Stable Value Fund Fees
A 401(k) plan participant has filed suit against Massachusetts Mutual Life Insurance Co., alleging the firm collects tens of millions of dollars annually in undisclosed compensation due to the way it values the crediting rate for stable value funds offered to 401(a) and 403(b) retirement plans.
According to the complaint, MassMutual markets a number of stable value funds (termed SVAs in that document) to retirement plans, each of which utilizes group annuity contracts the insurer itself issues. The contracts periodically credit a certain amount of income to retirement plans and to the participants in such plans who invest their plan accounts in the funds. This income, generally expressed as a percentage of the invested capital, is determined pursuant to a crediting rate.
This rate varies in that, in each crediting period, MassMutual sets the rate for all money added to its SVAs during that time frame. The lawsuit says MassMutual has the sole and exclusive discretion to determine the crediting rate for a given crediting period. The insurer sets the rate well below its internal rate of return (IRR) on the invested capital it holds in the funds, creating a substantial profit for itself, according to the complaint.
DOL Investigates DB Plan Payment Practices
The Department of Labor (DOL) is investigating benefit payment practices of the defined benefit (DB) plans of a number of Fortune 500 companies, according to a client alert from Morgan Lewis & Bockius LLP.
The investigations concentrate on plan procedures in three key areas: 1) locating missing participants; 2) informing deferred vested participants that a retirement benefit is payable; and 3) commencing benefit payments when the participant reaches age 70.5.
FINRA Gives Tips for ‘Robo’s
The Financial Industry Regulatory Authority (FINRA) emphasizes in a new report that financial service firms using digital advice tools need effective means to oversee the suitability of recommendations, conflicts of interest, customer risk profiles and portfolio rebalancing. The report addresses regulatory principles and effective practices in five areas: 1) governance and supervision of algorithms; 2) customer profiling, including assessing a customer’s risk capacity; 3) supervision of portfolios to ensure they are suitable for a given investor profile; 4) rebalancing, including an explanation of how that process works; and 5) training for financial professionals on the use of digital advice tools.
FINRA Focuses in on the Values of a Firm
The Financial Industry Regulatory Authority (FINRA) has outlined its priority for 2016: scrutinizing firm culture at broker/dealers (B/Ds). How these professionals conduct business, including managing conflicts of interest, is a direct outcome of the firm’s own culture, the regulator says. Ethical failures put both investors and the markets at risk, not to mention the firms themselves, it says in “Establishing, Communicating and Implementing Cultural Values.”
Failures in these areas can impose significant harm on investors and the markets, as well as on firms themselves. One estimate places the fines and litigation costs to firms, or their parent companies, related to cultural failures at more than $300 billion since 2010—underscoring the importance of a firm establishing and implementing its own strong cultural values, FINRA says.