Compliance January 22, 2019

Putnam Asks Supreme Court to Weigh In On Fund Comparisons in ERISA Cases

The question was included in its petition for writ of certiorari asking the Supreme Court to settle a circuit split about burden of proof in ERISA cases.

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Putnam Investments has filed a petition for writ of certiorari with the U.S. Supreme Court asking it to settle questions in a case in which it was accused of engaging in self-dealing by including high-expense, underperforming proprietary funds in its own 401(k) plan.

The U.S. District Court for the District of Massachusetts, last year, ruled for Putnam. However, “finding several errors of law in the district court’s rulings,” the 1st U.S. Circuit Court of Appeals vacated the District Court’s judgment in part and remanded the case for further proceedings. In its opinion, the Appellate Court said “we align ourselves with the Fourth, Fifth, and Eighth Circuits and hold that once an ERISA plaintiff has shown a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to prove that such loss was not caused by its breach, that is, to prove that the resulting investment decision was objectively prudent.”

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Putnam asked, and the Appellate Court agreed, to stay the case pending the filing and disposition of a petition for a writ of certiorari to the Supreme Court.

However, in addition to asking the high court to weigh in on whether the plaintiff or the defendant bears the burden of proof on loss causation under Employee Retirement Income Security Act (ERISA) Section 409(a), Putnam asked the court to determine “whether, as the First Circuit concluded, showing that particular investment options did not perform as well as a set of index funds selected by the plaintiffs with the benefit of hindsight, suffices as a matter of law to establish “losses to the plan.”

Notably, in his decision in the case, U.S. District Judge William Young of the U.S. District Court for the District of Massachusetts found the comparison of the Putnam mutual funds’ average fees to Vanguard passively managed index funds’ average fees flawed. Vanguard is a low-cost mutual fund provider operating index funds “at-cost.” Putnam mutual funds operate for profit and include both index and actively managed investments. Young said the expert’s analysis “thus compares apples and oranges.”
Data & Research January 22, 2019

LIMRA Expects Greater DC Plan Access by 2020

LIMRA anticipates equity markets will slow modestly this year, while interest rates will continue to rise; the organization expects conditions to promote growth in annuity purchases by long-term investors.

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LIMRA has published a new white paper outlining its 2019 predictions for the investment markets, the economy and employer-sponsored retirement benefits.

In 2019, LIMRA expects equity markets to slow, but interest rates will continue to rise. The organization expects to see gains in disposable income and bond rates, coupled with low unemployment.

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LIMRA predicts artificial intelligence (AI) to grow both in the number of companies utilizing it and in its range of applications, especially within the financial services sector. While many companies are already using this technology via chatbots and automated underwriting, a large percentage of executives see AI as being extremely important to business development and client service in the next three years.

“AI is a natural extension of predictive modeling building and companies will look to technology to utilize their vast amount of data and to enhance the existing stills of data scientists,” LIMRA says.

According to LIMRA, this year will likely see an increase in access to workplace retirement savings plans for private sector employees.

“This will be due to increased interest in multiple employer plans [MEPs] and the rise of FinTech,” LIMRA’s report says. “Recent federal initiatives, such as President Trump’s executive order to expand the number of small employers who can offer MEPs and the proposed Department of Labor rule expanding MEPs, have also helped pave the way for increased access to workplace retirement savings plans in 2019.”

One area LIMRA sees a slowdown in growth is with supplemental benefits. While the growth of overall workplace benefits have been moderate at best, supplemental plans have seen some success in recent years due to the growing popularity of high deductible health plans (HDHPs) paired with health savings accounts (HSAs).

“In October, Kaiser Health News suggested the sales of HDHPs have peaked and will now start to trend down,” the white paper says. “LIMRA believes if that downward trend is to happen and continue, then the sales of supplemental plans will likely follow suit.”

LIMRA members can download the full white paper here.

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