Compliance August 7, 2018

Wells Fargo Gets Dismissal of Proprietary TDF Suit Affirmed

The 8th Circuit ruled that the plaintiff failed to allege sufficient facts to demonstrate that the Wells Fargo TDFs were an imprudent choice.

Reported by

A federal appellate court has affirmed dismissal of a lawsuit against Wells Fargo alleging that it engaged in self-dealing and imprudent investing of its own 401(k) plan’s assets by funneling billions of dollars of those assets into Wells Fargo’s proprietary target-date funds (TDFs).

John Meiners filed the lawsuit last November, also accusing Wells Fargo of using a quick enroll option which defaulted participants into the TDFs to seed the funds and make more money.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The appellate court agreed with U.S. District Court Judge David S. Doty of the U.S. District Court for the District of Minnesota agreed with Wells Fargo that Meiners’ allegations that the bank breached its fiduciary duty by continuing to invest in its own TDFs when better-performing funds were available at a lower cost are insufficient to plausibly allege a breach of fiduciary duty. Specifically, the 8th U.S. Circuit Court of Appeals said Meiners did not plead facts showing that the Wells Fargo TDFs were underperforming funds. “He only pled that one Vanguard fund, which he alleged was comparable, performed better than the Wells Fargo TDFs. The fact that one fund with a different investment strategy ultimately performed better does not establish anything about whether the Wells Fargo TDFs were an imprudent choice at the outset,” the appellate court wrote in its opinion.

The 8th Circuit said it is also unpersuaded by Meiner’s argument that the Wells Fargo TDFs were too expensive due to their fees. The appellate court cited Braden v. Wal-Mart Stores in which the court found that different shares of the same fund were a meaningful benchmark, but the appellate court said Meiners does not match that benchmark by alleging that cheaper alternative investments with some similarities exist in the marketplace. “Such an expansion of Braden is inappropriate because it permits plaintiffs to dodge the requirement for a meaningful benchmark by merely finding a less expensive alternative fund or two with some similarity,” the appellate court said.

The 8th Circuit ruled that Meiners failed to allege sufficient facts to demonstrate that the Wells Fargo TDFs were an imprudent choice. It also said it cannot reasonably infer it acted out of a motive to seed underperforming or inordinately expensive funds by making the TDFs the plan’s default investment if Meiners has not plausibly alleged that those funds were, in fact, underperforming or inordinately expensive.
Data & Research August 6, 2018

Educational Resources Bolster Retirement Readiness

An IALC report suggests plan sponsors apply educational resources—like seminars and informational fairs—to heighten employee participation. 

Reported by

A recent white paper from the Indexed Annuity Leadership Council (IALC) discusses the differences between blue-, white- and gray-collar workers in retirement readiness, and what employers can do to help narrow the gaps.

The study, “The State of America’s Workforce: The Reality of Retirement Readiness,” surveyed over 2,000 full-time U.S. workers ages 40 to 70 and found that, at a glance, about one-fifth lack the ability to retire, with blue- and gray-collar workers at the lower end of the spectrum. On average, 49.1% of white-collar workers indicated they are “somewhat ready” for retirement while 44.7% of blue- and gray-collar workers are “not very ready.”

The study finds 79% of respondents reported, to varying degrees, feeling worried about retirement, with 41% feeling very or somewhat worried—that number slightly higher for blue- and gray-collar workers. The remaining 21% of workers reported feeling no anxiety or unease over their forthcoming retirement years.

As to the influence of company size, companies with fewer than 50 employees are less likely to offer retirement planning options; larger companies are more likely to have workers who feel informed about retirement planning and excited about the years that lie ahead.

Pre-retirees with access to a workplace plan such as a 401(k) or pension are most likely to feel retirement ready, the study found. Fifty-nine percent of those feeling retirement-ready have access to a 401(k), while only 39% of workers who are not retirement ready do. Those prepared pre-retirees are five times as apt to own individual retirement accounts (IRAs), eight times as apt to have mutual funds and 10 times as apt to have purchased annuities.

To increase retirement readiness in industries where it is the lowest, the report recommends several strategies. Aside from implementing a 401(k) plan with automatic enrollment, plan sponsors for blue- and gray-collar work forces—e.g., those in the office or administrative support, food preparation and serving, transportation, and education, training and library trades—can implement seminars and informational fairs hosted by 401(k) plan providers, along with providing other educational resources.

Additionally, IALC says, workers will find it helpful to connect with an adviser, engage with online calculators and budgeting tools, and research their various retirement saving options.

More information from the study can be found here.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

«