News

"DOL has expressed concern that the 'regular basis' and 'mutual agreement' prongs of the prior Five-Part Test 'worked to defeat legitimate retirement investor expectation of impartial advice' and attempted to close these perceived loopholes in the Retirement Security Rule .  ... On May 2, 2024 (or 9 days after the Final Rule was adopted), the FACC filed its complaint in the United States District Court for the Eastern District of Texas." [Federation of Americans for Consumer Choice Inc. v. DOL, No. 24-0163 (E.D. Tex. complaint filed May 2, 2024)]

152 pages. Chapters: [1] Worldwide Regulated Open-End Funds; [2] U.S.-Registered Investment Companies; [3] U.S. Mutual Funds; [4] U.S. Exchange-Traded Funds; [5] U.S. Closed-End Funds; [6] U.S. Fund Expenses and Fees; [7] Characteristics of U.S. Mutual Fund Owners; [8] U.S. Retirement and Education Savings. Appendices: [A] How U.S.-Registered Investment Companies Operate; [B] Significant Events in Fund History. Also available: Data tables  and Quick Facts Guide .

"QDIAs received a unanimous vote for further study by the Council. As a default investment selected by a plan for their participants, the QDIA is of increasing importance due to the proliferation of automatic enrollment in defined contribution plans.... The second ... topic for study is welfare claims and appeals ... This group will look at how to make welfare plans claims and appeals easier to access for participants."

"Large employer pensions looking to offload their funding liabilities through pension risk transfers are anticipating tougher future regulatory scrutiny as the [DOL] prepares a report for Congress on the $45 billion de-risking market. [EBSA's] report appears likely to propose changes to a 1995 interpretive bulletin on pension risk transfers that laid out standards for employers in selecting third-party insurers to convert plan funds into annuity contracts."

"While the revision of the definition of advice fiduciary fundamentally changes/expands who is a fiduciary, the PTE had (in 2020) already largely anticipated this expansion, and the final 2024 changes to it are more in the nature of 'tweaks.' "

"It is essential for existing QPAMs and asset managers to ... [consider] the following: [1] Preparing their one-time notice to the [DOL] ... within 90 days of June 17, 2024.... [2] Reviewing and updating their policies and procedures to ensure they align with the new requirements set by the Amendment ... [3] Evaluating their current financial status by December 31, 2024 ... [4] Reviewing record-keeping practices to ensure they maintain the required records for six years and that they are accessible for examination."

"To obtain the protection of PTE 2020-02, four categories of 'conditions' must be satisfied.... This article [covers] the conditions that are effective on September 23 of this year.... [1] The Impartial Conduct standards: care obligation; loyalty obligation; reasonable compensation limitation (including best execution, if applicable); [and] no materially misleading statements (including by omission). [2] The Fiduciary Acknowledgement Disclosure."

"A federal court has dismissed a lawsuit brought by four Republican attorneys general challenging [an SEC] rule that requires increased ESG proxy votes disclosure from investment managers and funds.... [The Fifth Circuit] said the plaintiffs -- the attorneys general for Texas, Utah, Louisiana and West Virginia -- lacked standing." [ Texas v. SEC , No. 23-60079 (5th Cir. May 10, 2024)]

"Big recordkeepers greenlit Wall Street asset manager's novel 'Paychecks' product, with BlackRock expressing ambitions to also expand the product to non-retirement accounts.... BlackRock is off to a flying 401(k) start with its launch of a best-of-both-worlds pension product that combines a target-date ETF with an annuity -- but its opacity and complexity could give investors pause."

"[T]he interest rate environment has helped the funding status of many corporate DB plans, making it a positive environment for PRT transactions.... [T]hose in the DB space will likely see funded status either flatline or decrease when the Federal Reserve can finally start bringing rates down, ... which could start to curtail this market. When that comes, asset managers who can adjust to lower rates by way of funding may have opportunity."

"[T]he 708 plans in Preqin's database -- which collectively have a total of $5.86 trillion in assets -- had an average actual allocation of 33.4% to alternatives in plan year 2022, compared with an average target allocation of 30.6% ... In dollar terms, Preqin noted, this demand deficit ... represents about $133.5 billion in 'capital that fund managers are likely not to see, at least in the short term.' "

"In an ideal world, every 403(b) plan participant would have access to at least one Green vendor. In the real world, many lack access to any of them ... This post describes a good choice available from a bad vendor ... It describes key plan features, the rationale for its Yellow rating, advantages and disadvantages, plan expenses ... [and] concludes with a summary of research about the growth of [a sample] account over time, three 'need to know' facts, and six take-away action steps."

"[S]ponsors won't need to take any immediate action in response to the changes. If a QPAM becomes ineligible to use the exemption in the future, it will need to notify the sponsor, who will have up to one year to assess and implement an appropriate course of action. DOL also confirmed that changes clarifying the scope of a QPAM's authority over plan transactions won't disrupt sponsors' routine monitoring activities and establishment of investment guidelines. The changes take effect on June 17."

"[The] reformers have long been an advocate on behalf of retirees who have been angry over reduced and sometimes eliminated cost-of-living adjustments following the passage of a 2012 state law eliminating a 3% COLA and giving the board the authority to set them. Reformers have blamed investment management costs among other administrative costs and have promoted the idea of gutting investment staff and moving to all index funds."

"The amicus brief filed [by the coalition] in support of AT&T argues that: [1] The Ninth Circuit's decision renders standard and ubiquitous contracts ... in American retirement plans presumptively unlawful. [2] The Ninth Circuit's decision will open the floodgates to speculative claims regarding routine matters, multiplying frivolous litigation and costing employees and employers. [3] Allowing claims that all re-negotiations of service provider agreements are prohibited transactions unless proven otherwise will have far-reaching negative consequences for plan sponsors, fiduciaries, and participants." Bugielski v. AT&T Servs., Inc. , No. 21-56196 (9th Cir. Nov. 8, 2023; cert pet. filed Apr. 5, 2024)]

68 pages. "Rollover advice is explicitly included in the regulation as a form of fiduciary advice.... PTE 2020-02  ... would be the flagship DOL exemption providing relief for conflicted investment advice ... Compliance with other 'best interest' and conflict mitigation regulations [does] not suffice under PTE 2020-02.... [T]he application of the Final Rule to insurance distribution remains complex.... [E]lements of the Final Rule create the predicate for a potential private right of action by IRA owners."

"The FACC's complaint relies heavily on a 2018 Fifth Circuit case -- binding in the Eastern District of Texas -- that struck down a 2016 iteration of the Fiduciary Rule, arguing that the 2024 Fiduciary Rule is 'effectively indistinguishable' from the 2016 rule that was vacated in full ... The complaint also alleges that the speed with which DOL promulgated the Fiduciary Rule ... demonstrates both that the Rule is merely a 'regurgitation' of the 2016 rule and DOL's 'zeal to reach the desired result of turning every financial product salesperson who deals with a retirement investor into a fiduciary.' " [Federation of Americans for Consumer Choice Inc. v. DOL, No. 24-0163 (E.D. Tex. complaint filed May 2, 2024)]

"Among the top concerns facing retired Americans are: Inflation lessening the value of assets (89%); Higher than expected healthcare costs (85%); A major market downturn significantly reducing assets (76%); Not knowing how to best generate income and/or draw down assets (69%); Outliving assets (68%)."

"A quick comparison reveals that the most significant change is in the additional requirement that the recommendation must reflect the application of professional or expert judgment to the retirement investor's particular needs or individual circumstances."

"401(k) Specialist has retracted a post originally published on May 2 that contained factual errors relating to collective investment trusts in target date funds." [BenefitsLink note: The original article was included in the May 2 Retirement Plans Newsletter.]

"After some pension plans recently made decisions focused on leveraging investment behavior to achieve environmental goals or to pursue geopolitical ends in China, a few lawmakers are now pushing local economically targeted investments into the limelight. These proposed investments are another deviation from pension plans' fiduciary responsibilities to their members and taxpayers ... Economically targeted investments introduce unnecessary risks for public pension funds that should be avoided."

"The problem with [the Sellers reasoning] is that it treats fiduciary prudence as infinite, as something that can always be challenged in court as having been insufficient no matter how much was done ... At some point, a fiduciary has engaged in more than enough prudence to satisfy the statutory obligation ... [T]here is always more that could be done, but that alone shouldn't preclude finding that a fiduciary did, in fact, enough." [ Sellers v. Trustees of Boston College , No. 22-10912 (D. Mass Apr. 11, 2024)]

"Low-cost index funds hit Fidelity's revenue, prompting a focus on more profitable products like managed money, the advisor's suit claims. The suit says advisors were pressured to sell higher-revenue products even when they were not in clients' best interest." [Maeker v. Fidelity Investments, No. 24-1078 (N.D. Tex. complaint filed May 6, 2024)]

"[The] main takeaway from the [DOL's] fact sheet , budget , and the stated Enforcement Projects , as well as recent experience with DOL investigations, is that the following areas may be of particular focus during future DOL investigations: [1] Cybersecurity and participant data issues.... [2] Missing participants ... [3] Illiquid and hard-to-value assets, including private equity and alternative investment classes (such as cryptocurrency) in both defined benefit and defined contribution plans.... [4] Mental health parity and MHPAEA enforcement.... [5] Proper use of plan forfeitures.... [5] Evidence of insurability issues[.]"

"[N]either ERISA nor fiduciary law requires that annuities, nor any other specific type of investment, be offered within a pension plan. Annuity advocates similarly refuse to acknowledge or address the legitimate fiduciary liability risks inherent in the current versions of most annuities."