Compliance June 27, 2016

Supreme Court Denies Petition for GM 401(k) Company Stock Case

The dismissal of the lawsuit against State Street still stands.
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An appellate court’s dismissal of a lawsuit against State Street Bank and Trust Company over its handling of the employee stock ownership portion of General Motors (GM) 401(k) plan still stands.

The U.S. Supreme Court denied a petition for writ of certiorari filed by Raymond M. Pfeil and Michael Kammer, participants in the GM plan.

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Recognizing that it couldn’t rely on a presumption of prudence following the Supreme Court’s decision in Fifth Third Bancorp v. Dudenhoeffer, the 6th U.S. Circuit Court of Appeals said it evaluated State Street’s actions according to a prudent-process standard. The court interpreted the Fifth Third decision to mean, and it held, that a plaintiff claiming that an employee stock ownership plan’s (ESOP’s) investment in a publicly traded security was imprudent must show special circumstances to survive a motion to dismiss.

Using the rule of Modern Portfolio Theory (MPT), the court found that Pfeil and Kammer failed to show a special circumstance such that State Street should not have relied on market pricing.

The petition by Pfiel and Kammer questioned whether the Supreme Court’s decision in Fifth Third affords fiduciaries for employee stock ownership plans (ESOPs) per se immunity from fiduciary liability whenever the underlying company stock investment in the ESOP trades in an “efficient market,” no matter how speculative the stock has become or how close the company is to filing bankruptcy.

It also raised the question of whether the Employee Retirement Income Security Act’s (ERISA’s) duty of prudence requires a plan fiduciary simply to monitor plan investments, or whether it also has a substantive component that requires fiduciaries to remove investments from the plan that are objectively imprudent—i.e., investments that are too risky to hold in a plan based on objective characteristics.

In a brief filed with the court, State Street’s counsel, McDermott Will & Emery LLP, said the petition should be denied because the case does not present either a conflict with Fifth Third or a conflict among the circuits about application of Fifth Third. The 6th Circuit correctly applied the high court’s decision in Fifth Third and there is no circuit split regarding the application of the decision, the brief says.

In addition, State Street’s counsel argued that the 6th Circuit correctly determined that petitioners did not establish the existence of a genuine issue of material fact concerning the reasonableness of respondent’s fiduciary decisions.
Data & Research June 27, 2016

Americans Worried About Funding Longevity

Americans surveyed said they would be more willing to seek help from a financial professional if he or she helped them find solutions that could create guaranteed income for life and helped plan for and fund a longer life.
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While Americans are optimistic about the prospect of living an average of 30 extra years, 70% feel financially unprepared to live to 100 and beyond, according to The Gift of Time, a new study from Allianz Life Insurance Company of North America.

Millennials and Generation X have time on their side when it comes to pursuing their dreams, but that gift comes with significant angst. More than three-quarters (79%) of Gen Xers reported feeling financially unprepared for living a longer life, while 74% of Millennials had the same concerns. Baby Boomers are not immune to worry either—57% reported that they feel financially unprepared.

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When respondents were asked to finish the sentence, “following your dreams is all well and good, but you need to have…,” the top two barriers chosen were “enough money” (57%) and “a good financial plan” (50%). The biggest regret reported (or potential future regret for Millennials) was not saving more money (52%) which ranked above not traveling more (38%) and not spending more time with their kids (32%).

As respondents considered their extra years, 45% said that “uncertainty” most closely described their feelings about the future. This uncertainty is echoed by the fact that more than half (51%) identified “having enough money to last my whole life” as a very big problem when they thought about living to age 100.

“The Gift of Time confirms that having a solid financial plan addressing longevity can remove major barriers for many Americans, allowing them to take risks that ultimately lead to a more fulfilled life,” says Allianz Life Vice President of Consumer Insights Katie Libbe.

NEXT: Solutions for planning for longevity and using a financial professional

The study also showed people’s awareness of solutions that could help.

According to the study, more than half (51%) of respondents believed they would need to better plan their spending and saving, or live more modestly to fund all the things they want to do in life. More than one-third (37%) even acknowledged that they may need to work longer/retire later to meet their financial needs. To make the most of their 30 extra years, respondents found it important to change the amount of money they save, how they fund their entire life (including short-term goals), and the level of discipline they need to follow a financial plan.

In addition to the solutions people identified when planning for longevity, the study found that having a financial professional could add support and reassurance. Respondents who had a financial professional reported being happier (79%) with their major life choices (such as their profession and when/where they worked or didn’t, etc.) compared to 64% of those who were happy with their major life decisions but did not have a financial professional. Despite that fact, the majority (72%) of respondents reported not having a financial professional. But these respondents would be more willing to seek one if the financial professional helped them find solutions that could create guaranteed income for life (47%), helped plan for and fund a longer life (34%), and helped with finances throughout life stages (31%).

Americans also support living life in a new, nontraditional order—especially if the barriers holding them back are addressed. When asked what got in the way of following a different approach for when and how they made major life decisions, “worries about money” was the top choice for 46%, “life events” got in the way for 33%, and 22% cited “lack of a clear plan for how to go about it” or “fear of failure” getting in their way. With the right longevity plan, people who avoid making alternative choices because of money could reconsider their future, as many respondents recommended doing. Sixty-five percent admitted that it was better to explore, experiment and travel earlier in life by changing when and how they learned, worked, married or raised kids. 

The Gift of Time found that instead of taking a traditional path (going to school, working, getting married, having kids and retiring), almost half (49%) of respondents were open to a nontraditional model that was unique to their interests.

For more information about the study, visit www.allianzlife.com/TheGiftofTime.

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