Compliance March 29, 2023

DISH Network Retirement Plan Survives Legal Challenge

The plan had been challenged for excessive fees and underperformance under ERISA, but a federal judge dismissed the complaint.

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A federal judge in Colorado upheld this week a recommendation from a magistrate judge to dismiss a lawsuit brought against DISH Network alleging that it failed to uphold its fiduciary duties in administrating its workplace retirement plan.

The plaintiffs in Jones et al. v. DISH Network, represented by the Miller Shah law firm, had alleged that DISH failed to monitor the fees charged to the plan, as well as the performance of the Fidelity Freedom Funds TDF suite and other actively managed funds in the plan, therefore hurting participant outcomes. DISH should have used its size to negotiate lower fees and better monitored the performance of funds in the investment menu, they alleged.

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In January, Magistrate Judge Scott Varholak recommended the case be dismissed because plaintiffs had failed to propose proper peer funds to which the fees and performance of the existing funds could be compared. He also noted that the plaintiffs compared the average fees for the plan across five years to a single year for one comparator, which was not a legitimate comparison.

Varholak also wrote in his recommendation that the plaintiffs did not have standing to challenge the Royce Total Return Fund, an actively managed fund, because none of the plaintiffs had actually invested in it and therefore were not harmed by it.

The plaintiffs objected to the recommendation in February. They argued that they were damaged by the TDF suite which they did invest in and that the TDF series was evidence of a flawed process. That flawed process also led to the selection of the Royce Fund, and therefore they could challenge it on that basis, they argued. They reiterated that the fees were too high for these funds and that the plan fiduciaries have a duty to continuously monitor the plan.

On Monday, U.S. District Judge Christine Arguello, presiding in the District of Colorado, accepted Varholak’s recommendation and dismissed the complaint. She accepted that the plaintiffs had no standing to challenge the Royce Fund because they could not prove that it was selected along with the Fidelity TDFs as part of the same decisionmaking process and because none of the plaintiffs had, in fact, invested in it. The plaintiffs must show a common practice that injured both them and other investors who did invest in the Royce Fund, the judge ruled.

Arguello also concurred with Varholak by saying the fee comparisons were not apples-to-apples and that fiduciaries can offer a range of prudent options. They are not required to scour the market for the lowest fees on the lowest-risk and highest-return funds, she wrote.

The Miller Shah firm did not return a request for comment.

 

In Practice March 29, 2023

Latino-Owned Businesses May Be Poised for 401(k) Plan Growth

As state mandates for small businesses take hold, industry players see opportunity in reaching the underserved Latino population.

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When Carlos Garcia started the firm Finhabits more than eight years ago, the focus was offering Latino workers an individual retirement account to start saving for the future. More recently, the firm has started trying to reach the nearly 5 million Latino-owned businesses in the U.S., as tracked by the U.S. Small Business Administration.

“When it comes to retirement plans, distribution is key,” Garcia says of the project that focused on California small businesses last year. “We’ve been working out how to tap into those small businesses that are employing millions of workers but are not within the reach of the other retirement players.”

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Retirement savings is what Garcia calls one of the “three pillars” of wealth creation, along with home ownership and starting a business. As of 2021, only 31% of Hispanic households with income from at least a part-time job report that they are participating in a retirement plan, as compared to 51% of non-Hispanic white households, according to the most recent research from Morningstar. Now, with more than 14 states mandating that businesses offer retirement plans, as well as plan-creation incentives on the way as legislated in the SECURE 2.0 Act of 2022, the moment is ripe for Latino-owned businesses to start offering plans, according to Garcia.

“We’ve applied the same methodology we’ve done for individuals, which is through education and content to educate and explain to business owners how a 401(k) works and why you need to offer it to your employees,” Garcia says of the New York-based Finhabits. “And it’s regardless of size, whether you have 3, 4, or 40 employees—it’s important that you can start offering a plan.”

Samantha Lamas, a senior behavioral researcher for Morningstar, agrees state mandates will likely lead to more uptake. The researcher, who worked on the 2021 report, believes mandated auto-enrollment for new retirement plans, which starts in 2024, will also have a significant impact.

“A majority of Hispanic households that own a retirement vehicle own an employer-sponsored retirement plan,” she says. “This may be due to accessibility: Since the plan is available through their employer, it may be more seem readily accessible for the individual to invest in. One can also imagine how just communicating the existence of this plan to workers may bring retirement saving top of mind.”

Talk to Me

Some of the large retirement solutions providers and recordkeepers, for their part, have been highlighting Spanish-language offerings for years. Voya Financial, Principal Financial Group, TransAmerica and John Hancock—the latter a division of ManuLife Investment Management—are among the larger providers who tout their Spanish-language retirement planning and financial wellness options for participants.

Voya’s Spanish-language retirement program is geared toward the full range of participant needs, according to Amy Vaillancourt, Voya’s senior vice president of workplace architecture, ranging from phone support to financial education videos to notifications geared at improving savings outcomes.

Through its offerings, the firm has discovered a “much higher percentage of people using mobile on our Spanish page.” In the last six months, 42% of users on Voya’s Spanish-language page came from a mobile device, she wrote.

Despite the success on mobile, Voya also sees on-site education playing a key role for furthering participant outcomes among Spanish speakers.

“While we are still in early days of addressing employer needs from the passing of SECURE 2.0, we do see onsite education playing a larger role in the ‘post-COVID’ world as education meetings promote the importance of plan participation and higher savings rates,” Vaillancourt wrote.

State by State

Garcia’s Finhabits is offering a digital small-business 401(k) in coordination with digital retirement provider Smart USA Co. The retirement savings and investment technology firm serves as the 402(a) fiduciary operating and administering the plan, and Transamerica serves as the recordkeeper. Garcia says the program is designed with Latino business owners and participants in mind first, not as an afterthought.

“If you think about the current offering that exists from the incumbent players today, they’re having an issue because they have a 401(k) plan … but the participation rate among Latinos is very low,” he says. “It’s an issue not only at the small business scale, but at the large plan scale. A lot of these providers have not figured out how to get the Latino workforce to engage with 401(k) plans in a successful way.”

Garcia says while the Finhabits offering is national, it has made a specific effort in California to engage small businesses, in part because the state-mandated CalSavers program went into effect for the smallest businesses last year.

Jodan Ledford, CEO of Smart USA, says Garcia’s work is part of an affinity model in which Finhabits connects business owners to the Spanish-language 401(k) offering. The fact that CalSavers reached businesses of five or more employees last year, and one to four employees this year, has made it an important testing ground for the partnership, Ledford says.

“I think we will have some pretty good volume by the end of the year,” he says. “But we think we’ll start seeing a lot more volume once the actual fines start getting levied, because the business owners are using them as their drop-dead date to get stuff going.”

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