Compliance September 20, 2017

Gucci Retirement Plan Sued for Charging Excessive Investment Fees

A participant accuses the firm of failing to prudently monitor and assess investment options for the plan.
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A plaintiff in the Gucci America, Inc. Retirement and Savings Plan is accusing the plan sponsor and its benefits committee of breaching fiduciary duties, as well as other violations of the Employee Retirement Income Security Act (ERSA).

According to the complaint, the defendants are accused of charging excessive administrative and investment fees to plan participants. In particular, the plaintiff claims the defendants failed to “fully disclose to participants the expenses and risks of the Plan’s investment options; breached their fiduciary duties under ERISA by allowing unreasonable expenses to be charged to participants for administration of the Plan; and breached their fiduciary duties under ERISA by selecting and retaining opaque, high-cost, and poor-performing investments instead of other available and more prudent alternative investments.”

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The complaint states that Gucci America was “particularly egregious” in regards to offering proprietary funds from its service provider Transamerica Retirement Solutions as investment options for participants. The plaintiff argues, “Transamerica has successfully utilized Plan assets in a manner that has been detrimental to the Plan and beneficial to Transamerica insofar as it maximized fees often at the expense of participants’ return.” The plaintiff also accuses the defendants of allowing Transamerica to engage in transactions that posed conflicts of interest, thereby breaching their fiduciary duty.

The complaint alleges that Gucci America failed to monitor plan investments to ensure they “provided adequate available returns” or were not excessively priced, “as were the majority of investments in the plan.”

According to the complaint, the plaintiff seeks “relief for all losses and/or compensatory damages; attorneys’ fees, costs and other recoverable expenses of litigation,” as well as “a permanent injunction against Defendants prohibiting the practices described herein and affirmatively requiring them to act in the best interests of the Plan and its participants.”

Data & Research September 20, 2017

Employer Offerings, Participant Usage of Company Stock in 401(k)s Declining

At the same time, employees in ESPPs are using company stock to address financial wellness needs.
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Fewer employers are offering company stock in their 401(k) plans and fewer plan participants are investing in company stock, an analysis from Fidelity Investments finds.

The percentage of employees with company stock in their 401(k) has dropped by almost half, from 41% in 2005 to 23% in 2016. More than one in four employers (28%) still offered company stock through their 401(k) in 2016, dropping from 39% in 2005. Nine percent of employee 401(k) assets were in company stock in 2016, down from 16% in 2005.

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Meghan Murphy, director, Thought Leadership at Fidelity, tells PLANADVISER many employers have been working to simplify the administration of their retirement plans, and some employers who were maintaining multiple retirement plans (from perhaps mergers/acquisitions) have worked to consolidate those plans so now they only need to offer a single company stock fund. In addition, she says, “Other employers have reduced/removed company stock offerings from their plans to decrease fiduciary risk and in some cases are giving their employees an alternate opportunity to purchase company stock via an ESPP.”

Murphy explains that decreased participant usage is likely due to plan administration changes seen since the implementation of Pension Protection Act (PPA). She says 94% of participants are in plans that use a target-date fund as the default investment option. “This automated default means fewer participants are making decisions regarding where to invest their assets. In fact, 68% of Millennials are 100% invested in a target-date fund. In addition, fewer employers are mandating that company match contributions be invested in company stock.

NEXT: Alternative Way to Use Company Stock

However, a growing number of U.S. workers are taking advantage of their company’s employee stock purchase plan (ESPP) to purchase company stock, with the percentage of employees participating in their ESPP increasing to 28% in 2016, up from 23% in 2014. Because stock purchased through an ESPP is held outside of an employee’s 401(k), shares are more accessible and can be used to help address a variety of financial needs, Fidelity says. Employees say they use company stock acquired through their ESPP—which can often be purchased from their employers at a discount—to help pay down debt, add to their retirement savings, finance real estate or home improvement projects, or simply set aside for a rainy day.

Employees who participate in their company’s ESPP are three times more likely to sell company stock for emergency cash rather than take a loan from their 401(k), and more than half (52%) said it was “highly unlikely” they would tap their 401(k) if they needed cash.

Fidelity found that 83% of employees who participate in their company stock plan expect the value of their company’s stock to increase over the next few years. More than half of employees surveyed (52%) said they expect the value of their company’s stock to increase at a modest rate, and more than one in five (21%) employees expect the value to increase substantially in the next 24 months.

“Making company stock available to employees is a great way for companies to motivate their workforce and give workers a sense of ownership in their company, as well as help attract and retain talented individuals,” says Mark Haggerty, head of Stock Plan Services for Fidelity Investments. “However, employees should remember that their company’s stock, just like any other stock, should be part of a balanced and diversified investment portfolio, especially if it’s part of their 401(k).”

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