Investor Sentiment Shows 4Q Rise

After remaining level for the previous year, investors expressed rosier outlooks in the fourth quarter, according to a survey by John Hancock Financial.

The John Hancock Investor Sentiment Index, a quarterly measure of investors’ views on a range of investment choices, life goals, and economic outlook, reflects the percentage of investors who say they believe it is a “good” or “very good” time to invest, versus those who feel the opposite. Investors’ positive feelings about stocks helped drive the year-end index score to +26, matching its previous record high in the second quarter of 2013.

Six in ten investors said they are confident about investing in stocks, while a similar share expressed optimism about investing in balanced mutual funds. Nearly 30% believe that blue chip stocks will be the market’s top performers over the next six months, a jump in expectation from the third quarter, when 22% thought this would be the case. Technology, health care and energy companies offer the best investment opportunities in the next six months, investors say.

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Saving for retirement remains a key priority. Eight in ten said that now is a good time to put money away in 401(k) plans or individual retirement accounts (IRAs). About two in five are positive about investing in target-risk funds and target-date funds. Half of investors have positive views of contributing to 529 college savings plans.

It’s not just investing that invokes positive outlooks from investors, according to Megan Greene, chief economist at John Hancock Asset Management. About a third of those surveyed said they feel it is a good time to start a business, compared with 21% in the first quarter. About a third (31%) said it is a good time to change jobs, a significant uptick from the 19% who expressed this in the first quarter.

Investor respondents were optimistic about their own personal financial situations as well, Greene said. “Half say they are better off than they were two years ago, and half believe their situation will improve over the next two years,” she said.

A quarter of investors cite their savings and investment portfolios as the main reason they believe their financial situation will be better in the future. Eighteen percent chalked their optimism up to having paid down debt. Of the 8% of investors who predict their financial situation will be worse in two years, one-third cited government and politics as the culprit.

It’s not all clear skies ahead, though, investors say. The cost of health care is of major concern to 54% of those surveyed. Four in ten are very concerned about market consequences of unrest in the Middle East, a share that has increased significantly from last year (from 29% in the same period of 2013). Worry over oil and gasoline prices plunged, with only one in six expressing great concern, compared with 26% in the previous quarter and 33% in the second quarter of 2014.

John Hancock’s Investor Sentiment Survey is a quarterly poll of affluent investors. The survey measures investors’ feelings about the current economic climate and their evaluations of what represents a good or bad investment, given the current environment. The poll also asks consumers about their confidence in reaching key financial goals and their attitudes toward specific financial products and services.

The online survey was conducted by independent research firm Greenwald & Associates. A total of 1,139 investors were surveyed between November 10 and November 21.  To qualify, respondents were required to participate at least to some extent in their household's financial decision-making process, have a household income of at least $75,000, and assets of $100,000 or more. 

District Court Moves Forward Boeing Fee Case

A federal district court has denied Boeing’s request for summary judgment on the merits of Spano vs. The Boeing Company, a long-running excessive 401(k) fee case.

The U.S. District Court for the Southern District of Illinois moved on three motions pending in Spano vs. The Boeing Company, a case about excessive 401(k) plan fees involving nearly 200,000 retirement plan participants.

Besides denying Boeing’s request for summary judgment on the merits of the case, the court also granted in part and denied in part Boeing’s motion for summary judgment based on ERISA’s six-year statute of repose. The court also denied plaintiffs’ motion to strike certain reply briefs filed by Boeing—moving the case one step closer to resolution.

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The case has a complicated procedural background—arising nearly a decade ago as part of the first wave of defined contribution plan fee litigation. At the heart of the case is a familiar challenge: plaintiffs allege that Boeing plan fiduciaries failed to adequately monitor and disclose fees assessed against participants’ 401(k) accounts, while simultaneously spending more than necessary on plan investments and services. The workers alleged that the excessive fees were imposed on the plan through a combination of both hard dollar payments and hidden revenue-sharing transfers.  

The case has already resulted in a series of important rulings, following initial class action certification in 2008. A subsequent appeals court ruling from Circuit Judge Diane Wood, writing for a three-judge panel on the 7th U.S. Circuit Court of Appeals, confirmed that situations in which a retirement plan as a whole is injured at the same time as an individual employee can arise when the entity responsible for investing the plan’s assets charges fees that are too high or when the plan has been reckless in its selection of investment options for participants—and thus that class action suits can be leveled against employers in such circumstances.

According to the text of the Illinois district court’s latest ruling, Boeing’s motion for summary judgment based on ERISA’s six-year statute of repose was granted in part and denied in part. As noted in case documents, it is undisputed that each of the four investment funds through which participants allegedly paid excessive fees were initially included as part of the plan in or before 1997, when the plan was amended to make a greater number of investment options available to participants. Plaintiffs assert, however, that fiduciary breaches relating to each of these funds (and the plan’s administration more generally) occurred throughout the six years preceding the filing of this case on September 28, 2006, as well as further back to 1997.

While there is some conflict among circuit courts on the point, the Illinois district court says it is to rely on precedent set by the 7th U.S. Circuit Court of Appeals, which has held ERISA fiduciaries to the same duty of prudence after initial selection as before. 

The current ruling points to Martin v. Consultants & Administrators, Inc. (7th Cir. 1992), which established that a plan fiduciary can be held liable on a repeated basis after the initial decision to offer an imprudent investment, on the theory that each day in which a fiduciary fails to remove an imprudent investment, a new breach is born. The court noted in Martin the “continuing nature of a trustee’s duty under ERISA to review plan investments and eliminate imprudent ones.” In this respect, Boeing’s questions on ERISA’s limitations period resemble those of defendants in another widely followed 401(k) fee case that has made it all the way to the U.S. Supreme Court and is mentioned in the text of the current decision—Tibble vs. Edison International—set for argument in late February.

The text of the current decision shows that some of the plaintiffs’ claims are to be time-barred under ERISA, while others “do not merely contest actions and omissions occurring prior to September 28, 2000 ... For each of the five claims, Plaintiffs have identified actions and/or omissions that—after September 28, 2000—constitute distinct breaches of fiduciary duties. For example, Plaintiffs assert that, during the six years before they filed suit, defendants failed to solicit competitive bids for plan administrative services to ensure that Plan administrative fees were reasonable.”

The denial of plaintiffs’ motion to strike certain Boeing reply briefs is explained this way: “Given the fact that the undersigned District Judge received this case from the docket … at this late stage in the litigation, the undersigned District Judge finds the reply briefs to be helpful. For these reasons, the Court denies Plaintiffs’ Motion to Strike Defendants’ Reply Briefs.” As noted in the ruling, district court procedures stipulate that reply briefs “should be filed only in exceptional circumstances.” The district court judge who first presided over the case has since retired and died, case documents show.

The Illinois district court also determined that Boeing’s motion for summary judgment on the merits of Spano vs. The Boeing Company cannot be granted, because there are a number of outstanding factual disputes to be decided during the course of trial.

The full text of the Illinois district court decision is here.

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