Products August 15, 2023

Maine, Colorado to Partner On State-Sponsored Auto IRA

Maine will join Colorado’s state-sponsored employer retirement plan to reduce costs for savers in both states.

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Maine will partner with Colorado on its already established state-sponsored automatic retirement savings program for private-sector workers to provide the smaller state of Maine with a ready-made plan while reducing costs for both programs, the states announced Tuesday.

The Maine Retirement Investment Trust will join the already existing Colorado Secure Savings Program’s automatic workplace retirement savings program for the first such partnership in the country, according to the announcement. Small plan provider Vestwell is the administrator, in partnership with BNY Mellon, for the savings program that will now serve both states.

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“I’m proud to see Colorado leading the nation on this,” said Colorado Treasurer Dave Young in a statement. “Partnerships increase the number of Americans saving for retirement, while decreasing fees….[and] helping states with smaller populations offer a cost-friendly, state-run retirement program option for workers who don’t have access to one at work.”

Each program will operate independently, but share responsibilities for governance, a Colorado spokesperson wrote in an emailed response.

“Each will benefit from the economies of scale, including lower costs for participants,” she said. “Colorado is the lead state, and developed this framework to ensure smaller population states have a high quality option for savers in their states, while reducing costs for Colorado and Maine savers.”

Colorado’s state legislature mandated retirement plan uptake in 2020, with the state-sponsored program available to employers starting this year. Maine’s legislature passed its retirement plan mandate in 2021, with its state-sponsored plan being available in January 2024. The retirement plan is tied to the employee, not the employer, so it is portable should a worker change jobs.

More than 200,000 Maine workers do not have access to retirement savings through their workplace, according to data from the state. The state’s MERIT program, if provided by an employer, will automatically enroll employees in a Roth IRA account unless they opt out.

“Workers in every state want a free and easy way to save so they can retire with dignity,” said Maine Treasurer Henry Beckin a statement. “Partnering with Colorado we will share costs, create scale, and tailor a retirement savings program to meet the needs of Mainers.”

The Colorado plan currently has 12,000 employers signed up and almost $12 million in assets, with a deadline of December 31 for businesses to decide to either offer an employer-sponsored plan or enroll in the state’s plan. The states did not provide details of how much participants will save from the partnership.

Maine employers with five or more workers must offer a qualified retirement savings plan, including the state’s MERIT program, for their employees beginning in January 2024.

The two states signed the Interstate Adhesion Agreement on August 11, according to the announcement, which they said is the first of its kind in the nation.

In 2021, Colorado announced a multi-state IRA program with New Mexico to share program administration duties and fees, according to an announcement at the time. That program, however, is pending amendments by New Mexico’s legislature ahead of implementation, according to the Colorado spokesperson.

“We will gladly partner with New Mexico once it is,” implemented, the spokesperson wrote via email.

Compliance August 15, 2023

Another BlackRock TDF ERISA Challenge is Dismissed

An ERISA lawsuit alleging TDF underperformance by the asset manager for Cisco 401(k) participants has been dismissed.

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A federal court in California dismissed a breach of fiduciary duty lawsuit brought against Cisco under the Employee Retirement Income Security Act, though plaintiffs were given the opportunity to amend their lawsuit.

This case is one of a series of lawsuits brought by the Miller Shah law firm which alleges that BlackRock Inc.’s LifePath target-date-fund suite underperformed other TDFs in the market and that sponsors that selected the TDF series as their QDIA only did so to pursue lower fees, not with overall performance in mind.

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The case, Robert Bracalente vs. Cisco Systems, was heard in the US District Court for the Northern District of California San Jose Division.

Miller Shah did not respond to a request for comment.

In addition to Cisco, similar complaints brought against Microsoft, Capital One, Booz Allen Hamilton, and Advance Publications have also been dismissed.

District Court Judge Edward J. Davila explained that the BlackRock fund series underperforming other TDFs from 2016 to 2021, such as those offered by Vanguard or T. Rowe Price, does not automatically make selection of the BlackRock funds an imprudent one. “Merely pointing to another investment that has performed better in a five-year snapshot of the lifespan of a fund that is supposed to grow for fifty years does not suffice to plausibly plead an imprudent decision,” Davila wrote in the decision.

According to the judge, in order for ERISA fiduciary duty to apply to investment underperformance, it must be accompanied by other facts, such as evidence of an imprudent process: “to the extent Plaintiffs attempt to state an ERISA claim for imprudence based solely on the BlackRock TDFs’ underperformance, the Court cannot reasonably infer from underperformance alone that the BlackRock TDFs were imprudent investments.”

Further, fiduciaries are not required to select the highest performing investments, and there are a range of choices that are consistent with prudence, Davila wrote:  “The Supreme Court has recognized that ‘the circumstances facing an ERISA fiduciary will implicate difficult tradeoffs, and courts must give due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.’”

Davila continued, “’underperformance-only’ theory, however, would flatten this nuanced prudence evaluation into a one-dimensional comparison that considers only the funds’ three- and five-year performance data.”

The court also noted that though the class period ended in 2021, starting in the first quarter of 2022, the BlackRock TDF series outperformed the competitors listed in the lawsuit, underscoring the role of TDFs as a long-term investment. It would also lend support to the arguments found in industry amicus briefs that the plaintiffs in these cases were cherry picking the time periods to which their claims pertained.

Davila also signaled that he was aware of other U.S. district courts that rejected the same arguments in similar cases and that this influenced his decision.

“It is also worth noting that at least two other district courts have recently dismissed ERISA complaints with near-identical allegations also relating to the same BlackRock TDFs and their disappointing three- and five-year performance data,” Davila wrote.

 

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