Data & Research December 19, 2016

Nearly All Employees Eligible to Participate When 401(k) Is Present

And 87.6% of eligible employees have a balance in their plan.
Reported by

Nearly 90% (89.4%) of U.S. employees are eligible to participant in their employer’s defined contribution (DC) plan, according to the Plan Sponsor Council of America’s 59th Survey of Profit Sharing and 401(k) Plans. Almost as many, 87.6%, have a balance in their plan, and 81.9% contributed to their plan in 2015.

The average deferral was 6.8% in 2015. Lower-paid participants contributed an average of 5.5%, while higher-paid participants contributed an average of 7.0%. Company matches to 401(k) plans averaged 3.8%, and the average contribution to 401(k)/profit sharing combination plans was 5.4%.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Just over two-thirds, 66.8%, of companies work with a financial adviser. Of those, 59.1% pay a fixed fee, and 35.1% pay a percentage of plan assets. The majority of plan expenses are paid by the company, with the exception of recordkeeping and investment consultant fees.

Plans offer an average of 19 funds. The funds most commonly offered are indexed domestic equity funds (79.3%), actively managed domestic equity funds (78.0%), actively managed domestic bond funds (74.7%), and actively managed international equity funds (73.4%).

Roughly one-third (34.6%) of sponsors offer investment advice, most frequently offered by a registered investment adviser (RIA) (28.8%), a certified financial planner (27.8%) or a third-party web-based provider (16.6%).

Over half (57.5%) of plans use automatic enrollment—most commonly at large plans (66.7%), but only among 25.5% of plans with fewer than 50 participants. Half of plans automatically enroll participants at a 3% deferral rate, up from 40.4% in 2014. The most common default option is a target-date fund (TDF).

The report is based on a survey of 614 defined contribution plan sponsors.

Compliance December 16, 2016

Tibble vs Edison Still Being Fought in Federal Courts

After multiple trips through the district and appellate court systems and consideration by the Supreme Court on multiple occasions, Tibble vs Edison took another step forward today. 
Reported by

On remand from the Supreme Court, the 9th U.S. Circuit Court of Appeals once again heard “en banc” arguments in Tibble vs Edison, deciding this time that it would vacate the lower district court’s judgment in favor of the defense.

Industry watchers will be familiar with the long-running litigation, which has been moving through the various courts for more than a decade. The case represents one of the first lawsuits filed against employers accused of permitting excessive fees in the retirement plan and failing to adequately monitor the performance of investments offered to employees.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Specifically, the court of appeals had previously affirmed the district court’s holding that the plan beneficiaries’ claims regarding the selection of mutual funds in 1999 were time-barred under the six-year limit of 29 U.S.C. § 1113(1). However, the Supreme Court vacated the court of appeals’ decision, observing that federal law imposes on fiduciaries an ongoing duty to monitor investments even absent a change in circumstances.

Rejecting defendants’ contention that the beneficiaries waived the ongoing-duty-to-monitor argument, the “en banc” court held that the beneficiaries did not forfeit the argument either in the district court or on appeal. Rather, defendants themselves failed to raise the waiver argument in their initial appeal, and thus forfeited this argument.

The en banc court distinguished Phillips v. Alaska Hotel & Rest. Emps. Pension Fund, 944 F.2d 509 (9th Cir. 1991), which held that when a fiduciary violated a continuing duty over time, the three-year limitations period set forth in 29 U.S.C. § 1113(2) began when the plaintiff had actual knowledge of a breach in a series of discrete but related breaches. In that case, the panel of judges held that Phillips did not apply to the continuing duty claims at issue under § 1113(1). Thus, only a “breach or violation,” such as a fiduciary’s failure to conduct its regular review of plan investments, need occur within the six-year statutory period of § 1113(1); the initial investment need not be made within the statutory period.

“Looking to the law of trusts to determine the scope of defendants’ fiduciary duty to monitor investments, the en banc court held that the duty of prudence required defendants to reevaluate investments periodically and to take into account their power to obtain favorable investment products, particularly when those products were substantially identical—other than their lower cost—to products they had already selected,” the appeals court explains. “The en banc court vacated the district court’s decisions concerning the funds added to the ERISA plan before 2001 and remanded on an open record for trial on the claim that, regardless of whether there was a significant change in circumstances, defendants should have switched from retail class fund shares to institutional-class fund shares to fulfill their continuing duty to monitor the appropriateness of the trust investments.”

As such, the en banc court directed the district court to reevaluate its award of costs and attorneys’ fees in light of the Supreme Court’s decision and the en banc court’s decision.

The full text of the decision is here. 

«