Products November 8, 2012

Nepsis Adds Lincoln Trust 401(k) Platform

Asset manager Nepsis Capital Management has integrated Lincoln Trust retirement plans into its wealth management practice.
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Nepsis, which serves high-net-worth individuals and financial advisers, has developed proprietary managed models for its clients. The addition of the Lincoln Trust platform means the firm can bring its investment management philosophy to the retirement market. Nepsis is slated to offer retirement plans, both as a core fund lineup consisting of high-performing funds, as well as its own customized portfolio strategies.

According to Deyan Stojanovich, vice president, institutional sales for Lincoln Trust, the 401(k) plans of numerous small businesses have mutual funds that underperform yet are over-subscribed, or group annuities whose fee structure and investment options can be detrimental to the end investor.

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“Too often, participants chase performance at the time of enrollment, irrespective of market conditions, and never make changes again,” Stojanovich said. “This partnership will allow Nepsis to provide customized tactical 401(k) asset-allocation strategies to participants who would rather leave their investment decisions in the hands of industry professionals.”

One challenge for investment advisory firms has been managing individual accounts in a firm-wide retirement plan and replicating the strategy among multiple participants. Using its model portfolios at a global level on Lincoln Trust’s platform, Nepsis will be able to efficiently execute its tactical strategies to take advantage of market conditions. 

“We have been looking into building a retirement offering for years, and the Lincoln Trust solution has made the transition seamless,” said Mark Pearson, president and chief investment officer of Nepsis. “Would-be retirees are always looking for better options in their plans beyond cookie-cutter offerings, and we are excited at the prospect of extending our investment expertise to this space.”

Lincoln Trust Company, in Denver, is a provider of open architecture 401(k) solutions for broker/dealers and registered investment advisers. 

Based in Minneapolis, Nepsis has approximately $160 million of assets under management.

Compliance November 8, 2012

High Court Upholds Presumption of Prudence

The Supreme Court declined to review two cases where plan sponsors were found to have a presumption of prudence related to company stock offerings.
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In Gray v. Citigroup Inc., the 2nd U.S. Circuit Court of Appeals found Citigroup fiduciaries did not abuse their discretion in continuing to offer company stock as an investment in two of its employee retirement plans. (See “2nd Circuit Affirms Dismissal of Citigroup Stock Drop Charges.”) The appellate court also held that defendants did not have an affirmative duty to disclose to plan participants nonpublic information regarding the expected performance of Citigroup stock, and that the complaint did not sufficiently allege that defendants, in their fiduciary capacities, made any knowing misstatements regarding Citigroup stock.    

The 2nd Circuit noted that many courts have recognized employee stock ownership plans (ESOPs), by definition, are “designed to invest primarily in qualifying employer securities.” The appellate court relied on the 3rd Circuit’s decision in Moench v. Robertson in saying that accordingly, Congress has encouraged ESOP creation by, for example, exempting ESOPs from ERISA’s “prudence requirement (only to the extent that it requires diversification)” and from the statute’s “strict prohibitions against dealing with a party in interest, and against self-dealing.”     

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In Gearren v. The McGraw-Hill Companies Inc., charges were dismissed in two consolidated stock drop cases against the McGraw-Hill Companies, also based on the presumption of prudence. Secretary of Labor Hilda Solis asked the 2nd U.S. Circuit Court of Appeals to reverse the decision.   

In a legal brief filed with the court, lawyers representing Solis attacked the Moench presumption saying the Employee Retirement Income Security Act (ERISA) does not carve out any exceptions to its mandates that fiduciaries act strictly with prudence and due care in carrying out their duties on behalf of participants and beneficiaries. (See “Solis Makes the Case for Change in Stock Drop Case Law.”)

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