Capitol News

Art by Leandro CastelaoAnother Challenge to the DOL Fiduciary Rule

In the wake of the early November approval of a House bill opposing the  Department of Labor (DOL)’s fiduciary redefinition, four lawmakers—Peter Roskam, R-Illinois; Richard Neal, D-Massachusetts; Phil Roe, R-Tennessee; and Michelle Lujan Grisham, D-New Mexico—outlined a series of seven legislative principles they believe must govern retirement advice and advisers. 

The stated bipartisan concern is that the DOL rule will make it difficult for low- and middle-income families to access financial advice so they can adequately plan for retirement. The legislators said in their statement that individuals seeking investment advice must have strong protections.

The four are working together to introduce a bipartisan legislative solution that reflects several investor-friendly principles, such as the requirement that retirement advisers work in the best interests of the investor and the need for clear, plain-English disclosure of conflicts of interest in regard to compensation or fees.

Intel Lawsuit Questions Target TDPs
A participant in retirement plans sponsored by Intel Corp. has filed a lawsuit claiming custom-built investment portfolios adopted by the retirement plans’ investment committee departed dramatically from prevailing standards employed by professional investment managers and plan fiduciaries; as a result, participants suffered massive losses and excessive fees, the suit said.

Plaintiff Christopher Sulyma, on behalf of two proposed classes of participants in the Intel 401(k) Savings Plan and the Intel Retirement Contribution Plan, claims the defendants breached their fiduciary duties by investing a significant portion of the plans’ assets in hedge fund and private equity investments.

In 2011, according to the complaint, the investment committee began dramatically altering the asset-allocation model for the Intel custom target-date portfolios (TDPs) by increasing the company’s target-date portfolio hedge fund investments from about $50 million to $680 million—a leap of 1,300%. Similarly, between 2009 and 2014, the investment committee increased exposure to hedge funds and private equity investments by 286% in a custom-built Intel Global Diversified Fund.

The lawsuit says the Intel TDPs have underperformed peer target-date funds by approximately 400 basis points (bps) annually; the amount in June was estimated to be $3.63 billion.

Boeing Settles Fee Case for $57m
On November 5, Boeing settled the fee lawsuit brought against it in Spano v. Boeing for $57 million, as laid out in a tentative settlement agreement. 

Gary Spano, John Bunk, James White Jr. and the approximately 190,000 other plaintiffs in this case alleged that Boeing violated the Employee Retirement Income Security Act (ERISA) by permitting a variety of excessive fees to be charged to 401(k) plan participants. They also claimed that Boeing engaged in self-serving conflicts of interest and permitted imprudent funds to be included in the company retirement plan.

According to Jerry Schlichter, managing partner at Schlichter, Bogard & Denton and lead attorney for the plaintiffs, administrative improvements and fee reductions obtained after filing the case “are already benefiting Boeing employees and retirees and will continue to do so for many years to come.” The final settlement still requires approval of a joint motion for settlement filed by the parties in the Court of Chief Judge Nancy Rosenstengel of the District Court.

DOL Explains Current Focus
According to Phyllis Borzi, assistant secretary of labor for the Department of Labor (DOL)’s Employee Benefit Security Administration (EBSA) in Washington, D.C., the agency is focusing on two things: expanding retirement plan coverage and improving adequacy.

Borzi noted that 40 years ago, about 50% of Americans had access to a retirement plan at work and that percentage has not improved, leaving 68 million Americans with no workplace plan to join.

As the agency worked on its recently released guidance for states that are addressing the access problem, it referred to the Employee Retirement Income Security Act (ERISA), she said. According to Borzi, the early adopter states tried to craft legislation similar to the federal automatic individual retirement account (IRA) proposals, to gain entrée to the payroll deduction safe harbor and exemption from ERISA; other states have been realizing that if they avoid ERISA, they will still eventually have to address the consumer protections built into it.