Compliance June 11, 2015

Supreme Court Seeks Input About ERISA Lawsuit Venue

The U.S. Supreme Court has been asked to weigh in on whether a retirement plan may dictate the venue in which participant lawsuits are filed.
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The U.S. Supreme Court has asked the U.S. Solicitor General to weigh in on whether the top federal court should agree to hear a case regarding whether a clause in a retirement plan document restricting the venue of lawsuits filed against the plan is enforceable.

According to the high court’s docket sheet on the case, it has asked the U.S. Solicitor General to submit the government’s opinion about whether a plan participant’s choice of venue for filing a lawsuit under the venue provisions of the Employee Retirement Income Security Act (ERISA) can be rejected based on a restriction of venue provided for inside the plan documents.                     

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Last November, the 6th U.S. Circuit Court of Appeals found the venue selection clause in Aegon Companies Pension Plan is not in conflict with ERISA. The appellate court refused to give deference to a brief filed in the case by the Department of Labor (DOL), saying the agency’s interpretation was not made with the force of law. The 6th Circuit noted that the DOL’s interpretation has been expressed only once previously, in one other amicus brief filed in a circuit court, and the agency has not issued any additional guidance or regulation about ERISA’s venue selection provisions.

A district court had dismissed the case because it was not filed in the federal district court dictated by the plan document. The appellate court affirmed the dismissal.

Data & Research June 11, 2015

No Surprise—Fees Remain a Top Topic

The retirement plan industry shows little sign of dropping its focus on fees and lowering the cost of investing.
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The 2015 edition of Vanguard’s “How America Saves” study finds plan sponsors and advisers are in general focused on plan fees and bringing meaningful savings to the participants they serve.

The annual study shows more plan sponsors have incorporated a wider range of low-cost index funds into their plans, Vanguard notes. The firm says half of its plan sponsor clients now offer an “index core lineup,” defined as a comprehensive set of low-cost index options that span the global capital markets.

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Perhaps more surprising is participants’ willingness to take investment risk through passive investments. Factoring in index-based target-date funds (TDFs), a strong majority (82%) of participants serviced by the firm held some form of equity index investment as of year-end 2014.

Vanguard suggests key high-level metrics of aggregate savings behaviors—such as median and average deferral and contribution rates—remained steady across the client base in 2014. But the firm “sees encouraging signs with respect to the number of participants saving at double-digit rates,” says Jean Young, lead author of the report and a senior research analyst with the Vanguard Center for Retirement Research. “About half of participants in Vanguard-administered defined contribution plans are saving 10% or more.”

However, the study also found that in plans with automatic enrollment, more than 60% enroll at default rates of 3% or less, so there is significant ground yet to cover. Vanguard says its data clearly demonstrates auto-enrollment boosts participation rates, but it can lead to lower contribution rates when default deferral rates are set at too-low levels. The study recommends a target savings rate of 12% to 15%, including employer match.

“Plan sponsors are playing a more assertive role in shaping participant outcomes, and we commend them for their diligent efforts in designing, overseeing and continually improving their plans,” adds Martha King, the newly announced head of Vanguard’s Institutional Investor Group. “At the same time, we share with our sponsor clients an obligation to move the dial on savings rates, and give participants the best chance for investment success.”

Additional findings from the research can be explored here.

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