Compliance June 6, 2018

Vanderbilt University Faces New Claim Over Product Marketing to 403(b) Participants

The new claim in the 403(b) plan lawsuit says the defendants should have protected participant data as plan assets and not allowed TIAA to use it to market its products and services to participants.

Reported by

A second amended complaint in a case accusing fiduciaries of the Vanderbilt University 403(b) plan of failing to manage the plan prudently, in violation of the Employee Retirement Income Security Act (ERISA), includes a new claim related to the defendants’ alleged failure to protect plan assets by allowing third parties to market services to participants.

The new complaint notes that the defendants were required to independently assess “the prudence of each investment option” for the plan on an ongoing basis. It says they breached this duty specifically by allowing one of its recordkeepers, TIAA to use its position as a recordkeeper to obtain access to participants, gaining private and sensitive information including participants’ contact information, their choices of investments, the asset size of their accounts, their employment status, age, and proximity to retirement, among other things. “Defendants allowed TIAA to use this valuable and confidential information to sell TIAA products and wealth management services to the Plan’s participants, and failed to even attempt to determine the value of this marketing benefit,” the complaint says.

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

It goes on to say that the defendants should have protected this data as plan assets and by not doing so, failed to act in the best interest of plan participants.

The complaint notes that historically before 2009, “403(b) plan investment options were often sold by recordkeepers and their representatives rather than offered by plan sponsors as evaluated investments.” This is a reference to a practice of 403(b) plan sponsors allowing vendors to sit in cafeterias or employee lounges trying to sell products.

The complaint cites instances of several universities changing their practices after 403(b) regulations were passed in 2007, as well as annual surveys by the Plan Sponsor Council of America (PSCA) which found that in each year from 2010 through 2014, the overwhelming majority of 403(b) plans—over 80%—have only a single recordkeeper.

In a memorandum in support of plaintiffs’ motion to file an amended complaint, it was pointed out that the plaintiffs have not delayed in bringing their amended complaint because it will be filed before discovery in the case has commenced. In his order granting plaintiffs’ motion, U.S. Magistrate Judge Joe B. Brown of the U.S. District Court for the Middle District of Tennessee said the new complaint will not include claims previously dismissed by the court.
Compliance June 6, 2018

Social Security Board Revises Depletion Date, Calls for Congressional Action

The Social Security OASI Trust Fund is projected to become depleted in late 2034, as compared to last year’s estimate of early 2035.

Reported by

The Social Security Board of Trustees this week released its annual report on the long-term financial stability of the Social Security trust funds, finding the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance Trust Funds are projected to become depleted in 2034, the same as projected last year, with 79% of benefits payable at that time.

According to the report, looking specifically at the Old-Age and Survivors Insurance (OASI) Trust Fund, this is projected to become depleted in late 2034, as compared to last year’s estimate of early 2035, with 77% of benefits payable at that time. The Disability Insurance Trust Fund will become depleted in 2032, extended from last year’s estimate of 2028, with 96% of benefits still payable.

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

In the 2018 annual report to Congress, the Trustees announce the asset reserves of the combined Trust Funds increased by $44 billion in 2017, reaching a total of $2.89 trillion.

“The total annual cost of the program is projected to exceed total annual income in 2018 for the first time since 1982, and remain higher throughout the 75-year projection period,” the report states. “As a result, asset reserves are expected to decline during 2018. Social Security’s cost has exceeded its non-interest income since 2010.”

“The Trustees’ projected depletion date of the combined Social Security Trust Funds has not changed, and slightly more than three-fourths of benefits would still be payable after depletion,” explains Nancy Berryhill, Acting Commissioner of Social Security. “But the fact remains that Congress can keep Social Security strong by taking action to ensure the future of the program.”

Breaking down the $997 billion that flowed into the combined trust funds in 2017, the report shows $874 billion came from net payroll tax contributions, $38 billion from taxation of benefits, and $85 billion from interest payments. Total expenditures from the combined trust funds amounted to more than $952 billion in 2017. Out of this number, Social Security paid benefits of more than $941 billion in calendar year 2017, and there were about 62 million beneficiaries.

Other findings show, during 2017, an estimated 174 million people had earnings covered by Social Security and paid payroll taxes. At the same time, the cost of $6.5 billion to administer the Social Security program in 2017 “was a very low 0.7 percent of total expenditures.”

The full 2018 Trustees Report is available here.

«