Plan Participant Files Lawsuit Against Aegon

According to an article from Plansponsor, a participant of the Aegon Companies Profit Sharing Plan has sued the plan sponsor, Aegon USA, an investment company, for failing to meet the ERISA requirement to act in the best interests of plan participants.  The suit alleges that Aegon designed the plan with layers of unnecessary fees, the majority of which are paid to Aegon, which lead participants to pay higher fees than other plans of a similar size. The suit claims that, when compared to benchmarking data provided by BrightScope and Investment Company Institute publications, Aegon’s Profit Sharing Plan pays three times the amount of fees than other plans with a similar amount of assets.

The lawsuit claims that the plan’s collective trusts and pooled separate accounts do not have a true managed feature but instead simply invest in an Aegon mutual fund of the same asset class and strategy as the trusts and pooled separate accounts.  This strategy would burden the investment with an unnecessary management fee which Aegon receives.  In addition, the suit claims that instead of paying the participant any additional interest earned on liquidated investments, Aegon uses the interest to pay plan expenses.

Has your plan recently compared plan fees to available benchmarking data?

Solutions to the Millennial Problem

For millennials, workers ages 22-39, participation in retirement savings plans has increased to more than 73%.  However, more than 30% of those participating are saving less than what is needed to maximize their company match.  A recent article from Employee Benefit News provided some recommendations for plan sponsors to engage the millennial generation and help spur them to increase their deferral rates.   These recommendations include adopting automatic deferral increases, targeted communications, and employing new online tools.  Focusing millennials on the big picture of how much they will have saved for retirement at their targeted retirement date rather than on their current savings rate and engaging participants competitive spirit by sharing how much others of the same generation are saving may help to bolster the millennials’ desire to save.

Are millennials taking advantage of the full company match in your plan?  Does your plan offer tools to motivate participants to increase deferrals?

ETF Benefits & Disadvantages

A recent article from Employee Benefit Advisor explored the benefits and disadvantages of exchange –traded funds (ETFs) which have experienced a recent boom in retirement planning.  ETFs are funds that follow indexes like the Dow Jones & the S&P 500 by holding the assets such as stocks, commodities, and bonds that are tracked by the indexes.  ETFs may only be purchased or sold using a brokerage account.  The advantages of ETFS include:

  • Lower expense ratios than most mutual funds
  • No minimum investment requirement
  • Daily trading is available

The disadvantages of ETFs:

  • The trading process might be difficult to follow for inexperienced investors
  • Frequent trading of ETFs can increase expenses

Does you plan investment offerings include ETFs? Is the plan sponsor considering adding ETFs to your plan?

Contribution Limits for 2015 401(k) Plans

The Maximum Employee Elective Deferral and Catch-Up Contributions limit (for those participants 50 and older) have each increased by $500 from the 2014 plan year.  The Maximum Deferral for both employer and employee combined contribution increased by $1,000.  This means that plan participants may choose to increase their contributions for the 2015 plan year while plan sponsor contribution limits will remain the same as the 2014 plan year.

The Employee Annual Compensation Contribution calculation and the Top-Heavy Highly Compensated Contribution calculation limit also increased for the 2015 plan year.  Note that the Top Heavy Key Employee Compensation Contribution calculation limit remains the same as the 2014 plan year

Maximum Employee Elective Deferral $18,000
Catch Up Contribution (50 and older) $6,000
Maximum Deferral (employer & employee combined) $53,000
Annual Compensation Contribution Calculation limit $265,000
Top Heavy Key Employee Compensation Contribution Calculation limit $170,000
Top Heavy Highly Compensated Contribution Calculation limit $120,000

Plan Liabilities- Tribble v. Edison International

A recent article from Employee Benefit News outlined the potential impact of Tribble v. Edison International, a recent case that the Supreme Court has agreed to hear, on fiduciary liability.  The plaintiffs in the case argue that the fiduciaries chose mutual funds with higher fees when cheaper alternatives were available. The key concern of the case is that these mutual funds were chosen more than six years prior to the plaintiffs’ suit, exceeding what would typically be the six-year ERISA statute of limitations.  The plaintiffs would argue that because fiduciaries have a duty to continually monitor investments in the fund they should be able to hold the fiduciary accountable for the losses due to excessive fees despite the six year limitation on the initial decision to include the mutual funds with higher fees.

According to the article, if the Supreme Court rules in favor of the plaintiffs, plan fiduciaries’ exposure to liability would increase because plan participants could bring suit against plan fiduciaries for events that happened 10 or 15 years ago if they can prove there are lasting effects from the fiduciaries’ decisions.  To reduce the liability to fiduciaries regarding the selection and monitoring of investments, it is recommended fiduciaries document the initial reasoning behind the selection of investments and document the monitoring process and evaluation of investments.

As plan fiduciaries, do you have records of why one investment was chosen over another?  Are there records of annual investment evaluations and benchmarking?

The 401(k) and Money Market Funds

According to a recent article from Employee Benefit News, the U.S. Securities and Exchange Commission has issued new amendments to the rules regarding money market mutual funds.

  1. Money market funds managed by mutual fund families will be required to allow their net asset value (NAV) to fluctuate based on the underlying value of the investments in the fund.
  2. Money market funds will have the ability to charge redemption fees and halt redemptions during certain periods of time in order to better manage the portfolio

What this means for participants is that selecting a money market account may no longer guarantee participants won’t lose money by investing in a money market fund.  Money market funds have traditionally been valued at $1 per share and typically have not experience redemption fees.

These changes will not go into effect until the fall of 2016 and keep in mind that government money market funds do not fall under these new amendments.

Does your plan have participants that will be affected by this change more than most?

Tips to Avoid a DOL Audit

A recent article in Employee Benefit News addresses some of the Plan errors and problems that would catch the attention of the DOL

  1. Respond promptly to any employee questions or complaints. According to the article, the most frequent cause for DOL attention is employee complaints received by the DOL.
  2. Make sure your plan is clearly explained to all employees to avoid complaints
  3. Address trouble areas of the Plan before the DOL decides to audit
  4. File your 5500 correctly- this is the second most likely cause for your plan to receive the attention of a DOL audit

Common errors encountered filing the 5500 for a 401(k) plan include:

  • Not attaching all required schedules
  • Failing to answer multi-part questions
  • Failing to include all eligible participants in the participant count

Does your plan have procedures in place to address participant questions and complaints?

Aon Hewitt’s 2014 Universe Benchmark Report


Aon Hewitt recently released the results of their 2013 Defined Contribution Plans survey.  A few of their findings from the 2013 Plan year:

  • Average employee participation was 78.3%
  • Average employee savings rate was 7.5%
  • Average return was 17.7%
  • 6% of investments were in equities
  • 58% of plans offer Roth deferrals
  • 39% offer self-directed brokerage accounts
  • More than 25% of participants have an outstanding loan

How does your plan compare?

Targeting Your Audience

In Aegeon’s recent survey of employee retirement readiness featured in an article of Employee Benefit Advisor, 20% of employees reported that having frequent access to more information about their retirement savings would help them to save more.  At the same time, 38% of employees reported that they received no retirement communication, education or support at all.  Print communication is no longer the only or most effective method available; online tools, social media, websites and face-to-face meetings can be used to tailor plan outreach to employees of different cultures and backgrounds.

Which methods of communication are already utilized in your plan? Which methods are you considering implementing?  Have you evaluated the demographics of your employee workforce to determine the most effective communication methods for your Plan?

Participant Fear & Investing

According to an article in Employee Benefit News (EBN), new research recently published by Fidelity reveals that the fear of making a bad investment decision results in participants investing more conservatively than they should, producing lower returns and reducing the chances participants will reach retirement age with enough to fund their retirement.

Fidelity found that participants who review their portfolio more often are more conservative in their investments.  Participants are more likely to check their investments when the market falls and fear of experiencing more losses causes participants to sell their current investments and elect more conservative investments.  Fear of potential but uncertain events, what EBN refers to as ambiguity in the market, also prompts participant conservatism.

To avoid participant conservatism due to fear of ambiguity in the market and reactions to market fluctuations, participants should stick to age appropriate asset allocations.  The message- stay the course and focus on the long term investment goals.  EBN reminds participants that they should be long-term investors, not reactive to current events, for 35 of the 40 years of their career.

Have you noted an increase in changes to participant investment portfolios when the markets fluctuate?


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