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next issue no. 5: Fiduciary perspective

A view down a long, modern hallway

Staying on track: focus areas for plan sponsors


The fiduciary landscape has shifted over the past 12 months, creating new plan design and recordkeeping considerations for plan sponsors. Indeed, with the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act at the end of 2019, the coronavirus pandemic and the subsequent passing of the Coronavirus Aid, Relief and Economic Security (CARES) Act, plan sponsors have faced many changes.

Considering CARES


The CARES Act provided roughly $2 trillion in aid to help Americans manage the sudden economic fallout of the coronavirus outbreak and ensuing widespread unemployment. The Act allows qualified retirement plan participants who have been diagnosed with COVID-19 or have experienced adverse financial consequences caused by the virus, to turn to their DC plans to help fund a variety of short- and long-term financial needs.

CARES Act provisions


Coronavirus-related distributions (CRDs)

Coronavirus-related loans

Suspension of Required Minimum Distributions (RMDs)

Plan sponsors had the option to choose whether to offer CRDs in their plans— balancing participant short-term financial needs with the longer-term impact that dipping into retirement plan funds has on retirement readiness. According to a recent survey conducted by the Secure Retirement Institute, nearly 4 in 10 (38%) did not implement the expanded withdrawal capability or the increased loan capability. However, plans that did allow them will need to amend their plan documents to reflect the changes by the end of the 2022 plan year

Bar chart showing adoption of CARES Act provisions has been limited 

Income is the outcome


The SECURE Act passed late last year comprised over 30 provisions, most of which became effective on January 1, 2020. Some of the most anticipated and widely publicized provisions were those around lifetime income. The SECURE Act encouraged inclusion of annuities in retirement plans by creating a new fiduciary safe harbor that helps 401(k) and 403(b) plans offer annuities by protecting plan sponsors from liability should the annuity provider become insolvent or otherwise unable to pay.

The safe harbor has opened the door for plans to adopt a lifetime income solution by limiting fiduciary liability, which has been a longstanding barrier. Under this provision, plan sponsors can rely on representations from the insurer issuing the annuity, regarding the strength of their financial position and other attributes. With the fiduciary onus being shifted to the issuing company, plan sponsors and consultants may more willingly consider using lifetime income-providing annuities in a plan’s lineup.

The SECURE Act also increased the portability of lifetime income balances. Previous legislation dictated that annuities must be liquidated when the sponsor no longer offers it. Now, participants can rollover a lifetime income investment to another employer-sponsored retirement plan or IRA without penalty or fees if the annuity is removed from the plan and certain conditions are met.

A third provision, one requiring lifetime income disclosures on benefit statements, will not be effective for at least another year. The DOL recently came out with an interim final rule, giving guidance on how these illustrations should give savers an idea of how much monthly retirement income they could expect to purchase with their account balance. Retirement plans will also need to provide explanations about what the lifetime income illustrations mean and the assumptions used to calculate the illustrations.

The interim final rule states:

Data minding


The issue of participant data has been getting attention recently. Plan sponsors take every precaution to protect participant data from cyberattacks or other types of security breaches (as we discussed in Issue no. 4 of this publication), but how participant data is used is becoming a hot topic. The line of fiduciary responsibility is somewhat blurred around the use of participant data. There are no express provisions in ERISA that prohibit the use of plan participant data for any particular purpose. Also in question is whether participant data is considered a plan asset. ERISA does not specifically address whether participant data is a plan asset. To date, courts have held that plan data is not a plan asset. But with recent lawsuits regarding use of plan data, plan sponsors should understand and document how plan data is being used.

In the context of creating greater financial well-being, questions about the use of retirement plan participant data continue to bubble up. With access to such data, service providers and asset managers can help provide a more personalized experience through managed accounts and custom financial advice. Therefore, retirement plan committees and plan fiduciaries should begin discussing their responsibilities and their position on retirement plan participant data use, and may want to consider taking the following steps:


Litigation landscape


While the coronavirus pandemic has certainly slowed down activity in many areas of business, the pace of lawsuits targeting plan sponsors does not appear to be slowing. These lawsuits are both expensive to defend and to settle, and generally fall into one of three categories:

While lawsuits have not been limited to these three categories, they represent the most common areas of complaints to date. The good news is that plan sponsors can take steps to mitigate liability by following prudent processes and providing evidence that they are acting in the best interest of participants. In addition, plan sponsors should consider:


Every year in the retirement business brings challenges and concerns for plan sponsors, some of which are to be expected and others that are simply beyond their control, such as the environment we’re experiencing this year. But, no matter what else has changed, plan sponsors’ duties to protect their plan and interests of their participants have not.

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U.S. Institutional Sales
Christopher David
David Christopher
Managing Director,
Defined Contribution
Institutional Sales
Endnotes
1 Bloomberg Bureau of National Affairs, ERISA Litigation Tracker (2018).

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