In the News
DEC 21, 2016
Another billion-dollar plan finds itself in the crosshairs of an excessive fee lawsuit, raising some allegations common to this litigation – with a couple of new twists.
The suit, Creamer v. Starwood Hotels & Resorts Worldwide Inc. (C.D. Cal., No. 2:16-cv-09321), filed Dec. 16, 2016 in the U.S. District Court for the Central District of California, charged that Starwood Hotels & Resorts Worldwide Inc. “caused Plan participants who invested in index funds to pay seven times more than a reasonable fee due to multiple layers of fees.
The plan’s Brightscope rating was invoked, with the plaintiffs noting that the difference in Starwood’s rating compared with the top BrightScope rating for peer plans means that “sixteen years of additional work was required by Starwood employees to reach the same level of savings as peer plan participants,” and that therefore Starwood participants lost savings of $110,871 per participant, or $5 billion collectively, as compared to the highest ranking peer plan.
DEC 16, 2016
A 401(k) plan is one of the best vehicles for helping you save up for a secure retirement, but a second proposed class action lawsuit being filed against brokerage firm Edward Jones highlights once again that even the best savings plans can hide significant risks. Do yourself a favor and ensure that your own 401(k) doesn't contain these hidden dangers.
Knowledge is power
So you know what to look for -- now where do you start? Begin by reviewing your account statement, the disclosure forms that plans are required to provide participants, and the plan's annual report. Because fees come in various forms, finding them isn't always easy, so you might try comparing your plan to others on a site like BrightScope and/or searching the U.S. Department of Labor's Form 5500 for plan disclosures.
DEC 13, 2016
The newly announced Secretary of Labor is best known for his stance on keeping minimum wages minimal but his actions as a plan sponsor of a 20,200-employee firm show he is inclined to minimize 401(k) participation and matching, too.
Subject to Senate confirmation, Andy Puzder, CEO of CKE Restaurants Inc., the parent company of fast food chains Hardee’s and Carl’s Jr., will be the next Secretary of Labor.
"They’re really saying ‘we checked the box,’ getting by with the bare minimum in their offering," says Mike Alfred, co-founder and CEO of BrightScope Inc. about CKE's pension plan. See: RIAs are set to capture chunks of the $26 billion that GM is spinning out of its pension plan.
DEC 9, 2016
Fast food executive Andy Puzder, President-elect Donald Trump's choice to head the Labor Department, could be in a position to undermine the agency's new rule on retirement advice which has long been opposed by the financial industry.
The plan is less generous than some of its fast food competitors, according to data and analysis from Brightscope Inc, a research company that rates 401k plans.
In 2015, CKE opted not to match the retirement contributions of the plan's participants, according to Labor Department data.
The plan also carries high-fee investments, has low participation and generally scores worse than many of its rivals even in the notoriously high-turnover, low-benefit fast-food industry, according to Brightscope.
The CKE plan suggests that Puzder will bring "more of an industry-friendly perspective to the office," said Mike Alfred, managing director at Brightscope, which ranks it below those at Jack in the Box, McDonalds and Yum! Brands Inc.
NOV 29, 2016
At the end of the second quarter of 2016, total assets in defined contribution plans hit $7 trillion, according to research from the Investment Company Institute and BrightScope.
OCT 22, 2016
I met Mike and Ryan Alfred when they first started Brightscope and right out of the gates, I knew that Brightscope was going to have an impact on the retirement plan business.
Q: Do you think Brightscope was part of the large movement for transparency that resulted in the fee disclosure regulations in 2012?
A: I think we played an important role in the process. We have provided data and analysis to the DOL, GAO, Senate Aging Committee, House Education & Labor Committee and many others over the years. We have been active in Washington DC and Ryan serves on the board of trustees at the Employee Benefit Research Institute (EBRI). In addition, we provided data for numerous mainstream media stories discussing the importance of fee transparency. Our vocal support of fee transparency may end up being one of the most important legacies of our firm.
OCT 21, 2016
One OCIO product that could prove useful with the advent of the fiduciary rule is the TAMP. For a free that often comes out to a couple of dozen basis points, TAMPs offer not just an off-the-shelf OCIO service but also the opportunity to modernize a firm’s financial technology platform. The top three providers, according to Y.S. financial information company BrightScope: $162.3 billion OCIO of Oaks, Pennsylvania; Chicago-based Envestnet, with $82.1 billion; and Concord, California-based AssetMark, with $20 billion.
OCT 21, 2016
Mark Eichenlaub, a seventh-grade language arts teacher who coaches cross-country track in Flossmoor, Ill., decided to pay the fee, about 5 percent of his balance, just so that he could extricate himself from a variable annuity sold by AXA, which subtracted more than 2.34 percent of his balance each year. In contrast, large 401(k) plans charge less than half a percent annually, according to BrightScope, a financial information company.
OCT 21, 2016
Through its fiduciary rule, the Department of Labor is attempting to rein in conflicted investment advice and reduce costs for retirement savers.
However, there's a corner of the retirement market plagued by the sort of high fees and sales practices the DOL is attacking that won't be touched by the regulation: public school districts.
403(b) plans, a type of defined contribution plan for public schools, tax-exempt organizations and ministers, are notorious among advisers and industry practitioners as being a sort of free-for-all environment with multiple vendors, high-fee investment products and brokers who can camp out in a school cafeteria to try to make a sale.
Non-ERISA 403(b) plans hold roughly 57% of the $900 billion in the 403(b) market, according to a joint report from the Investment Company Institute and BrightScope Inc.
OCT 20, 2016
Plan sponsors have generally become more savvy, he notes. Leaving plan menus untouched for years is less common. Sponsors now issue requests for proposals to “benchmark” their plans to help ensure that the investments are competitive in performance and fees, even if they have no immediate plans to change the menus, he says.
But the use of a recordkeeper’s proprietary funds varies with plan size. As of the end of 2013, more than 38% of assets in plans with $50 million to $500 million were held in proprietary funds, compared to 19.6% of assets in plans with more than $1 billion in total assets, according to a report by BrightScope and the ICI.
OCT 19, 2016
We rate the nine actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds' performance and prospects. A Buy rating indicates the best Fidelity funds for your retirement savings from among the group of funds analyzed.
The list of funds, based on 401(k) assets under management, was generated for Kiplinger by BrightScope, a financial-information company that rates retirement-savings plans. The funds are listed in alphabetical order. We used data for the Investor share class for each fund, but your retirement plan may have access to a lower-cost share class, such as a K-class or a class called a collective investment trust (a pool of assets organized as a trust) that is run with a similar strategy to that of the mutual fund. Funds that are nominally closed to new investors may be open to participants in a 401(k) plan. Returns are as of October 17.
OCT 19, 2016
We rate the 10 actively managed funds and the collection of target-date funds Buy, Sell or Hold based on our analysis of the funds' performance and prospects. A Buy rating indicates the best Vanguard funds for your retirement savings from among the group of funds analyzed.
The list of funds, based on 401(k) assets under management, was generated for Kiplinger by BrightScope, a financial-information company that rates retirement-savings plans. The funds are listed in alphabetical order. We used data for the Investor share class for each fund, but your retirement plan may offer a different share class that presumably charges a lower fee. Note that some of the actively managed funds on this list are closed to new investors. But some funds that are nominally closed may be open to participants in a 401(k) plan. Returns are as of October 11.
OCT 14, 2016
J.P. Morgan, for example, includes an employee stock ownership plan (ESOP) component in its 401(k) plan, and company stock accounted for about 15% of the plan’s total assets as of the end of 2014, according to data from BrightScope.
Similarly, PNC Financial Services had about 11% of its plan assets in company stock as of the end of 2014, according to BrightScope.
Also as of that time, some examples of other companies with substantial plan assets in company stock included Charles Schwab (19%), Franklin Resources (7%), Zions Bancorporation Payshelter (28%), Aflac (27%), Progressive Corporation (27%) and Regions Financial Corporation (26%), according to BrightScope data.
Further, some firms, such as Raymond James, have pure ESOP plans, in addition to their 401(k)s. That company had $234 million in company stock in its ESOP plan at the end of 2014, according to BrightScope. The firm’s separate 401(k) plan had about $720 million at that time.
OCT 12, 2016
Wells Fargo & Co.'s legal troubles are mounting following revelations of the bank's recent cross-selling scandal last month.
A participant in the Wells Fargo 401(k) plan has sued the company over a “material drop” in its stock price following news of the scandal, characterized as a “criminal epidemic” that caused hundreds of millions of dollars in damages to the retirement plan, according to a court filing.
Approximately 34% of assets in the company 401(k), a massive $36 billion plan with more than 360,000 participants, are invested in Wells Fargo common stock, according to BrightScope Inc., a 401(k) ratings provider.
OCT 9, 2016
Brooks Herman, head of data and research at BrightScope Inc., said that of the 60,000 employer-sponsored plans managing more than $4 trillion, he sees alternative investment options making virtually no inroads.
'LESS THAN 1%'
“You might find an alternative strategy inside a sleeve of a target-date fund, but even counting REITs and commodities, it's less than 1%,” he said. “Alternatives are usually not even available to plan participants unless they have access through a brokerage account.”
“If you're going to see retirement plans add alternatives, it's going to happen with the jumbo plans first because they set the trends, and we're not seeing alternatives yet in the big plans,” Mr. Herman said. “It takes years for these kinds of changes to happen because these plan sponsors move at glacial speeds. At this point, you don't even see gold ETFs on plan menus, and you don't even see a lot of commodity products or smart beta strategies.”
From most perspectives, the bottleneck when it comes to alternative strategies starts with education, and within the education challenge reside the issues of higher fees, shorter track records and a growing fear of lawsuits tied to fiduciary duties.
OCT 5, 2016
Janus’s mutual fund assets have hovered around $100 billion since 2011, and the firm has seen about $3.7 billion in net outflows year-to-date as of the end of August, according to data from BrightScope.
OCT 4, 2016
Ten months after cutting ties with FolioDynamix, the outsourcer for wealth management firms he co-founded in 2007, Schumm’s new 401(k) robo-TAMP, Vestwell Inc., is drawing a bead on Fidelity Investments and The Vanguard Group in the defined contribution business.
Speaking broadly but alluding to Vestwell as probable Exhibit A, Mike Alfred, CEO of BrightScope, says not to put too much faith in venture capitalists of robo-401(k) startups.
“[These VCs are] fish out of water, putting money into something they don’t really understand. In the retirement space you have to sell the plan sponsor, deal with compliance. It’s a heavy sales environment.”
Alfred poses the question: How can they compete against the Vanguards of the industry? He answers: “They can’t. Robos don’t have scale. It’s the only way to compete against Vanguard.”
OCT 3, 2016
“It’s definitely a change of tone,” says Mike Alfred, CEO of BrightScope, pointing to the all-active manager’s history of distributing products exclusively through advisors.
American Funds’ decision to have its funds distributed outside of financial advisors likely has much to do with the DOL’s fiduciary rule, he says. Particularly, it could be difficult for some advisors to recommend IRA rollovers to their existing 401(k) clients who use American Funds products, if it would result in higher fees, Alfred notes. In those cases, an advisor might only recommend a rollover if the client switches to funds from a different provider, he says. “Some of their most loyal advisors in the past may not be there in the future," he says.
“It will be harder to justify higher expenses in a new IRA.”
Because of that dilemma facing both advisors and fund firms, product manufacturers “need to find new ways to do business directly with the consumer,” Alfred says.
And firms such as American Funds, which stand to benefit from their brand reputation, might want to “disentangle themselves somewhat from the advisor relationship,” he says.
SEP 27, 2016
How do you know if the fees are too high?
Schlichter: BrightScope is good for investors (to check fees). Employees of a company should be able to command institutional rates for most mutual funds. Typically a small employee could have a multimillion dollar plan – more than a $250 investor. A couple of hundred employees should be able to command lower fees.
SEP 26, 2016
Today there are signs that momentum could be shifting. U.S. equities, for one, are as frothy now as they were leading up to the 2007–09 bear market and the Great Depression in 1929. The S&P 500 trades at a price/earnings ratio of 27.3 based on 10 years of averaged profits, a 63% premium to historical averages. Although your long-term portfolio may not need a major overhaul, a few adjustments can keep you on the right track regardless of what happens in the market.
One area to consider is rebalancing within the stock portion of your portfolio. According to a joint study by BrightScope and the Investment Company Institute, which looked at 401(k) trends as of 2013, only 8% of these retirement accounts were invested in foreign equities—a figure that’s likely lower today, given the selloff in developed and emerging-market stocks overseas.