Posts in Retirement Plans
Retirement Summit: Key Takeaways

Written by Christian O’Dwyer, CFA
Christian is a Vice President at Innovest Portfolio Solutions

Innovest joined more than two hundred plan sponsors, advisors, and asset managers in New York City in May to discuss how the industry can continue improving products and services that drive better outcomes for retirement plan participants. The discussions, which took place at the J.P. Morgan Retirement Summit, included a variety of topics: auto enrollment and escalation, target date funds, fee-related regulatory and legislative updates, and protecting personal and plan information from cybercrime.

As the retirement landscape evolves, new trends have emerged. Total industry assets currently stand at approximately $27 trillion and are split evenly between defined contribution, defined benefit, and individual retirement accounts. Among defined contribution plans, 64% of plans have adopted autoenrollment, and 62% offer target date funds. Of the plans offering target date funds, 78% use them as the Qualified Default Investment Alternative. (1) These statistics demonstrate that many plan sponsors are facilitating retirement savings and helping younger employees to invest earlier. However, of the plans with auto enrollment, only 50% also use auto escalation, which has led to lower average contribution rates. Participants who are not actively engaged in monitoring and managing their retirement savings most likely will not save enough to fully fund retirement with average auto enrollment amounts of 3% to 6%. Therefore, plan sponsors should consider the appropriateness of adding auto escalation to their plans.

The retirement summit also focused on litigation pertaining to fiduciary responsibilities. As Innovest consistently reminds its clients, one of the key fiduciary responsibilities is to act prudently and in the best interest of plan participants. Two important court decisions in 2018 helped to clarify how plan sponsors can meet that standard when selecting investments. In White v. Chevron, participants in Chevron’s retirement plan alleged the plan sponsor breached its fiduciary duty by failing to select the cheapest investment vehicles and failing to monitor asset-based revenue sharing. In November 2018, the Ninth Circuit Court of Appeals affirmed the district court’s dismissal of the case. (2) According to the district court’s decision, “Fiduciaries have latitude to value investment features other than price (and indeed are required to do so)”, for example “potential for higher return, lower financial risk, more services offered, or greater management flexibility.” (3) Similarly, the Eight Circuit Court of Appeals recognized that the duty of prudence does not require selecting the investment strategy that ultimately performs best. (4) In the words of the district court’s opinion in that case, “one would expect the Wells Fargo and Vanguard funds to perform differently because the Wells Fargo funds have a different investment strategy than the Vanguard funds. …Therefore, it does not necessarily follow that the Wells Fargo funds were substandard compared to the Vanguard funds.” (5)

The summit provided Innovest with a great opportunity to discuss pressing issues with other industry professionals. Some of the key takeaways were that adding auto escalation, when appropriate, is an important complement to auto enrollment; selecting appropriate investments involves assessing the funds’ value, not only their costs; and protecting against cybercrime looms as a large challenge for sponsors and participants.


1 J.P. Morgan Plan Participant Research 2018

2 White v. Chevron Corp., 752 F. App’x 453 (9th Cir. 2018),

3 White v. Chevron Corp., 2016 WL 4502808 at *9-10 (N.D. Cal. Aug. 29,

2016), citing Tibble v. Edison Int’l, 729 F. 3d 1110 (9th Cir. 2013).

4 Meiners v. Wells Fargo & Co., 898 F.3d 820 , (8th Cir. 2018)

5 Meiners v. Wells Fargo & Co., 2017 WL 2303968 (D. Minn. 2017 ;)

Appellate Court Revives UPenn 403(b) Lawsuit

“The 3rd U.S. Circuit Court of Appeals has revive a lawsuit against fiduciaries of the University of Pennsylvania’s 403(b) plan which had been fully dismissed by a District Court in 2017.

The appellate court agreed with the dismissal of most claims, but when it came to claims about excessive fees and improper investments, the court found the plaintiff plausibly alleged a breach of fiduciary duty under the Employee Retirement Income Savings Act (ERISA). It said the plaintiff’s factual allegations are not merely “unadorned, the-defendant-unlawfully-harmed-me accusations, but are numerous and specific factual allegations that the university did not perform its fiduciary duties with the level of care, skill, prudence, and diligence to which plan participants are statutorily entitled under ERISA Section 1104(a)(1).” Click here to keep reading.


Boosting Effectiveness of Retirement Plan Communications

“Words have the potential to inform, encourage and empower. But the wrong words can be powerful in negative ways, leaving people uncomfortable, overwhelmed or confused. Using the right words is especially critical in financial matters. Employees need to understand their retirement plan options so they can make the best decisions for their future, but the general public often misunderstands words that are commonly used by financial providers, employers and others in the retirement planning industry.” Click here to keep reading.


Lawmakers Ask GAO to Examine Cybersecurity of Retirement System

ERISA, the Employee Retirement Income Security Act, governs the electronic disclosure of retirement plan communications and requires that plan fiduciaries take the necessary steps to protect plan participant’s confidential personal information. Now the U.S. Government Accountability Office has been asked examine the cybersecurity of the retirement system. Click here to read more.

Source: PlanSponsor

Ways and Means Moves Comprehensive Retirement Reforms Foreward

“The most powerful committee in the U.S. House of Representatives has advanced a powerful piece of retirement reform legislation – unanimously.

Signifying the importance of the issue, the first markup meeting of the House Ways & Means Committee for the 116th Congress on April 2 featured the approval of wide-ranging legislation to make it easier for businesses to offer retirement plans and for individuals to save for retirement."  Click here to keep reading.


Safe Harbor Hardship Distributions Cannot Be Taken for Repayment of Student Loans

"The IRS confirmed in the Letter that because a safe harbor distribution may be made only for the prospective payment of education expenses, it cannot be made for the repayment of student loans. The IRS suggested that as an alternative to taking a hardship distribution, the participant may be able to get a loan from the plan.” To read more about the Safe Harbor Hardship Distribution click here

Source: Drinker Biddle

10th Circuit Tosses Massive ERISA Fiduciary Suit

“A federal appeals court has affirmed summary judgment in a class action suit involving 270,000 plan participants across more than 13,000 plans.

The suit was filed in 2015 by plaintiff John Teets, a participant in the Farmers’ Rice Cooperative 401(k) Savings Plan, which had contracted with Great-West for recordkeeping, administrative and investment services. The suit, which had been granted class action status on behalf of all plans and participants invested in the particular fund, alleged that Great-West (the defendant) acted as an ERISA fiduciary with respect to the fund because it exercised authority or control over the management of disposition of plan assets, specifically the Great-West Key Guaranteed Portfolio Fund, a fund that (as the court notes), “as the Fund’s full name suggests, is operated by Defendant.”

Click here to keep reading.