June 2016

Inside this issue:


A review of the holding in a recent Third Circuit Court of Appeals case provides a reminder of the importance of implementing and following a documented, prudent process to monitor plan investment options. In Santomeno v. John Hancock Life Insurance Co. (Case No. 13-3467 (3d Cir. Sept. 26, 2014)), the plaintiffs (plan participants, not plan fiduciaries) brought an ERISA class action suit against Hancock arguing that Hancock was a fiduciary to the plan and charged excessive fees. The Third Circuit ruled that Hancock was not a fiduciary and dismissed the case. (Earlier in its procedural history, a different Third Circuit case held that participants may bring suit directly against the service provider without having to first bring suit against the plan trustees. The Supreme Court denied review of the earlier decision giving participants standing to sue service providers directly, so that holding stands.)

Under the contested arrangement, Hancock provided 401(k) plans with access to a large line-up of different investment options. The plan's trustees then selected a smaller menu of investment options from the larger line-up to determine the investment options offered under the plan. The plaintiffs argued that because Hancock had the discretion to select the original larger line-up of offered funds and to make changes to that line-up, it was a fiduciary. The court rejected that argument because the plan fiduciaries had the final decision making authority about what investment options were actually offered under the plan.

The takeaway from this case is that plaintiff's lawyers continue to find new, creative ways to bring excessive fee litigation against plan sponsors, fiduciaries, and service providers. Plan fiduciaries who make final decisions about what investment options are offered under a plan must comply with their responsibilities under ERISA when making those decisions. As the Third Circuit Court held, a service provider who does not have that final decision making authority is not subject to those same responsibilities. Plan fiduciaries who have a prudent process in place to actively monitor plan investments options, regularly benchmark fees and document that process have a stronger position to defend should litigation ever come knocking on their door.


With most retirement plans the fiduciary responsibility of selecting and monitoring the plan’s menu of investments is designated to a retirement plan investment committee. This committee usually includes financial officers and human resources officers of the employer. The committee meets periodically (anywhere from annually to quarterly) to consider agenda items including investment due diligence, fees and services of plan providers, status of plan goals, etc.

From a fiduciary perspective it is just as important to properly document these meetings as it is to hold the meetings. Proper documentation serves as proof that the committee’s responsibilities are being prudently executed. Often plans question the degree of documentation necessary. Below are a few suggestions of what the retirement plan investment committee meeting minutes should include:

  • A listing of all parties present with identification of roles (committee member, guest, advisor, provider representative, attorney, accountant, etc.);
  • A description of all issues considered at the meeting: fund performance of investments offered, participant communication/education initiatives, plan demographic and provisional review, investment policy statement review, market summary and other topics as appropriate to achieving and maintaining a successful plan;
  • Documentation of all materials reviewed during the meeting;
  • Documentation of all decisions made and the analysis and logic supporting each decision; and
  • Identification of any topics to be continued in subsequent meetings


While employers are largely supportive of workers’ efforts to save for retirement, defined contribution (DC) plan participants are looking for additional guidance from sponsors to help improve their savings habits.

In a recent study, participants aged 25-54 and pre-retirees between 55-65 acknowledged that they could and should save more for retirement and said they understood the consequences of not doing so. Moreover, they said “life gets in the way” of their goals, citing inadequate earnings, debt and expenses related to children, dining out and vacations as primary obstacles to saving.

The study showed that participants recognize they aren’t doing enough on their own to put aside necessary savings for their post-working years. However, they revealed they would happily comply if their employers established specific savings requirements. Interestingly, a majority of employers adopt a “hands-off” approach when it comes to providing particular parameters for savings. According to the study, participants want sponsors to implement clearly established guidelines and helpful plan provisions, such as automatic enrollment and default contribution rates.

Participants and Sponsors: Disparate Viewpoints
Participants said they value their employer-sponsored defined contribution plan as a vehicle to help them prepare for the future. However, they graded employers a B- when it comes to providing a retirement plan that meets their savings, investing and accumulation needs. Plan sponsors gave themselves higher marks: One-fifth graded their efforts an A, and another 63% gave themselves a B.

If they received additional encouragement from their employer, participants said they would save more. Less than two-fifths of 55- to 65-year-olds and roughly one-third of 25- to 54-year-olds believe their companies have done everything they could to support their retirement savings efforts. What’s more, participants look to their employers to offer motivation to help boost their savings. Two in 5 would like “a slight nudge,” while an additional 2 in 5 prefer either “a strong nudge” or a “kick in the pants.” Only 1 in 6 said they’d like their employer to “leave [them] alone.” Conversely, plan sponsors believe just one-quarter of participants prefer more than a slight nudge, and 3 in 10 want to be left alone.

Default Features Can Positively Impact Savings
Provisions such as automatic enrollment and higher default contributions can positively impact savings rates. Six in 10 participants agree their company should offer 6% automatic enrollment, and 4 in 10 believe that if plans offered this feature it would significantly impact savings. Furthermore, annual automatic increases also garnered favor, with 7 in 10 participants indicating they’d be receptive to increases of 1%. Participants are also encouraged by offerings such as illustrations that show the income their savings can produce, annual reviews, retirement accumulation projections, and projection calculators.

The study, from American Century Investments, is available online at http://tinyurl.com/AmericanCenturySurvey.

© 2016 Kmotion, Inc.



We have heard that health savings accounts could help employees save even more for retirement. What do we need to know?

A: Money accumulated in a health savings account can indeed be used in retirement. Employee contributions to HSAs, as well as the earnings on the account, are pretax. That’s why there are some who suggest using an HSA to help employees increase their pretax contributions—and their ultimate retirement savings.

The concern is that employees may need $200,000 or more solely for medical costs, including premiums and out-of-pocket expenses, in their retirement years. Employees whose 401(k) contributions reach the maximum allowable level each year need to find other ways to save money.

There is some debate about whether or not the HSA is a viable option. In an environment where a health insurance plan is a competitive benefit, a high-deductible health plan, to which the HSA must be tied, may not look attractive to candidates. The Employee Benefit Research Institute (EBRI) says that an employee saving in an HSA for 20 years could accumulate between $118,000 and $193,000, depending upon the rate of return and contribution amounts. But it concedes that in order to maximize the accumulations in the HSA, the employee would need to pay current medical expenses out of pocket using after-tax money—something that is likely to be a stretch for most employees.

Read more about HSAs and their potential for retirement savings in the EBRI report, Lifetime Accumulations and Tax Savings From HSA Contributions, at http://tinyurl.com/EBRIHSA.


MRPA is pleased to announce that three of their retirement plan consultants – Mike Montgomery, Ron Letaw and David Montgomery - have earned their Certified Plan Fiduciary Advisor (CPFA) designation from the National Association of Plan Advisors (NAPA). Plan advisors who earn their CPFA demonstrate the expertise required to act as a plan fiduciary or to help plan fiduciaries manage their roles and responsibilities.

No strategy assures a profit or protect against loss.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.

For Plan Sponsor use only – Not for use with Participants or the General Public.This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

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