Fiduciary Newsletter – Summer 2022

2022 has been a very busy year for news in the retirement world.

To recap what we have seen over the past several months, we are providing retirement plan fiduciaries and the committees they serve on with this brief summary of the issues of the day, and our thoughts on how plan fiduciaries should be approaching them.

If you have questions or concerns about how these issues will affect your plan or your role as a plan fiduciary, please don’t hesitate to give us a call!

Lifetime Income/Annuities

As the passage of the SECURE Act has paved the way for annuities in retirement plans, participants are increasingly interested in adding a lifetime income component to their 401(k) plan. And you can’t really blame them. Creating a steady income stream for their golden years provides a great deal of comfort and security.

The investment and insurance industries are responding by building and rolling out new investment strategies that incorporate annuities and lifetime income options. Firms like Blackrock, Nationwide and Annexus have already brought these strategies to the market and as retirement plan fiduciaries begin to assess this trend, we can expect to see these products playing a more prominent role in 401(k) plan line-ups in the years to come.

So what does this mean for the fiduciaries who oversee these plans? Well, on top of everything else on their plate they will now have to acquire a new skill set in understanding and analyzing insurance contracts from a fiduciary point-of-view. That’s right, annuities are not investments. They are insurance contracts that are designed to last a lifetime. Building this skill set and getting this right is imperative. And for retirement plan fiduciaries, it adds to the already heavy burden of overseeing a retirement plan.

To get our take on this issue and what we believe retirement plan fiduciaries need to be aware of, read our article that was recently published in BenefitsPRO.

If you are interested in adding lifetime income options to your retirement plan, Harrison Fiduciary can help. Please feel free to give us a call to discuss how engaging with an independent fiduciary can lead to better outcomes for plan sponsors and plan participants!

Cryptocurrency

Everyone is watching and wondering where crypto is heading, but it’s safe to say not everyone understands it. Nonetheless, it’s inching its way towards the retirement industry and fiduciaries should take note. Recently the nation’s largest 401(k) plan provider, Fidelity, has announced that they will soon be rolling out the option to invest retirement assets in Bitcoin. The DOL has said they have “grave concerns” and they have cautioned plan fiduciaries to exercise extreme care before they consider adding cryptocurrency options to a 401(k) plan. You can read the DOL’s Compliance Assistance Release for plan fiduciaries here.

For a multitude of reasons, we believe retirement plan fiduciaries should hold off here as crypto assets have not provided audits and other standard modes of verification. From our fiduciary perspective this disqualifies them as prudent investments. To dive deeper into the issues plan fiduciaries need to know about cryptocurrencies and specifically, Bitcoin, read our article that was recently published in Investment News.

ESG

Last fall the DOL issued a proposed rule that would amend its investment duties regulation related to the use of ESG factors in selecting appropriate investments for ERISA qualified plans. The new rule would explicitly give a green light to plan fiduciaries looking to incorporate ESG into their plans. It’s a significant change from the position of the DOL under the previous administration which limited a fiduciary’s ability to consider ESG factors. Politics is playing a big role here, with Democrats in congress praising the rule, while Republicans have asked the DOL to withdraw the rule, saying that it effectively mandates consideration of ESG factors in investment decisions. The comment period has been closed and as the final rule is still pending, retirement plan fiduciaries wait.

Irrespective of the outcome, Harrison Fiduciary has weighed in on some if the issues and pitfalls that plan fiduciaries need to be aware of when considering how to integrate ESG options into retirement plans. Read about it in our article that was recently published in Plan Sponsor.

Target Date Funds

TDF’s continue to be the fastest growing investment strategy within retirement plans. While they are a useful and beneficial tool to optimize retirement savings over an investors time horizon, plan fiduciaries should be diligent in their selection. While they are often marketed as simple “set it and forget it” options for plan participants, they are actually quite complex. And we are now seeing lifetime income options being added to them, increasing their complexity. Not every TDF fund is appropriate for every plan and fiduciaries hold a duty to perform their due diligence when selecting TDF options for their plans. For fiduciaries analyzing their TDF line-up, we have outlined a number of issues that should be considered here.

As trends in ERISA litigation continue to plague plan sponsors, the recent Supreme Court decision in Hughes v. Northwestern University leaves the door wide open for future class action lawsuits that focus on Target Date Funds. Read our article on this that was published earlier this year in BenefitsPro.

And don’t forget, last year the Government Accountability Office kicked off an investigation into TDF’s and how they are used in retirement plans. It’s anyones’s guess when we will see the results of that investigation but we can expect they will also accompany new guidance for plan fiduciaries on their use.

As an independent fiduciary, we offer a comprehensive TDF analysis and review for retirement plans. If You would like to lean more pease visit www.harrisonfiduciary.com or give us a call!