Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
After a bit of a lull in April, the job market came roaring back in May adding 272,000 new jobs beating experts expectations with education & government accounting for nearly half while the business sector added a robust 33,000 new positions. Unemployment was up a tick at 4% while wages rose 4.1% year over year.
So not only is the war for talent still raging at the workplace with a recent Morgan Stanley report showing how much employees value financial planning services, but it is also affects all sectors including record keepers, TPAs and advisors alike struggling to hire quality talent affecting service and their ability to grow as the war for talent rages on.
DC litigation has targeted in the past fees and plan sponsors asleep at the wheel with TDFs and forfeiture accounts recent victims has now moved onto managed accounts with a new suit by Bechtel employees, a $5.1 billion plan.
The suit alleges that the record keeping fees, which were between $24-$29/year/participant, effectively increased by over $300 due to additional revenue paid to the provider which used the managed accounts as the QDIA default investment.
Citing little performance difference from TDFs, which were substantially cheaper, and limited engagement by participants, the suit alleges that the managed account fees were unreasonable.
While TDFs are crude and just a pit stop on the road to personalization, until there is more engagement, unleashing their benefits, and costs come down, it is likely that managed accounts will be a litigation target as their use increases by both record keepers and advisors to generate additional revenue.
Speaking of managed accounts, a NY federal court rejected a motion to dismiss a lawsuit brought by participants in six college and university plans against their provider TIAA alleging high pressure sales tactics to enroll participants in high cost managed accounts. The plan sponsors were not named.
In 2021, TIAA was fined $97 million by the SEC for their rollover sales tactics, as well as managed accounts, citing failure to disclose conflicts of interest and misleading statements by TIAA reps.
So as cross selling by providers and advisors only increases, so does the potential for conflicts of interest and, as we have seen, lawsuits that will only make plan sponsors more reluctant to allow their vendors to offer additional services.
After buying the retirement divisions of Wintrust, Huntington Bank and Truist, OneDigital announced a similar deal with Zions Bancorp located in the Southwest with plans in Washington and California. All told, the deal includes $4.4 billion in 200 plans with 42,000 participants.
With the exception of JP Morgan, who recently expanded their relationship with Vestwell, and BofA, which owns Merrill and their own record keeper, it seems like banks struggle to compete to offer retirement plans to clients. Though they have unique relationships with participants and businesses owners with access to lots of data, retirement plans have yet to become a core service. Lot for more deals & outsourcing opportunities.
As the leading 401(k) record keepers gathered in DC on June 4-5th for the sixth annual RPA Record Keeper Roundtable and Think Tank during the SPARK/DCIIA Public Policy Forum, Mark Alley from Alerus said “The 401(k) industry is entering its second golden age but must overcome issues with scale and implementation.”
Themes included how to leverage the explosion of small plans through wealth advisors and TPAs and how to safely use data to fuel the initiatives as well as leverage technology offered by the emerging fintechs, third parties and through AI.
Read my recent WealthManagement.com column about this seminal meeting which also touched on how the DC industry needs to come together to collaborate on guaranteed income, a theme sure to be covered more thoroughly at the June 17-18 Retirement Income RoundTable in NYC.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- Allianz hires new DC distribution executive
- Survey shows DC plan sponsors want to add retirement income options
- JPMorgan deepens relationship with Vestwell
- Vanguard notes DC matches disproportionally benefit the wealthy
- Survey details how employees want and expect financial planning at the workplace
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.