A year ago, I said that 2008 looked "to be a
pivotal year for retirement plans"—an observation
that, in hindsight, may well qualify as the understatement
of the decade. Of course, a year ago, that was a commentary
on the changes as plans assimilated the impacts of the
Pension Protection Act, and the preparations for
a new Administration. There's been all that, of course
(though the impact of the latter still lies ahead).
Still, what has dominated the headlines of late—and the
focus of plan sponsors and participants alike—was not even
on our radar screen last year. Here's where we've been,
where we are, and what's ahead:
Fee Fie? The Revenue-Sharing
Suits
What we said:
Deep pockets continue to be the apparent target of
revenue-sharing litigation. While smaller programs almost
certainly are as ill-served by these practices, the
plaintiff's bar continues to focus its attentions on some
of the nation's largest employers. However, if the first
wave failed to establish much of a beachhead, it is
doubtless only a matter of time before these fishing
expeditions turn up something with which some court
somewhere will take issue.
Where we are:
Not as much progress on the litigation front as one
might hope (or fear, depending on your perspective), and a
mixed bag in terms of results, to boot.
What's ahead:
The early signs looked promising for employers, with
most jurisdictions holding that revenue-sharing, per se,
was not a problem, and that disclosure of those
arrangements to participants was not required. What remains
to be seen, of course, is whether those arrangements—in
those particular situations—will be held to be fiduciary
violations and, doubtless depending on how those initial
forays prevail, whether other litigation firms will enter
the fray.
Auto-Premonition: Doing It for
Participants
What we said:
The cost of the match associated with the PPA's safe
harbor is more than some smaller programs are willing to
bear, and employers that already have adopted safe harbor
401(k)s may find little motivation to embrace the PPA's
automatic-enrollment safe harbor. Still, it would not be
surprising to find as many as half of plans automatically
enrolling participants in three years' time.
Where we are:
Sure enough, the PPA has engendered an uptick in
interest (this is, after all, the first year that the safe
harbor was "official"), though it has been more attractive
to larger employers than others, for the reasons cited
above. We are a ways from 50%—but then, it has only just
begun.
What's ahead:
It is entirely possible that an Obama administration
will, as mentioned during the campaign (see "Political
Pairings," PLANSPONSOR, June 2008), advocate workplace
automatic-enrollment IRAs. More significantly, there is a
growing suggestion that the automatic design—having been
successfully deployed for enrollment and investing—might
work equally well at distribution, forestalling the
tendency of participants to take—and spend—those lump
sums.