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Trader Joe's 401k ERISA Lawsuit

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  • litovskyassetmanagement
    commented on 's reply
    It depends on the type and size of a business. We work with several non-medical companies, but there has to be a good fit. I would say that any company should be able to afford to hire an ERISA 3(38) vs. having to pay excessive fees to retirement plan service providers who are not fiduciaries, but this would have to come directly from the leadership who should have a vested interest in making the big changes to their plan. Many plan sponsors who are not well educated might not see the value in hiring a fiduciary in the first place, but those who do can definitely benefit themselves and their staff.

  • Mobilemom37
    commented on 's reply
    Where does one find a good ERISA 3(38) for a non-medical business?

  • litovskyassetmanagement
    commented on 's reply
    Yes, they don't really care until its their own money at stake (which is why group plans are the quickest to demand and implement change). If there is any middle management or partners who get advice from the same firm that manages the plan (totally a breach of their fiduciary duty), then you are out of luck (unless you want to go the ERISA attorney route, which is probably not going to happen unless your plan is a 'whale', which is why they are going after big plans first).

    You can email this article to the plan sponsor (if you dare), and see what they say. It is not losing the lawsuit, but having to go through with one, that is a threat, as you never know what the result might be because precedents are being created as we speak.

  • Tim
    replied
    I think this part of the evolution of retirement savings. It is BIG BUSINESS. Pensions to 401k’s to mutual funds to ETF’s to index mutual fund a lot of consensual “you scratch my back and I’ll scratch yours” is still in the system. Marketing backed by deals keeps one employed and earns bonuses.

    Proof? My Christmas card !
    signature followed by typing,
    Abigail P. Johnson
    Chairman and CEO
    Fidelity Investments

    No lunch, no Christmas party, just a printed personal touch. Thanks Abby!
    Don’t look for government to make more improvements.

    Leave a comment:


  • legobikes
    replied
    Ha - for those vaguely aware of my series of posts about this matter (hi Kon), my employer is still dragging their feet on changing our Edward Jones-brokered plan full of American Funds and Lord Abbett.

    Leave a comment:


  • litovskyassetmanagement
    replied
    Originally posted by Peds View Post

    i would be ecstatic if my employer just added index funds and left the crap 1% funds there.....
    i only have an s&p for 11bp, an intl for 35 bp....
    I agree, that's because you know what's best for you...99% of retirement plans are more like TJ.

    Leave a comment:


  • Peds
    replied
    Originally posted by litovskyassetmanagement View Post

    Yes, but DFA funds are also quite a bit more expensive vs. Vanguard. I use several, but for most asset classes there is no reason to use DFA funds. Anyone who advocates for all DFA funds has basically been hoodwinked by their marketing (or is 'selling' DFA funds under the pretense that they return more than Vanguard funds by at least as much as the fee they charge).
    i would be ecstatic if my employer just added index funds and left the crap 1% funds there.....
    i only have an s&p for 11bp, an intl for 35 bp....

    Leave a comment:


  • litovskyassetmanagement
    replied
    Originally posted by WCInovice View Post
    When I joined my group we have American Funds in the 401K. I was absolutely floored when I looked at the plan options. I wanted Vanguard, but we settled on DFA funds.

    The fees on the American Funds index funds were astronomical.
    Yes, but DFA funds are also quite a bit more expensive vs. Vanguard. I use several, but for most asset classes there is no reason to use DFA funds. Anyone who advocates for all DFA funds has basically been hoodwinked by their marketing (or is 'selling' DFA funds under the pretense that they return more than Vanguard funds by at least as much as the fee they charge).

    Leave a comment:


  • litovskyassetmanagement
    commented on 's reply
    Yes, I totally agree, EDUCATED employees! Do you want to bet whether the employees got this type of education or not?

  • WCInovice
    replied
    When I joined my group we have American Funds in the 401K. I was absolutely floored when I looked at the plan options. I wanted Vanguard, but we settled on DFA funds.

    The fees on the American Funds index funds were astronomical.

    Leave a comment:


  • Tim
    replied
    “What's amazing to me looking at the lineup is that they throw in like 3 index funds as if to acknowledge that yes, we probably should throw SOMETHING low cost on the menu, but the rest are junk.”
    S&P 500
    Intl
    Bonds
    An employee COULD have survived with the Ishares offerings. That is their “defense” I bet.
    SECURE is the answer: Annuities! Ameriprise annuities where cost is specifically a safe haven. Perfect “defense”. Seems like a logical enhancement.

    Leave a comment:


  • litovskyassetmanagement
    replied
    Another conclusion here is regarding something that's extremely obvious, so obvious that I missed it in my original post. Just because you sprinkle in a few index funds in a sea of managed high expense funds that pay revenue sharing does not make it good anymore. I like to see that because I know some other plans of this size that are doing exactly the same thing. This is primarily due to 'advisers' such as UBS and many others who manage these plans, by the way, as plan sponsor has very little input as far as investments (despite them being the fiduciary), because the fiduciary function is so spread out (due to them having HR departments where nobody is taking ownership). These 'advisers' (and record-keepers) are still clinging to sources of revenue beyond their fixed fees, and it is a good trend that this is getting punished. Revenue sharing is probably going to stick around for smaller plans unfortunately, but there is no reason why this should even be taking place.

    Leave a comment:


  • litovskyassetmanagement
    commented on 's reply
    Well, people want 'balanced' funds, this is very standard approach by most plan participants who are not particularly educated. Guess who works for Trader Joe's? So I see this a lot. If this was a doctor plan, I would see the same thing by the way, with a bump around index funds for more sophisticated participants. I would also like to see how participant education was handled (if there was any done at all). This might also explain things. Most participant education programs would not go into portfolio building, this is way too sophisticated for most people, so balanced fund is the only alternative since nobody wants to just hit the gas.

  • Tim
    replied
    litovskyassetmanagement
    Seems to be something else coming into play besides the offerings.
    Ishares has three offerings (500,Intl,Bonds) that are usually relatively lower priced. From the holdings, it seems participants might be being steered to the Ameriprise funds, generating more shared revenues.
    Just looking at the balances, but maybe that’s an incorrect speculation on my part. Balances are lower with higher costs, but balances prove it is my logic. Rigged to the detriment of the participants. False logic?

    Leave a comment:


  • litovskyassetmanagement
    replied
    Originally posted by ajm184 View Post

    Guessing with Capital Research involved I would hazard a guess at American Funds, Lord Abbott, etc. Embarrassing imo to treat its workers so poorly with these types of plans with high costs, poor choices and more importantly poorly performing funds. Not like Capital Research was lending money via a bank line. IMO the finance folks / retirement committee members at TJ's should be shown the door due to an utter lack of fiduciary duty to the plan.
    UBS FINANCIAL SERVICES is their adviser and they are paid $300k for basically doing nothing. They are most likely not a fiduciary (ERISA 3(38)), and even if they are ERISA 3(21), it does not seem like they care about lowering their clients' cost much. They might be a 'consultant' of sorts, not even a fiduciary. What's amazing to me looking at the lineup is that they throw in like 3 index funds as if to acknowledge that yes, we probably should throw SOMETHING low cost on the menu, but the rest are junk.

    And of course, 'party in interest' is the American funds (probably where most of CR revenue sharing comes from). Any good ERISA 3(38) should have fired Capital Research in a heartbeat and replaced them with a good fixed fee and/or low cost record-keeper. But big companies such as UBS have the size and 'suits' to make unsophisticated plan sponsors believe that they know what is going on and are the best around. Plan sponsors are also not the most educated people, so they don't necessarily understand what is going on. That, however, is no excuse for a plan this size. Because UBS was not named in this lawsuit I'm guessing they are not even a fiduciary, so there's that.

    Leave a comment:

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