401(k) Specialist Issue 2 - 2023 - 18

Mayland notes a key issue in these cases
is simply how do you measure underperformance?
" Courts
generally require that plaintiffs
point to a meaningful benchmark to
establish that target date funds underperformed.
When fiduciaries win these cases,
it is often because the court concludes that
the plaintiffs cherry-picked a fund that
happened to perform better during the time
period rather than a meaningful benchmark
that compares reasonably well to the funds
the fiduciaries selected (or, to take another
fruit-related metaphor, that the plaintiffs
were comparing apples and oranges). "
He added that plan fiduciaries may be
able to protect themselves by considering
what an appropriate benchmark for
their target date fund might be, based on
the investment strategies and objectives of
their selected funds, as well as the needs or
goals of the plan. " The performance of the
selected fund can then be compared to the
benchmark as part of the fiduciaries' ongoing
monitoring process. "
SECURE 2.0
When the SECURE 2.0 Act of 2022 was
signed into law on Dec. 29, 2022, it ushered
in the beginning of a new era of 401(k)
plan legal changes-particularly plans
sponsored by small businesses. The law's
92 provisions have various effective dates,
meaning retirement plan fiduciaries have
to stay on their toes to ensure their plan is
ready to meet deadlines as they occur.
As Mayland points out, beginning in
2024, catch-up contributions will need
to be made on a post-tax or Roth basis
rather than on a pre-tax basis. The required
minimum distribution age is going up
again-gradually up to age 75. Moreover,
the threshold for terminated participants
whose small-balance accounts can automatically
roll out of the plan is increasing, from
$5,000 to $7,000.
Mayland pointed to SECURE 2.0's
provision regarding auto-portability as one
of the law's more interesting changes. He
said auto-portability's power to move the
accounts into a new retirement plan can be
a real game-changer enhancing retirement
security. " A number of recordkeepers are
making auto-portability available, so plan
sponsors might expect to see the service
offered to them a bit down the line. "
The SECURE Act of 2019 and SECURE
2.0 have also created momentum
for the addition of in-plan guaranteed lifetime
income solutions. But it's also created
some apprehension among plans sponsors.
" From a plan fiduciary perspective, there
has been some hesitancy-whether warranted
or not-about these products, " Malik said. " In
particular, plan fiduciaries may worry about
how they can ensure that an insurer remains
solvent and financially viable decades down
the line when it comes time to pay benefits.
Plan fiduciaries have also voiced concerns
about the administrative feasibility of adding
these products to their plans, and portability-
meaning, the ability to roll it over to another
plan or IRA, if that need comes up. "
Malik said that while he understands the
perceived risk, he thinks plan fiduciaries
should understand the current laws support
rather than discourage the use of lifetime
income products. " As participant interest in
these products continues to grow, I believe it
is important for plan fiduciaries to become
familiar with the current laws and other guidance
that applies to these products. "
Anthony Onuoha
18
QPAM Exemption
The Department of Labor's proposed
amendment to Prohibited Transaction
Exemption (PTE) 84-14, more commonly
known as the " QPAM Exemption, " would
impose stricter conditions and make it more
difficult for managers to avail themselves of
one of the most commonly utilized ERISA
exemptions.
ISSUE 2 2023 | 401kSpecialist.com
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401(k) Specialist Issue 2 - 2023

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