AllianceBernstein (NYSE: AB), a leading global investment management firm, released today the findings of a new white paper, Evolving Fiduciary Standards for Defined Contribution Plan Sponsors, by General Counsel Laurence E. Cranch and Senior ERISA Counsel Daniel Notto. The paper argues that defined contribution retirement plan sponsors must consider and adapt to the rapid evolution in fiduciary standards in order to meet the Employment Retirement Income Security Act of 1974 (ERISA) ‘Prudent Expert’ test.
“New thinking and information regarding optimal methods for encouraging employees to invest and maximize their returns, coupled with legislative and regulatory changes, are providing plan sponsors with a historic opportunity to dramatically improve the chances that their employees will save adequately for retirement,” said Mr. Cranch. “Plan sponsors should use this opportunity to make changes in their plan designs not only because it is in the best interest of their employees, but because they have a fiduciary responsibility to do so."
“The traditional defined contribution fiduciary paradigm has been turned on its head,” said Mr. Notto.
“Before the passage of the Pension Protection Act, plan sponsors controlled their fiduciary risk by strictly limiting their involvement in guiding participants to any specific course of action," said Mr. Notto. “We now believe that, as a result of important protections offered in the Act, plan trustees must be much more focused on delivering positive participant outcomes to avoid a possible breach of fiduciary duty.”
The paper singles out the choice of a default option as one of the most critical decisions a sponsor must make as fiduciary standards change. AllianceBernstein recommends the implementation of a target-date retirement fund solution. In addition, ongoing litigation has put plan sponsors on notice that participants and their legal advisors expect plans to carefully consider investment options and fees.
AllianceBernstein recommends that plan sponsors strongly consider the following practical solutions, which the authors argue will evolve into fiduciary best practices and industry standards:
- Quickly adopting a default option that is a multi-asset investment vehicle, such as a target-date fund, that meets the definition of qualified default investment alternative in the Department of Labor's regulations. While others have advocated for the continued ability to use stable-value funds as default options, AllianceBernstein believes they are inappropriate as solutions for the long-term investment of retirement assets.
- Automatically enrolling employees, and automatically escalating their savings rates over time to maximize participation and contributions.
- Thoughtfully redesigning plans and encouraging participants to select target date-funds, while mapping those who were in default options and fail to select new investments into target-date funds or other appropriate qualified default investments.
- Rigorously evaluating investment manager selection – including target date providers – and placing special emphasis on the appropriateness of fees.
On June 27, 2007, Mr. Cranch and Mr. Notto discussed their research findings on a national conference call. In addition, Sean Murphy, a partner in the Securities Litigation Group at Milbank, Tweed, Hadley & McCloy LLP, offered his perspective on the impact of current 401k fee litigation on large plan sponsors.
Conference Call Replay Information
For the audio-only replay, call 877-1519-4471 or 973-341-3080 and enter participant code 8901045.
To view the webcast, click here (https://www118.livemeeting.com/cc/alliance/view?id=Fiduciary+Duty), type your name, and click “Enter.” After entering your email address and company name, click on the icon next to “Microsoft Office Live Meeting Replay.” The presentation will pop up in a new window and begin.
About AllianceBernstein
AllianceBernstein L.P. ("AllianceBernstein") is a leading global investment management firm providing investment management services for many of the largest U.S. public and private employee benefit plans, foundations, public employee retirement funds, pension funds, endowments, banks, insurance companies and high-net-worth individuals worldwide. AllianceBernstein is also one of the largest mutual fund sponsors, with a diverse family of globally distributed mutual fund portfolios. Through its subsidiary, Sanford C. Bernstein & Co., LLC, AllianceBernstein provides in-depth research, portfolio strategy and trade execution to the institutional investment community.
At March 31, 2007, AllianceBernstein Holding L.P. ("Holding") owned approximately 33.2% of the issued and outstanding AllianceBernstein Units. AXA Financial was the beneficial owner of approximately 62.9% of the AllianceBernstein Units at March 31, 2007 (including those held indirectly through its ownership of approximately 1.7% of the issued and outstanding Holding Units) which, including the general partnership interests in AllianceBernstein and Holding, represent an approximate 63.3% economic interest in AllianceBernstein. AXA Financial is a wholly-owned subsidiary of AXA, one of the largest global financial services organizations.
