This week a significant Class Action fiduciary liability lawsuit was settled by UnitedHealth (UH). UH was sued by its employees for having sub-standard “target date” funds in their 401(k) plan. Not only was UH sued, but the pension plan fiduciaries were PERSONALLY sued!
To download the complaint (NO SIGN-UP FORM REQUIRED), click on the following:
https://advisorshare.com/uhg-402a-fiduciary-complaint
What’s the deal with this case? UH offered only Wells Fargo’s target date funds as a target date fund option in their plan.
So what? The Wells Fargo funds ended up being some of, if not, the worst target date funds in the industry for a prolonged period of time. This under-performance cost employees in the 401(k) well over $200 million in lost returns (lost opportunity costs).
UH had a duty to:
- Prudently select its investment options
- Monitor the investment options
- Replace underperforming investments with ones that are better (more prudent)
As you can read in the complaint, UH clearly violated these duties and decided to settle.
Why should you care about this lawsuit?
Opportunity! Opportunity! Opportunity!
There is a HUGE opportunity for advisors to pick up millions of dollars in AUM and sell a significant amount of FIAs if they can crack the code to get into the employer pension marketplace.
How do you get into a new marketplace and dominate it?
Offer something your competitors don’t have!
A few years ago, I did a newsletter on a unique pension offering and a webinar. I thought it was time to remind readers of this offering which, if used right, can be wildly successful.
Use a 402(a) Pension Fiduciary to Pick Up Affluent Business Clients
Webinar—On Recording
If you want to go after affluent business owners, this is a webinar you’ll want to watch. To sign up, click on the following link:
https://advisorshare.com/402a-fiduciary
ERISA Liability for Business Owners is Real!
Every business with a qualified retirement HAS fiduciary liability (imposed by ERISA). This liability usually falls on the business owners who don’t know they ARE 402(a) fiduciary(s) of the plan (and most plans are set up to violate this duty).
Indemnification for This Liability!
Business owners are NOT qualified to be 402(a) fiduciaries of a pension plan, but they are! Because of their lack of knowledge, they are putting themselves at risk to lawsuits by their employees.
Do you want to gain the trust of and pick up new business clients? Tell them that you have a pension company that will INDENMINFY them of this liability. That’s what the pension company owned by the speaker for the recorded webinar does.
Violating the Fiduciary Duty to Employees
1) Failure to monitor and reduce plan fees
Here is one example of the record-keeping fees given to me by the webinar speaker:
Base per participant fee (0.047%), direct compensation fee (0.040%), separate account charge (0.45%), recordkeeping fee (0.22%), and compensation-related fee (0.25%)
Total record-keeping fees: 1.007%
The average mutual fund expense in the plan was 0.90% making the total fees 1.907%!
FYI, in the last 25 years, the webinar speaker’s firm has NEVER reviewed a plan they couldn’t save between 32%-65% in fees. Take that stat to your potential business clients!
2) Failure to prudently select and monitor plan investment options
- The plan has 200+ mutual funds (this fails…200+ funds can’t all be worthy of being in the plan).
- The plan offers limited options that are mainly made up of “target date” funds. These funds, as I’ve talked about in the past, are awful and do not provide good risk-adjusted returns.
- The plan doesn’t offer tactically managed strategies (like those offered on our “anti-tamp” www.advisorstamp.com)
- The plan doesn’t offer FIAs (Fixed Indexed Annuities)
FIAs in Pension Plans—The Timing Couldn’t Be Better!
If you want to read a 21-page white paper I wrote about using FIAs in pensions OR if you want to watch a webinar I did on this subject matter, click on the following link:
https://advisorshare.com/fias-in-pensions
As we head into 2025 and as advisors think about what tools may help them get in front of more affluent clients, I’d suggest that if you want to seize a huge opportunity waiting to be seized, you should learn about 402(a) liability and start offering something to local businesses that your competitors don’t have (indemnity for their personal liability as trustees of their pension plan).
