PLANSPONSOR - February/March 2019 - 11

unable to do that. " Additionally, Foster
notes, the funds are subject to taxes, and
if participants are younger than 59 1/2,
they have to pay a 10% penalty.
Whether an individual is taking a
loan or a hardship withdrawal, those leakages
typically set their retirement nest egg
back by 14%, Foster says.
Dominic DeMatties, a partner with
Alston & Bird, says he believes Congress
wants to make it possible for plan sponsors
to let participants sidestep taking
a loan before a hardship withdrawal
to enable meeting immediate needs.
" Congress has recognized that, for people
under financial duress, it may not be practical
for them to wait for the whole process
of taking out a loan and then seek a hardship
withdrawal, " DeMatties says.
Snezana Zlatar, senior vice president
and head of full-service product
and business management at Prudential
Retirement, agrees: " Congress has
focused on individuals undergoing true
hardship. In that context, we believe that
the elimination of the loan requirement
actually does make sense because if an
individual is in a tough financial situation,
loan repayments could very well be
a financial burden to them. Additionally,
loans may not be enough to meet their
financial hardship. "
" Without a doubt, " DeMatties says,
" the new rule makes it easier for people
to access money in the event they have a
hardship. Where the jury is still out is to
what extent participants will utilize these
procedures and access the money even
when they do not qualify for one of the
seven reasons the IRS has spelled out. "
One positive component of the new
rules is that people with hardship withdrawals
will no longer be precluded from
contributing to their 401(k) or 403(b) for
six months, notes Chad Parks, CEO of
Ubiquity Retirement + Savings. Because
of inertia, that requirement has often led
to participants never resuming deferrals
to their plan, Parks says. -Lee Barney
From Washington
And the Courts
American Century Defeats
Self-Dealing ERISA Lawsuit
A federal district court judge has ruled in
favor of the defendants on all counts in an
Employee Retirement Income Security
Act (ERISA) lawsuit alleging American
Century inappropriately favored its own
investment products in the company's
retirement plan. During the trial, plaintiffs
sought to prove that the retention of
proprietary mutual funds in preference to
outside investment options in the 401(k)
had cost plan participants millions of
dollars in excess fees.
A previous ruling coming out of the
U.S. District Court for the Western District
of Missouri, Western Division, allowed the
self-dealing lawsuit filed by participants
in American Century's retirement plan to
proceed to discovery. The court later also
approved a motion to compel the fund
provider to produce profitability, expense
and performance reports created under
provisions of the Investment Company
Act, 15 USC Section 80a-15(c) (15[c] reports)
for funds used in the plan.
American Century opposed this
motion, stating that the reports sought
were irrelevant, that producing them
would be unduly burdensome, and that
the request was disproportional to the
needs of the case. However, Chief U.S.
District Court Judge Greg Kays rejected
American Century's arguments, saying
the plaintiffs had met their burden by
making a threshold showing that the 15(c)
reports were relevant to their claims and
to the calculation of damages in this case.
Despite these early setbacks, the new
ruling sides strongly with the defense. The
decision goes into some detail about the
shortcomings in the plaintiffs' arguments,
but in essence the complaint has failed
because the plaintiffs relied too heavily
on bare cost comparisons and statements
of industry averages. The text of the decision
recounts the specific plan oversight
procedure practiced and documented
by American Century, underscoring the
importance of a prudent process when
it comes to defending against ERISA
lawsuits.
Franklin Templeton Lawsuit
Settlement Revealed
Franklin Resources will pay $13,850,000
and make other provisions to settle a
lawsuit alleging that defendants breached
their Employee Retirement Income
Security Act (ERISA) fiduciary duties
by causing Franklin Templeton's 401(k)
plan to invest in proprietary funds when
better-performing and lower-cost funds
were available.
A month before the trial in the case
was set to begin, the parties in the lawsuit
announced they had reached a settlement
but needed 60 days to file a motion for
preliminary approval. According to the
settlement agreement, in addition to the
settlement payment, the fiduciaries to the
plan with responsibility for selecting plan
investment options will add a nonproprietary
target-date fund (TDF) option to the
investment lineup, which will be maintained
as a plan investment option for the
duration of the compliance period in addition
to the plan's qualified default investment
alternative (QDIA)-the LifeSmart
Target Date Funds.
Also, Franklin Templeton has agreed to
increase the company match contributions
to the plan from a 75% company match rate
to an 85% company match rate beginning
with the first full quarter of participant
deferrals following the effective date of the
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