PLANSPONSOR - November/December 2024 - 18

COVER STORY
out or drop to a zero balance as annual fees get paid.
The highest-profile effort to preserve all such small accounts,
RCH's Portability Services Network, was launched in late 2023,
with founding recordkeeper members Alight, Empower, Fidelity
Investments, Principal Financial Group, TIAA and Vanguard. As
of this September, PSN reported that it had signed up more than
6,000 plans, representing over 2.2 million active participants.
The network has processed 300-plus transactions, and 4,000-plus
are in process. Further, PSN says it is in discussions with six additional
recordkeepers that say they may join next year.
" We've taken the first baby steps toward increased portability,
though we haven't seen a tremendous impact yet, " says David
O'Meara, head of defined contribution investment at WTW in New
York City. " But, as employees keep changing employers, being able
to seamlessly move assets into their new plan should hopefully put
them in a better position to manage their retirement assets. "
CITs Step
Ahead
For years, collective investment trusts
kept gaining ground
on mutual
funds as a target-date vehicle, and, in
August, they finally surpassed them,
says Morningstar. That change is the
most evident in larger plans.
Two-thirds of the 30 largest CIT providers surveyed in Cerulli
Associates' 2024 Collective Investment Trust Provider Survey said
they believe that, when comparing CITs and mutual funds, plan
sponsors pick the former mainly for lower costs and fees; 27% said
sponsors appreciate the ability to negotiate fees on the trusts.
Over the past decade, CITs have become a more standardized,
regulated and lower-cost product than have comparable mutual
funds, says Phil Maffei, TIAA's senior managing director of corporate
retirement income products in Charlotte, North Carolina.
" CITs now look, feel and behave as close to a mutual fund
as you can get; snapping a CIT into a plan, in terms of effort and
communication, is no different than putting in an equivalent
mutual fund, " he says.
One-third of over 1,100 plan sponsors told Fidelity in August
that they had added CITs to their investment menus in the past
year, and a third said they planned to add more in the year ahead,
according to the firm's annual " Plan Sponsor Attitudes Study. "
This year also saw some movement in the push to allow CITs
to be included in the fund lineup of 403(b) plans. Both houses
of Congress are considering legislation, widely expected to pass,
that would bring the lower-cost options to 403(b)s.
Lawsuits
Get 'Weedier'
After relative success with a string of
excessive fee lawsuits-and since plan
fees have dropped significantly-the
plaintiffs' bar expanded the legal theories
on which its lawyers brought suit
this year. That broader focus saw a rash of lawsuits faulting the use
of forfeiture assets to reduce employer contributions, and several
cases arguing that plan sponsors selected an inappropriately risky
annuity provider for their pension risk transfer, Levine says.
18 PLANSPONSOR.COM November - December 2024
" The lawsuits are continuing to evolve, and they're getting
weedier and deeper, " Levine says. " The original fee lawsuits
basically had simple theories looking at expenses and fees. Now
they're getting much more complex, with a lot of granularities. "
July's Supreme Court ruling that struck down the Chevron
deference standard could lead to further expansion of litigation
theories, since the federal judiciary no longer must defer
to federal agencies' interpretations of law. That, in turn, could
further open plan sponsors up to litigation and create greater
uncertainty for them and their providers, Levine says.
Consolidation
Continues
The decades-long trend toward consolidation
kept going this year, with the
number of recordkeepers continuing
to shrink amid fee pressures,
increased demand from plan sponsors
and a recognition that protecting margins likely requires both
scale and diversity of offerings. To that end, the aim of consolidation
has evolved to reflect the convergence of health, wealth and
overall wellness solutions, says Jason Burlie, Frisco, Texas-based
vice president of retirement sales at The Standard.
Large aggregators now look to add wealth management and
other benefit solutions to their offerings, a strategy that could
aid plan sponsors, Burlie says. " Plan sponsors can benefit from
this trend, working with advisers that are more holistic in their
strategies and their understanding of what plan sponsors need in
terms of what they're doing on their health plans [and] long-term
disability and retirement [plans], " Burlie says. " The marketplace is
evolving to a place where select firms can offer a more comprehensive,
strategic set of solutions in consultation with plan sponsors. "
While much of the year's mergers and acquisitions activity
came from larger firms gobbling up smaller ones, Levine says,
the August purchase of OneAmerica's retirement plan business
by Voya shows that consolidation among the largest recordkeepers
continues as well. That acquisition will add $60 billion in assets
under administration to Voya's wealth solutions division. If the
deal closes as planned, in January 2025, the expanded Voya will be
the country's third-largest provider of 403(b) Employee Retirement
Income Security Act plans, overtaking Vanguard and Empower.
ESG Is
Increasingly
Politicized
Since a 2022
ruling from the
Department of Labor allowed plan
fiduciaries to consider environmental,
social and governance factors
in making investment decisions, a
growing backlash against the movement has reintroduced uncertainty
and potential liability as to the best approach.
O'Meara says he has seen a growing number of large, corporate
plan sponsors hesitate to discuss ESG for fear of being targeted.
" Some of that is prudent, being careful about what gets
discussed and how we discuss different investments, " O'Meara
says. " But in some cases it's also driven by fear, which is not
helpful to the greater discussion. "
An August ruling by a Missouri district court struck down
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