Monthly Archives: March 2015


PLANSPONSOR© magazine released their “Plan Sponsors of the Year” awards today in the latest issue. As in past years, the awards bestowed by the magazine showcase the “best in class” approach used by many plan sponsors who take their fiduciary responsibility to employees seriously. The plan sponsors recognized have taken a number of creative actions to improve the retirement prospects for their employees. Among them:

  • Auto-enrollment and auto-escalation
  • Revamped fund line-ups with lower cost and better performing funds
  • Automatic default to Target Date Funds or Managed Accounts
  • Recent competitive bids to ensure that they are offering the best services at the lowest cost in the market, for both recordkeeping, and investment services.

A variety of corporate plans are showcased, each one with an impressive track record for effective plan governance that puts the interests of employees above all else. That is, of course, until you scroll over to see the article on the Public DC award.

Public Employees Come Last

The public DC plan to receive the award has three different record keepers, 83 investment options, dismal usage of default investments, and a somewhat average participation rate. The investment offerings are, for the most part, mediocre and quite expensive for a plan with over $200 million in assets. With 83 investment options, the City has severely diluted its ability to negotiate lower fees from investment providers. There is rampant duplication of fund asset classes, and no clear way for participants to discern what are the least costly and better performing options among the 83 fund array. There is a proliferation of proprietary-investment funds that would never survive an independent competitive fund review in an open and independent public bid process.   The investment providers, sales brokers and unions appear to be running the show, all to the detriment of the plan participants.

An Award for Perseverance Against Adversity Rather Than “Best Practice”

Ironically, the article on the Public DC Plan is really a feature about the efforts of a dedicated employee in the Human Resources (HR) department to “fix” the Plan, over the objections of the DC Board that (apparently) runs the Plan.  Instead of a “best practice” example (which is the theme for the corporate plans recognized) the article champions the efforts of a  HR employee to remake the Plan into something far better for the employees. In that regard, the article is very kind given the history this Plan has for lack of transparency and self-dealing.

To their credit, the City did undertake a public bid process a couple of years ago. Sadly, the public bid was never concluded in a meaningful way for Plan Participants:

  • At least one union objected to any independent review of the Plan, in particular the option endorsed by them (for which they are receiving a fee from that particular provider).
  •  Another vendor undertook a nasty campaign to toss out the entire public bid process. At one point in their letter this vendor says their current contract is “open-ended and the City is not obligated to issue a RFP (Request for Proposal)”. Really? So it is a never-ending contract that should never be reviewed by anyone?

Sadly, the City caved to pressure from investment companies and unions and made no real significant changes. Investment options were cut back from over 100 to 83, but little else (for participants) changed. The real losers were the Plan Participants who, for a City of this size, have a confusing and very expensive program.

Transparency Issues Ignored

There was no attempt to fix the transparency issues for this Plan, during or after the failed bid process. For example, there is no up-front disclosure that two of the three providers pay fees to third party unions or associations in return for an endorsement. There’s nothing inherently wrong with endorsement fees provided the fees are disclosed to Plan Participants (which they are not, at least not easy to find) and that the endorsing entities perform some regular due diligence on why they endorse that particular company. In both instances here there is no documentation that a public bid or independent evaluation has ever taken place to award the endorsement to either vendor. Perhaps there has been, but it is not disclosed to Plan Participants. The City could have easily fixed this by demanding full disclosure from all three vendors. They obviously chose not to.

Public Employees Finish Last, Again

So the bottom line is that the PLANSPONSOR® awards for corporate plans recognize “best practice” fiduciary responsibility where governing boards and committees take action based on the “best interests of plan participants and their beneficiaries”[1]. Sadly, the award for the public sector DC plan focuses on actions by a single employee to (try) to overcome inaction by a governing board that obviously views its constituents as the Plan vendors and unions instead of their employees.

This is not the only City in America to undermine the interests of Plan Participants by failing to successfully conduct regular, independent reviews of all aspects of their program. Fortunately, most other large cities take their responsibility seriously and conduct frequent, independent bids to ensure that all aspects of their program are competitive, contemporary and in the “best interests of plan participants and their beneficiaries”[2].

Maybe next year the Public DC award will be given to this particular City for actually fixing their program. Or, if history repeats itself, the heading of the award for this City might as well be titled “Don’t Let This Happen to You!”

Gregory Seller Consulting, LLC

All rights reserved. May not be reprinted in whole or in part without written permission. Provided for information only and is not legal or investment advice. Plan sponsors should seek their own legal and investment advice on this issue.


[1] IRC Sec 457(b)

[2] IRC Sec 457(b)