Retirement Plan Industry Update – Q1 2019

April 29, 2019

Written by Dave Westra, Partner, CFP®, AIF®, CPFA and John Brimhall, Client Advisor, CFA, CPA, CFP®


Consolidation of Recordkeepers Continues – Principal Announces Acquisition of Wells Fargo Retirement Plan Business

On April 9, 2019, Principal Financial Group (Principal) announced that it had reached an agreement to purchase Wells Fargo’s retirement plan recordkeeping business. The acquisition will double the size of Principal’s retirement plan assets and bring the total number of retirement plan participants served to 7.5 million. Dan Houston, Chairman, President, and CEO of Principal stated, “Retirement is at the heart of our business and core to our future. This will be a powerful combination for customers, employees, and shareholders as we solidify our place as a top-three leader in the U.S. retirement market”.

Due to a number of headwinds, including the cost of operating a large recordkeeping platform, many expect to see additional consolidation among recordkeeping providers. Today, there are an estimated 40 national providers.

Takeaway: Over the next few years, as recordkeepers continue to make investments in cybersecurity, modernizing legacy technology platforms, and adding new features, it is likely that we will see a handful of major recordkeeping platforms dwarf the rest of the market. Retirement plan committees should remain informed of the changes occurring in the marketplace and regularly benchmark plan fees and services for reasonableness.

(Manganaro, 2019) (Barstein, 2019)


Lessons from the Anthem 401(k) Plan $23.7 Million Settlement

The Anthem 401(k) Plan (Anthem) is one of the country’s larger retirement plans, with more than $5.1 billion in assets and 60,000 participants. In late 2015, the law firm Schlichter, Bogard & Denton filed a lawsuit alleging that Anthem:

  • Failed to leverage its size to take advantage of lower cost investment options
  • Should have offered a higher yielding stable value fund than a money market fund
  • Paid an unreasonable fee for recordkeeping services

The following is a summary of the proposed settlement terms:

  • Within a year, the committee must send participants in the money market fund a letter that describes the risks of the fund, provides historical returns over the past 10 years, and explains the “benefits of diversification”.
  • Within 18 months, the committee must complete a recordkeeper search and request a per participant fee quote and total fixed fee quote.
  • The committee must hire an investment consultant to assist with:
    • Reviewing the investment lineup
    • Evaluating the availability of the lowest cost share class, including collective investment trusts (CITs) and separately managed accounts (SMAs)
    • Researching revenue share reimbursement options, if applicable
  • Anthem must pay $23.7 million, including $7.9 million in legal fees.

Takeaway: Plan sponsors have a fiduciary duty to ensure investment and administrative fees are reasonable and should exercise continued oversight of the participant investment menu.

(Adams, 2019)


Lessons from American Century’s Prudent Process

American Century, a leading investment management firm, sponsors a large 401(k) plan with more than $700 million in assets and 2,000 participants. Several employees filed a class action lawsuit against the company alleging that the retirement plan committee breached its fiduciary duties. The case went to trial, and the judge ruled in favor of American Century.

The lawsuit alleged that the committee breached its fiduciary duties by:

  • Only considering and offering investment options that were managed by American Century. The lawsuit claimed that this benefited the company’s financial interest, rather than those of the plan participants.
  • Offering too many investment options, many with similar mandates
  • Not offering lower cost investment options

The following is a summary of the judge’s findings:

  • The company provided committee members with “training and information about their fiduciary duties”.
  • The committee met on a regular basis, usually three times per year.
  • The “committee members testified they purposefully offered a large number of investment options because the majority of American Century’s employees are sophisticated investors”.
  • The plan offered “a diverse array of asset classes and investment styles covering the entire risk/reward spectrum”.
  • “The evidence shows the committee thoroughly discussed the composition of the plan’s lineup to ensure it covered the entire risk/reward spectrum without duplication”.
  • The judge concluded that “the record and testimony demonstrate committee members made careful investigations of investment decisions and acted in the best interests of the plan participants”.
  • The judge found “that for a majority of the time, the expense ratios for the funds were below the 50th percentile of the funds in their peer group”.

Takeaway: The lesson for plan sponsors and retirement plan committees is to maintain a prudent process. This case demonstrated how “testimony and documentation revealed the kind of thoughtful, ongoing due diligence process that plan fiduciaries are often counseled to undertake”.

(Adams, 2019)

 Works Cited

Manganaro, J. (2019, April 9). Inside and Outside Views on Principal’s Wells Fargo Acquisition. Retrieved on April 17, 2019 from

Barstein, F. (2019, March 26). What 401(k) Record-keeper Consolidation Means to Retirement Plan Advisors. Retrieved on April 17, 2019 from

Adams, N.E. (2019, April 10). Parties Propose $23.65 Million Settlement in Anthem Suit. Retrieved on April 17, 2019 from

Adams, N.E. (2019, Spring). Case(s) in Point. NAPAnet the magazine, 64-66.