Investment Failure

[Giorgina Makara]

Failureto Act: Economic Impacts of Status Quo Investment Across Infrastructure Systems quantifies how the persistent failure to invest in our aging infrastructure impacts the U.S. economy, including GDP, jobs, personal disposable income, and business sales. The electricity and water/wastewater reports were conducted after this full economic study.

A somewhat simplistic example - Plan has a default investment - investment (A). Participant chooses to invest funds in (B) and (C). There is a failure on the part of the Employer/Plan Administrator to implement these investment choices, so for some period of time, Employer continues to deposit the Participant's funds into (A).

What is the proper remedy here, IF the default investment underperforms the investment returns under (B) and (C)? I can't find that this falls under one of the fiduciary breach correction options under VFC. It does appear that the Participant can perhaps seek relief under IRC 502, as per the LaRue case, but I'm no lawyer, and the implications of various court cases can best be interpreted by those who are!

Can the fiduciary simply compare the returns, and if the Participant "lost" higher investment returns, just deposit the lost gain? If they don't, then does the Participant then have to go through the steps for an ERISA claim and first exhaust the administrative remedies available, then bring suit? (And an ERISA suit for very small returns would cost far more than the potential gain...)

Thanks Peter. Assume this was a mistake by the employer/Plan Administrator. Aside from correcting, is this a Prohibited Transaction for a fiduciary breach, and the appropriate penalty tax should then be paid?

I agree that there is very little guidance/rules on what to do when investment directions are not followed, and whether a correction is made or determining the amount of the correction seems to be driven either by the plan administrator finding the error and calculating lost earnings or by the participant informally or formally requesting to be made whole. This situation is fairly common but does appear anywhere as a prohibited transaction.

Restorative payments. A restorative payment that is allocated to a participant's account does not give rise to an annual addition for any limitation year. For this purpose, restorative payments are payments made to restore losses to a plan resulting from actions by a fiduciary for which there is reasonable risk of liability for breach of a fiduciary duty under title I of the Employee Retirement Income Security Act of 1974 (88 Stat. 829), Public Law 93-406 (ERISA) or under other applicable federal or state law, where plan participants who are similarly situated are treated similarly with respect to the payments. Generally, payments to a defined contribution plan are restorative payments only if the payments are made in order to restore some or all of the plan's losses due to an action (or a failure to act) that creates a reasonable risk of liability for such a breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). This includes payments to a plan made pursuant to a Department of Labor order, the Department of Labor's Voluntary Fiduciary Correction Program, or a court-approved settlement, to restore losses to a qualified defined contribution plan on account of the breach of fiduciary duty (other than a breach of fiduciary duty arising from failure to remit contributions to the plan). Payments made to a plan to make up for losses due merely to market fluctuations and other payments that are not made on account of a reasonable risk of liability for breach of a fiduciary duty under title I of ERISA are not restorative payments and generally constitute contributions that give rise to annual additions under paragraph (b)(4) of this section.

The focus of text in yellow includes recognizing a payment made to the plan to because of losses due to a fiduciary's failure to act and that failure creates a reasonable risk of liability. Put another way, if you think you're going to get sued, fix it and its not an annual addition.

It is interesting that the text in green is added to cover a situation where the participant lost money due to market fluctuations and the fiduciary (out of the kindness of their heart I suppose) decides to put in a little something to make up for the loss. The participant making an investment decision that did not work our does not have a reasonable risk of liability, so any such restoration of the loss to the participant is an annual addition.

Thank you, Paul I and Peter. I was just looking for this guidance when asked about a market value adjustment assessment. I knew I remembered it. Business acquisitions can lead to unanticipated contract terminations when the acquiror's plan does not want the Stable Value Fund. If there is not a clear enough fiduciary violation, the parties may have to consider a new comparability profit sharing allocation = participant by participant contribution for those hit by the MVA subject to average benefit testing.

To really understand risk, we first need to understand the different ways a portfolio can fail. I would argue that there are two principal failure modes in investing, which I call slow failure and fast failure.

Traditional investment theory can be understood as an attempt to balance these two failure modes. Avoiding the slow failure risk of low returns requires us to maintain high levels of exposure to higher-return assets (i.e., stocks), which then exposes us to greater risk of fast failure, or drawdown.

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Similarly, outlier events drive the success of individual companies. For example, Nintendo failed repeatedly to break into the American video game market until the massive success of Super Mario Bros.

(Shortform note: In this chapter, Housel only discusses the positive impact that outlier events have. However, the opposite is also technically true: a negative outlier event could drive the failure of an otherwise successful company because it was so powerful that it offset all of the other successes.)

(Shortform note: To avoid focusing on the negative impact of failure, experts recommend that you reframe your view of failure, seeing each failure as an opportunity to learn what not to do in the future.)

I am now looking at next steps and am kind of concerned with what I am finding. First is that 99% of literature and forum posts that discuss FL Castable resin are strictly for jewelry. This is fine if investment casting was a technique used to serve only the jewelry industry, but is in fact only a portion of the investment casting market overall.

Lastly, further research into this I find someone else is in the same situation as I: Unsuccessful castable resin results using investment casting - #9 by bbox The difference here is that I bought the printer, the author of this post did not.

I want to try and continue to modify this design and make use of this resin (adjust wall thicknesses, cure time and the like), but my engineering instinct and findings here indicate that this resin is just not good for big parts and rapid high temp burnouts as is fairly standard in the investment casting industry.

Are there others here in the same situation and have you overcome the hurdle of using the Form 2 for investment casting of parts other then jewelry? Any tips on what foundry to try, what resin to use and design/burnout process would be appreciated!

So we bought our form 2, two years ago, had a little trouble at the beginning, but after a little bit of tweaking we have been getting nothing but perfect castings. cure time is huge! and the formlabs recommended burnout works best. we do our own casting here so were able to change stuff if we have to. i would recommend looking for another casting house, some people just dont want to change their ways and will eventually be left in the dust. 3d printing has changed the jewelry industry.

@antsaldana Thanks for your feedback however it sounds like you are also using the formlabs castable resin for jewelery as well. I am referencing larger parts with thick cross sections. The big issue I believe to be the burnout schedule. Most foundries for industrial parts use a 20-30 minute burn out at a single temp, not 10+ hours throughout a range of temps.

Since I am stuck I will bump this question again; Have any members here used the Form2 and the Castable resin to print larger parts using standard industrial investment casting techniques?? (Lets say 3"x3"x3" volume or really anything bigger then jewelry rings and pendants!)

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