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Insight on Plan Design & Investment Strategy
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SRI Holdings in ERISA Plans Gaining Ground, but Concerns Remain

Wed, 2018-11-14 13:41

The U.S. Sustainable Investment Forum (U.S. SIF) recently published the “Report on U.S. Sustainable, Responsible and Impact Investing Trends 2018” that includes data indicating growth in the use of sustainable, responsible and impact (SRI) investment options in Employee Retirement Income Security Act (ERISA) retirement plans.

The organization reports an uptick in SRI holdings from 2014 to 2016. The data was evaluated in light of Department of Labor (DOL) guidance on what it called economically targeted investments (ETIs). In October 2015 the DOL rescinded its 2008 bulletin on ETIs, which had discouraged some plan fiduciaries from considering ESG investments. But Interpretive Bulletin 2015-1 said “fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social or other such factors.” It went on to say that ESG funds can be proper components of a fiduciary’s financial analysis. A Field Assistance Bulletin in 2018 about environmental, social and governance ESG investing did not technically alter any previous DOL guidance related to ESG funds.

The latest data available indicates that the number of plans investing in SRI funds grew 70% and assets in SRI plans grew 71% from $2.70 billion to $4.61 billion from 2014 to 2016. 

Meg Voorhes, director of research at US SIF says, “We have specialized research in the report but unfortunately it is a lagging indicator. We have 2016 year-end data for direct-filing entities that submit Form 5500 to the DOL and that report their underlying holdings.”

What would encourage more ESG offerings in retirement plans?

Despite the uptick in ERISA plans using now-called ESG investment options, some are still wary of doing so.

There are two ways of encouraging more ESG offerings in retirement plans, according to Lisa Woll, CEO of US SIF and the US SIF Foundation. “From the bottom up or the top down. You can talk to the corporate plans, the plan sponsors and the participants—I think [doing so] important. We’ve spent more time talking to members of businesses for social responsibilities for them to drive adoption in their own companies; we’ve put out numerous “how-to” guides for plans to add these options, but I also think that you have to drive knowledge for the participants themselves and have them ask [retirement plan sponsors] to add ESG options.”

Jonathan Bailey, managing director and head of ESG Investing at Neuberger Berman, an investment management firm, says it has seen significant growth and interest in ESG investing by corporate plans that are not necessarily companies that are leaders in sustainability because their participants want to have these choices. 

Proving performance

According to Cerulli researchers, one of the biggest hurdles in turning ESG interest into actual investment, both by current users of ESG portfolios and non-users, is the perceived impact on investment performance.

However, Calvert Investments analyzed data on ESG investing in various ways between June 2000 and December 2014, starting with ESG screens, then moving to stand-alone ESG investing and finishing by looking at a combination of traditional and ESG investing. “We find empirical evidence across each of these approaches that incorporating ESG factors into investment decisions improves the investment selection process and enhances risk-adjusted returns,” Calvert says. From December 31, 2008, through December 31, 2014, the Calvert Social Index (CSI) outperformed the Russell 1000 Index by 142 basis points on an annualized basis, Calvert says.

More recently, Arnerich Massena said, “Businesses that incorporate sustainable practices are stronger and better prepared for the future, as well as more attractive to consumers.”

RBC Global Asset Management’s third annual Responsible Investing Survey found a dramatic shift in attitudes toward ESG investing is visible among U.S. institutional investors, as 24% said they believe an ESG-integrated portfolio would outperform its counterpart, nearly five times the percentage in last year’s survey.

Eliminating confusion from DOL guidance

Given some of the strong language used to warn retirement plan fiduciaries against placing other interests ahead of the financial benefit of their participants, the latest DOL bulletin on the topic of ESG investing created some confusion. According to the DOL, the “sub-regulatory action” was not meant to substantially change the status quo with respect to ESG investing under ERISA, but instead merely to clarify how the new administration views existing regulations in this area.

An analysis of the most recent DOL bulletin shared by Northern Trust Asset Management says the DOL has confirmed once again that pension managers can and should feel comfortable using ESG factors as an input in evaluating potential risk and financial return. According to Northern Trust, the most recent DOL bulletin is “meant to clarify and reinforce the prudent fiduciary investment process that must always take place,” rather than to say that ESG investing rules are reverting to the stricter standards that existed prior to the 2015 reforms.

In a report, the Government Accountability Office (GAO) says in other cases where plans may face complexity, such as selecting a target-date fund or monitoring pension consultants, the DOL has provided general information, including items to consider and questions to ask. It suggests that the DOL do the same with ESG investing.

ESG screening in more asset classes and more reliable data

My-Linh Ngo, ESG investment specialist for RBC Global Asset Management’s London-based BlueBay Asset Management division, points out that equities have long been the primary focus of ESG analysis and investing, but these days ESG analysis is quickly moving beyond equities. Thirty-percent of respondents in the U.S. to RBC Global Asset Management’s third annual Responsible Investing Survey said it is important to incorporate ESG into fixed-income considerations.

“Our company has a core belief that ESG considerations are investment additives, not a hindrance to performance,” Ngo says. “Thinking about ESG helps us to generate a more holistic and informed view of how companies are performing, or are likely to perform in the future. So, we are applying an ESG risk overlay across all of the fixed-income assets we manage. It is not something that we limit to niche funds.”

Data shared by Natixis Investment Managers shows managers of corporate and public pension funds, foundations, endowments, insurance funds and sovereign wealth funds are embracing greater use of ESG investing programs. However, the research shows 45% of institutional investors feel it is difficult to measure and understand financial versus non-financial performance considerations when establishing ESG programs.

Shared by fewer investors but perhaps even more concerning is the fear that publicly owned companies may be “greenwashing” reported data to enhance their image from the ESG investing perspective, cited by 37% in the survey pool. This is the same number that cited concern about a general lack of transparency and standardization by companies when it comes to reporting ESG-related information for the purposes of securities disclosures.

“As industry acceptance of ESG integration has accelerated and becomes mainstream, there will be greater focus on ESG-related investment research and its application in the portfolio management process,” says Habib Subjally, senior portfolio manager and head global equities at RBC Global Asset Management (UK) Limited. “And as the demand for responsible investment solutions grows, asset managers and consultants will increasingly be called upon to offer guidance to their clients about responsible investing options that support their long-term financial goals.”

See information about the use of ESG funds in retirement plans from U.S. SIF.

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Categories: Industry News

Analysis Shows Impact of Financial Wellness Programs on Retirement Readiness

Wed, 2018-11-14 10:58

Financial Finesse’s “Special Report: The ROI of Improving Employee Retirement Readiness” found that financial wellness programs are succeeding in helping people prepare for retirement. When workers are continuously engaged in a financial wellness program, their financial health moves from 4.0 to 6.0 on a 10-point scale. Additionally, they increase their retirement contribution rates by 38%.

The average age at which workers could retire and replace 80% of their income moves from 68.5 to 66.96. For a company with 50,000 employees, that could lead to annual savings of $65 million to $97 million a year. Citing a 2017 study by Prudential, Financial Finesse says that each employee who does not retire costs a company more than $50,000 a year.

Reduction in retirement age occurs across all ages, with employees younger than 35 seeing a reduction of 2.67 years, and older employees seeing a reduction of one year. Even modest improvements in employee financial wellness generate meaningful savings. For instance, if their financial health moves from 4.0 to 5.0, they tend to increase their retirement savings by 17.85%—and this could result in their being able to retire a year earlier. For a company with 50,000 employees, this could result in annual savings of $33 million to $49 million.

“Repeat engagement in financial wellness programs drives improvement in overall financial health, so this isn’t a one-and-done process,” Financial Finesse says. “Improvements are incremental and increase with the number of interactions. Companies that offer financial wellness benefits should focus on creating multiple channels to reach employees and develop techniques that encourage continuing engagement in the program. Retirement plan design practices, such as auto-enrollment and auto-escalation, are foundational, and should be incorporated with an easy-to-use retirement calculator and unlimited access to financial coaching.”

At the current median contribution rates, Financial Finesse estimates that the average age Americans can retire is 68 years and 11 months.

When people engage with a financial wellness coach more than five times, they are more confident about their retirement outlook, with 47% of these people saying that they know they are on target to replace 80% of their income in retirement.  By comparison, only 26% of those who only used an online financial wellness program share this confidence.

“For those companies whose employees have predictable day time work schedules, coaching can be offered in person at the worksite,” Financial Finesse says. “In industries with 24-hour work schedules, financial wellness programs will reach more employees if financial coaching is offered by telephone or computer screen-sharing.”

Financial Finesse’s findings are based on an analysis of 18,148 employees who participated in their workplace financial wellness program between 2011 and 2018.

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Categories: Industry News

Boost in Balances Giving Retirement Savers False Sense of Security About Retiring Early

Wed, 2018-11-14 09:31

The average age that Americans plan to retire is 62, down from 64, when MassMutual conducted its last State of the American Family Study. Forty percent of Americans plan to retire before the age of 60, up from 32% five years ago. Only 22% plan to retire after age 65, down from 30% in 2013.

However, only 56% of people have calculated how much income they need to retire. In 2013, that figure was 61%.

“There is greater optimism about retirement and people’s ability to retire sooner rather than later, which may be attributed to the growth in the financial markets and a spike in Americans’ retirement savings during the past five years,” says Tom Foster, national spokesperson for MassMutual’s Workplace Solutions unit. “However, many Americans may have a false sense of security when it comes to being ready to retire.”

Eighty-four percent of those surveyed own a retirement product, such as a 401(k), 403(b) or individual retirement account (IRA). Five years ago, only 82% owned such a product.

Forty-seven percent of those surveyed said they were confident about being able to retire, up from 45% in 2013. However, 35% worry about outliving their retirement savings, up from 33% five years ago.

Citing data from the Employee Benefit Research Institute, MassMutual says the average 401(k) balance in 2016 was $75,384, up from $72,383 in 2013. Among those who saved consistently during those years, the average balance was $167,330 in 2016, up from $121,152 in 2013.

“We urge pre-retirees to calculate their projected income and expenses in retirement before taking the plunge, to ensure they are financially prepared for retirement,” Foster says. “While 401(k) balances are healthier than they were five years ago, they may not necessarily be sufficient to support the income needed for so many early retirements. Look before you leap.”

Isobar conducted the online survey of 3,235 Americans with household incomes of more than $75,000 for MassMutual in January and February.

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Categories: Industry News

Regulators Release Informational Copies of 2018 Form 5500

Wed, 2018-11-14 08:59

The Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA), the IRS and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 Annual Return/Report and related instructions.

The advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 Annual Return/Report.

The “Changes to Note” section of the 2018 instructions highlights important modifications to the Form 5500 and Form 5500-SF and their schedules and instructions, including:

  • Principal Business Activity Codes. Principal Business Codes have been updated to reflect certain updates to the North American Industry Classification System (NAICS);
  • Administrative Penalties. The instructions have been updated to reflect an increase to $2,140 per day in the maximum civil penalty amount assessable under Employee Retirement Income Security Act (ERISA) Section 502(c)(2), as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.  The increased penalty under section 502(c)(2) is applicable for civil penalties assessed after January 2, 2018, whose associated violation(s) occurred after November 2, 2015;
  • Form 5500-Participant Count. The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6;
  • List of Plan Characteristics Codes for Lines 8a and 8b (Lines 9a and 9b for SF filers). Plan characteristic code 3D, has been updated to reflect the IRS changes on the pre-approved plans as prescribed in Revenue Procedure 2017-41;
  • Schedule MB-Contributions. The instructions for Line 3 have been modified to require an attachment in situations where a reported contribution to a multiemployer plan includes a withdrawal liability payment;
  • Schedule MB-Plan in Critical Status or Critical and Declining Status. The instructions for Line 4f (where multiemployer plans expected to become insolvent or emerge from troubled status report the year in which such insolvency or emergence is expected to occur) have been modified to require an attachment providing additional information about how that year was determined. In addition, the instructions now include guidance about what to report if a troubled plan is neither projected to emerge from critical status nor become insolvent within 30 years;
  • Schedule SB-Mortality Tables. Line 23, where filers check a box to indicate which set of mortality tables is used, has been updated to provide additional options available under Treas. Reg. Section 1.430(h)(3). The instructions for Line 23 have been modified to reflect this change;
  • Schedule SB.  Schedule SB has been updated to reflect the issuance of Revenue Procedure 2017-56 with respect to change in funding methods. Line 23 has been updated to reflect final regulations prescribing mortality tables to be used by most defined benefit (DB) plans. Line 27, Codes 5 and 8 are no longer applicable and should not be used. Lines 42 and 43 have been removed; pursuant to the Pension Relief Act of 2010, there are no installment acceleration amounts or installment acceleration amount carryovers after the 2017 plan year; and
  • Schedule R. Schedule R has been updated to reflect the issuance of Revenue Procedure 2017-56, 2017-44, with respect to the change in funding methods. Also, the Schedule R instructions under “Who Must File” have been updated to reflect the removal from Schedule R of certain IRS compliance questions.
Information copies of the forms, schedules and instructions are available online here.

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Categories: Industry News

Eighty Percent of Employers Focusing on Reducing Health Benefit Costs

Wed, 2018-11-14 08:29

Eight in 10 employers surveyed by the Transamerica Center for Health Studies (TCHS) say they are doing something to manage health benefit costs.

Among the 1,350 employers surveyed, about three in 10 (29%) say they are offering a variety of preferred provider organization (PPO) plans, encouraging use of generic medications (28%), and offering a health maintenance organization (HMO) plan (28%). More than one-quarter (27%) are providing incentives or rewards for making changes to improve employee health and wellness, and 24% say they are creating an organizational culture that promotes health and wellness.

Only 21% are offering consumer-directed health plans that use health savings plans (e.g., health reimbursement arrangements or health savings accounts).

Most employers, regardless of size, are as concerned about the affordability of health insurance for their employees (73%) as they are about employees being able to afford their out of pocket health care expenses (72%). The majority that are concerned about affordability (89%) are taking some action to combat cost, most commonly looking into finding ways to reduce premiums (36%), comparison shopping for the best health insurance options across carriers (36%), and educating employees about how to reduce their out-of-pocket health care costs (35%).

Despite concerns about costs for employees, 40% of employers surveyed say they are at least somewhat likely to reduce their contribution to health benefits.

About four in five employers believe their wellness programs have had a positive impact on workers’ health (79%), productivity and performance (77%), and about seven in 10 (71%) see a positive impact on company health benefit costs. However, more than one-third of employers (36%) say they do not offer these types of programs to their employees.

The survey report is here.

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Categories: Industry News

Having a ‘Planning Mindset’ Associated With Positive Retirement Outcomes

Wed, 2018-11-14 07:37

Wells Fargo Institutional Retirement and Trust has published its ninth annual Retirement Study, finding once again that employees are being asked to shoulder more responsibility for directing their own retirement savings effort.

Lori Lucas, president and CEO of the Employee Benefit Research Institute, helped Wells Fargo leaders Joe Ready, head of Wells Fargo Institutional Retirement and Trust; and Fredrik Axsater, executive vice president and head of strategic business segments for Wells Fargo Asset Management, contextualize the findings. She added insight from EBRI’s own independent research, which harmonizes with many of the finding established by Wells Fargo’s analysis.

According to Ready and Axsater, probably the most important overall finding in this year’s analysis is the strong positive impact on participant outcomes associated with having “a planning mindset.” This is to say that Wells Fargo uncovered four specific participant characteristics that correlate with a significantly better financial life—including lower levels of reported financial stress and greater reported financial outcomes. These characteristics include having set a specific money-related goal in the preceding six months; having previously set a specific long-term financial goal, such as a retirement age or savings level; feeling good about planning financial matters in general over the next one or two years; and preferring to save for retirement now rather than waiting until later.

“Employees just starting out in the workforce today face a retirement savings and spending journey of 60 to 70 years, and they are being made responsible for managing more of this effort on an individual basis,” Ready said. “Those closer to retirement still have a savings and investing horizon that is 25 or 30 years, or longer. Regardless of income, establishing a financial plan today and maintaining a focused set of financial goals can deliver many benefits.”  

Ready and Axsater observed how the planning mindset cuts across household income levels, with some evidence to suggest those with higher incomes are somewhat likelier to have a planning mindset. In particular, Wells Fargo finds 33% of workers with a planning mindset have household incomes below $75,000.

Across all workers surveyed, 84% of those with a planning mindset say they regularly contribute to retirement savings, versus 66% who do not report having this mindset. At the same time, fewer people with the planning mindset envision living to age 85 or longer as being likely to cause financial hardship.

Spending down of DC assets remains a big challenge

Ready and Axsater pointed to various findings showing employees are eager to receive more guidance and support when it comes to spending down DC plan assets.

Lucas here offered insight from EBRI’s research efforts, including a recent Issue Brief, “Asset Decumulation or Asset Preservation? What Guides Retirement Spending?

As Lucas explained, the data shows retirees are actually not spending down their accumulated assets to fund their retirement needs—even when assets are plentiful or when there is guaranteed income available to ensure that retirees will not run out of money. EBRI’s analysis found that regardless of pre-retirement asset size, rates of decumulation are low. Over an 18-year period following retirement, median assets declined only 24% for the low asset group of retirees—from $31,740 immediately after retirement to $24,000 eighteen years later. Lucas said this is was surprising to learn, but also somewhat intuitive.

“It is not ‘irrational’ for lower-asset households to hold on to their assets as long as possible,” she said.

EBRI found similar patterns when assets are greater. For the moderate asset group, median non-housing assets declined 27% (from $333,940 immediately after retirement to $243,070 18 years later). For those with the most substantial assets—starting with a median of $857,450 immediately after retirement, the decumulation rate was less than 11% (to $763,900 18 years later).

Lucas pointed out how having guaranteed income for life, such as a pension, didn’t make retirees more likely to spend down their assets. The study found that of all the subgroups studied, pensioners had the lowest asset spend-down rates.

“This suggests that if the goal is to avoid spending down assets, pensioners are best suited to achieve it. In other words, if retirees seek to limit their spending to their regular flow of income, such as pension, Social Security income, or other annuity income, then pensioners are indeed best suited to avoid asset decumulation, as they have more regular income than others,” EBRI found.

Asked for her personal take on this situation, Lucas said it also shows that retirees, unlike on the accumulation side of things, lack a framework for guiding their retirement spending decisions. And so, many of them revert to cautious attitudes, “and there is the fact that saving and frugality are generally considered to be virtuous behavior.”

“I would also point out that most individuals say they are happy in retirement and do not need to spend a lot to be happy,” Lucas said. “They say that having their nest egg intact, as a form of independence and security, makes them happier than anything material or discretionary they may be able to buy with the money.”

Additional findings

Ready and Axsater observed that users of 401(k)s do not see them as strictly a means for accumulating lump-sum savings. Eighty-six percent of workers agree that it would be valuable if their plan provided a statement on how much they could spend each month in retirement, based on their current and projected savings.

According to the survey, younger workers would like to see their employer provide more help with their long-term retirement planning choices. Seventy-three percent of Millennial workers and 63% of Generation X workers say they would like more help from employers, compared with 50% of Baby Boomers.

In closing the presentation, the trio of speakers voiced optimism about the prospects for continued progress on solving retirement issues here in the U.S.—both from a public policy and private industry perspective. Ready said providers and plan sponsors can be proud of the fact that employees generally perceive their retirement plan offerings as being high quality and as having a strong positive impact on their financial lives. As the survey shows, 92% of workers say they feel more secure about retirement because they have contributed to a 401(k), and 82% of those with access to a 401(k) say they would not have saved as much for retirement at this stage if not for the 401(k).

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Categories: Industry News

ERISA Litigation Landscape Mapped by LexisNexis

Wed, 2018-11-14 05:00

Lex Machina, a LexisNexis company, announced the latest expansion of its legal analytics platform, featuring the addition of Employee Retirement Income Security Act (ERISA) litigation cases.

The firm offered PLANSPONSOR a sneak peek at some of the first findings generated by the ERISA analytics platform. According to the firm, the module encompasses nearly 83,000 cases filed in federal district court since 2009.

Carla Rydholm, director of product at Lex Machina, says cases initiated by plan participants or beneficiaries involve alleged disputes over the administration or funding of various types of ERISA-protected employee benefits plans, including life, health, retirement, pension, profit-sharing, health care savings accounts and more.

With the launch of its latest module, she says Lex Machina already uncovered a variety of trends across all the flavors of ERISA litigation. Notably, the vast majority of ERISA cases are either settled pre-trial or were dismissed via summary judgment or contested dismissals. According to the analytics platform, fewer than 2% of cases proceed to trial.

“ERISA cases resolve with a default judgment about 11% of the time,” the firm says. “This is a large percentage of default judgments compared to other practice areas. A sizeable amount of these defaults are probably delinquent contribution claims, because employers who are unable to pay their contributions likely are unable to pay to defend a lawsuit.”

As the firm explains, a delinquent contribution case “usually involves a union or employee suing an employer for failure to pay contractually obligated contributions into a pension.” In looking at cases based on a delinquent contribution claim, defendants are receiving favorable judgment on the pleadings nearly six-times more often than claimants. However, if the case gets to summary judgment, claimants win about 58% the time. The firm finds more than $4 billion in damages have been awarded in ERISA cases since 2009.

“On the other hand, cases involving a claim denial are rarely resolved with a default judgment and have a significant number of summary judgment case resolutions,” the firm finds. “This may affect the length of a case, as the median time to summary judgment in a claim denial case is 471 days.”

According to the new analytics platform, the U.S. Department of Labor (DOL) is very active in the filing of enforcement actions on behalf of employees; these cases result in a consent judgment 60% of the time.

In running this analysis, Lex Machina found the Northern District of Illinois is the top venue for ERISA cases with 10% of all ERISA cases.

“This can be attributed to external factors such as region’s heavy union presence and having the large metropolitan area of Chicago as part of the federal district,” Rydholm says.

ERISA industry context

The move to do more ERISA analysis at LexisNexis comes after years of increased concern about litigation from retirement plan fiduciaries and their service providers. ERISA litigation experts agree the glut of lawsuits has been a long time coming and is the result of several concurrent trends—and steam has clearly picked up in recent years thanks to a highly active plaintiffs’ bar.

Emily Costin, partner at Alston and Bird, says the roots of current litigation trends go back to at least 2005 and the start of a new regulatory focus on fee and conflict of interest disclosures.

“Then came the financial crisis of 2008, which ushered in a wave of stock drop litigation,” she explains. “At this stage, those early stock drop cases have largely been litigated or settled and have faded as we get further away from 2008. In addition, the Supreme Court’s influential decision in Fifth-Third Bank vs. Dudenhoeffer has made it a lot more difficult for plaintiffs in stock drop cases to prove standing.”

With stock drop cases fading somewhat to the background, the new hot topic for litigators has become self-dealing by providers and conflicts of interest in recordkeeping and investment management arrangements. All of the cases center on the deceptively simple question of whether a tax-qualified retirement plan is profiting the plan sponsor (directly or indirectly) to the expense of participants.

Attorneys and insurance experts like Costin say that federal court judges have tended to allow more of these self-dealing type cases to move forward compared with the earlier stock drop wave, and plaintiffs have also had some success getting beyond the summary pleading and dismissal stage in cases focused on reasonableness of fees for recordkeepers.

According to Rydholm, ERISA litigation will remain one of the most complex and intricate areas of the law, with the majority of cases decided pre-trial or on bench decisions. As with all the firm’s legal analytics practice areas, the ERISA module spotlights the track records of opposing counsel and parties, the experience and behaviors of judges, case outcomes by federal district, and other critical factors, such as case timing, findings, and damages, which play a critical role in determining case strategy.

For more information, visit

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Categories: Industry News

Fidelity Publishes Global Retirement Guidelines

Tue, 2018-11-13 23:30

Just like in the United States, workers around the globe are being asked to assume greater responsibility for their retirement savings.

To recognize this trend, Fidelity has introduced a set of international retirement savings guidelines to help multinational companies and their employees. The first set of guidelines is tailored to help international employers identify the unique financial hurdles faced by workers in the U.K., Germany, Japan, Hong Kong and Canada.

Jeanne Thompson, senior vice president and head of workplace solutions thought leadership for Fidelity, tells PLANSPONSOR the new guidelines should offer a practical framework to help global employers begin to understand how much money different workers need to save for a stable retirement. And even for U.S.-only employers, the guidelines will help demonstrate how assumed difference in longevity, access to private/public pension funds and various other factors impact a given working population’s retirement prospects.

“These guidelines can be part of an innovative international benefits program and can help employers monitor and encourage good retirement savings habits in a consistent manner across their regional workforces,” Thompson says. “The global retirement savings guidelines, which leverage a U.S. framework also known as ‘10X’ or age-based savings guidelines, are based on two metrics every worker knows—their age and salary.”

This provides workers and employers with a straightforward approach to understanding how much they should have in savings, as a multiple of their salary at specific age milestones. The projections become even more helpful when combined with locally relevant financial and demographic assumptions.

How much to save across geographies

As Thompson explains, Fidelity’s global retirement savings guidelines are based on several key assumptions and calculate a suggested annual savings rate and age-based savings milestones for each country. The guidelines also include a target income replacement rate and a “probable sustainable withdrawal rate,” which helps workers understand how much they will be able to withdraw from their savings each year without running out of money in retirement. 

In the United Kingdom, the guidelines for workers are to save a total 13% of their annual salary each year and aim to have saved seven-times their salary by retirement.

“This will put them on track to replace 35% of their pre-retirement income, which we estimate, when combined with their government pension, may enable them to maintain a pre-retirement lifestyle throughout retirement,” Thompson says, noting that Fidelity’s guidelines for U.K. workers are based on a 5% sustainable withdrawal rate in retirement.

Fidelity finds certain savings guidelines for workers in Germany are similar to those for U.S. workers. Notably, workers in Germany are encouraged to aim to have saved 10-times their final salary upon retirement, which will replace 45% of their pre-retirement income.

“The 4.6% withdrawal rate is consistent with the 4.5% withdrawal rate for U.S. workers,” Thompson says. “However, German workers are encouraged to save 21% of their salary each year.”

Facing an even more challenging savings picture, workers in Hong Kong are encouraged to save 12-times their final salary and have a suggested savings rate of 20%, which will put them on track to replace nearly half (48%) of their pre-retirement income. According to Fidelity, Hong Kong workers’ 4.1% sustainable withdrawal rate is the second lowest, only higher than Japan’s.

“The savings milestones are higher than the U.S. guidelines for several reasons, including the assumed retirement age in Hong Kong is earlier, the expected lifespan is longer and the assumed investment returns are on the lower end of the spectrum,” Thompson says.

Workers in Japan have a suggested savings rate of 16% of their annual salary, which is similar to the savings rate for U.S. workers, but Japanese workers are estimated to only need to aim to save seven-times their ending salary and replace 36% of their pre-retirement income. Workers in Japan have the lowest probable sustainable withdrawal rate (3.9%) due to the lowest expected long-term investment returns among the regions.

In Canada, the retirement savings rate for workers is only slightly higher than the rate for their counterparts in the U.S. The suggested savings rate for Canadian workers is 16% and with a target of saving 10-times their final salary, which will replace nearly half (45%) of their pre-retirement income. The suggested withdrawal rate of 4.5% is in line with the U.S.

Interpreting the findings for U.S. employers

The guidelines show broadly how having an employer based pension plan reduces the amount a person has to save, as well as the “X factor” at retirement, as they would be receiving income from their pension, so would therefore have to save less.

According to Fidelity, for every 1% of projected retirement income replacement from a pension, the required personal income replacement rate naturally declines by 1%, which has the effect of lowering savings rates and savings milestones. For example, in Germany where the state/government pension is estimated to replace approximately 41% of pre-retirement income and the suggested personal income replacement rate is 45%, Fidelity suggests a 21% savings rate and a savings milestone of 10-times.

However if the person had 10% of their retirement income coming from a pension plan, they could reduce the savings rate from 21% to 16% and X factor would drop from 10-times to seven-times. By the same token, if a person expects 20% of their retirement income to come from a pension plan, they could reduce the savings rate from 21% to 12% and X factor would drop from 10-times to 5-times.

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Categories: Industry News

DOL Clarifies Fiduciary Roles in Auto-Portability Solution

Tue, 2018-11-13 12:14

The Department of Labor (DOL) has issued an advisory opinion letter in response to a request by J. Spencer Williams, founder, president and CEO of Retirement Clearinghouse (RCH), for the Department’s opinion on the status of certain parties as “fiduciaries” within the meaning of Section 3(21)(A) of the Employee Retirement Income Security Act (ERISA) and Section 4975(e)(3) of the Internal Revenue Code (Code) as a result of actions undertaken as part of RCH’s Auto-Portability Program.

The letter provides details of the program, but basically, the RCH Program portability services related to the request involve automatic rollovers of mandatory distributions and account balances from terminated defined contribution plans into default IRAs and the subsequent automatic roll-in of funds in the default IRAs to an individual account plan maintained by a new employer when the IRA owner changes jobs.

Plan sponsor responsibilities

According to the DOL, when plan sponsors or other responsible fiduciaries choose to have a plan participate in the RCH Program, they are acting in a fiduciary capacity, and would be subject to the general fiduciary standards and prohibited transaction provisions of ERISA in selecting and monitoring the RCH Program. “Fiduciaries must act prudently and solely in the interest of the plan’s participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable plan administration expenses, and must comply with the documents and instruments governing the plan to the extent consistent with the provisions of Titles I and IV of ERISA,” the letter says.

In addition, the DOL says, plan fiduciaries considering the RCH Program are responsible for ensuring that the RCH Program is a necessary service, a reasonable arrangement, and the compensation received is no more than reasonable within the meaning of ERISA Section 408(b)(2) and Code section 4975(d)(2) (including the Department’s implementing regulations). “Thus, the responsible plan fiduciaries must evaluate the package of services and separate service providers that are part of the RCH Program and conclude that the services, including the portability services, are appropriate and helpful to carrying out the purposes of the plan, and that the compensation paid or received by the service providers is no more than reasonable taking into account the services provided and available alternatives,” according to the letter.

The Department adds that the responsible plan fiduciaries must also monitor the arrangement and periodically ensure that the plan’s continued participation in the program is consistent with ERISA’s standards.

However, the DOL notes that a plan sponsor that may be a fiduciary with respect to certain activities regarding the RCH program are not necessarily fiduciaries with respect to all aspects of the program.

With the RCH program, once the assets are transferred to the default IRA, the plan sponsor of the former employer’s plan has no discretion or authority over the decisions of the IRA owner or RCH related to any future transfer of the default IRA assets. “It is the view of the Department that the plan sponsors of the former and new plans would not be acting as a fiduciary with respect to the decision to transfer the individual’s default IRA into the new employer’s plan. Once a plan fiduciary properly distributes the entire benefit to which a plan participant is entitled, the distribution ends the individual’s status as a participant covered under the plan and the distributed assets are no longer plan assets under ERISA,” the letter says.

RCH’s fiduciary responsibilities

Under the Auto-Portability Program, before RCH transfers default IRA funds to a new employer’s plan, the new employer’s plan must adopt the RCH Program under which it will acknowledge that the transfer of IRA funds is consistent with the plan’s terms and that it will accept the roll-in. RCH will notify the participant and seek affirmative consent to the transfer. But, if the participant does not affirmatively consent after receiving the notices, RCH will assume responsibility to direct the roll-in from the default IRA or RCH IRA acting as a conduit into the individual’s current employer plan.

The DOL says that absent affirmative consent of the IRA owner/participant, RCH acts as a fiduciary within the meaning of Section 4975(e)(3) of the Code in deciding to transfer the individual’s RCH default IRA to the individual’s new employer plan. The individual’s failure to respond to the RCH Program communications about default transfers is not tantamount to affirmative consent by the participant/IRA owner to default transfers to the new employer’s plan, and does not relieve RCH from fiduciary status and responsibilities.

The DOL notes that unlike regulations with respect to the default transfer of a participant’s account into an IRA, no similar statutory or regulatory provision provides relief from fiduciary responsibility for “default” transfers of the IRA funds to the new employer’s plan.

The letter does not address the prohibited transaction implications of RCH receiving additional fees as a result of exercising fiduciary discretion in the transfers. It has applied for an individual exemption under ERISA Section 408(a) and Code section 4975(c)(2) for certain transactions involved in its program, and the DOL has requested comments about the proposed exemption.

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Categories: Industry News

Even the Most Reliable Data Suggests Households Will Fall Short of Retirement Income Goals

Tue, 2018-11-13 09:23

The Center for Retirement Research (CRR) at Boston College, in a new brief, “How Much Income Do Retirees Actually Have?,” took a look at five surveys commonly used to measure the financial resources available to households in retirement.

CRR says one that is commonly used, the Census Bureau’s Current Population Survey (CPS), understates the resources available to retirees. Nonetheless, even using one of the more reliable datasets, its analysis shows that roughly half of households are likely to face a shortfall in the retirement income they will need, CRR says.

The reason why the CPS in prior studies understated retirement income is that it used to define income as money received on a regular basis—not taking into account money held in a 401(k) plan or an individual retirement account (IRA). In 2015, the Census Bureau redesigned the CPS so that it could take these factors into account.

Another dataset commonly used is the Survey of Consumer Finances (SCF). This captures both regular and irregular income and overstates high-wealth households, which are likely to own retirement savings accounts, CRR says. However, this survey is conducted only every three years and samples a small number of people.

The Health and Retirement Study (HRS) surveys households in which the head is age 51 or older. It collects in-depth information on income, work histories, assets, pensions, health insurance, disability, physical health, cognitive function and health care expenditures. It also asks respondents about different sources of income.

The Survey of Income and Program Participation (SIPP)’s main objective is to evaluate the eligibility of households for federal, state and local government programs and their use of these programs. It is conducted annually.

The Panel Study of Income Dynamics (PSID) is a survey of households that has been conducted since 1968. CRR says it provides valuable information on the long-run dynamics of income, wealth, employment and family structure across generations. However, it does not ask respondents about regular and irregular income. It simply asks how much income was received in the calendar year.

CRR decided to analyze the HRS dataset and whether households would be able to replace 75% of their income in retirement—but CRR decided to define income four different ways. The first looked at final-year earnings. The second averaged the final five years of earnings, excluding any year in which no income was earned. The third looked at a person’s average earnings over the course of their career and indexed them to the Consumer Price Index. The fourth looked at the average wage-indexed career average earnings.

CRR found that in the first instance, 42% of households are at risk of facing a shortfall. In the second, it is 60%; the third, 52%; and the fourth, 57%. “Using the HRS, the replacement rate calculations, under various definitions of pre-retirement earnings, suggest that roughly half of households are likely to fall short of a target replacement rate of 75%. Researchers should feel comfortable using the SCF, HRS, PSID or SIPP to draw conclusions about retirement income. Concerns about the CPS are well-placed, but, fortunately, other measures of retirement income are available.”

CRR’s report can be downloaded from here.

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Categories: Industry News

Study Finds Link Between Lower Participation and Fewer Choices in K-12 403(b) Plans

Tue, 2018-11-13 09:19

A decrease in investment choice and reduced access to advisers leads to lower retirement plan participation by employees in public education 403(b) plans, according to research published by the National Tax-Deferred Savings Association (NTSA).

K-12 403(b) plans often have individual annuity contracts, thousands of investment options and hundreds of providers in which individual participants have directed their deferrals and savings into providers they picked, often after a representative visited the workplace. Some feel that this model—and having these advisers sit down with participants individually—is an advantage for participants. Still others believe K-12 school systems should pare down to one or a few providers to simplify plan administration and compliance with IRS regulations and to offer participants better, lower-cost investment options and less confusion.

The research, based on data from nearly 4,500 school districts across the United States, found 25% greater participation in plans with 15 or more investment providers compared to plans with only one provider, and single provider arrangements have the lowest participation rate; 8% below the national average. In addition, according to the research, account balances are, on average, 73% higher among plans with 15 or more providers compared to single provider arrangements, and there is a 203% increase in average contribution rates among plans providing access to 15 or more providers compared to plans with only one provider.

“The research revealed that the number one factor driving participation and savings rates in school districts is participant choice,” says Jason J. Fichtner, Ph.D., a Senior Lecturer of International Economics at Johns Hopkins University’s Paul H. Nitze School of Advanced International Studies and author of “Improving Retirement Savings for America’s Public Educators,” a white paper detailing the research results.

Overall, the research finds that public employees who have access to retirement educational resources at the workplace and the assistance of financial professionals are saving earlier and contributing more to their 403(b) plans, and have greater confidence in being able to achieve their retirement goals.

“The range of participation rates in America’s public school districts is dramatic, suggesting that the choices that each school district makes available to employees and the resources that they provide to help employees understand the benefits of participation are key differences in driving participation rates,” says Brent Neese, executive director of NTSA.

There’s been a tug of war, of sorts, over the best design for K-12 school district 403(b) plans, but some say they should strike a balance between old and new.

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Categories: Industry News

Middle Class Workers Report Mixed Financial Feelings

Tue, 2018-11-13 06:00

A survey of more than 1,000 Americans, commissioned by CUNA Mutual Group, suggests many hold an assessment of their financial security that is overly optimistic.

The survey finds that middle class Americans (defined here as those making between $35,000 and $100,000 per year) tend to feel positive about their prospects for upward mobility. When asked to grade the ability of the middle class to achieve the American Dream, the average response was “B-.”

 Steve Rick, chief economist at CUNA Mutual Group, says the middle class continues to experience stress from the long-term impacts of the Great Recession.

“We’re still seeing middle class families struggle with sticky wages, inadequate liquidity, high debt, insufficient savings and difficulty building wealth,” Rick says. “This population is among the most exposed to an eventual downturn.”

Despite these headwinds, Americans’ outlook is described as “sunny,” and is supported by respondents’ assessment (accurate or not) of their near-term financial security. According to the survey, 62% say they feel somewhat or very confident about their personal financial situation, and nearly half (46%) believe it is very unlikely that they will miss a loan payment over the next one to two years.

“This cautious optimism, however, belies a more troubling financial picture,” Rick says. “More than half of respondents are ill-equipped for an emergency, with 23% saying they have no emergency savings and 30% saying they only have one to three months’ worth.”

Worries about retirement

According to CUNA Mutual Group, few survey respondents feel prepared for retirement, with only 28% saying they’ll be able to retire with financial confidence in their lifetime. In fact, many seem to be more focused on short-term goals: 38% say they feel they’ll be able to buy a new car in their lifetime, and 37% say they’ll be able to travel internationally.

Sentiments among participants generally remained consistent across age, ethnicity, gender and other demographics. However, Millennials showed “significant divergence from overall trends when it came to many of the traditional components of the American Dream.” The survey shows fewer Millennials have prioritized buying a home or starting a family compared with the general population.

“A vibrant middle class is essential to a healthy, functioning economy and nation,” Rick says. “But we’re seeing a troubling picture emerge as their ability to manage their finances in the near term is coming at the expense of the long term. No one can control the economic winds, but the financial industry can provide the resources the middle class needs to break out of the cycle of economic insecurity.”

The 2018 CUNA Mutual Group survey assessed 1,258 U.S. adults ages 18 or older and making an annual income of $35,000 to less than $100,000. The survey was fielded in August 2018. Additional information about the company can be found at

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Categories: Industry News

Justice Department Sues UBS Over Alleged RMBS Misrepresentations

Mon, 2018-11-12 12:34

The U.S. Justice Department filed a civil complaint against UBS AG and several of its United States affiliates, alleging that UBS defrauded investors throughout the United States and the world in connection with its sale of residential mortgage-backed securities (RMBS) from 2006 through 2007.

RMBS’ are often used by defined benefit (DB) plan sponsors in their portfolios.

As detailed in the complaint, from 2006 through 2007, UBS misled investors about the quality of billions of dollars in subprime and Alt-A mortgage loans backing 40 RMBS deals. Specifically, the complaint alleges, in publicly-filed offering documents, UBS knowingly misrepresented key characteristics of the loans, thereby concealing the fact that the loans were much riskier and much more likely to default than UBS represented. Ultimately, the 40 RMBS sustained catastrophic losses. 

“The complaint alleges that instead of ensuring that their representations to investors were accurate and transparent, UBS affirmatively misled investors and withheld crucial information from them about the loans in its deals,” stated United States Attorney Byung J. Pak in an announcement.  “UBS allegedly placed a higher priority on selling bonds and making profits than accurately representing the quality of the underlying loans to investors.  These practices resulted in massive losses to investors, harmed homeowners, and ultimately jeopardized the banking system.”

However, UBS has fired back, saying the Justice Department’s claims are not supported by the facts or the law.

UBS says it intends to rely on certain facts to defend itself; for one, that it suffered massive losses on U.S. mortgage-related assets, including the RMBS cited in the complaint, negating any inference of fraud. UBS says it was not a significant originator of U.S residential mortgages; it fulfilled its obligations to sophisticated RMBS investors; any penalty sought by the Justice Department would be limited, at most, to losses to federally insured financial institutions; and the alleged misrepresentations did not cause RMBS investor losses.

More details of UBS’ intended defense can be found in this announcement.

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Categories: Industry News

Stadion’s StoryLine Offered by ABG Rocky Mountain

Mon, 2018-11-12 11:38

Stadion Money Management announced that Alliance Benefit Group (ABG) Rocky Mountain has made Stadion’s StoryLine solution available on its retirement solutions platform.

ABG Rocky Mountain is a third-party administration firm in the Western United States and one of the founding members and affiliates of the Alliance Benefit Group.

According to the firms, StoryLine’s approach “recognizes that every plan sponsor and employee is unique.” The StoryLine process seeks insight into the overall plan makeup, with the intent of tailoring default options for each plan sponsor.

Through a web interface, employees can further define their individual investment paths based on personal risk profiles. The firms say StoryLine allows, at the employee’s discretion, the inclusion of outside assets to facilitate more comprehensive retirement planning. The end goal is to put each participant on a personalized path.

For additional information, visit

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Categories: Industry News

Wealthier Participants Say They Don’t Need RMDs for Living Expenses

Mon, 2018-11-12 11:35
While 88% of high-net-worth consumers between the ages of 65 and 75 are familiar with required minimum distributions (RMDs), 80% say they will not need this money for day-to-day living expenses, according to the new “RMD Options Study” by Allianz Life.

Thirty-two percent are unsure how RMDs will impact their taxes, and 71% said they would like to use their RMD funds to purchase a financial product that could offset their taxes. Ninety-three percent believe it is very important to reduce taxes in retirement.

“For some consumers, RMDs have long been thought of as a necessary evil,” says Paul Kelash, vice president of consumer insights at Allianz Life. “The government mandates that people take them, even though many find they won’t need the money for every day expenses. So, consumers face the challenge of managing the impact on their taxes while being unsure of how to use the leftover funds.”

Fifty-seven percent want the RMD disbursement and tax payment to be automatic, so that they do not have to get involved. Sixty-three percent would like their RMD payments to improve their financial situation, and 79% would like the money to help their portfolio grow. Among those who are working with a financial adviser, 77% say they have gotten good advice on managing their RMDs.

“Different age groups within the study have different priorities for their RMDs,” Kelash says. “The 65 to 70 age group is most interested in tax-deferred growth of their RMD disbursements, and many feel unsure about how to best use their RMDs. In contrast, the 71 to 75 age cohort, who have already started taking their payments, is realizing they don’t need the additional money and are looking to leave a legacy—either to leave to family or another beneficiary like a charity. For those who are taking RMDs or preparing to do so, working with a financial professional is a key way to find a solution to more efficiently handle the taxes on their RMDs and use them in a way that works with their larger financial strategy.”

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Categories: Industry News

HSAs Offer Improved Investment Options

Mon, 2018-11-12 11:19

Morningstar found that the quality of investment options has improved across health savings accounts (HSAs), but high fees and low transparency remain hurdles.

In its second annual study assessing plans from 10 of the largest HSA plan providers, Morningstar assessed each plan as both an investing vehicle and spending vehicle. When evaluating HSAs as a spending vehicle, Morningstar considered three main components: maintenance fees, additional fees and the interest rates offered on investors’ checking accounts. When assessing the merits as investment vehicles, it considered investment menu design; quality of investments; price; investment threshold, or the amount investors must keep in the account before investing; and performance.

Morningstar found that the quality of investments across the 10 largest HSA plans remains strong and has improved since last year, with at least half of each plan’s investment options earning Morningstar Analyst Ratings of Gold, Silver or Bronze. Investment menu designs have also gotten better, with several plans taking steps to reduce menu overlap or add core investment options. Still, a number of plans haven’t made the same improvements to their investment choices and many suffer from high fees, explaining why only three receive Positive assessments as an investing vehicle, and just one earns a Positive assessment as a spending vehicle.

Fees vary significantly across plans, and most require individuals to keep money in the account before they can invest. Fees remain elevated. Across the 10 plans, the average cost for passive funds ranges from roughly 0.30% to 0.75% per year, and the average for active funds from about 0.80% to 1.20%. Eight of the 10 plans require investors to keep $1,000 or $2,000 in the account before they can invest, which can create an opportunity cost.

Transparency remains poor, according to the analysis. Only four of the 10 plans evaluated disclose relevant fees, interest rates and investment lineups on their websites, and call centers often struggle to provide this basic information.

From its analysis, Morningstar offered tips for best practices. HSAs as spending vehicles should avoid account maintenance fees, limit additional fees, offer reasonable interest on deposits and provide FDIC insurance. HSAs as investing vehicles should charge low fees for both active and passive exposure, offer strong investment strategies in all core asset classes while limiting overlap among options and allow first dollar investing (by not requiring money to remain in the account before investing).

“Thanks to increased use of high-deductible health insurance plans, which are often paired with an HSA, and unrivaled tax advantages, HSA plans are more popular than ever,” says Leo Acheson, associate director of multi-asset and alternative strategies team at Morningstar. “We’re encouraged by the improvement in the quality of HSA investment options since last year, but the industry can raise its game by providing greater transparency on fees, investment options, and interest rates and further reducing high plan expenses.”

Morningstar’s report on its analysis may be downloaded from here.

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Categories: Industry News

IRS Proposes Amendments to Hardship Withdrawal Regulations

Mon, 2018-11-12 10:06

The IRS has issued a Notice of Proposed Rulemaking related to hardship distributions from 401(k) plans.

The proposed regulatory amendments reflect statutory changes affecting 401(k) plans, including recent changes made by the Bipartisan Budget Act of 2018.

The proposed regulations modify the safe harbor list of expenses in current Internal Revenue Code Section 1.401(k)-1(d)(3)(iii)(B) for which distributions are deemed to be made on account of an immediate and heavy financial need by:

  • adding “primary beneficiary under the plan” as an individual for whom qualifying medical, educational, and funeral expenses may be incurred;
  • damage to a principal residence that would qualify for a casualty deduction under Section 165 does not have to be in a federally declared disaster area; and
  • adding a new type of expense to the list, relating to expenses incurred as a result of certain disasters.

The IRS says the latter is “intended to eliminate any delay or uncertainty concerning access to plan funds following a disaster that occurs in an area designated by the Federal Emergency Management Agency (FEMA) for individual assistance.”

Separately, in the notice, the IRS extended relief relating to Hurricane Maria and California wildfires provided in Announcement 2017-15 to similarly situated victims of Hurricanes Florence and Michael, except that the “Incident Dates” (as defined in that announcement) are as specified by FEMA for these 2018 hurricanes. Relief is provided through March 15, 2019.

No more suspension of deferrals or requirement to take a loan

The proposed regulations modify the rules for determining whether a distribution is necessary to satisfy an immediate and heavy financial need by eliminating any requirement that an employee be prohibited from making elective contributions (this prohibition would only apply for a distribution that is made on or after January 1, 2020) and employee contributions after receipt of a hardship distribution and any requirement to take plan loans prior to obtaining a hardship distribution.  

In addition, the proposed regulations eliminate the rules under which the determination of whether a distribution is necessary to satisfy a financial need is based on all the relevant facts and circumstances and provide one general standard for determining whether a distribution is necessary. Under this general standard, a hardship distribution may not exceed the amount of an employee’s need (including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution), the employee must have obtained other available distributions under the employer’s plans, and the employee must represent that he or she has insufficient cash or other liquid assets to satisfy the financial need.

The IRS says a plan administrator may rely on such a representation unless the plan administrator has actual knowledge to the contrary. The requirement to obtain this representation would only apply for a distribution that is made on or after January 1, 2020. 

More available sources of money (if the plan sponsor chooses)

The proposed regulations permit hardship distributions from 401(k) plans of elective contributions, qualified nonelective contributions (QNECs), qualified matching contributions (QMACs), and earnings on these amounts, regardless of when contributed or earned. However, plans may limit the type of contributions available for hardship distributions and whether earnings on those contributions are included. Safe harbor contributions made to a plan described in Section 401(k)(13) may also be distributed on account of an employee’s hardship(because these contributions are subject to the same distribution limitations applicable to QNECs and QMACs).

Some rules do not apply to 403(b) plans

The IRS explains that Section 1.403(b)-6(d)(2) provides that a hardship distribution of 403(b) elective deferrals is subject to the rules and restrictions set forth in §1.401(k)-1(d)(3); thus, the proposed new rules relating to a hardship distribution of elective contributions from a Section 401(k) plan generally apply to Section 403(b) plans. However, Code Section 403(b)(11) was not amended by Section 41114 of the Bipartisan Budget Act of 2018; therefore, income attributable to 403(b) elective deferrals continues to be ineligible for distribution on account of hardship.  

Amounts attributable to QNECs and QMACs may be distributed from a 403(b) plan on account of hardship only to the extent that hardship is a permitted distributable event for amounts that are not attributable to 403(b) elective deferrals. Thus, QNECs and QMACs in a 403(b) plan that are not in a custodial account may be distributed on account of hardship, but QNECs and QMACs in a 403(b) plan that are in a custodial account continue to be ineligible for distribution on account of hardship.

Plan amendments

The Treasury Department and the IRS expect that, if these regulations are finalized as they have been proposed, plan sponsors will need to amend their plans’ hardship distribution provisions. The deadline for amending a disqualifying provision is set forth in Revenue Procedure 2016-37. For example, with respect to an individually designed plan that is not a governmental plan, the deadline for amending the plan to reflect a change in qualification requirements is the end of the second calendar year that begins after the issuance of the Required Amendments List that includes the change.

The Notice of Proposed Rulemaking is scheduled to be published in the Federal Register on November 14, 2018, and comments are due within 60 days of that date. Text of the notice is here.

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Categories: Industry News

Public-Sector Employees Want Customized Benefits

Mon, 2018-11-12 03:00

Employees in the public sector want customized benefits, according to a new report from MetLife.

Their employers are also more likely than their peers to offer a full range of benefits. For example, 41% of public-sector employers offer a pension plan, compared with 16% of their private peers. Twenty-nine percent of public-sector employers offer financial planning workshops and/or financial wellness tools, versus 18% of their peers. Seventy-five percent of public-sector employers offer dental insurance, compared with 59% of their peers.

Seventy-nine percent of public-sector employees believe their employer offers a range of benefits that meet their personal and household needs. Asked what attracts them to a job, 88% of these employees say retirement benefits. Seventy-six percent say career development. Seventy-four percent say the employer shares their values. Seventy-three percent say on-the-job training, and 71% say the ability to customize benefits to meet their needs.

The ability to customize benefits is appreciated by 73% of Millennials, but only 59% of Gen Xers and 44% of Baby Boomers.

While 70% of public-sector employees are satisfied with their job, when they believe that their benefits are effectively being communicated to them, that rises to 79%.

MetLife says the public sector has to attract more Millennials since they currently comprise only 25% of their workforce. Forty-eight percent are Gen Xers, and 25% are Boomers. One way to accomplish this, MetLife says, is by respecting Millennials as well-rounded people. Among all age groups, 87% of public-sector employees are satisfied with their jobs when their employer encourages them to be themselves, and 86% are satisfied when they can voice their opinion without fear of retribution.

In addition, 80% of Millennials find career development, advancement opportunities and on-the-job training important and say these factors would increase their loyalty towards their employer. Only 29% of public-sector Millennial employees have access to financial planning tools, whereas 42% of total Millennials employees have such access.

Among all age groups, 90% of public-sector employees say financial wellness tools are important. Their top five financial concerns are having an emergency fund (70%), having enough money to pay the bills if someone in the household loses their job (67%), outliving their retirement savings (66%), being able to cover their monthly bills (65%) and being able to pay down debt (64%).  

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Categories: Industry News

Retirement Industry People Moves

Fri, 2018-11-09 12:34

VALIC has named Bill Abramowicz as vice president of business development for the Midwest region. Abramowicz will cover Illinois, Wisconsin, Minnesota, North Dakota and South Dakota and will report to Craig Cheyne, managing vice president of business development.

Abramowicz brings over 30 years of experience to the company, including previous roles in defined contribution sales and service. 

Before joining VALIC, Abramowicz served as a government relations team leader and managing director at MassMutual. He previously held senior sales and management positions at The Hartford and ING/Aetna. He received a bachelor’s degree from Chicago State University, is a certified retirement counselor through the International Foundation for Retirement Education and holds Series 6, 7, 26, and 63 licenses through FINRA.

JHRPS Promotes Executives as SVP Retires

John Hancock has promoted Gary Tankersley to head of sales and distribution for John Hancock Retirement Plan Services (JHRPS). He will report to Patrick Murphy, president and CEO, JHRPS, and join the senior leadership team.

In this role, Tankersley is accountable for growing JHRPS business in all segments of the market, encompassing startups to large organizations and the Taft-Hartley market. He is also tasked with expanding and overseeing JHRPS’ relationship with broker/dealers. He will be based in Denver, Colorado. 

Tankersley has 23 years of experience in the retirement plan services business. He joined John Hancock in February 2000 as regional vice president. He was promoted to divisional vice president for the central region in January 2013 and has served in that role until this announcement.

Also promoted was Abigail Benham into the role of vice president for national accounts, with responsibility for overseeing JHRPS’ relationships with broker/dealers and consulting firms as well as a team of national account managers. She will be based in Boston and report to Tankersley.

Benham joined JHRPS in 1998 as a marketing associate and has worked most recently as manager of national accounts. In that role since 2007, Benham was responsible for developing strategy and executing business plans for several of John Hancock’s largest broker/dealer relationships.

In parallel, George Revoir, senior vice president, national accounts and distribution, will retire from JHRPS in December 2018.

Aon Adds Sales Director to Pennsylvania Office

Aon has appointed John Stuntebeck as sales director.

In his new role, Stuntebeck will be responsible for business development in the non-profit market segment, contributing to the growth and enhancement of Aon’s platform for endowments, foundations, healthcare and other nonprofit entities. He will be reporting to Ed Bardowski, North American sales leader.

Stuntebeck has more than 20 years of nonprofit sales experience. Most recently, he served as a managing director for institutional investments and philanthropic solutions at U.S. Trust, Bank of America Merrill Lynch. He worked on investment and administrative solutions for institutional investors covering defined benefit plans, defined contribution plans, endowments, foundations and nonprofit organizations.

He earned a bachelor’s degree in political science from The Pennsylvania State University and holds Series 7 and Series 63 securities licenses. Stuntebeck will be located in Aon’s Radnor, Pennsylvania office.

CIEBA Elects Board of Directors Chairman

The Committee on Investment of Employee Benefit Assets (CIEBA), which represents chief investment officer retirement savings fiduciaries, has elected Douglas J. Brown as the new chairman of the CIEBA Board of Directors. Brown has served as vice-chair for the past two years and will succeed Andrew Ward, chief investment officer of The Boeing Company, who will remain on the Board.

CIEBA provides a networking and advocacy forum for in-house retirement investment leaders. The organization also publishes thought leadership on investment issues facing both defined benefit and defined contribution investment professionals.

Goldman Sachs Purchases Rocaton

Goldman Sachs Asset Management has entered into an agreement to acquire Rocaton Investment Advisors, in a bid to expand its retirement and advisory platform. This combination will provide a more fully integrated suite of advisory and discretionary services, according to the firms. Terms of the agreement were not disclosed.

Rocaton offers advisory and discretionary investment services to a wide range of institutional clients including retirement plans, healthcare and insurance companies, endowments, foundations and financial intermediaries. The entire Rocaton team will remain in Norwalk, Connecticut.

The transaction is expected to close in the first half of 2019.

Sales Managers Join Macquarie Investment Management

Macquarie Investment Management has announced that Chris Jacques and Corey Mayo have joined as institutional sales managers.

Jacques will support the Midwest region and is based in Chicago, and Mayo covers the Eastern U.S. and is based in Philadelphia. Both are responsible for building and expanding institutional relationships and enhancing the firm’s growth efforts with corporate and public plans, as well as endowments and foundations.

Jacques joined Macquarie from WisdomTree Asset Management, where he spent eight years as a director of sales in its central territory. Earlier, he served in institutional sales at Olympia Capital Markets Group. He received a bachelor’s degree in finance from the University of Notre Dame.

Mayo previously worked for Dupont Capital Management as a director of business development. Earlier, he was an institutional client service associate at CenterSquare Investment Management and began his career as an RFP specialist with the former Delaware Investments, which was acquired by Macquarie Group Limited in 2010. Mayo has a bachelor’s degree from Bucknell University and a master’s degree from Drexel University.

Edelman Financial Services and Financial Engines Rebrand

Following their merger in the third quarter of 2018, the combined Edelman Financial Services and Financial Engines organization has changed its name to Edelman Financial Engines

According to the firm, the new name symbolizes the company’s focus on independent financial planning and investment management for American families.

CUNA Adds Three Sales Division RVPs

CUNA Mutual Retirement Solutions has hired three regional vice presidents in its intermediary sales division. The new hires are Don Oldag, Tiffany Lauer and Ben Fisher.

Oldag, who will focus on Northern California, comes from Voya, where he was a third-party administrator relationship manager, and more recently, regional vice president of sales in Northern California. 

Lauer, who will focus on South Texas, was most recently a regional vice president with Transamerica. She also has experience with Nationwide, John Hancock and CitiStreet. 

Fisher, who will focus on the Mid-Atlantic, previously worked at Nationwide, where he spent over 10 years in various roles, including internal wholesaler and field service representative. For the past five years, he was regional vice president of sales for Northern Virginia and Washington, D.C. 

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Crash Course in Social Security From AARP

Fri, 2018-11-09 11:22

AARP updated its recently launched Social Security Resource Center with an analysis of the 12 most common Social Security misconceptions held by workers and retirees in the U.S.; the publication also discusses solutions and strategies for improving the long-term strength of the system.

According to David Certner, AARP’s legislative policy director, probably the first and most pervasive misunderstand is that Social Security is at risk of “going bankrupt” in the near term.

“At the moment, you could say the opposite; the Social Security trust funds are near an all-time high,” he says. “The program really is in good shape right now,” says David Certner. “But we know it has a long-term financial challenge.”

The white paper recounts how, for decades, Social Security collected more money than it paid out in benefits. The surplus money collected from payroll taxes each year got invested in Treasury securities, generating reserves that are now worth about $2.89 trillion.

“But as the birth rate has fallen and more Boomers retire, the ratio of workers to Social Security recipients is changing. This year is a tipping point,” Certner says. “The program will need to dip into its reserves to pay full benefits from this point forward, absent any change to the program. It’s now forecast that the trust fund reserves could be exhausted in 2034. Even if that happens, Social Security won’t be bankrupt. The program will continue to pay benefits, but at a rate of 79% of what recipients expected to receive.”

According to the AARP analysis, some ideas to reform funding are starting to take shape, but near-term Congressional action remains unlikely.

“One proposal is to either raise or eliminate the wage cap on how much income is subject to the Social Security payroll tax,” AARP says. “In 2019, that cap will be $132,900, which means that any amount a worker earns beyond that is not taxed. Remove that cap, and higher-income earners would contribute far more to the system. Other options lawmakers might consider include either raising the percentage rate of the payroll tax or raising the age for full retirement benefits.”

According to AARP, it is important that workers are made to understand their Social Security benefits can be taxed, especially when an individual can draw significant resources from other income sources, such as defined contribution (DC) or defined benefit (DB) retirement accounts. As the white paper recounts, single filers whose combined annual income exceeds $34,000 might pay income tax on up to 85% of their Social Security benefits; couples filing jointly may pay tax on up to 85% if their combined income tops $44,000.

Another key myth to break is that Social Security is meant to be an adequate source of income on its own for retirees.

“The SSA says if you have average earnings, the program’s retirement benefits will replace only about 40% of your pre-retirement wages,” the analysis says. “Nevertheless, 26% of those 65 and over who receive a monthly Social Security benefit today live with families that depend on it for almost all of their retirement income. And 50% of them say their families depend on Social Security for at least half of their income.”

The full publication is available on AARP’s website.

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Categories: Industry News