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Insight on Plan Design & Investment Strategy
Updated: 4 hours 12 min ago

MetLife Suggests Four Core Principles for Creating a Financial Wellness Program

10 hours 38 min ago

Given the diversity of the modern workforce, customizing financial wellness benefits is essential for strategically aligning interests across demographics and driving business goals, according to the latest in MetLife’s “Financial Wellness: Creating a More Productive and Engaged Workforce” white paper series.

The second whitepaper, “Tailoring the Program,” says financial wellness is centered around four core principles: financial awareness, financial health, financial security and financial inclusion. While a comprehensive financial wellness assessment can help employers determine which program elements take priority, an effective financial wellness program should strive to meet all four core principles.

Regarding financial awareness, the paper explains that just as demographics impact the type of information and services needed, demographics also determine the best communication methods. Online learning tools might work better with some employees while others might prefer one-on-one counseling or classes. Flexibility in the way information is delivered can be crucial to employee experience and overall success of the program.

As for financial health, the paper says budgeting and financial planning tools can help employees manage day-to-day finances and protect against unplanned expenses.

According to the paper, the ability to plan and protect for milestones such as buying a home or retiring is the lynchpin of financial security. A successful financial wellness program helps employees achieve financial security by bridging short-term needs with long-term goals.

In addition, it says most employees have a deep-rooted desire to take ownership of their financial situations and feel they are making wise choices. For this reason, a financial wellness platform that makes it possible for all employees—from entry-level to high-ranking executives—to access employer-sponsored benefits is most effective because it facilitates financial inclusion.

The first and second paper in MetLife’s series may be downloaded from here.

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Categories: Industry News

ERISA Excessive Fee Claims Against Checksmart Time-Barred by District Court

11 hours 49 min ago

The U.S. District Court for the Southern District of Ohio has ruled in favor of the defense in an Employee Retirement Income Security Act (ERISA) excessive fee lawsuit targeting Checksmart Financial’s defined contribution (DC) plan and Cetera Advisors.  

The original lawsuit was filed by a participant in the Checksmart Financial 401(k) Plan, contending in various ways that fees for funds offered in the plan are excessive. The plaintiff accused Checksmart, its plan committee, and the plan’s investment adviser, Cetera Advisor Network, of only offering expensive and unsuitable actively managed mutual funds, without an adequate or appropriate number of passively managed and less expensive mutual fund investment options. According to the complaint, most investment options in the plan had expense ratios of 88 bps to 111 bps, which the complaint says are four or more times greater than retail passively-managed funds—which were not made available to the plan and its participants during the class period. In addition, the average expense of all funds was 104 bps, according to the complaint.

As stated in the decision, the alleged actionable violation in all of this is a breach of fiduciary duty, because ERISA fiduciaries have specific duties of loyalty and prudence to plan participants. As a secondary matter, the plaintiff asserted a claim for “liability for knowing breach of trust,” which he argued could extend liability to defendants even if they weren’t found to be fiduciaries of the Checksmart plan.

Simply put, the decision states that the plaintiff’s claims “are foreclosed by ERISA’s statute of limitations.” The court explains that it has applied the shorter of ERISA’s statute of limitations period, based on the issue of when the plaintiff gained “actual knowledge” of the alleged breaches of fiduciary duty. Two issues orbit around this question, the decision explains. These are, one, the nature of the alleged breaches of fiduciary duty, and two, the definition of “actual knowledge.”

The text of the decision includes substantially detailed consideration of these matters, but the court boils its ruling down as follows. “Synthesizing the two important issues, here’s the question: did defendants disclose how much each investment option charged in fees before July 14, 2016, three years before [plaintiff] filed this lawsuit? Answering this question required facts, not just the pleadings. So, the court converted part of defendants’ motions to dismiss into motions for summary judgment by permitting limited discovery on one issue: whether the expense ratios for the various investment options offered by the Checksmart plan were disclosed to plaintiff before 2015. As it turns out, defendants did disclose the expense ratios for the various investment options offered by the Checksmart Plan in 2012. Several pieces of evidence support this conclusion.”

The decision points to mailings and various other disclosures sent by Checksmart to the defendant over the years leading up to this litigation. It also highlights that, as courts have applied the “actual knowledge” standard, “actual knowledge” really means “knowledge of the underlying conduct giving rise to the alleged violation,” rather than “knowledge that the underlying conduct violates ERISA.” A related and equally important distinction: “Actual knowledge does not require proof that the individual plaintiffs actually saw or read the documents that disclosed the allegedly harmful investments.”

“Here, the Checksmart plan disclosed to plaintiff the expense ratios for all the investment options by August 28, 2012,” the decision notes. “At that point, plaintiff had actual knowledge of the underlying conduct that gave rise to his alleged violations. That means that the three-year statute of limitations on any potential excessive-fee claims ran by August 28, 2015, but plaintiff didn’t file his claim until July 14, 2016. Plaintiff’s claim is late, and it’s foreclosed by the statute of limitations.”

According to the district court, the plaintiff “offers little resistance to this analysis, but he makes three arguments that his claim is not time barred.” First, the plaintiff argued this is a “process-based” claim, and since he had no actual knowledge of the process the Checksmart Plan used to select the investment options, his claim is not time barred. Second, he argued actual knowledge of the imprudence of an investment is impossible to have until after the investment underperforms. And finally, he argued, even if he did have actual knowledge of a breach of fiduciary duty in 2012, ERISA imposes an ongoing duty to monitor, “which means the Checksmart Plan was engaged in an ongoing breach of fiduciary duty until plaintiff filed the complaint.”

Ruling on the first argument, the court dives into some complex legal precedents that are fully detailed in the text of the decision, but it comes to the conclusion it “cannot recognize plaintiff’s claim as a process-based claim,” because doing so would “essentially erase the statute of limitations for all breach-of-fiduciary-duty plaintiffs.” This is so because “none would be likely to have insider knowledge of their plan’s decision-making process.”

On the second argument the court is also skeptical: “Second, plaintiff argues that even if his claim is not a ‘process-based claim,’ he could not have actual knowledge of defendants’ underlying conduct until 2016, when it became clear to him that certain funds had underperformed and overcharged. Put another way, plaintiff couldn’t predict the future in 2010, so he couldn’t have had actual knowledge that the funds would underperform and thus charge fees outpacing their performance. Plaintiff is right. He can’t be expected to predict the future. But the same goes for defendants, and that’s why this argument fails.”

The court’s consideration of the final argument points back to the crucial Supreme Court case of Tibble vs. EdisonThe district court here points out that Tibble analyzed ERISA’s six-year statute of repose under Section 1113(1), not the three-year statute of limitation that applies in the current matter, under ERISA Section 1113(2).

“The distinction between the two matters,” the court concludes.

The full text of the lawsuit is available here

The post ERISA Excessive Fee Claims Against Checksmart Time-Barred by District Court appeared first on PLANSPONSOR.

Categories: Industry News

Workers Urge Committee to Fix Multiemployer Pension Crisis Now

12 hours 38 min ago

The Joint Select Committee on the Solvency of Multiemployer Pension Plans held a hearing in Ohio last week to gather testimony from employees affected by the multiemployer pension plan crisis.

In his opening remarks, Senator Sherrod Brown, D-Ohio, co-chair of the committee, noted that the crisis threatens the pensions of more than 1.3 million Americans. He pointed out that he has put out a proposal—the Butch Lewis Act—which  “establishes a legacy fund within the Pension Benefit Guaranty Corporation to ensure that multiemployer pension plans can continue to provide pension benefits to every eligible American for decades to come.” This legislation is paid for by closing “two tax loopholes that allow the wealthiest Americans to avoid paying their fair share of taxes.”

However, Brown said he is open to any solution that protects workers, retirees and businesses.

The committee heard testimony from workers such as Larry Ward, a retiree and member of the United Mine Workers of America multiemployer plan, who stated that it has been said that the average mine worker pension is $582.00 per month, but explained that many fall short of that and one pensioner receives only $252.97 per month. “I sit here before you today and tell you that for most of the retirees I know, any reduction to their pensions will make paying their bills very difficult, if not impossible,” Ward said.

Since the enactment of the Kline-Miller Multiemployer Pension Reform Act (MPRA) in December 2014, some 15 plans have filed MPRA benefit suspension applications, and the Treasury Department has approved several. The committee heard testimony from two members of the Central States, Southeast and Southwest Areas Pension Plan, for which the Treasury Department rejected a suspension of benefits proposal under the MPRA.

In his testimony, David A. Gardner, chief executive officer of Alfred Nickles Bakery made recommendations:

  • All multi-employer pension plans with a certain level of under-funding must be immediately frozen.
  • Companies must have the right to help fund 401(k) plans for their employees and be able to withdraw from multi-employer pension funds without liability.
  • The contributions made by a participant to multiemployer pension plans must go back to the participant. Based on the contributions, the participants and the unions will determine pension amounts for retirees, for current employees and for employees who left but who were vested.
  • The government must decide how to fund the pensions of “orphans,” the employees in companies that went out of business.

On the issue of withdrawal liability, Mike Walden, president, National United Committee to Protect Pensions, said the matter needs to be addressed and revamped. He suggested putting a cap on withdrawal liability not to exceed the worth of the company, and possibly doing away with withdrawal liability in the future in exchange for contracts to stay in the fund or enter a fund for a certain length of time. “Withdrawal liability is one of the biggest concerns of employers that I have met with,” Walden said.

In its last hearing, the committee heard a suggestion that a long-term, low-interest-rate loan program would help solve the multiemployer pension crisis.

Text of testimony during the hearing last week can be found here.

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Categories: Industry News

Missing Inaction

15 hours 50 sec ago

A recent web seminar covered the topic of missing participants with Mercer experts Margaret Berger, principal, Princeton, New Jersey, Brian Kearney, principal, Washington, D.C., Norma Shaiara, principal, Washington, D.C.


Dealing with missing participants is a big issue for defined benefit (DB) and defined contribution (DC) retirement plans. Sponsors of ongoing retirement plans (including frozen plans) may need to rethink their procedures for tracking down missing participants in light of the Department of Labor’s (DOL)’s expanded audit initiative and Internal Revenue Service’s (IRS)’s recent informal guidance.


Over the last few years, Congress, the Government Accountability Office (GAO) and all three federal agencies that regulate retirement plans have been focusing on missing participants according to Shaiara. “This comes at the time of the silver tsunami, when Baby Boomers are retiring at a rate of ten thousand per day. This increasing number of participants turning 65 or 70.5 are required to take their defined benefit or defined contribution benefits.”


What types of retirement plans need to worry about missing participants? All Employee Retirement Income Security Act (ERISA) plans and tax-qualified plans including 401(a) and 403(b) plans. Most DB plans say that benefits for terminated participants will typically begin at the normal retirement age although the plan could be written to meet required minimum distribution rules (RMD) after age 70.5. Therefore, if a DB plan participant is missing at retirement age, there may be a failure to follow the terms of plan if the benefit isn’t paid out which could be a qualification problem under the tax code and could be a fiduciary breach under ERISA. For both DB and DC plans, RMDs generally must begin by 4/1 of calendar year after the year a participant turns 70.5 unless the participant is still working for the employer.


Terminating plans can’t wind things up and file a Form 5500 until all assets have been distributed, so finding missing participants can slow down a plan termination. Shaiara says, “For the past two years the DOL has increased audits nationwide focusing on whether benefits have begun on time to terminated, vested participants in ongoing DB plans. Generally, regulators say that plan sponsors need to make significant efforts to locate participants so that benefits are paid on time. Inadequate searches can lead to penalties under ERISA.”


Each of the federal regulators have their own rules about locating missing participants. Currently there is not necessarily any one thing a plan sponsor can do that would satisfy all three of the regulators.  


The IRS provides the Employee Plans Compliance Resolution System (EPCRS) which has long included corrections principles for ongoing and terminated plans, both DB and DC plans. Plans need to take “reasonable actions” to locate missing participants as part of an EPCRS correction. The language was used recently in Revenue procedure 2016-51 which updates the comprehensive system of correction programs for sponsors of retirement plans that are intended to satisfy the requirements of Sections 401(a), 403(a), 403(b), 408(k), or 408(p) of the Internal Revenue Code, but that have not met these requirements for a period of time. Therefore, Shaiara says, “A plan can still fix problems under EPCRS, even with missing participants, so long as it takes reasonable action to locate them and when the participants show up, and the benefits due them are provided to them.”

In addition, some IRS guidance on finding missing participants can also be found on Form 5500 since 2015.  Based on comments received in response to a Paperwork Reduction Act notice regarding the 2016 Form 5500 and Form 5500-SF, the Internal Revenue Service (IRS) announced that filers who have made a concerted effort to locate missing participants will face less of a reporting burden associated with the missing individuals.

Specifically, plan sponsors in the absence of other guidance, do not need to report on lines 4I of the Schedule H and I of the Form 5500 and 10f of the Form 5500-SF unpaid required minimum distribution (RMD) amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after “reasonable efforts” or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period.

On October 19, 2017, a memo from the IRS to its agents directed agents not to challenge DB or DC plan qualification for failing to make RMDs to miss participants, if a plan did ALL of the following: 1) Searched plan and related plan, sponsor, and publicly available records or directories for alternative contact information; 2)Used any of the flowing search methods: Commercial locator service, credit reporting agency or proprietary internet search tools for locating individuals; and 3)Attempted contact via certified mail to the last known mailing address and through appropriate means for any address or contact information including email and cell phones. They recently came out to say the memo extends to 403(b) plans as well.

For ongoing DC plans and for terminating DC plans Treasury bill 1.411(a)-11e offers guidance on forfeitures and suspensions for a long time in place. The limitation found in the Code Section 411 regulations (Treas. Reg. 1.411(a)-11(e)(1)) prohibiting forced distributions upon a DC plan’s termination where another “defined contribution plan” is maintained (and which direct that in that instance rather than a forced distribution, account balances of non-consenting plan participants be transferred to the other defined contribution plan), should only be applied to similar plans (i.e., maintaining another 401(a) plan after terminating a 401(a) plan or maintaining another 403(b) plan after terminating a 403(b) plan).


On August 14, the DOL released Field Assistance Bulletin (FAB) 2014-01, which provides additional guidance to plan fiduciaries of terminated DC plans with regard to missing participants. FAB 2014-01 requires that all of the following search procedures be exhausted before a plan fiduciary concludes its search for missing participants: 1) Send notices via certified mail; 2) Check related plan resources; 3) Consult the beneficiary of the missing participant; and 4) Use free electronic search tools—a new requirement. Search expenses may be charged to a missing participant’s account if this is consistent with ERISA and the plan’s terms. If these free services are not effective the plan sponsor must use services that are not free. The Labor Department expects plan sponsors to make efforts according to the size of the organization and overall plan assets involved and a cost/benefit analysis.

Starting this year, the Pension Benefit Guaranty Corporation (PBGC) has expanded its missing participant program. Beginning in January, terminating DC plans have had the option of transferring missing participants’ benefits to PBGC instead of establishing an individual retirement account (IRA) at a financial institution. Participant accounts will not be diminished by ongoing maintenance fees or distribution charges, and PBGC will pay out benefits with interest when participants are found. The enhanced program will make it easier for people to locate their retirement benefits after their plan terminates.

Based on current rules from all three regulators, here are what plan sponsors should do to find missing participants: Search all employer records; use certified mail; use more than one search method; conduct periodic searches; and keep records of when/how searches were done. Stay tuned for guidance from the IRS, DOL and PBGC or new legislation, i.e. The Retirement Savings Lost and Found Act.


When Missing Participants Are Found


What should plan sponsors do when they find missing participants? Berger says, “The answer depends on what type of plan the benefit is paid from and the age of the participant.”


DC plans are more straightforward. When you find the missing participant, you simply pay them out. The only wrinkle is if the former participant is older than age 70.5. This means that the required beginning date for RMDs has been missed as well as ongoing RMDs.  Participants in both DB and DC plans are subject to these specific RMD rules and if they don’t start their benefits on time they are subject to an excise tax of 50% of the missed payments, paid by the participant. The IRS may waive the tax if the plan sponsor files under the Voluntary Correction Program and/or participants can request a waiver for the error.


To understand why missing participants are a thorny issue for DB plans plan sponsors need to understand the moving parts, such as vesting rules. Vested benefits cannot be forfeited after normal retirement date except under the benefit suspension rules and they apply to only active participants and not vested, terminated participants. “When I say they cannot be forfeited, that’s not the same as them not being postponed. Some DB plans allow participants to defer their benefits up to the required date which is the April after the participant turns 70.5, which allows the plan sponsor more time to find the missing participant,” Shaiara says.


The second complicating factor is the qualified joint survivor rule. A qualified joint survivor annuity provides a lifetime annuity to a participant and a survivor benefit of at least 50% to a surviving spouse. For a DB plan, a spouse must consent to any election other than a QJSA and the explanation of the QJSA must be provided 180 days before the annuity starting date meaning this deadline can be tricky for active participants but it can really be complicated for terminated, vested participants. If the participant has passed the normal starting date, it’s impossible to pay their benefit on time and provide the notice before the annuity starting date, unless the plan has a retroactive annuity starting date provision.


The IRS has said informally that without the participant’s valid election the plan will have to default to paying benefits in the form of a QSJA. This causes several problems particularly for plans that offer lump sums and participants are expecting to receive lump sums but they missed the deadline that they had forgotten about. This is also problematic for participants who spouses passed away post normal retirement starting date.


There is also the question whether not offering optional forms of distributions is permissible. Saying that they missed the deadline so they miss the optional form is very problematic. A retroactive annuity starting date (ASD) is one way around these issues. A DB plan does not have to provide for retroactive ASDs. If a plan wants to permit retroactive ASDs, the plan document must specifically provide for them. In addition, the participant must have the right to have benefits calculated as of the retroactive ASD or the current date and must affirmatively elect a retroactive ASD. A retroactive ASD is permitted only if several requirements are met.  


The IRS offers two correction plans. The self-correction program (SCP) where there is no reporting to the IRS and no fee. This correction program is always available for insignificant errors and at times available to for significant errors. The Voluntary correction program (VCP) must be used if a plan wants a participant’s excise tax waived. It is streamlined for required beginning date failures and the back payments use the plan’s actuarial equivalent basis. A plan sponsor must explain how the failure occurred and why it won’t happen again.


There are three ways plan sponsors can ease administration and reduce errors. It’s difficult to deal with found participants in a DB plan. The best plan of action is to avoid this problem from the beginning. There are three steps plan sponsors can take that should improve their chances. First, follow the terms of the plan. Start benefits for terminated, vested participants at age 65. If the plan does not provide for a retroactive ASD, it should be amended to do so.


If a plan sponsor finds participants older than age 65 and younger than the RMD required beginning date, it can now pay them back and give them optional forms of distributions. Plans can also be amended so that terminated, vested participants can defer to the required beginning date with an auctorial increased benefit. Plan sponsors can also add forfeitures for missing participants and beneficiaries if they really cannot find someone, as long as the plan has a process in place where the benefits forfeited can be claimed if a participant is found.

The post Missing Inaction appeared first on PLANSPONSOR.

Categories: Industry News

SURVEY SAYS: Efforts to Discourage Participant Loans

18 hours 43 min ago

The majority of respondents (81.8%) work in a plan sponsor role, 4.5% are advisers/consultants and 13.6% are TPAs/recordkeepers/investment managers.


More than six in ten (63.6%) responding readers said their retirement plan uses education or plan design features to discourage participants from taking loans, while 36.4% said it does not.


More than one-quarter (27.3%) indicated their plans do not offer a loan feature—a good way to discourage participant loans. More than four in ten (40.9%) reported that the number of loans outstanding is limited to one, 13.6% said loans are limited to only certain accounts, such as employee deferrals, and 4.5% said loans can only be taken for reasons of substantial hardship.


Although no one said participants applying for a loan MUST attend an educational session first, in “other” responses, readers indicated that they send out information about how taking a loan can affect retirement savings, there’s messaging on the plan website about the effects of taking a loan or when applying for a loan online, a message pops up directing the participant to an education piece. Others said they have a two-loan limit, with one reporting that one of the loans MUST be for a primary residence.


One respondent said, “Participants may only apply for a loan once a year, have to wait 30 days after paying off a loan to get another loan, and the minimum amount of the loan is $500.”


In verbatim comments, several readers advocated for not allowing loans at all in retirement plans, but some pointed out the good things, such as participants paying interest to themselves, as long as they don’t default on the loan. Editor’s Choice goes to the reader who said: “If participants would have taken a loan outside of the plan anyway, at a higher rate, they would have to repay the lender with after-tax money, rather than themselves. So the repaid amount is gone, rather than reinstated in the DC account. It can be a reasonable strategy… IF the participant continues making their usual deferral while repaying the loan, and doesn’t default on the loan if employment ends.”


A big thank you to all who participated in the survey!



I just wrote a newsletter article yesterday urging employees to create an emergency savings account to discourage loans from their 401(k). Taking out $5000 and paying it back over 5 years can cause a loss to the account of over $2600! But maybe with $25 deposit into an emergency savings account the loan can be avoided.

I have a little bit of a hard time getting real excited about participant loans. Our recordkeeper has indicated that they don’t see evidence that participants with loans reduce their 401(k) deferrals. So the only possible detriment is the difference in earnings between the interest rate on their loan (prime + 1% for us) versus market returns on whatever they would be invested in (probably retirement date trust). While there is some reduced return on the loan assets, prime + 1% on a risk-free basis is really not that bad of an alternative. That is just my personal view.

Better not to make it an option.

We don’t discourage loans. Sometimes a loan feature is a good thing.

I wish they weren’t allowed at all

We do have some serial loan takers. Some on our team are stridently anti-loan. But, if participants would have taken a loan outside of the plan anyway, at a higher rate, they would have to repay the lender with after-tax money, rather than themselves. So the repaid amount is gone, rather than reinstated in the DC account. It can be a reasonable strategy… IF the participant continues making their usual deferral while repaying the loan, and doesn’t default on the loan if employment ends.

We have an annual benefits fair and a few articles on our intranet throughout the year, but otherwise there is not much ongoing participant education for the 401(k). Thankfully, I work on the product, so I am very aware of what I should do!

The recordkeepers love the automation; thus it’s too hard to / they won’t attach any supplemental communication in either the online application or with the check.

My current employer makes it easier to take out loans. And with both the CFO and controller with 2 loans, it’s not likely to change anytime soon

I recently watched a presentation by a company who is offering an insurance product that would pay off the loan if the participant was involuntarily terminated. Interesting concept. I’m encouraged that the marketplace is starting to develop strategies to address loan defaults due to termination.

As a TPA, we understand the hassle and burden that plan loans can be, so that was not going to be an option on our plan when we designed it.

I do believe that participants are more likely to start participating if they can access their money via loans. We have also limited loans to prevent people taking out new loans in short order (every month) as their balance increased.



NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Strategic Insight or its affiliates.

The post SURVEY SAYS: Efforts to Discourage Participant Loans appeared first on PLANSPONSOR.

Categories: Industry News

Retirement Industry People Moves

Fri, 2018-07-13 12:52

Innovest Hires Retirement Industry Veterans as VP and Service Manager

Innovest Portfolio Solutions (Innovest)
, an independent provider of investment-related consulting services, announced that Paul Nacario and Chuck Sklader recently joined the firm as a vice president and Arizona service manager, respectively.  

Nacario is a vice president for Innovest and has 28 years of experience in the retirement plan marketplace. He is experienced in plan administration and recordkeeping, participant education, retirement plan design, request for proposal (RFP) process management, fee negotiation, investment portfolio construction, compliance testing and fiduciary training. Prior to joining Innovest, Nacario worked for ICMA-RC, Prudential and Nationwide. He graduated from the University of San Francisco with a bachelor of science in marketing.

Sklader is responsible for Arizona client service support and has 27 years of experience in the retirement plan industry. For the last 17 years, he has provided consulting services focusing on governmental entities. In his role, Sklader conducted requests for proposals (RFPs), negotiated recordkeeper contracts and assisted with transitions. Sklader has co-authored two articles, “Evaluation of Asset Allocation Funds” and “Rethinking Public Sector Asset Allocation Models.”

Past ESG Expert Moves to LGIMA

Legal & General Investment Management America, Inc. (LGIMA) announced that John Hoeppner has joined as head of U.S. Stewardship and Sustainable Investments.

Hoeppner will help shape the firm’s environmental, social and governance (ESG) strategy and assist in meeting the increasing demand for ESG investing strategies in the U.S. market. LGIMA will work with its UK affiliate, LGIM, to build on its work in this space. This includes taking a proactive and impactful approach to stewardship, continuing to help shape and influence company and market behaviors to achieve positive societal impacts, and creating more sustainable long-term value for clients.

Hoeppner comes most recently from Mission Measurement where he led the Impact Investing practice, and launched an ESG data and consulting business. Prior, he held senior product positions in the asset management divisions of UBS and Northern Trust. He started his investment career at Cambridge Associates on the capital markets research team.

Industry Expert Replaces BPAS SVP of Fiduciary Services

BPAS has named Greg Woods as its senior vice president of BPAS Fiduciary Services.

Woods replaces Rick Shultz, who retired from BPAS at the end of June. Since joining BPAS in 2011, Woods has helped lead to the rapid growth of the division as vice president, providing arrays of fiduciary and investment services to assist financial intermediaries and plan sponsors. In his new role, he will oversee the BPAS Fiduciary Services division, including fund evaluation, portfolio management and business development. 

BPAS Fiduciary Services specializes in defined benefit, cash balance, 401(k), Taft-Hartley, PR 1081.01, and voluntary employee benefit association (VEBA) plans.

Prior to joining BPAS, Woods worked for Lightstone Capital Advisers as vice president, portfolio manager, and chief compliance officer. He graduated from Fordham University’s Gabelli School of Business where he studied finance and economics.

Findley Acquires Hallett Associates

Findley has recently added Pittsburg-based Hallett Associates, an independent financial adviser firm, as a step towards the firm’s rebranding strategy.

As part of the transaction, Keith Nichols, president of Hallet Associates, will become a principal with Findley and lead efforts in the independent human resources (HR) and employee benefits solutions markets. The transaction, says Findley, will “strengthen services with government plans, cash balance and small plans,” as well as expanding business with multiemployer plans.

The deal was effective June 29.

Wells Fargo Adds Head of Global Equity

Wells Fargo Investment Institute (WFII) has appointed Audrey Kaplan as head of global equity strategy, based in New York.

Kaplan will establish investment strategy for global equities for WFII, comprised of over 120 strategists and analysts focused on investment strategy, asset allocation, manager research, portfolio management, options strategy and alternative investments. The equity strategy she sets will be used by the investment professionals on behalf of individual and institutional clients with $1.9 trillion in assets under management through Wells Fargo Wealth and Investment (WIM) business units: Abbot Downing, Institutional Retirement and Trust, Wells Fargo Advisors, Wells Fargo Asset Management, Wealth Management and WFII. She also will establish the equity strategy methodology, drive investment thought leadership and communicate equity strategy to internal leaders, investment professionals, and clients, as well as the media.

Kaplan joins Wells Fargo with more than 25 years of global investment industry experience focused on equity research, quantitative analysis and portfolio strategy in global and domestic markets. Most recently, she led the international equities portfolio management and research team at Federated Investors, Inc.

Previously, Kaplan led Rochdale Investment Management’s quantitative research group. She also performed hedge fund strategy consulting with BlueCrest Capital Management in London, European quantitative strategy for Merrill Lynch in London, global emerging markets research with Robert Fleming in London, and equity, fixed income and derivatives analysis with Salomon Brothers in Tokyo and New York. She earned a bachelor of science degree in computer and systems engineering from Rensselaer Polytechnic Institute and a master’s degree in finance from London Business School.

Senior Consultant Joins Arnerich Massena

Portland-based investment firm Arnerich Massena announced that James Ellis, CFA, has joined the firm as a senior consultant in the company’s Institutional Services department. Ellis will serve clients ranging from corporate retirement plan sponsors and professional organizations to endowments and foundations. He will provide a full range of consulting services, including plan design and management, asset allocation and portfolio management, and fiduciary education.

Terri Schwartz, managing director of Institutional Services and principal, states, “We are thrilled that James is joining our team. His years of experience and knowledge of the industry will be of great benefit to our clients. He’s a great fit with our firm’s culture, and we think our clients will really appreciate what he brings to the table.”

Ellis is experienced in guiding fiduciaries to meet their strategic goals, with experience working with foundations and endowments, health care institutions, corporate and non-profit defined benefit and defined contribution plans, and Taft-Hartley Plans. He brings 20 years of experience in the financial services industry, most recently as director of institutional consulting for Buck Consultants, where he advised institutional clients on the development of investment policies, asset allocation, plan design, de-risking strategies, investment and menu structure, and fund evaluation, as well as implementing custom client solutions.

Unigestion Announces Sales Team Expansion

Unigestion has expanded its U.S. business with three senior appointments and a new sales force.

The revamped sales and business development team will be led by Tucker Glavin, who joined Unigestion as head of U.S. Institutional Clients and Sales at the end of 2017. He was previously managing director at PineBridge Investments, where he led a region of its U.S. Institutional Business. Glavin brings over twenty years of asset management sales experience having also previously been director of Institutional Sales at Lord Abbett, and managing director of Institutional Distribution at Columbia Management.

Tom Aitken has also now joined the firm as director, U.S. Institutional Clients and Sales. He was previously managing director at Bright Harbor Advisors and Thomas Capital Group, both alternative investment advisory firms that assist and guide General Partners globally in structuring funds and raising capital. Prior to this, Aitken was business development manager in the Joint Ventures, Partnerships and Licensing group of Pratt & Whitney, a United Technologies Company.

Finally, Bob Meikleham has been appointed vice president, Institutional Clients and Sales. He joins from Columbia Threadneedle where he covered business development for a range of institutional clients and prospects across the Northeast and Southeast of the U.S. Meikleham had previously worked in Columbia’s intermediary distribution team as a regional director, as well as in the firm’s operations department. 

Unigestion’s activities across the U.S. market will continue to be overseen by Christopher Bödtker, chairman of Unigestion (US), who joined the firm as part of the company’s acquisition of private equity specialist Akina in 2017. He was previously chief executive at Akina, and led its business globally with a particular focus on the U.S.

USI Consulting Employs VP of Retirement Services

USI Consulting Group announced that Michael Natyshak has been named vice president of retirement services, based in Southfield, Michigan. In this role, Natyshak will be responsible for leading sales and business development activities for USI Consulting Group across the state of Michigan.

Mike Sullivan, senior vice president and regional sales director for USI Consulting Group, says “Mike brings more than 25 years of experience in the retirement services industry, and has a long and trusted history with both his clients and colleagues. He will be invaluable to the central Michigan region as we continue to invest in new people and grow our market share. Mike brings a wealth of industry knowledge and passion to this role, and I am excited to have him on our team.”

Prior to joining USI Consulting group, Natyshak worked as a retirement services practice leader for a registered investment adviser. He has experience in the retirement and investment services industry, including financial analysis, service provider selection and management, fiduciary services, client service and investment consulting. Natyshak received a bachelor of science degree from Bowling Green State University. Industry education and designations include: FINRA Administered Series 6, 63 and 66; Accredited Investment Fiduciary Certification.

Cafaro Greenleaf Announces Addition of Investment Analyst

Cafaro Greenleaf (CG) hired Robert Corcoran, a past expert in global investment management and asset allocation, as investment analyst.

Corcoran brings over 20 years of experience to the Red Bank-based specialty firm. He has worked at several major investment firms throughout his career, including Bankers Trust, CDC Investment Corp (Natixis), and Nikko Asset Management. As a portfolio manager, he navigated portfolios through multiple market cycles while educating investors clients globally about of the qualitative and qualitative aspects of the investment process.

His primary focus at Cafaro Greenleaf will be analyzing defined contribution (DC) and defined benefit (DB) plan investments. In doing so, he will oversee and innovate Fiduciary Fit, CG’s proprietary and independent reporting and monitoring system based on not only performance, but the appropriateness of plan investments. Corcoran will also lead the execution and distribution of the CG Fiduciary Services program.

Past Firm Partner Joins Drinker Biddle & Reath

Drinker Biddle & Reath LLP has added a past Fox Rothschild LLP partner to its Employee Benefits and Executive Compensation Group. Jeremy Pelphrey will join the firm as a partner in the Los Angeles office.

Pelphrey advises businesses, fiduciaries and funds on a variety of employee retirement income security act (ERISA) and transaction-based matters. He represents privately held middle-market and emerging growth companies in mergers and acquisitions, spinoffs, and private sponsor and institutional buyer transactions. Pelphrey also advises companies on business succession plans and frequently represents parties involved in the formation and disposition of employee stock ownership plans (ESOPs).

“Jeremy is an entrepreneurial lawyer who strengthens our industry-leading ERISA and benefits practice,” says Andrew Kassner, chairman and CEO of Drinker Biddle. “His addition helps advance our strategic objective to grow in California.”

Pelphrey handles correction programs for ERISA-covered plans and drafts submissions, negotiates settlements, and resolves issues with governmental officials and agencies, including the Internal Revenue Service (IRS) and the U.S. Department of Labor (DOL). He is a frequent author and speaker on issues related to ESOPs and tax-qualified plans, health and welfare benefit plans, and fiduciary consulting.

Pelphrey earned his J.D. from The Dickinson School of Law of the Pennsylvania State University and his bachelor’s degree from Eastern Illinois University.

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Categories: Industry News

HSA Amendment Bills Moved to U.S. House

Fri, 2018-07-13 12:09

The House Ways and Means Committee has approved a package of bills that would expand benefits of health savings accounts (HSAs) and reduce employer health benefit costs.

H.R. 6301, which provides that a plan shall not be fail to be treated as a high deductible health plan (HDHP) by reason of failing to have a deductible for not more than $250 of specified services (twice such amount in the case of family coverage) during a plan year, was ordered favorably reported to the House of Representatives. The term ‘specified services’ means, with respect to a plan, services other than preventive care.

Another bill would let Medicare Part A beneficiaries currently prohibited from contributing to their existing HSAs once they turn 65 to continue to contribute.

Other bills would qualify significantly more health treatments, services and over-the-counter drugs for HSA spending and expand the definition of HDHPs to include Affordable Care Act (ACA) bronze plans and catastrophic plans.

The House also approved H.R. 6317, a bill to amend the Internal Revenue Code of 1986 to provide that direct primary care service arrangements do not disqualify deductible health savings account contributions, and for other purposes.

After a two-day markup session, the committee also moved to the House legislation providing retroactive relief from the ACA’s employer mandate from 2015 through 2018 and delay for one additional year (until 2023) the 40% Cadillac Tax.

More about the bills referred to the House can be found here.

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Categories: Industry News

Asset Class Returns Account for Disparity in Public DB Plan Performance Results

Fri, 2018-07-13 11:08

On average, the annualized return for public defined benefit (DB) plans from 2001 to 2016 was 5.5%—well below the typical actuarially assumed return, the Center for Retirement Research (CRR) at Boston College notes in an Issue Brief. 

However, the returns for plans in the top and bottom quartiles were 6.3% and 4.6% respectively—a difference the CRR says could account for roughly a 20-percentage-point disparity in their funded ratios. The differences in overall portfolio returns could result from differences in asset allocation and/or asset class returns.  To understand how each factor contributed to the lower performance of plans in the bottom three quartiles, the CRR performed an analysis based on newly collected data from the Public Plans Data (PPD) website.

The analysis found that asset allocation of each group converged to be about the same over time. As of 2016, the quartile allocations to equities fell into two groups.  Both the top and bottom quartiles held similar allocations—44% and 42%, respectively—while the second and third quartiles held 49% and 52%, respectively. In 2001, the allocation to fixed income ranged from 29% to 35% across the four quartiles. According to the Issue Brief, today, they all hold about 23%. In earlier years, allocations to alternatives fell into two groups. The top two quartiles each held about 12% of their assets in alternatives, while the bottom two quartiles each held about 7%. The allocation of the bottom quartile increased dramatically—to 33% today—and now aligns with the top quartile’s allocation of 32%. The second quartile increased from 6% to 27% and aligns closely with the third quartile’s allocation of 24%.

Next, the analysis looked at returns by asset class. Two key takeaways emerged. First, long-term returns for each asset class differ. For example, private equity and real estate had higher average returns than public equities over the period. The researchers say this variability suggests that the differences in asset allocation, although small, may be a factor in the quartiles’ different returns. The second takeaway is that the three lower quartiles underperform the top quartile in many asset classes—most clearly in public equities, which is the largest asset class. According to the researchers, this finding suggests that asset class returns are likely an important factor in the underperformance of lower-quartile plans.

The analysis showed the average change in the annual return when plans in the bottom quartile use the average allocation of plans in the top quartile. The researchers found no clear pattern—in some years, using the average allocation of top-quartile plans produces lower returns for the plans in the bottom quartile and, in other years, it results in higher returns.  On balance, however, the gains appear to be slightly larger than the losses, suggesting that asset allocation likely played some role in the poorer performance of the bottom-quartile plans from 2001 to 2016.

The analysis also showed the average change in the annual return when plans in the bottom quartile keep their own asset allocation but achieve the average asset class returns of plans in the top quartile.  The consistently higher outcome suggests that differences in returns within asset classes are a major factor in the poorer overall performance of the bottom quartile relative to the top.

When a new 16-year return is calculated based on the plan’s own asset class returns, but assuming the plan mimics the average asset allocation of plans in the top quartile, the results for the bottom quartile show that the annualized 16-year return for the top quartile was 1.54 percentage points greater than the average annualized return for plans in the bottom quartile. Applying the top quartile’s allocation to the bottom quartile increases the bottom quartile’s 16-year return by 0.38 percentage points—accounting for about 25% of the overall difference. Applying the top quartile’s asset class returns to the bottom quartile increases the 16-year return by the 1.16 percentage points.

In conclusion, the Issue Brief says, “In terms of explaining the underperformance of plans in the lower quartiles, the small differences in allocation among plans were secondary to the differences in asset class returns. While allocation did account for about one-quarter of the total 16-year underperformance for bottom quartile plans (with returns accounting for the remaining three quarters), returns accounted for almost the entire underperformance for the middle two quartiles.”

The CRR Issue Brief may be downloaded from here.

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Categories: Industry News

Former New York Retirement Fund Employee Sentenced in Pay-to-Play Scheme

Fri, 2018-07-13 10:14

Navnoor Kang, who served as head of fixed income at the New York State Common Retirement Fund until early 2016, was sentenced to 21 months in prison, the Wall Street Journal reports.

In 2016, the Securities and Exchange Commission (SEC) announced fraud charges against Kang and two brokers accused of orchestrating a pay-to-play scheme to steer billions of dollars to certain firms in exchange for luxury gifts, lavish vacations, and tens of thousands of dollars spent in unethical ways.

Kang allegedly used his position to direct up to $2.5 billion in state business to Gregg Schonhorn and Deborah Kelley, who were registered representatives at two different broker/dealers. In exchange for this business, which netted Schonhorn and Kelley millions of dollars in commissions, the brokers provided Kang with tens of thousands of dollars in benefits. Last October, Kelley was sentenced to probation for a term of three years with six months home confinement and 1,000 hours of community service.

Kang pleaded guilty in November to two counts of fraud.

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Categories: Industry News

Legislators Propose Expanded Features for SIMPLE Plans

Fri, 2018-07-13 09:49

The SIMPLE Plan Modernization Act has been introduced by Senators Susan Collins (R-Maine) and Mark Warner (D-Virginia) to provide greater flexibility and access to small business employers and employees seeking to use  SIMPLE plans to save for retirement. The Savings Incentive Match Plan (SIMPLE) retirement plans were first introduced by Congress for businesses with 100 or fewer employees in the Small Business Job Protection Act of 1996.

The new law would raise the contribution limit for SIMPLE plans from $12,500 to $15,500 for the smallest businesses (those with one to 25 employees) along with an increase in the catch-up limit from $3,000 to $4,500.

It would give businesses with 26 to 100 employees the option of the higher limits. Should they move to the higher limits, it would increase their SIMPLE plan mandatory employer contribution requirements by one percentage point.

It would allow for a reasonable transition period for employers who hire more than 25 employees. It would also make the limit increases unavailable if the employer has had another defined contribution plan in the past three years.

It would modernize the SIMPLE plan form filing requirements and modify the transition rules from SIMPLE plans to traditional plans to facilitate and encourage such transactions.

Finally, it would direct Congress to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.

“In my home state, the vast majority of businesses are eligible to sign their employees up for SIMPLE plans,” Collins says. “Financial advisers from Presque Isle to Portland have shared their concerns that neither employees nor their employers are in a good position to save for retirement. We must give small businesses and employees a better opportunity to save for retirement, and this legislation will provide such an opportunity.”

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Categories: Industry News

Investment Product and Service Launches

Thu, 2018-07-12 10:42

Vanguard will provide commission-free online transactions for the vast majority of exchange-traded funds (ETFs).

Vanguard, which has offered commission-free transactions of Vanguard ETFs since 2010, is broadening access beyond the company’s 77 low-cost ETFs to nearly 1,800 offerings, including ETFs from BlackRock, Schwab, and State Street Global Advisors. According to the company, the program will exclude “highly speculative and complex ETFs.”


“Vanguard has led the industry in reducing the cost and complexity of investing for all investors for more than four decades. We’ve driven down the costs of funds. We’ve driven down the cost of advice. Now, we’re driving down the cost of investing in ETFs,” says Karin Risi, managing director of Vanguard’s Retail Investor Group. “We believe giving investors access to a broad choice of low-cost, broadly diversified, commission-free investments is good for investors and good for the asset management industry.”


Vanguard expects commission-free online transactions to be available in August and will include the majority of ETFs traded on the major exchanges.


MassMutual and T. Rowe Price Create TDF Collaboration


A new family of target-date funds (TDFs) introduced by MassMutual features active management and dynamic tactical asset allocation by T. Rowe Price to help enhance return potential and mitigate risks.


According to MassMutual, the retirement funds are designed to address a spectrum of risks, including inflation, longevity, and market risks, which retirement savers face during their accumulation years and through retirement. The new TDF family is available exclusively to participants in retirement plans sponsored by MassMutual.


“MassMutual knows based on our experience as a recordkeeper that many retirement savers invest either too conservatively when starting to save for retirement or, conversely, too aggressively as they approach retirement,” says Tina Wilson, head of investment solutions innovation. “T. Rowe Price’s target-date fund solution seeks to provide savers sufficient assets at retirement to withdraw from at and through retirement, the ability to withdraw money needed to support living expenses over their lifetimes, and a potential buffer to assist with unexpected expenses, such as health care costs.”


“We are excited to work with MassMutual as the subadviser on this actively managed target-date solution,” comments George Riedel, head of U.S. Intermediaries, T. Rowe Price.  “We believe these funds can help Mass Mutual clients achieve their retirement goals.”



Johnson Investment Counsel Adds Charles River as Wealth Management Business


Johnson Investment Counsel, Inc., has chosen the Charles River Investment Management Solution (Charles River IMS) as its institutional and wealth management businesses.


According to John Investment Counsel, over 60 employees, including portfolio managers, traders, compliance and operations staff, will work on an end-to-end platform with integrated analytics and a single data source managed by Charles River. Johnson Investment Counsel has also adopted Charles River’s scenario analysis, global investment performance standards (GIPS) compliant performance measurement and attribution, composite management, portfolio construction, modelling, position management, and post-trade processing and settlement capabilities.


“For our fixed income business in particular, Charles River’s ability to integrate risk analytics, portfolio management and trade execution on a single platform will allow our portfolio managers to make more informed investment decisions and shorten the time from investment idea to execution,” says Jason Jackman, Johnson Investment Counsel. “We are also able to retire several proprietary systems, which allows us to focus on our core competency and reduce operational risk as we continue to grow.” 


“As Johnson Investment Counsel grows and diversifies their offerings, consolidating onto a more standardized investment platform helps them simplify their business model without sacrificing their critical requirements,” says Tom Driscoll, global managing director, Charles River. “Additionally, having a centralized infrastructure is more cost-efficient and keeps them up to date on the latest software capabilities.”


Ticker Tocker and Tradier Integrate to Offer Unlimited Commission-Free Equity Trades


Ticker Tocker has partnered with Tradier Brokerage, Inc., allowing all subscribers who link their Tradier accounts with the trading platform to receive an unlimited amount of commission-free equity trades for the duration of their active membership with the new Ticker Tocker platform.


Through this collaboration, Tradier clients will have no limitations on the number of equity shares that can be traded per trade and/or on the number of trades that can be placed per day, week, and/or month. The partnership is said to benefit both new and existing clients of Tradier, as long as they are active subscribers of Ticker Tocker with their accounts linked for trading through the platform.


Ticker Tocker’s invitation-only pilot program is set to go live this month and it will grant invited users exclusive early access at an initial discounted fee of $50. Monthly subscriptions, upon the platform’s official launch this September, will be $400 for leaders and $160 for general investors. 


DWS Creates Additional Xtrackers ETFs


DWS has launched five additional Xtrackers exchange-traded funds (ETFs), including three ETFs from its high yield toolbox, on Schwab ETF OneSource, Charles Schwab & Co.’s program that provides investors and advisers with access to commission-free ETF trading. 


The five newly added funds are:

  • Xtrackers High Beta High Yield Bond ETF (NYSE Arca: HYUP)
  • Xtrackers Low Beta High Yield Bond ETF (NYSE Arca: HYDW)
  • Xtrackers Short Duration High Yield Bond ETF (NYSE Arca: SHYL)
  • Xtrackers MSCI EAFE High Dividend Yield Equity ETF (NYSE Arca: HDEF)
  • Xtrackers Harvest CSI 300 China A-Shares ETF (NYSE Arca: ASHR)


“Through the most recent addition of HYUP, HYDW and SHYL to the program, Schwab clients will have a full complement of cost-effective high yield solutions to tailor their exposure to the high-yield bond market,” says Fiona Bassett, global co-head of Passive Asset Management. “In addition, Schwab clients looking for access to high-quality international dividend equities across developed market countries can get that through our HDEF fund.”


Hueler Analytics Creates Due Diligence Feature Aimed at Fiduciaries


Hueler Analytics has integrated Stable Value Compass, a new online due diligence tool designed for discerning fiduciary advisers. The company’s new tool is said to combine its stable value data with easy-to-use technology for reliable analysis and client-ready reporting.


Stable Value Compass allows fiduciaries, advisers, and consultants to compare multiple pooled funds and insurance company sponsored products across standardized data elements. The new tool enables advisers to conduct prudent analysis and make sound recommendations with Hueler’s stable value data as the foundation.

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Categories: Industry News

Simpler Retirement Plan Communications Make No Difference in Employee Decisions

Thu, 2018-07-12 10:24

Because 45% of U.S. households with heads between the ages of 25 and 64 have insufficient retirement savings, and for working households about to retire, the median savings is a mere $12,000, IZA Institute of Labor Economics conducted a study to find out how to encourage better savings behaviors. Specifically, the “Less Is Not More” study set out to determine whether presenting retirement plan information in a more compact and accessible way increases participation and results in better investment decisions.

IZA conducted a study among newly hired employees by giving them either a short form or a long form description about a hypothetical employer-sponsored 401(k) plan. The participants were then asked a series of questions about their planned choices: whether or not they would enroll in the plan, how much they would contribute and how they would allocate their funds. IZA found no difference between those given the short and those given the long forms.

IZA then conducted a second study among business school students, who were expected to have less familiarity with a 401(k) plan, and found the same results.

When enrolling in a retirement plan is optional, IZA says, the factors that determine whether or not a worker will do so depend on their age, education level, job tenure, income, financial knowledge, plan features, peer effects and planning horizon. Automatic enrollment has been very effective, IZA says. Using data from Fortune 500 companies, auto enrollment increases participation by 85%.

By comparison, another study found that educating new hires about the potential for future earnings by participating in a 401(k) plan increased enrollment by a single percentage point.

When a company match is offered, the likelihood of enrollment is 25% higher than when no match is offered. When the participation rate of colleagues increases by one percentage point, other workers’ enrollment increases by two percentage points. As people age, are better educated, have financial knowledge or work longer at a job, they are more likely to participate in a 401(k) plan, IZA says. In addition, people with a planning horizon of less than five years are less likely to participate than those with a planning horizon of five years or more.

When automatically enrolled, the majority of participants stick with the default deferral rate. One study found that 61% of participants do so. Another study found that by asking people to commit to using pay raises to increase their 401(k) contributions boosted deferral rates from 3.5% to 13.6% by the fourth pay raise.

IZA points to another study that found when a plan permits people to take out loans, this increases contribution rates by 2.6 percentage points.

Two different studies found that people spent between 36 minutes and one hour to decide how to allocate their money.

Framing investment information also impacts decisions. When shown one-year returns on stock funds, people assigned 41% of their portfolio to stocks. When shown 30-year simulated returns, people upped that allocation to 82%.

Another study found that 42.5% of males have at least some of their portfolio allocated to stocks, compared to 33.3% of females.

In conclusion, IZA says, “the data do not support the idea that presenting optional 401(k) plan information in a simpler, more compact way will improve employees’ retirement planning choices. However, we did find that financial literacy was positively associated with better choices. This suggests that increasing financial literacy would improve decision making regarding 401(k) plans. In addition, given that so many people choose the default options, it may be ideal to design those defaults in such a way as to improve individuals’ outcomes.”

IZA’s full report can be downloaded from here.

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Categories: Industry News

Lincoln Introduces Financial Wellness Tool

Thu, 2018-07-12 10:14

Lincoln Financial Group has launched Lincoln WellnessPATH, a financial wellness tool that helps retirement plan sponsors improve employee financial wellness.

After completing a simple quiz, employees are given a wellness score and actionable steps they can follow to improve that score. The tool is easy to use and accessible from the employee’s online account. Lincoln WellnessPATH gives employees a clear picture of their finances so they can focus on larger goals, like saving for retirement. In addition, goals like paying off student loans, reducing debt and saving for college can be linked so users can keep track of their progress.

According to Lincoln Financial, its 2017 Retirement Power Participant Study showed 51% of employees are interested in learning how to budget more effectively, and more than 25% of retirement plan participants have researched eight or more financial issues, including: prioritizing financial goals; being on track with savings; and expenses in retirement. Likewise, 78% of employees wish they had a better understanding of the elements of saving for retirement in their workplace retirement plans and six in ten cite their employer as a top source of information about financial topics.

“Financial wellness is about giving employees the tools and confidence they need to make smarter decisions in every aspect of their lives,” says Sharon Scanlon, head of Customer Experience, Retirement Plan Services, Lincoln Financial Group. “From every day budgeting to goal setting and prioritization, we recognize that people want to understand and improve their current financial state.”

To learn more about Lincoln WellnessPATH, view this video.

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Categories: Industry News

Small Businesses Embracing Progressive Retirement Plan Design Features

Thu, 2018-07-12 09:57

A supplement to its broader How America Saves report, the Small Business edition focuses on trends relevant to Vanguard Retirement Plan Access (VRPA) clients, who include full-service plan fiduciaries for plans with less than $20 million in assets.

In the report, Vanguard notes a significant increase in its work with small business clients—from roughly 1,400 small business plans in 2013 to nearly 8,900 in 2017, with the number of participants increasing six-fold to more than 370,000 over the same time period.

In addition to increased coverage, Vanguard reports that small business plans are broadly adopting progressive design features that can lead to improved retirement readiness of their employees. The findings bolster many of those in the 2018 PLANADVISER Micro Plan Survey, which also highlights the increasing professionalization of this segment of the defined contribution (DC) plan marketplace.

Looking closer at Vanguard’s book of business in the sub-$20 million market, nearly two-thirds of all eligible employees participated in their small business 401(k) plan in 2017. Participation rates vary depending on income and age, as is the case with larger plans. However, Vanguard researchers highlight how employees subjected to automatic enrollment have far higher participation rates across all demographic variables. Plans with automatic enrollment had an 83% participation rate, compared to 58% for plans with voluntary enrollment.

Deferral rates have also steadily increased in small business plans, Vanguard finds. When considering both employee and employer contributions, the average participant contribution rate was “a healthy 9.7% in 2017,” up from 9.3% the year before. Also similar to the larger plan market, deferral rates increase with job tenure and age—from 5.2% for employees age 25 and younger to 10.6% for those age 65-plus.

Nearly all plans (96%) on the VRPA platform offer target-date funds (TDFs) as the qualified default investment alternative, Vanguard reports. More than two-thirds of participants use TDFs and 59% are invested in a single TDF. The data shows TDFs have helped reduce extreme equity allocations. According to Vanguard, “only 4% of participants had no allocation to equities while participants investing exclusively in equities was 7%.”

Small business plans have also clearly embraced the offering of Roth savings, with eight in 10 now offering such a feature. Another positive for participants, nearly 100% of plans offer eligible participants the ability to make catch-up contributions.

“Within the small business marketplace, we’re seeing more plan sponsors implementing positive plan design features to better help their employees save for a comfortable retirement,” observes Jean Young, author and senior research associate in the Vanguard Center for Investor Research. “In particular, we expect that the use of professionally managed allocations, predominantly TDFs, will continue to increase over the next few years, helping to increase diversification, lower investment costs, and ultimately improve outcomes.”

The full small business plan report is available for download here.

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Categories: Industry News

Church Plan Operating Under Rules of ERISA Has Not Elected to Be an ERISA Plan

Thu, 2018-07-12 09:40

The Internal Revenue Service (IRS) has received several requests for private letter rulings (PLRs) from retirement plans since the Supreme Court decision about the definition of church plan under the Employee Retirement Income Security Act (ERISA) asking the agency to affirm that the plans are indeed church plans.

However, one request also asked if the plan’s operation using ERISA rules means it has elected to be an ERISA plan under Internal Revenue Code Section 410(d). The plan files an annual Form 5500 and pays Pension Benefit Guaranty Corporation (PBGC) premiums.

In PLR 201739010, the IRS notes that Code Section 410(d) allows a church or a convention of churches which maintains any church plan to make an irrevocable election that certain provisions of the Internal Revenue Code and Title I of ERISA shall apply to the plan as if it were not a church plan. Section 1.410(d)-1 of the Regulations provides that the plan administrator of the church plan may make the election by attaching an affirmative statement to either the plan’s Form 5500 or to Form 5300, Application for Determination for Employee Benefit Plan.

The agency points out that Section 1.410(d)-1 does not provide for an alternative form of election. Therefore, it concluded that the filing of Forms 5500 and payment of PBGC premiums with respect to the plan in question does not constitute an election under Section 410(d).

PLRs about church plan status

Following oral arguments in March 2017 in the cases of Advocate Health Care Network v. Stapleton, St. Peter’s Healthcare System v. Kaplan, and Dignity Health v. Rollins, the U.S. Supreme Court found plans maintained by principal-purpose organizations qualify as “church plans.”

In its slip opinion, the Supreme Court focused on the definition of church plan under ERISA, noting that from the beginning, ERISA has defined a “church plan” as “a plan established and maintained … for its employees … by a church.” Congress then amended the statute to expand that definition, adding the provision that: “A plan established and maintained for its employees … by a church … includes a plan maintained by an organization … the principal purpose … of which is the administration or funding of [such] plan … for the employees of a church …, if such organization is controlled by or associated with a church.”

The Supreme Court concluded that a plan maintained by a principal-purpose organization qualifies as a “church plan,” regardless of who established it.

In PLR 201811007, Entity A was originally established by Church Official B, and has been incorporated as a non-profit entity. Entity A is a ministry of Church Jurisdiction C and is listed in Church Directory E. Entity A’s purpose includes furthering the general welfare and common good of the public by establishing, organizing, and maintaining a Church D agency which makes available social services to residents of a particular geographic area.

Entity A established Plan X, a defined benefit plan qualified under Section 401(a) of the Internal Revenue Code, effective in 1978, in order to provide retirement benefits to Entity A employees. Plan X was frozen several years ago, and Entity A employees subsequently began participating in the Section 401(k) plan of Church Jurisdiction C. Entity A employees have always participated in Church Jurisdiction C’s health plan.

Committee I has been established by Entity A to be responsible for administering the employee benefit plans maintained by Entity A, including Plan X. Committee I has overall responsibility and authority to manage and control the operation and administration of Plan X (however, Entity A remains responsible for determining whether an individual is eligible to participate in Plan X). The members of Committee I are appointed by Church Official B. Committee I is comprised of three members: the Chair of the Entity A Board’s Finance Committee, the Vice Chair of the Board of Entity A, and the Chief Financial Officer of Entity A.

None of the eligible participants in Plan X are or can be considered employed in connection with a for-profit entity or one or more unrelated trades or businesses of Entity A within the meaning of Code Section 513. All eligible participants of Plan X are employed directly by Entity A and there are no other participating employers in Plan X.

In PLR 201826009, Entity A is a residential addiction treatment center that has served Church D for more than 60 years. Entity A provides alcoholism and addiction treatment solely to clergy, men and women religious, and seminarians. Entity A is a Section 501(c)(3) non-profit organization, and is listed in Church Directory E.

Entity A established Plan X, a defined benefit plan qualified under Section 401(a), in order to provide retirement benefits to eligible employees of Entity A. Plan X was frozen. Entity A has the authority to designate the plan administrator of Plan X, and has established Committee F to administer the retirement benefits of employees of Entity A, including Plan X. The members of Committee F are appointed by the Board of Trustees. Committee F is comprised of three members: Entity A’s Chief Executive Officer (CEO), Chief Financial Officer (CFO), and Human Resources Manager. The CEO and CFO are members of Church D, and members of Committee F carry out their duties in accordance with Entity A’s mission.

In PLR 201803007, Order A is a religious order within Church C. Order A is organized within and shares common bonds with Church C. Order A is listed in Directory D and is an organization described in Section 501(c)(3) of the Code and exempt from tax under Code Section 501(a).

One of the Order A’s ministries is to provide health care. Order A began work to provide a health care facility in City E, which is now present-day Hospital H. Hospital H is a nonprofit corporation under State F law. Hospital H is listed in Directory D as a hospital associated with Church C. Hospital H is exempt from tax under Code Section 501(a) as an organization described in Section 501(c)(3) pursuant to a group exemption letter applicable to organizations listed in Directory D.

Hospital H’s Articles of Incorporation and Bylaws provide that the sole member of Hospital H is Entity N, a State F nonprofit corporation. Entity N is listed in Directory D as the parent of Hospital H. Entity N is exempt from tax under Code Section 501(a) as an organization described in Section 501(c)(3) pursuant to a group exemption letter applicable to organizations listed in Directory D.

Hospital H sponsors the plans, which cover the employees of Hospital H. Plan 1 is intended to meet the requirements of a defined benefit plan under Section 401(a) of the Code. Plan 2 is intended to meet the requirements of a defined contribution plan under Section 401(a) of the Code. Plan 3 is intended to meet the requirements under Section 403(b) of the Code.

Committee R is the administrator of the Plans. Committee R was established by resolution of the Board of Trustees of Entity N, pursuant to Entity N’s Bylaws. The principal purpose of Committee R is the administration of the Plans. Committee R’s charter provides that members of Church C must make up the majority of the five members of Committee R. Also, one or two members of Order A must serve on Committee R and will be selected by the members of Order A who serve on the Board of Trustees. A member of Order A serves as Chair of the committee, and the Chair is selected by the members of Order A who serve on the Board of Trustees of Entity N.

In all three cases, the IRS found the plans to be church plans under Code Section 414(c).

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Categories: Industry News

House Committee Contemplates Bill That Would Reduce Employer Health Benefit Costs

Wed, 2018-07-11 13:23

The House Ways and Means Committee is considering bills that would reduce employer costs for health benefits coverage and expand benefits of health savings accounts (HSAs).

Among one of the bills considered is legislation to amend the Patient Protection and Affordable Care Act (ACA) to provide for a temporary moratorium on the employer mandate and to provide for a delay in the implementation of the excise tax on high cost employer-sponsored health coverage (also referred to as the Cadillac Tax).

It would provide retroactive relief from the ACA’s employer mandate from 2015 through 2018 and delay for one additional year (until 2023) the 40% Cadillac Tax. “We encourage the committee to go even farther by fully repealing the ACA’s employer mandate and ‘Cadillac Tax,’ both of which strain employer resources and impose greater out-of-pocket costs on working families,” American Benefits Council President James A. Klein said in a statement.

In addition, The Alliance to Fight the 40| Don’t Tax My Health Care says it “continues to advocate for full repeal of the 40% “Cadillac Tax” that is set to tax employer-provided health plans. The Alliance is pleased that the Ways & Means Committee is considering legislation to further delay the 40% ‘Cadillac Tax.’ Delaying this tax for one additional year is a step in the right direction. Until we achieve a full and permanent repeal of this tax, 178 million Americans will continue to be threatened by shrinking benefits and higher out-of-pocket costs and other negative results of this onerous tax.”

The American Benefits Council says other measures under consideration by the committee would expand the availability and utility of HSAs. The Bipartisan HSA Improvement Act, introduced in March, would make a number of changes to the law governing HSAs, including provisions expanding the kinds of services that could be covered under a health plan without being subject to a deductible. For example, this bill grants employers and plans new flexibility to cover chronic disease prevention before a patient has met his or her deductible

“We applaud efforts to increase HSA contributions and expand HSA-eligible coverage for working seniors and spouses with health flexible spending accounts. Approval of these measures would be a helpful first step toward increased take-up by employees and innovation by employers,” Klein said.

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Categories: Industry News

Hardship Withdrawal Safe Harbor Covers Tuition, But Not Loan Repayments

Wed, 2018-07-11 12:20

A timely new Insights publication from the law firm of Drinker, Biddle and Reath looks back at an Internal Revenue Service (IRS) letter sent earlier this year to Representative Scott Perry, R-Pennsylvania, in response to his inquiry about whether individual taxpayers can use a qualified 401(k) plan hardship withdrawal for the purpose of paying down student loan debt.

Reviewing the IRS response—formally published as Information Letter 2018-1—Karen Gelula, counsel, and Betsy Olson, associate, point out how the IRS emphasized that a hardship distribution must, among other things, be necessary to satisfy “an immediate and heavy financial need.”

As Gelula and Olson note, the letter does not directly address the plan provisions applicable to the specific constituent about whom Perry pinged the IRS, but instead notes that under the safe harbor standards for hardship distributions in the Internal Revenue Code Section 401(k) regulations, “education expenses” can in some cases be deemed a sufficiently immediate and heavy financial need, but only if they are for the “payment of tuition, related educational fees, and room and board expenses, for up to the next 12 months of post-secondary education.”

“The IRS confirmed in the letter that because a safe harbor hardship distribution may be made only for the prospective payment of education expenses, it cannot be made for the repayment of student loans,” Gelula and Olson write. “The IRS suggested that as an alternative to taking a hardship distribution, the participant may be able to get a loan from the plan.”

The attorneys further observe that 401(k) plans which permit non-safe harbor hardship distributions as described in the Internal Revenue Code Section 401(k) regulations could theoretically approve a participant’s hardship distribution request for the repayment of student loans, “provided that the loan repayment constitutes an immediate and heavy financial need based on all the relevant facts and circumstances.”

“Among other things, this includes the participant’s representation that the need cannot be relieved from other reasonably available resources such as insurance reimbursement, liquidation of the participant’s assets, cessation of plan contributions, other currently available distributions such as employee stock ownership plan dividends and non-taxable (at the time of the loan) plan loans, or borrowing from commercial sources,” the attorneys explain.

They also remind plan fiduciaries that the hardship distribution provisions will be changing in 2019, including the removal of the requirement in the safe harbor hardship distribution standards that a participant “take all available plan loans to demonstrate financial necessity.”

“In addition, the Treasury Secretary has been directed to remove from the safe harbor hardship distribution standards the requirement that the participant’s deferral contributions to all plans maintained by the employer must be suspended for six months following the withdrawal,” the attorneys point out.

The full IRS Information Letter 2018-01 is available here.

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Categories: Industry News

Senators Reintroduce Bill to Address Missing Participants

Wed, 2018-07-11 10:44

Previously introduced in 2016, U.S. Senators Elizabeth Warren, D-Massachusetts, and Steve Daines, R-Montana, have reintroduced legislation aimed at addressing the retirement plan missing participant problem.

The Retirement Savings Lost and Found Act of 2018 would set up a Lost and Found online database that uses the data employers are already required to report, so that any worker can locate all of his or her former employer-sponsored retirement accounts. According to the bill text, the Retirement Savings Lost and Found Act will provide individuals only with the ability to view contact information for the plan administrator of any plan with respect to which the individual is a participant or beneficiary, sufficient to allow the individual to locate the individual’s plan.

Under the bill, a plan that failed to find a missing participant wouldn’t be treated as violating the required minimum distribution (RMD) rules and the Employee Retirement Income Security Act’s (ERISA) fiduciary rules if it has fulfilled certain requirements. These include making at least one (unsuccessful) attempt to contact the individual at the most recent address maintained for the individual in the records of the plan, by certified mail or other similar delivery service if the most recent address is a physical address, and by electronic mail or other electronic communication if the only address on record is an electronic address, and taking at least one (two, in the case of an individual for whom the plan records contain only an electronic address) additional measure.

The additional measures are:

  • Checked with the administrator of a related plan or checked the plan sponsor’s records for an updated address.
  • Made at least one unsuccessful attempt to contact the individual’s designated plan beneficiary.
  • Performed at least one search using free electronic search tools.
  • Attempted to locate the participant using a commercial locator service.

The bill increases the automatic rollover amount from $5,000 to $6,000 and expands investment options for these rollovers to include a target-date or lifecycle fund, an investment product designed to preserve principal and provide a reasonable rate of return, and another option as the Secretary of Treasury may provide.

For plan balances of $1,000 or less, if within six months of notification, the plan participant has not made an election to receive a distribution of the benefit directly or has not accepted any direct payment, the plan administrator can transfer the amount of such benefit to the Director of the Retirement Savings Lost and Found or to an individual retirement account established by the Secretary of Treasury on behalf of the individual.

The ERISA Industry Committee and the American Benefits Council have expressed support of the bill.

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Categories: Industry News

Millennials Benefiting from PPA

Wed, 2018-07-11 09:23

Millennials are the first generation to fully benefit from improvements made to retirement plans over the last decade, notes the Empower Institute. According to its survey, they are on track to replace 75% of their income in retirement, compared to 64% for Americans overall, 61% for Gen Xers and 58% for Baby Boomers.

The Pension Protection Act of 2006 was enacted when Millennials began entering the workforce, and it paved the way for automatic enrollment and escalation, all the while acknowledging the significance of employer matches. Forty-one percent of Millennials are automatically enrolled in a defined contribution (DC) plan, compared to 38% of Gen Xers and 33% of Boomers. In addition, 38% of Millennials are in a plan with automatic escalation features.

“New features such as automatic enrollment and automatic escalation have come a long way in making access to retirement savings programs easier for employees and in shaking off some of the concerns with earlier DC plan designs,” says Edmund Murphy III, president of Empower Retirement. “Millennials are the first generation in the workforce to fully benefit from changes in the law made in 2006.”

The survey also revealed that 24% of Millennials have a formal plan for retirement, compared to 19% of Gen Xers and 17% of Boomers. Forty-eight percent of Boomers think they will work at least part-time in retirement, compared to 44% of Gen Xers and 40% of Millennials.

Fifty-nine percent of Millennials think Social Security will be a source of income in retirement, compared to 73% of Gen Xers and 88% of Boomers.

Sixty-one percent of Millennials expect DC plans to be a source of income in retirement, compared to 55% of Gen Xers and 47% of Boomers.

“Millennials who have had access to defined contribution plans are taking charge of their retirement planning by setting up a formal plan and seeking professional advice,” Murphy says. “Those are two strategies that are likely to lead to better retirement incomes.”

The Empower Institute conducted the survey of 4,000 adults in partnership with Brightwork Partners, LLC.

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Categories: Industry News

District Court Upholds Use of Segal Blend to Calculate Multiemployer Pension Liability

Tue, 2018-07-10 10:28

The U.S. District Court for the District of New Jersey has ruled in a multiemployer pension fund case brought by Manhattan Ford Lincoln against UAW Local 259 Pension Fund, pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multi-Employer Pension Plan Amendment Act of 1980 (MPPAA).

As explained in the text of the decision, this litigation arose from Manhattan Ford Lincoln’s withdrawal from the pension fund, an ERISA-covered multiemployer pension plan. Following a string of challenges during the arbitration process, the arbitrator ultimately upheld the pension fund’s calculation of about $2.55 million in withdrawal liability, leading to the filing of this lawsuit, in which the employer argued its proper liability (i.e., as calculated with the same discount rate used to set minimum funding requirements) should be much closer to zero, if not wholly null. 

Specifically, Manhattan Ford Lincoln challenged the pension fund and the arbitrator’s conclusions by raising two essential questions, stated in the text of the decision as follows: “(1) As a matter of ERISA law, must a pension plan’s actuary use identical actuarial assumptions to calculate the plan’s satisfaction of minimum funding requirements and its unfunded vested benefits (UVB) for withdrawal liability? 2) Assuming the answer to question 1 is ‘no,’ did the arbitrator err in this case when he found that the discount rate applied by the pension fund’s actuary to determine Manhattan Ford Lincoln’s withdrawal liability, the Segal Blend, did not render the actuarial assumptions ‘in the aggregate, unreasonable (taking into account the experience of the plan and reasonable expectations)’?”

These questions were coded into Manhattan Ford Lincoln’s motion for summary judgment and the pension fund’s cross-motion for summary judgment. In short, the decision answers the two questions raised flatly in the negative. Accordingly, the employer’s motion for summary judgment is denied, and the pension fund’s cross-motion for summary judgment is granted. Thus, the district court has also affirmed the arbitrator’s interim and final awards.

For its part, Segal Consulting has a few things to say about the ruling. It argues that this latest court decision “affirms use of the Segal Blend to calculate withdrawal liability.”

In a statement from Diane Gleave, senior vice president and actuary, and David Brenner, senior vice president and national director of multiemployer consulting, the pair explain how the withdrawing employer had argued (inappropriately in their view) that funding assumptions should have been used for the liability calculation.

“The actuary used what is commonly referred to as Segal Blend method, which involves two separate liability calculations blended to form the final result,” the pair explain. “The Segal Blend method more accurately reflects that the withdrawing employer is making a final settlement of obligations and includes a risk premium payment as part of that settlement. An arbitrator found that the use of funding assumptions is not required in calculating withdrawal liability. The court concluded use of the Segal Blend method by the pension fund’s actuary was appropriate.”

“It’s significant that the court granted the pension fund’s motion for summary judgement,” Brenner adds. “That means the judge concluded that there were no triable issues or facts raised by the withdrawing employer.”

Gleave adds that the decision “is consistent with every other decision handed down in similar cases except for one,” the Southern District of New York Court’s decision in The New York Times Company v. Newspaper and Mail Deliverers’-Publishers’ Pension Fund, which is being appealed.

Turning back to the text of the lawsuit, it is important to note how the decision was reached. As the judge explains, the arbitrator’s determination that ERISA and precedent-setting cases do not always require the use of the same discount rate for funding and withdrawal liability calculations “presents a pure conclusion of law.” Thus the question was reviewed de novo. On the other hand, the arbitrator’s determination that the use of the Segal Blend rate was reasonable, when considered “in the aggregate” with the other actuarial methods and assumptions, presents a mixed question of law and fact. Thus the court “reviewed the arbitrator’s interpretations of the law embedded within that determination de novo, but applied a ‘clearly erroneous’ standard to the arbitrator’s application of that legal standard to reach his findings of fact.”

Summarizing his conclusion, the judge writes the he “agrees with the arbitrator that an actuary’s use of distinct rates to calculate minimum contribution and withdrawal liability is not prohibited as a matter of law.”

“Additionally, after reviewing the arbitrator’s final award and the record as a whole, I uphold the arbitrator’s finding that Manhattan Ford failed to discharge its burden of demonstrating that the actuary’s selection of the Segal Blend rate for purposes of withdrawal liability was unreasonable,” the judge concludes.

The full text of the lawsuit, which includes substantial discussion on all these issues, is available here.

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Categories: Industry News