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The House Committee on Education and Labor held a hearing to gather ideas for eliminating barriers to employment for older Americans and other groups, such as those who have been incarcerated and those with disabilities.

In opening the hearing, Committee Chairman Bobby Scott, D-Virginia, spoke about the range of obstacles that unfairly keep some groups from achieving their full employment potential, including age discrimination and discrimination against those with disabilities. He emphasized the employment challenges faced by men and women of color who have a criminal record.

Chairman Scott said Congress should act to address the fact that, when older workers lose their jobs, they are so much more likely than younger people to join the ranks of the long-term unemployed. He said he will continue advocating for legislation known as the Protecting Older Workers Against Discrimination Act (POWADA), which he described as a focused and timely proposal to strengthen anti-discrimination protections for older workers.

Scott first introduced the bill in February, joined by a bipartisan group of House members from across the U.S. As emphasized in the hearing, supporters say POWADA is necessary to respond to a Supreme Court decision from 2009, known as Gross v. FBL Financial Services. Witnesses and members said during the hearing that the Gross decision severely undercut the Age Discrimination in Employment Act (ADEA). Under the Gross standard, plaintiffs seeking to prove age discrimination in employment are required to demonstrate that age was the sole motivating factor for the employer’s adverse action. POWADA seeks to return legal standards to the pre-2009 evidentiary threshold to ensure all claims of discrimination are adjudicated fairly.

“Congress must again recognize that age discrimination is based on the faulty assumption that aging diminishes ability,” Scott said.

Notably, opening testimony from Ranking Member Virginia Foxx, R-North Carolina, pushed back against the need to expand federal government intervention in this area. She instead emphasized the need for the federal government to allow employers and private innovators to solve these important issues.

“History has shown us that it is not the federal government but the innovation of individual Americans that has broken down barriers to opportunity,” Foxx said. “Today, Democrats see barriers as opportunities to increase federal power. Republicans see them as a way to enable individual empowerment.”

The hearing featured testimony from Laurie McCann, senior attorney with the AARP Foundation. She advocated strongly for “POWADA.”

“Congress can emphasize that it is good business to recruit and retain talent regardless of age,” McCann said. “Research shows the 50-plus demographic is actually the most engaged group of workers, yet older workers are still discriminated against at an alarming rate. Undue discrimination is among the most significant barriers they face to financial security. It is disturbingly pervasive. Three in five older workers say they have seen or experienced such discrimination in their job.”

According to McCann, if an employee older than 50 loses his job, only one in 10 will ever get back to the same income level.

“This is directly because employers are less likely to call back older applicants for an interview, and for women, the issue is even worse,” McCann said. “The commendable efforts of some employers to do better are no substitute for strong legal protections at the federal level. We cannot emphasize enough how much the Gross decision has harmed older workers. Perhaps most disturbing, Gross has already been applied to other civil rights, anti-discrimination, and anti-retaliation cases. Lower courts have also applied the decision against plaintiffs in disability cases, as well.”

Older employees want more support

In a 2017 report to the U.S. Senate Special Committee on Aging, the Government Accountability Office (GAO) recommended that employers adopt phased retirement programs, so that they will not suddenly lose the knowledge and experience of Baby Boomers. GAO also pointed to the benefits such programs could deliver in terms of financial stability and community engagement among older Americans. However, only 15% of workers between the ages of 61 and 66 were semi-retired that year, according to the report.

The report reviewed a contemporaneous Society for Human Resource Management (SHRM) survey that found only 5% of its membership base offered a formal phased retirement program. However, 11% offered an informal phased retirement program. Among large employers, those with 2,500 to 9,999 workers, 16% offered a formal phased retirement program. GAO said nine of 16 experts interviewed alongside the survey explained that industries with skilled workers or labor shortages are generally more motivated to offer phased retirement because their workers are hard to replace. Consulting, education, government, utilities and high-tech are among the industries most likely to offer phased retirement.

A 2018 survey of 2,043 retirees by the Transamerica Center for Retirement Studies (TCRS) showed two-thirds of retirees said their most recent employers did “nothing” to help pre-retirees transition into retirement, and 16% are “not sure” what their employers did. Among the 18% of retirees whose employers helped pre-retirees, the most frequently cited offerings are financial counseling about retirement (6%), seminars and education about transitioning into retirement (5%), the ability to reduce work hours and shift from full- to part-time (5%), and accommodating flexible work schedules and arrangements (5%).

When looking back on their retirement preparations, almost three in four retirees (73%) agree they wish they would have saved more and on a consistent basis. About two-thirds (67%) say they did as much as they could to prepare for retirement, but almost as many (64%) wish they had been more knowledgeable about retirement saving and investing. Three in ten used a financial adviser before retiring to help them manage their retirement savings or investments.

Most organizations appear to underestimate the financial challenges facing older workers, and thus the likely timing of retirements, Willis Towers Watson says in a related white paper. According to the analysis, just over 80% of organizations acknowledge the importance of their older workers and managing the retirement process. Yet only about half believe they understand the process well, and just one-quarter feel they have found an effective approach.

“There are also important disparities in perception—between managements’ views of when pending retirements will occur, and the plans of the workers,” the white paper says. “Employers are concerned both about increasing retirements and the resulting loss of seasoned employees’ skill and experience, as well as rising numbers of delayed departures leading to higher salary and benefit costs.”

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The National Association of Retirement Plan Participants (NARPP) has released its annual “Participant Trust & Engagement Study,” which shows that overall satisfaction with providers has declined by 24 percentage points in the past six years to a new low.

NARPP says if participants were to trust their providers more, they would likely defer higher amounts to their retirement plan, be more committed to saving and have a stronger perception of their provider’s brand. Furthermore, they would be more loyal to the provider, which would put providers in a better position to cross sell products to participants.

Asked if they trust financial institutions, only 11%  participants said they did, a decline of two percentage points from 2018. Only 25% of participants feel that they can always trust their employer.

As to which factors build their trust, participants said satisfaction with the education provided, transparent fees, receiving relevant information, viewing their provider as if they were a partner and believing that the information the provider gives them is in their best interest.

Forty-three percent of participants are satisfied with the education provided to them. Fifty-three percent think that education is in their best interest. Forty-eight percent think that fee information is easy to understand. Forty-eight percent think that the information provided to them is relevant to their situation, and 24% view their provider as a partner.

However, participants’ engagement with providers declined across all channels in 2019, with 41% visiting the website, 38% looking at their statement, 22% looking at investment options, 15% using financial tools, and 7% calling a representative.

Among retirement plan providers, a recent Cerulli survey found that spending more time and attention with participants builds trust. “A great client experience also manifests measurable advantages for the adviser’s practice, including a higher median client size, lower attrition rates, and the ability to move upmarket,” the report says.

Warren Cormier, executive director of the Defined Contribution Institutional Investment Association (DCIIA) in Charlotte, North Carolina, says it is imperative that retirement plan providers and advisers build participants’ trust. “Trust is one of the most fundamental drivers of behavior because it allows people to do things that are not necessarily intuitive for them, and trust is particularly important in the defined contribution area because participants are putting away money that they may not see for 40 years in the care of a recordkeeper they may not know that well,” Cormier says.

“That is, essentially, not intuitive,” he continues. “If you want participants to be saving for retirement, fundamental to that decision is how much they trust their employer and providers to do the right thing.” The same is true for inspiring participants to use and trust in tools, such as a retirement calculator, Cormier says. “The numbers speak for themselves. Participants have a low level of trust in their retirement plan providers, and there is a lot of work to be done.”

Asked to assess their financial prowess, the survey showed that 42% say they are knowledgeable about finances, 30% are comfortable managing money, 22% say they are comfortable with retirement planning, 18% know how to estimate their retirement needs, and 17% understand investing.

The average level of financial stress is 49%; among Millennials, it is 60%. Fifty-six percent of men feel knowledgeable about financial matters, but this is true for a mere 29% of women.

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The average self-directed brokerage account (SDBA) balance rose to $267,609 in the first quarter, an 8.7% increase from the last quarter of 2018, largely due to strong market returns, according to Charles Schwab’s SBDA Indicators Report.

Thirty-seven percent of participants’ assets were in mutual funds, the same as the previous quarter. Equities were the second-highest holding, at 29%, followed by exchange-traded funds (ETFs) (17%), cash (13%) and fixed income (3%).

Last year, Schwab’s analysis found 18.7% of SDBA accounts were managed by an independent investment adviser.  Those participants who used advisers displayed a more diversified asset allocation mix and had a lower concentration of assets in particular securities. As for ETF holdings, advised participants again had more balance among all the holdings, not having more than 3% of any one ETF.

Among mutual funds, large cap represented 29% of all allocations, followed by taxable bond (20%), international (16%), hybrid (12%) and small-cap funds (12%).

Among equities, Apple remained the top overall holding, representing 9.1% of all equity holdings. Amazon was next (6.4%), followed by Berkshire Hathaway (2.5%), Microsoft (2.1%) and Facebook (1.8%).

Among ETFs, investors allocated the most dollars to U.S. equity (48%), followed by international equity (16%), U.S. fixed income (15%) and sector ETFs (11%).

On average, participants made just 6.5 trades during the quarter and held 10 positions in their SDBA. Baby Boomers ended the quarter with the largest balance of all generations, at $374,622, up from $342,810 in the last quarter of 2018. Gen Xers had the next highest balance ($202,481), followed by Millennials ($65,928).

The average age of the SDBA participant was 51. Gen Xers made up 41% of all participants, followed by Baby Boomers (40%) and Millennials (12%).

The report is based on data from participants in the Schwab Personal Choice Retirement Account (PCRA).

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Janet Dhillon was sworn in today as the chair of the U.S. Equal Employment Opportunity Commission (EEOC) by Acting Chair Victoria A. Lipnic.

She will serve as the 16th Chair of the EEOC. Dhillon was first nominated by President Donald J. Trump on June 29, 2017, and confirmed on May 8, 2019. Her term will end on July 1, 2022.

The EEOC may be mainly thought of as an enforcer against gender, racial and national origin bias in workplace hiring and firing, but it also takes actions that affect retirement plans and individuals who want to continue working into retirement.

A Gallup poll found 74% of employees plan to work past their retirement age, and the EEOC has cracked down not only on employers that show age bias in hiring, but also on retirement policies that discriminate against older workers and discriminatory early retirement incentive plans. In 2017, coinciding with the 50th anniversary of the Age Discrimination in Employment Act (ADEA), the EEOC held a hearing to discuss what is working and what is not. As witnesses pointed out, some employees want to keep working either for engagement reasons or financial reasons, and some want to retire from their current jobs to pursue ‘encore’ careers. All witnesses noted that age discrimination in employment is still ongoing.

As chair, Dhillon will continue to ensure policies are enforced to enable older individuals to work as long as they want and to prevent age discriminatory retirement programs and policies.

Dhillon practiced law in the private sector for more than 25 years. Prior to joining the EEOC, Dhillon served as executive vice president, general counsel and corporate secretary of Burlington Stores, Inc. Previously, she served as executive vice president, general counsel and corporate secretary of JC Penney Company, Inc., and before that, as senior vice president, general counsel and chief compliance officer of US Airways Group, Inc.

Dhillon began her legal career at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where she practiced for 13 years. She is a graduate of Occidental College, magna cum laude, and the UCLA School of Law, where she ranked first in her class.

Dhillon joins Commissioners Lipnic, who has served as Acting Chair since January 2017, and Charlotte Burrows. With her swearing-in, the Commission regains a quorum that it lost on January 3.

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New survey data shared by Wilshire Associates suggests institutional investors are broadly feeling self-assured when it comes to navigating the next bout of market volatility.

According to Wilshire Associates, the vast majority (95%) of 75 institutional investors recently surveyed reported being “at least somewhat confident” in their organization’s readiness to successfully navigate market volatility.

Importantly, among that group, 39% feel very confident and 56% are only somewhat confident. The remaining 5% do not feel very confident.

Wilshire’s analysis shows less than one-third of respondents (29%) feel “far more prepared” for a bear market today than their organization was in 2007, ahead of the Great Recession. More than half of institutions (58%) feel more prepared than in 2007, the data shows, while the remainder (13%) reported feeling the same level of preparedness as 12 years ago.

As Steve Foresti, chief investment officer of Wilshire Consulting, observes, investor perceptions of preparedness for market turbulence can often differ from actual readiness. This matches the take given recently by Northern Trust CIO Bob Browne, who warns that many institutional investors would benefit from taking a step back and reassessing their risk and return objectives following a long streak of essentially uninterrupted gains.

According to the Wilshire data, institutions have mixed views when it comes to what type of investments will generate best market returns in the next 12 months. Investors will primarily look to equities, the survey data suggests, with 41% of respondents citing U.S. or emerging market equities to bring about the greatest market return over the next year.

Fixed income was the next-most highly cited investment opportunity, with 29% of respondents choosing international and U.S. fixed income as creating the greatest opportunity. One-fifth believe alternatives will generate best market returns and 10% will look to real estate, according to the Wilshire data.

“While it is nearly impossible to predict what might trigger a sustained market correction, institutions can make sure their portfolios are well diversified to account for various risks and market scenarios,” says Foresti. “Running portfolio stress tests can be a valuable technique to pre-experience an institution’s preparedness.”

Market insights in equities and fixed income

Related market commentary was shared this week by Charles Schwab Investment Management’s Omar Aguilar, CIO of equities, and Brett Wander, CIO of fixed income.

On Aguilar’s assessment, the 2019 market rally has primarily been driven by accommodative major central bank policies, along with better-than-expected first quarter earnings. Aguilar says the odds for a rate cut by the Fed in 2019 have been rising, while the European Central Bank has continued to expand its balance sheet in an effort to stabilize growth.

“In spite of a solid labor market and stable U.S. economy, inflation has been below the Fed’s target for over a decade,” Aguilar points out. “Benign wage growth, demographics, trade disputes, reduced demand for goods, and corporate unwillingness to pass along higher labor costs to consumers are headwinds for domestic inflation. Overseas, inflation also remains low. Meanwhile, China is employing a variety of tools to stimulate growth, with its fiscal policies a potential positive for emerging markets.”

Aguilar says one obvious source of uncertain is and will remain the trade tension between the U.S. and China.

According to Wander, on the fixed-income side, there is no great mystery that President Trump wants a rate cut.

“Donald Trump has been tweeting intensely about the benefits of an interest rate cut, which he’s been trying to push Fed Chair Jerome Powell toward for several months,” Wander explains. “It’s not unheard of for a President to try and pressure the Fed to keep rates low. The hope is that this would spur economic growth and provide political benefits. What is new is the social media venue. Will this approach prompt a rate cut? And if so, who would win, and who would lose?”

Wander says there would be clear winners and losers in this scenario.  

“The stock market typically sells off in response to a rate cut, which implies that the economy is on the decline. However, presidential pressure and low inflation could prompt a preemptive cut now. This could be a positive for equities and fixed income as the additional stimulus might further extend the longest economic expansion in U.S. history,” Wander says.

Rate cut losers would include, in Wander’s estimation, long-term savers and retirees, “who are first in line to take a hit when the Fed cuts rates.”

“After finally reaching a yield level close to the rate of inflation on their T-bills, CDs, and money market accounts, savers could become quite frustrated if their yields decline in response to a rate cut,” Wander explains. “We feel that investors should, therefore, be aware of their portfolio exposures and be willing to adjust them as the economic outlook shifts.”

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The most frequently cited retirement concerns are declining physical health (50% global, 44% U.S.) and running out of money (40% global, 49% U.S.), according to research, “The New Social Contract: Empowering individuals in a transitioning world,” a collaboration among Aegon Center for Longevity and Retirement (ACLR) and nonprofits Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidade Mongeral Aegon.

Only 36% of workers in the U.S. are very/extremely confident that they will be able to retire comfortably. Just 31% of people in the U.S. are very/extremely confident that their health care will be affordable in retirement. Fifty one percent of Americans feel stressed about their long-term financial plans for retirement at least once per month.

The best route to retirement readiness is starting to save as early as possible and becoming a “habitual saver,” the research report says. However, only 53% of workers in the U.S. say they are habitual savers. Only 28% have a written plan for retirement. These are two key tasks individuals can take to ensure their retirement readiness, according to the report.

The research also found that fewer than half of workers (48% global and U.S.) are currently factoring future health care expenses into their retirement savings needs. And in the U.S., only 41% of workers have a backup plan to provide an income in the event they are unable to work before they reach their planned retirement age. The report urges individuals to adopt healthy lifestyles and create a backup plan for early retirement.

In addition, the report says, people must commit themselves to continuing education to keep their job skills up to date and relevant and to learn how to make informed choices in their retirement planning. Financial literacy is an example of where improvement is needed. The survey found only 27% of U.S. respondents could correctly answer all of the “Big Three” financial literacy questions developed by Drs. Annamaria Lusardi and Olivia Mitchell that test knowledge of compounding interest, inflation and risk diversification.

Roles of the government and employers

Globally, the vast majority recognize that government retirement benefit programs are under strain. In the U.S., only 8% of people believe that Social Security will remain perfectly affordable and that the government should not take any action. “The message is clear that governments need to take action. Whatever the solutions maybe, the reforms must be fair and equitable,” the report says.

Catherine Collinson, CEO and president of nonprofit Transamerica Institute and Transamerica Center for Retirement Studies in Los Angeles, tells PLANSPONSOR there are many things governments can do. One of the biggest topics currently is expanding coverage, so any reforms to make it easier for employers to offer retirement plans to employees, thereby improving coverage, can help tremendously, she says.

In addition, governments can make it easier for all employers to offer automatic enrollment in retirement plans, and there should be continued efforts to increase portability of retirement accounts when employees change jobs, if leaving assets in the plan is not option, according to Collinson.

Collinson also says, “As much as employers are doing to help employees save, they are doing little to help pre-retirees transition into retirement. Any fiduciary relief to make it easy for plan sponsors to help employers offer employees retirement income options will help.” She also says TCRS has worked on studies about helping employees extend their working lives. “People are living longer, and many will need to work longer. It is untenable to save for a 30 or 40 year retirement,” she says. “Most workers want to transition into retirement—shift from full-time to part time, work in a different capacity, phased into retirement—but most employers do not offer such programs. Thinking of how phased retirement programs will affect nondiscrimination laws and the qualification status of plans, and considering how to manage flexible work arrangements, any public policy reforms to make it easier for employers to offer phased retirement can benefit workers transitioning to retirement.”

Collinson says employers continue to have a profoundly influential role in helping employees save for retirement, but TCRS is seeing in its research an interest level among workers in additional benefits to protect their health and financial situation. Employers can offer physical as well as financial wellness programs.

Voluntary benefits and insurance protection can protect employees against catastrophic events. Employers can offer life insurance, disability insurance and other supplemental insurance.

She believes employers should also instill a sense of lifelong learning in employees. “A four-year degree serving a 30-year career, given the pace of change isn’t realistic,” she says. “Employees need to keep their job skills up to date and relevant, and employers can offer training and development as well as encourage continuing education.

“Especially in today’s world, where the unemployment rate is at historic lows and the labor market is as competitive as ever, employers can differentiate themselves by enhancing retirement benefits and other benefits and offering flexible work arrangements,” Collinson says.

Elements of a “social contract”

The report suggests that the idea of a “social contract” has been central to retirement systems in countries around the world. The traditional social contract is an arrangement involving three pillars: government, employers and individuals—each with a specific set of expectations and responsibilities.

According to the report, nine essential design features of the new social contract include:

• Sustainable social security benefits – Preserve this fundamental source of guaranteed retirement income for today’s and tomorrow’s retirees.
• Universal access to retirement savings arrangements – Ensure coverage for employed workers, the self-employed and those with parenting, caregiving, or other responsibilities.
• Automatic savings and other applications of behavioral economics – Leverage automatic savings features and matching contributions to make it easier and more convenient for people to save and invest for retirement.
• Guaranteed lifetime income solutions – Educate people on how to strategically manage their savings to avoid running out of money; raise awareness about ways to annuitize all or part of their savings.
• Financial education and literacy – Improve people’s basic understanding of financial matters, starting in early childhood through adulthood, to help people make informed decisions.
• Lifelong learning, longer working lives and flexible retirement – Provide tools and resources for reskilling and keeping their skills up to date and options for phased retirement so that people can remain economically active for longer and transition into retirement on their own terms.
• Accessible and affordable health care – Reinforce healthy aging through quality health care. Provide access to healthy work environments and workplace wellness programs at the employer level.
• A positive view of aging – Celebrate the value of older individuals and takes full advantage of the gift of longevity.
• An age-friendly world – Enable people to “age in place” (in their own homes) and live in vibrant communities designed for people of all ages to promote vitality and economic growth.

The findings in the report are based on 14,400 workers and 1,600 retired people surveyed across 15 countries: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the United Kingdom and the United States. The survey was conducted online between January 22 and February 14, 2019.

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Last week, I asked NewsDash readers, “What voluntary benefits do you offer employees, and do you consider these benefits a way to help employees with financial wellness?”

 

The majority of respondents (84.6%) work in a plan sponsor role, 7.7% are advisers/consultants, 5.1% are TPAs/recordkeepers/investment managers and 2.6% are CPAs.

 

Nearly all responding readers’ companies (94.9%) offer life insurance, and a large majority offer AD&D insurance (89.7%) and short- and/or long-term disability benefits (84.6%). Less common benefits offered are long-term care insurance (23.1%), pet insurance (20.5%), legal assistance (30.8%), a discount shopping program (25.6%) and auto insurance (17.9%).

 

Other voluntary benefits respondents reported their company offers include dental and vision plans, critical illness and hospital indemnity insurance, identity theft protection, employer assistance programs (EAPs) and flexible spending accounts (FSAs).

 

Seven in 10 responding readers (71.8%) consider voluntary benefits a way to help employees with financial wellness, while 28.2% do not.

 

In comments left by readers, there was a split between those who thought voluntary benefits were a good thing and those who thought they were not. Respondents pointed out considerations for offering voluntary benefits that plan sponsors may not think about. A couple said employees would be better off building an emergency savings fund. Editor’s Choice goes to the reader who said: “Offering voluntary benefits is important but providing employees the tools to change their behavior and improve their financial well-being can be more impactful.”

 

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

 

Verbatim

The voluntary benefits we offer (Life Insurance and AD&D insurance) are 100% paid for by our company.

We are considering Legal Assistance and Identity Theft protection.

Voluntary benefits have their place, but they must be approached with caution. Often, the premiums seem very low, which can be a red flag indicating scant benefits. The benefits are marketed as a good value when, in fact, employees may be better off putting money in an emergency or rainy-day fund. Some brokers have pushed voluntary benefits hard, without clearly disclosing that they may qualify for volume discounts if they can hit certain sales targets. Finally, some employers offer “voluntary” benefits, thinking they qualify for the ERISA safe harbor, but they also want employees to give them credit for providing a benefit. So, the employer ends up endorsing the voluntary benefit, inadvertently taking them outside the safe harbor. Bottom line: voluntary benefits have their place but need to be approached with caution.

The higher paid the employee, the better these programs tend to work. For lower paid it is much more difficult.

Most people over-insure. Their financial fitness would be enhanced if they diverted money from these high commission products to an emergency fund and long-term savings.

We view our voluntary benefit plans as added flexibility and options for our employees to make their own choices for their own needs. They add support to the core benefits and financial needs of the employee. We view them as a part of our financial wellness package in the sense that they help to fulfill some financial gaps or concerns employees may have for their current and future needs.

Most Americans need basic financial education to ensure their own financial wellness. Disability and retirement plans are key — but employers really can’t force a person to have a savings account.

I think they are a waste of money, but employees seem to like them.

If structured properly, employee benefit packages can not only increase the financial wellness, but provide crucial health benefits as well (like EAP and on call nurse)

It’s an added bonus to our employees. We are a very small company and this type of benefits helps us to offer something more.

Voluntary Benefits are a hassle and a waste of time. Most of these products are available on the open market. Even if employers do not pay premiums, we spend a lot of time reconciling billing statements, sending payments, etc. – and that all costs money. Where is it written that employers have to offer every program under the sun?

Depending on the policy chosen they can allow an employee to choose one of our health care options that costs them a lot less.

I wish everyone would take more of an interest in their financial wellness.

It is a balancing act between offering benefits that can truly help employees and offering benefits that employees sign up for whether they need them or not. We find that the lowest paid employees tend to sign up for any benefits offered even if they cannot afford to pay for them.

The benefits are awesome but it’s getting employees to understand the value – that’s the challenge.

Most are a waste of time and money but are being marketed in ways that employees are asking for them and they need to be offered for benefit packages to be considered competitive.

By offering such benefits as short term disability insurance, employees can purchase coverage to protect their income if they get sick or hurt. Voluntary benefits do help employees with financial wellness. But, we also promote Financial Well-Being by Dave Ramsey which teaches skills and techniques that address budgeting, cash flow management, and debt reduction, as well as investment, savings and retirement strategies. Offering voluntary benefits is important but providing employees the tools to change their behavior and improve their financial well-being can be more impactful.

Offering Long term care and critical illness can help protect other assets (like 401(k) plans) from being used before retirement. We’re also considering offering a financial wellness benefit with financial planners offering advice to employees on budgeting, saving, paying down debt, etc.

Providing employees the opportunity to purchase long-term and short-term disability plans allows them to keep their homes and pay their bills if they are hurt while off the job. Life insurance helps with their peace of mind in case something happens to them – especially if they are the main source of income to their family. Legal insurance allows them to have access to legal advice and discounted in services, which can save them money – especially in frivolous lawsuits. Auto insurance is a savings to the employee – helping them keep more money in their pocket.

Most employees would not otherwise purchase life insurance or short term disability on their own.

 

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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A client alert written by Monica A. Novak, partner at Drinker Biddle & Reath, and K. Elise Norcini, an associate with the firm, goes into detail about the IRS’ recent expansion of its determination letter program.

In Revenue Procedure 2016-37, the agency closed the determination letter program except for initial plan qualification and for qualification upon plan termination.  The IRS later issued Revenue Procedure 2019-4 to provide an “other circumstances” category for which determination letters can be requested. Though the category was added, the agency did not specify what “other circumstances” for which it applies.

In Revenue Procedure 2019-20, the IRS provides for a limited expansion of the determination letter program with respect to individually designed plans. Under this limited expansion, the IRS says it will accept determination letter applications for:

• individually designed statutory hybrid plans during a 12-month period beginning September 1, 2019, and
• individually designed merged plans (as defined in section 5.01(2) of the revenue procedure) on an ongoing basis.

The advisory recommends that sponsors of statutory hybrid plans consult with their benefits counsel to further discuss the impact of the expansion and the pros and cons of submitting a determination letter application for a statutory hybrid plan during the limited window. In addition, entities that have recently completed a corporate transaction, or that are in the process of completing a corporate transaction, should review with their benefits counsel whether there will be an opportunity to request a determination letter on behalf of any merged plan.

It also suggests that a plan sponsor that decides to submit a determination letter application for a statutory hybrid plan may want to consider submitting the application at the beginning of the 12-month window, as doing so may reduce the wait time for the IRS to complete its review.

Novak and Norcini note that the Revenue Procedure 2019-20 states that the IRS is still considering comments received in response to Notice 2018-24 regarding ways to expand the determination letter program for individually designed plans. Plan sponsors should consult with their benefits counsel periodically for updates on whether the IRS has further expanded the scope of the determination letter program.

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Bob Browne, chief investment officer at Northern Trust, recently sat down with PLANSPONSOR for a broad conversation about the global economy and the 2019 performance of stock and bond markets.

Browne also had some insight to share specifically with pension plan sponsors. He noted that many of Northern Trust’s pension plan clients are seeking new ways to take uncompensated risk off the table.

“This has become a very serious conversation for many clients, given that they are pursuing, many of them, an end-state for their plan,” Browne said. “We encourage all pension plans, whether they are open or closed, to consider their objectives and evaluate their unique horizon.”

Browne said pension plan sponsors will benefit from taking a step back and remembering the journey of the last 10 years. Relatively few plans may carry a 100% funded status, but relative to the funding positions seen during the depths of the Great Recession, plans are broadly speaking much better off today. Many are within striking distance of risk transfers, in fact.

“If you have benefited strongly from the long rally we’ve had in equities since the Great Recession, and if your funding status has greatly improved, why not ask yourself if it is time to lock some of that in?” Browne asked. “What we hear from plan sponsors is that they don’t want to lock in their gains now because they are assuming that interest rates are too low right now. To us, that’s a big bet.”

As Browne explained, there is some sense to the argument that rates could move substantially higher in the coming years. But there are also reasons to argue that interest rates may not move much higher in coming years, certainly not at a rapid pace. 

“I think the argument for greater rates is coming partly from the discussion of Modern Monetary Theory [MMT],” Browne said. “Certain parties are talking about the idea that budget deficits can be larger and carried for longer than was traditionally believed. In addition to this, people say more coordination between fiscal and monetary policy could start to develop a framework that is much more expansionary here in the U.S.”

Browne said his opinion is that the U.S. bond market could handle this type of framework “for a little bit of time, but not forever.” He said it is hard to see how the U.S. bond market would respond to another trillion dollars in government debt. For this and other reasons, rather than making decisions based on pure speculation about what interest rates may do in the next five years, Browne said it is much wiser to conduct an honest reassessment of goals and risks in the context of the unique benefit liability profile.

“In my estimation, it is actually an unexpectedly low rate environment that would really crush pensions,” he warned. “If we unexpectedly enter another recession and the five-year Treasury is trading at 1%, and the equities give up part of their recent gains, that’s a really painful scenario for pensions.”

The takeaway, Browne said, is that pension plans should embrace the idea that their goal is not necessarily to achieve the maximum returns each year. Performance is critical, but pension plans must also prudently assess their projected liabilities and design an investment approach that seeks the necessary returns in a risk-controlled and cost efficient way.

Browne also pointed out that a recession is “something to be prepared for, but at this stage we see the probability of recession as low.”

“We think the chance of a severe recession in the short term is a low risk,” Browne said. “We don’t see the same excesses built up in the system that we had in 2008. We don’t see a massive deleveraging cycle ahead of us within, say the next five years. But at that point, if there are five more years of good times, it will become a different conversation. Such a long bull market could bring a lot of greed into the marketplace, which could change the conversation.”

Getting Off the Funded Status Rollercoaster

During a recent webinar on this topic, executives on the PGIM Fixed Income team offered a few practical recommendations for pension plan sponsors to consider when it comes to “getting off the funded status rollercoaster.”

These include raising the pension plan’s interest rate liability hedge ratio to help mitigate interest rate risk; reducing spread duration and/or risk asset exposure to help lower funded status drawdown risk; moving from a market benchmark to a liability cash flow benchmark to help manage credit migration risk; and treating risk allocations and interest rate hedge ratios as distinct decisions to help achieve a high interest rate hedge ratio with desired risk asset exposure. Such strategies can be complex to design and operate, the speakers admitted, and will likely require the engagement of a specialist consultant or investment provider.  

Importantly, the PGIM Fixed Income team emphasized that the move to a liability-driven investing (LDI) strategy is a serious decision requiring a diligent planning and execution process. They said plotting the rollercoaster exit strategy first requires that sponsors identify the primary risks to funded status. For most corporate defined benefit pension plans, they are declining long-term U.S. interest rates; tightening long-dated corporate spreads; credit migration in investment grade corporate bonds; and falling risk asset prices, principally in the U.S. and international equity markets.

The speakers concluded that pension plans have already benefited from the rise in interest rates and strong equity markets following a long period of easy monetary policy and, more recently, the 2016 presidential election, fiscal stimulus and corporate tax reform. The said the fundamental question for pension plans to ask today is, “Should you stay on the funded status rollercoaster or move toward a recession-ready LDI strategy?”

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Art by Subin Yang

Aegon Asset Management Hires Distribution Head

Aegon Asset Management has named Christopher Thompson the U.S. head of distribution. Over the course of his more than 30 years in the asset management industry, Thompson has led institutional and intermediary sales, client service, marketing and product management. He started at Aegon Asset Management on April 1. 

Thompson is responsible for developing and managing the overall distribution strategies for the U.S. marketplace, including institutional and intermediary sales, consultant relations, client service, marketing and product management. He is also a member of the firm’s executive committee.

“Chris brings deep experience in sales, marketing, product development and investment management to the firm,” says Gary Black, U.S. CEO. “Our distribution efforts will benefit from his direction and leadership as he shares the best of Aegon Asset Management’s investment strategies with existing and new markets, globally.”

Prior to joining Aegon, Thompson served as senior managing director and head of the Americas client group at AllianceBernstein. He also held positions at Columbia Threadneedle Investments, Putnam Investments and BEA Associates/CS First Boston Investment Management.

“This is an exciting opportunity to introduce Aegon AM’s investment strategies to new audiences and expand its reach into multiple markets,” says Thompson.

TRA Acquires Virginia TPA Firm

The Retirement Advantage, Inc. (TRA) has acquired Gillespie & Company of Virginia, a third-party administration firm, headquartered in Danville, Virginia.

“We are pleased the Gillespie & Company staff are joining TRA and will be able to continue to provide the exceptional guidance and service their clients have grown accustomed to,” says TRA President Matt Schoneman.

“Our organizations are similar in many ways and have an outstanding track record for exceptional customer service,” says Kay Gillespie, founder and president of Gillespie & Company of Virginia. “We are excited about the possibilities this acquisition offers to the clients of both organizations.”

“Over the past two years, TRA has successfully integrated six TPA’s with our firm,” adds Schoneman. “Adding Gillespie & Company enhances our already strong position as a leader in the retirement services industry and complements our high-touch, relationship-based service model. We’re committed to growing our business. Tapping into Gillespie & Company’s network will allow us to develop new relationships in the region.”

American Century Investments Names Senior Retirement Strategist 

Glenn Dial has joined American Century Investments as senior retirement strategist, where he will help further the firm’s commitment to delivering resources and thought leadership in the target date and retirement income space. Dial reports to Rick Luchinsky, senior vice president, head of financial institutions and retirement.

“We are thrilled to have Glenn join our mission of ultimately helping retirement plan participants achieve their long-term goals and supporting our partners in this process,” Luchinsky says.

Dial joined American Century from Allianz Global Investors where he was a managing director and head of retirement strategy. Prior to that, he served as executive director, national sales manager of investment only defined contribution for J.P. Morgan Chase.

Dial holds a bachelor’s degree in finance from University of Central Florida and a master’s from Crummer Graduate School of Business at Rollins College in Orlando.

Transamerica Increases Workplace Solutions Team with Three Hires

Transamerica has added three workers to the company’s workplace solutions team. Michele Laffert joined the company as regional director of client engagement, Brian Nickolenko joined as senior manager of business development, and Gabe Chamberlin was promoted to TPA vice president for the Midwest region.

Laffert manages a team of client executives that focuses on mid-market retirement plans in the company’s western region. She reports to Craig Haase, director of client engagement, workplace solutions. Laffert has a master’s degree from Bay Path University.

Nickolenko oversees the business development efforts for retirement plans across the country and reports to Charmaine Hughes Lee, director of business development, workplace solutions. Nickolenko earned a master’s degree from Fairfield University.

Chamberlin supports TPA professionals in the Midwest region and reports to Joshua MacDonald, senior manager, TPA development. He holds a bachelor’s degree from Buena Vista University.

The American Academy of Actuaries Names Senior Pension Fellow

The American Academy of Actuaries has named Linda Stone, a leading pension actuary and nonprofit volunteer, as the Academy’s senior pension fellow, beginning May 20.

In this new role, Stone will help shape and communicate the Academy’s work on pension, Social Security, and other retirement security issues to the public, policymakers, and the news media. “With a variety of experience in both private practice and nonprofit roles, Linda brings a deep knowledge that will add valuable, objective actuarial perspective to the contemporary dialogue on retirement policy issues,” says Academy Executive Director Mary Downs. 

Stone was with WillisTowersWatson and predecessor firms for over 25 years, where she was the east region retirement practice leader responsible for all retirement clients and staff. Before that, she was leader of the Mid-Atlantic retirement practice. She previously served as a Policy Board of Directors member at the American Benefits Council, and, through her volunteer position as a fellow with the nonprofit Women’s Institute for a Secure Retirement (WISER), has frequently spoken at conferences across the country. In February 2019, she testified before the U.S. Senate Special Committee on Aging.

Stone is a graduate of St. Joseph’s University (SJU), a member of the SJU College of Arts and Sciences Advisory Board as well as its Actuarial Science Industry Advisory Board, and past board member of The Forum of Executive Women.

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Over his career in the financial services industry Bob Browne, chief investment officer at Northern Trust, has often been asked about the prospect of an impending recession.

Most recently, he hears a lot of questions about the U.S. trade dispute with China, as well as more generalized concerns about the rate of global growth.

“Investors are always asking about the prospect of a recession,” he says. “What I tell them today is that, in our five-year outlook, we do foresee the potential for some slowing down of global growth. But let me be clear. Growth may moderate over the next five year period but we do not see a high likelihood of a recession.”

Browne and his team expect that, over the coming five years, growth will trend toward the structural potential of the global economy, which in their estimation is about 2%. This is not far from the published expectations of the U.S. Federal Reserve, Browne notes.

“When I am asked about the volatility that occurred in late 2018, I tend to say that it seems that the Fed made a mistake by raising rates again in the fourth quarter,” Browne says. “As you remember, the Fed was signaling at that time that they would potentially go to 3% rates in the relatively near future. That caused some broad concern among investors, but it seems the market volatility inspired the Fed to pause, which is why things have calmed down.”

Despite the escalating trade dispute between China and the U.S., Browne highlights how U.S. and global economic data has been strong. Here in the U.S., GDP growth reached 3.2% in the first quarter.

“Modest growth and low inflation, we expect, will continue to be the main themes in 2019,” Browne says. “We are, in fact, over-weight risk in the market today.”

Asked to reflect on the way investors have reacted to market volatility in the last year—many have sold equities at depressed prices to buy fixed-income investments at a premium—Browne says he commiserates with clients’ concerns. It is always scary to see the dollar value of one’s portfolio drop quickly over the course of a few days or weeks.

“But I am constantly reminding people that the best a lot of them ever felt about the markets was probably in late 2007, and the worst they ever felt was probably in March of 2009,” Browne said. “Those investors who have stayed the course during the last decade have been rewarded handsomely. The Great Recession was an extreme example, but we have to remember that, when you feel somewhat uncomfortable, that’s often the time to find the best buying opportunity for long-term investors. Long-term horizons give you a lot of flexibility and opportunity during periods of volatility.”

Sequence of Returns Risk Requires Its Own Conversation

According to Elle Switzer, director of annuity product management for CUNA Mutual Group, it is an unfortunate fact that the term “volatility,” which in itself is strictly neutral, is commonly interpreted negatively by novice investors. Making matters worse, the term is thrown around rather injudiciously by some commentators, who fail to describe both the positive and negative impacts of volatility on markets in the long-term.

“It’s one of those words that in a strict technical sense is neutral, but nonetheless it gets a bad rap,” Seitzer writes in a newly published white paper on the topic, called “How Investors Can Take Control of Volatility.” “Did your car fire right up this morning? That’s because the stuff in the tank is volatile. The 401(k) account doubled over the last decade? That, too, was volatility in action.”

As Seitzer explains, volatility can be good or bad, but for most people—especially casual investors such as those with a default workplace retirement plan—the connotations of volatility are entirely negative. Seitzer says this is especially true when it comes to financial markets.

“The term suggests flashing red numbers, downward sloping charts, or 1929 black-and-white pictures of Wall Streeters who have lost everything,” he says.

Seitzer’s theory is that the idea of volatility invokes the feeling of not being in control, which is a natural source of distress for most people, especially when it comes to money matters. While perhaps no amount of preparation can completely eliminate the anxiety that comes with market gyrations, Seitzer says, a little knowledge and advanced planning can help ensure casual investors stay on course through any storms that may come their way.

According to Seitzer, apart from understanding the benefits of diversification and the fact that volatility is the fundamental source of market growth in the long-term, “a little informed historical perspective” can help take the edge off volatility.

“It was big news in early 2018 when the Dow Jones Industrial Average suffered its largest one-day point loss ever,” Seitzer recalls. “’Dow plunges 1,175 points in wild trading session’ was the breathless headline on CNBC. However, market veterans knew that because the market had grown so large, the February 5, 2018 selloff, in percentage terms, didn’t even register in the top 20.”

Seitzer’s analysis points out that, from 1990 to 2011, the Standard & Poor’s 500 posted an average annual gain of 7.6%, while the average daily close of the VIX Volatility Index during the same period was 20.6%.

“On the other hand, in the following seven years, from 2011 to 2018, the average annual gain for the S&P 500 was 10.9%, while the daily VIX average was just 15.2%,” he writes. “With the longevity and relative calm of the current bull market, it would be understandable if investors have grown accustomed to slow steady gains and perhaps forgotten what market anxiety feels like. But they would do well to remember that the current environment is not the norm.”

Seitzer emphasizes that, for the retirement audience, the most important part of this conversation is probably addressing sequence of returns risk, which in a sense is a much bigger challenge for individual investors than volatility itself.

“This is the potential risk to individual savers whose retirement windows fall at a discrete and totally random period on the timeline—sometimes when the market is marching higher—and sometimes when it is falling,” Seitzer says. “While the impact of the sequence of annual returns on an investment makes no difference over time if the assets are not touched, it can have a big effect if the investor is taking distributions along the way.”

Solutions commonly floated to the sequence of returns risk issue include simply ramping down equity risk within the five years before and after the retirement date. Others point to the potential use of short term liquidity buckets, which could be invested in cash or stable value products and funded in advance during healthy markets. These funds could serve as a retirees’ primary income source during down-periods in the market, when participants want to avoid locking in their losses by making withdrawals from equity funds.

Keeping Sequence of Returns Risk in Perspective

While pretty much every investment manager working in the retirement plan space will talk about the importance of addressing sequence of returns risk, they also say this risk can be over-hyped and cause investors to be too timid.

According to an analysis published by analysts with T. Rowe Price, called “A Different Perspective on Sequence-of-Returns Risk Around Retirement,” poor returns experienced close to retirement can indeed impact the likelihood of premature exhaustion of portfolio assets. As a result, many investors understandably pay close attention to movements—particularly downward movements—in their account balances as they approach retirement.

“Some investors intuitively may gravitate toward strategies that prioritize stable portfolio balances around retirement,” the analysts write. “However, a singular focus on the impact of market movements around retirement does not capture the complete picture when it comes to factors that potentially could lead to premature exhaustion of portfolio assets. One needs to consider the full range of risks and their impact on retirement outcomes over the entire investment life cycle.”

According to the T. Rowe Price analysts, focusing solely on the potential for short‑term losses near retirement does not take into account an investor’s complete financial situation.

“Investors face other significant risks―including the risk that an overly conservative portfolio will not achieve the growth required to sustain a desired level of post-retirement income. In our view, investors are more likely to achieve their goals by balancing these different risks, both before and after retirement,” they write.

According to the T. Rowe Price analysis, conventional wisdom assumes that in the event of a large draw-down near retirement, investors with relatively conservative asset allocations will be better off because a conservative portfolio will mitigate the impact of a negative portfolio shock.

“However, this discounts the possibility that following a more growth‑oriented strategy during the accumulation phase could provide a larger portfolio balance going into retirement (i.e., the distribution phase),” the analysis states. “In other words, the benefit of having a larger accumulated balance going into retirement may outweigh the negative impact of even a large market decline close to or soon after retirement. While a more growth‑oriented portfolio might experience a relatively larger percentage loss in a market downturn, it likely still will be worth more in dollar terms, even after that decline.”

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According to a blog post by Paul M. Hamburger with Proskauer Rose LLP, IRS officials have recently indicated that the agency expects to launch audit initiatives this summer targeting 403(b) plan compliance.

403(b) plans are currently in a remedial amendment period during which the IRS is giving plan sponsors until March 31, 2020, to adopt a pre-approved plan document and to make sure their plan has been operating in accordance with the plan terms. In other words, says Deborah Grace, attorney at Dickinson Wright PLLC in Troy, Michigan, the remedial amendment cycle is a period of time in which the plan sponsor can go back and fix its plan document so it reflects how the plan has been operating.

During this time, if 403(b) plan sponsors find they have operational errors—where the plan has not been administered according to terms of the document—they can use the IRS’ Employee Plans Compliance Resolution System (EPCRS) to fix those errors. A recent IRS Revenue Procedure expanded self-correction methods for certain retirement plan document and retirement plan loan failures and provides a new method of correction by plan amendment. In addition, the IRS is allowing for effective date addendums to 403(b) plan documents to allow plan sponsors to note any changes to plan administration that were made after the adoption of a written plan document.

The IRS has provided other help for 403(b) plan sponsors. In a page on its website, the agency lists common 403(b) plan mistakes, IRS services, products and assistance to help 403(b) plan sponsors stay in compliance. It also hosted a webinar answering questions about universal availability rules.

More recently, the agency issued Notice 2018-95, which provides transition relief from the “once-in-always-in” (OIAI) condition for excluding part-time employees from 403(b) plan eligibility under Section 1.403(b)-5(b)(4)(iii)(B) of the Treasury Regulations. Industry comment letters had argued that many 403(b) plan sponsors were unaware of the rule that once a part-time employee is eligible to make elective deferrals, he cannot be excluded from the plan in subsequent years.

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A participant in the Greystar 401(k) Plan has filed a proposed class action lawsuit against the property management firm alleging it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive administrative and investment fees to be charged.

According to the complaint, for every year between 2013 and 2017, the administrative fees charged to plan participants were greater than 90% of peer plan fees when fees are calculated as cost per participant. And for every year between 2013 and 2017 but one, the administrative fees charged to plan participants is greater than 90% of peer plan fees when fees are calculated as a percent of total assets. The lawsuit says financial information for 2018 is not yet available.

The lawsuit also alleges that as of December 31, 2017, the fees for the investment options then in the plan were up to three-times more expensive than available alternatives in the same investment style. The mutual fund options that were in the plan in previous years but removed before December 31, 2017, also had excessive fees relative to comparable investments.

It notes that in 2017, the Greystar plan submitted financial information and other forms to the federal government under plans with assets between $100 million to $250 million. In 2017, a lawsuit against another small plan sponsor alleging excessive investment fees was filed. It was ultimately settled, though the allegation about failing to remove its poorly performing money market fund when a better-performing stable value fund was available was allowed to be refiled.

In the Greystar lawsuit, the plaintiff alleges that Greystar’s process of decision-making, monitoring and soliciting bids from investment funds was deficient in that it resulted in almost no passively managed fund options for plan participants, resulting in inappropriately high administrative plan fees.

In addition, according to the complaint, Greystar failed to employ a prudent and loyal process by failing to critically or objectively evaluate the cost and performance of the plan’s investments and fees in comparison to other investment options. “Greystar selected and retained for years as plan investment options mutual funds with high expenses relative to other investment options that were readily available to the plan at all relevant times,” it says.

Greystar is accused of breaching its ERISA duty of loyalty by failing to make plan investment decisions based solely on the merits of each investment and in the best interest of plan participants and failing to ensure the plan was invested in the lowest-cost investment vehicles. It is also accused of breaching its ERISA duty of prudence.

The lawsuit asks Greystar to make good to the plan the losses resulting from the breaches, to restore to the plan any profits Greystar made through the use of plan assets, and to restore to the plan any profits resulting from the breaches of fiduciary duties alleged. It also asks for other equitable relief as provided for in ERISA.

Greystar told PLANSPONSOR that as a policy, it does not comment on pending litigation.

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The American Institute of Certified Public Accountants’ (AICPA) Employee Benefit Plan Audit Quality Center has issued a plan advisory, “The importance of retaining and protecting employee benefit plan records.”

The advisory notes that Section 107 of the Employee Retirement Income Security Act (ERISA) requires plan records used to support filings, including the annual Form 5500, to be retained for at least six years from the filing date. Under ERISA section 107, the following documentation should be retained at least six years after the Form 5500 filing date, including, but not limited to: copies of the Form 5500 (including all required schedules and attachments); nondiscrimination and coverage test results; required employee communications; financial reports and supporting documentation; evidence of the plan’s fidelity bond; and corporate income-tax returns (to reconcile deductions).

In addition, according to the advisory, Section 209 of ERISA states that an employer must “maintain benefit records, in accordance with such regulations as required by the DOL, with respect to each of [its] employees sufficient to determine the benefits due or which may become due to such employees.”

Proposed Department of Labor (DOL) regulations issued in 1980 state that participant benefit records must be retained “as long as a possibility exists that they might be relevant to a determination of the benefit entitlements of a participant or beneficiary.” While the regulations were never finalized, the DOL has taken the position those record retention obligations apply beginning when the DOL issued its first set of proposed regulations under Section 209 on February 9, 1979, because employers were put on notice of the obligations. As such, plan sponsors should consider whether benefit plan records need to be maintained indefinitely.

Under ERISA Section 209, the records used to determine the benefits that are or may become due to each employee include, but are not limited to plan documents, and items related to the plan document including, adoption agreements, amendments, summaries of material modifications (SMMs), summary plan descriptions (SPDs), the most recent IRS determination letter, etc.; census data and support for such information including records that are used to determine eligibility, vesting, and calculated benefits (such as rates of pay, hours worked, deferral elections; employer contribution calculations); participant account records and actuarial accrued benefit records; support and documentation relating to plan loans, withdrawals and distributions; board or administrative committee minutes and resolutions; and trust documents

Best practices for plan record retention the Employee Benefit Plan Audit Quality Center suggests includes:

• Establishing a written record retention policy governing how the organization periodically reviews, updates, preserves, and discards documents related to plan administration—It should be approved by ERISA counsel or those charged with governance over the plan to ensure that federal and state retention laws are being considered and adhered to. When service organizations (e.g., recordkeeper, investment custodian) maintain plan records, the plan administrator needs to understand the retention policies of those service organizations for plan records they prepare and/or maintain. The Center reminds plan sponsors that the use of a service organization does not alleviate the plan sponsor’s responsibilities to retain adequate records.
• Monitoring compliance with the written record retention policy—If the plan uses service organizations, the plan administrator should also monitor the service organizations’ compliance with their respective retention policies.
• Categorizing and documenting your plan records—Data should be organized such that it can be easily and readily retrieved. Document the type of record, a brief description of the type of record, and the category to which records of this type belong. Records in the same category often have the same retention periods and might require similar treatment in other ways.
• Maintaining important participant records indefinitely—Because ERISA Section 209 does not provide a specific period of time for retaining participant-level records such as demographic information, compensation and elections sufficient to determine benefits due, these records should be kept for an indefinite period of time in a format that is easily retrieved to ensure they are available upon request by the participant or auditor in case of an audit.
• Maintaining necessary paper records—If electronic records don’t establish a substitute or duplicate record of the paper records from which they are transferred under the terms of the plan or applicable federal or state law, the original records should not be discarded.

For protection of personally identifiable information (PII) and other sensitive information, the Center suggests:

• Follow “minimum necessary” and “business need” principles and only share the minimum amount of data (especially personal data) needed to accomplish a task.
• Reduce use of paper documents, as they cannot be encrypted.
• Retain only that information that is truly necessary for the business purpose. Collect less data and purge unnecessary PII from your records to reduce vulnerability.
• Shred purged paper documents with personal information in a secure disposal unit; do not use recycling or trash bins.
• Use caution in public spaces when handling or viewing personal information; be aware of your environment and use privacy screens on computers.
• Keep work spaces clear of documents containing personal information when not in use.
• Use secure methods to transmit personal information. For example, encrypt documents containing confidential information when emailing. Preferably, use an approved, secure collaboration site to transfer confidential data. Email generally should not be used to send personal information.
• De-identify data where possible. Mask or truncate government identifiers and health identifiers whenever possible.
• Control access to PII. Sensitive information should only be accessible by people who need it to do their jobs. This includes the information you share with your financial statement auditor. Check with your auditor to determine what PII is necessary for the audit.

“The hiring of a service organization to assist in plan administration…is a fiduciary function,” the advisory says. “It is important that the service organizations you use to perform investment processing, recordkeeping and/or benefit payments, claims processing, and other services that require access to your plan’s sensitive data have adequate protections in place to safeguard that information. Plan administrators should perform adequate due diligence during the selection process and prior to hiring a service organization.”

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During a meeting of the Senate Finance Committee on Tuesday, Committee Chairman Chuck Grassley said that passage of the Retirement Enhancement and Savings Act (RESA) remains a top priority for himself and Finance Committee Ranking Member Ron Wyden during the current Congress.

While RESA was the main focus throughout the hearing, other topics beyond that particular piece of legislation repeatedly came up and underscored some of the other areas where Senators said they soon hope to make progress. For example, during her questioning of the experts, Michigan’s Democratic Senator Debbie Stabenow stepped back from RESA to urge the Committee to find some real urgency on the multiemployer union pension crisis. Senator Mike Enzi, R-Wyoming, agreed, noting that 150 such plans could become insolvent within a matter of years.

“We need a hair on fire moment about the union pension issue,” Stabenow said. “In my lifetime, I cannot believe that we are seeing folks who have lost or will lose a pension benefit they have paid for over decades. This is a whole generation of union workers who are in danger of not receiving the benefits which they have been promised, and which they have paid for.”

Anyone who has listened in on the various public meetings held by the Joint Select Committee on the Solvency of Multiemployer Pension Plans will have noticed the dire testimony given time and again by various stakeholders in the multiemployer pension space. In previous testimony on this matter and in comments made this week, witnesses suggested that less than 1% of multiemployer plans are 100% funded when using reasonable actuarial assumptions. Others noted that, just 10 years ago, the generally agreed upon figure was that multiemployer pension plans as a whole carried a funding gap of about $200 billion. Today, it is more like a $680 billion shortfall, and growing.

Hearing witness Joan Ruff, board chair of the AARP, was asked by Senator Stabenow to elaborate on the issues her organization’s members have discussed in terms of union multiemployer pension funding gaps.

“When it comes to the union multiemployer pension crisis, there is so much concern from our members voiced over the funding situation,” Ruff said. “We beg Congress to come up with a working solution, and soon. Benefit cuts have already happened and those who are already retired do not have any easy way to make up for a loss in anticipated income.”

Both Senators and hearing witnesses pointed to the fact that even optimistic investment return assumptions have limited impact on the projected insolvencies among these plans, primarily because stressed union pension plans’ net cash flow positions tend to be significantly negative. This fact is supported by recent Society of Actuaries research showing multiemployer pensions commonly have negative cash flows equal to 10% or more of their total asset pool, meaning that unless these plans’ assets earn at least 10% per year, the assets will continue to decline. A subset of plans have negative net cash flows around 20% or more of their assets, demonstrating that outside financial intervention will clearly be necessary to save such plans.

During the hearing, Senator Rob Portman, R-Ohio, predicted that, unless significant Congressional action is taken within five years, it is possible that the multiemployer pension funding crisis could cause important insurance programs at the Pension Benefit Guaranty Corporation (PBGC) to fold entirely. It is even possible the full PBGC could face financial hardship thanks to the union pension funding shortfall. 

“I’m not just talking about an impact on union plans, but on all pension plans that work with the PBGC,” Portman said. “The two most troubled funds right now are the mine workers plan and the central states teamsters plan. Those two plans going under would cause the PBGC multiemployer insurance program to go under, based on all the analysis we’ve seen. We need to continue the work of the Joint Select Committee and ensure this does not happen.”

Another Senator who spoke during the hearing on the topic of multiemployer pension funding challenges was Sherrod Brown, D-Ohio. “No discussion of retirement security is complete without addressing the workers who spent their lives doing the backbreaking work of ironworking, truck driving, baking, mining, and more,” Brown said. “They followed all the rules but they are now facing the prospect of seeing their pension plans collapse. They aren’t asking for a bailout but for what they have already earned by giving up wages for future retirement security—something we want everyone to do when they have the opportunity. We need to solve this problem before the end of the year.”

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In 2018, 90% of mutual fund-owning households considered fees and expenses when selecting a mutual fund, according to research by the Investment Company Institute (ICI) in a new report, “What U.S. Households Consider When They Select Mutual Funds, 2018.” Nearly 40% said this information was “very important.”

More than nine in 10 mutual fund-owning households considered historical performance when making a purchase. Just over half said this information was “very important.” Additionally, 88% consider a fund’s performance compared to an index, with 36% saying this information was “very important.”

“Mutual fund investors are typically saving for retirement, education or other long-term financial goals,” says Sarah Holden, senior director of retirement and investor research at the ICI. “So, it’s no surprise that households carefully consider many factors when choosing mutual funds, making informed choices to save and invest to meet their financial goals.”

Additionally, 90% of mutual fund-owning households considered a fund’s investment objective when making a selection, with 38% saying this information was “very important.” Ninety-one percent consider a fund’s risk level of investments, with 37% saying this information was “very important.” Seventy-five percent look at a fund’s rating from a rating service, with 20% saying this information was “very important.”

ICI also looked at the channels through which investors own mutual funds. The most common, 80%, was through employer-sponsored retirement plans, but another 63% own mutual funds through outside resources.  Twenty-seven percent purchased these outside funds through a broker, 24% through a financial planner, 19% through a bank or savings institution, 10% through an insurance agent and 7% through an accountant. On the other hand, 33% make the purchase themselves directly, either from the mutual fund company or a discount broker.

The most common type of fund owned was equity funds (88%), followed by money market funds (57%), bond funds (44%) and balanced funds (36%). Total U.S. household mutual fund assets in 2018 were $15.8 trillion, with 41% of these assets in domestic equity funds, 24% in bond funds, 14% in world equity funds, 12% in money market funds and 9% in balanced funds.

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Massachusetts Mutual Life Insurance Co. (MassMutual) is introducing a new student loan repayment and management program for the workplace as part of a broader financial wellness initiative.

MassMutual is making a student loan program available to employers through Tuition.io, a platform for student loan contributions, to help workers better manage and reduce their indebtedness. The student loan program is available through MapMyFinances, MassMutual’s workplace financial and benefits planning tool, to help workers assess and balance their short- and long-term financial needs.

The Tuition.io program provides two levels of support for student loan indebtedness, both of which help borrowers better manage their student debt, including one that allows employers to provide financial assistance to extinguish debts.

The student loan repayment option available through Tuition.io is called “Student Loan Contributions” and allows employers to make payments towards an employee’s student loan indebtedness. Employers can also choose to make payments towards student loans that parents have taken out for their children, known as Parent PLUS loans.

Additionally, the Tuition.io student loan wellness section of the portal helps borrowers manage their debt by creating a consolidated summary of all student loans for each participating employee by pulling in data from multiple loans and loan servicers. The Tuition.io platform works with every U.S. loan servicer—Including both federal and privately held loans—to generate automatic real-time updates whenever loan payments are made.

With all loan data available in one place, employees can more easily model different loan repayment options as well as determine if paying extra to certain loan providers can potentially save on the amount of interest paid in the long run. Employees can also more easily assess whether refinancing makes sense for their personal situation. The student loan wellness section of the portal can be made available to eligible employees’ family members as well to provide the same loan management tools and capabilities.

The student loan program has a cost associated with it. Tuition.io helps employers project both the program and loan repayment potential costs, and weigh them against the projected benefits.

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John Hancock’s retirement business is upgrading its set of participant financial education content and tools via a new online learning management system, My Learning Center.

The resource tracks and rewards interaction and serves up key content on the platform’s homepage to help retirement plan participants improve their financial literacy, assess their personal finances, and work toward retirement readiness at all life stages. My Learning Center offers a financial wellness assessment, retirement calculators, webinar recordings, podcasts, videos, articles and other resources previously available in different areas of the participant website, all in one location. It also has expanded financial wellness resources in Spanish.

As participants interact with the resource, they earn “badges” through a new gamification and rewards system. Interactions with My Learning Center prompt and advance a personalized curriculum for the participant. Progression through the curriculum is curated and the experience is paired with plan level data to create key recommended actions to drive engagement and encourage financial fitness and retirement readiness for the individual.

“To enable people to save for retirement, we first need to help them understand the obstacles that cause them not to save then provide them with the information they need so they feel confident about taking the actions that will help them live well today and tomorrow,” says Patrick Murphy, CEO, John Hancock, US Retirement. “Our new learning platform goes beyond investment and benefits planning to identify specific financial stressors and then builds a learning curriculum customized to the individual, designed to help boost knowledge of financial topics and encourage action through intelligent nudges.”

More information about John Hancock retirement products and services is here.

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During a meeting of the Senate Finance Committee on Tuesday, Committee Chairman Chuck Grassley said that passage of the Retirement Enhancement and Savings Act (RESA) remains a top priority for himself and Finance Committee Ranking Member Ron Wyden.

In his comments opening the meeting, Grassley called on the House to send its version of RESA to the Senate for reconciliation, but at this juncture, the most likely route for RESA’s many provisions to make it into law could instead be via the SECURE Act, which has already been approved by the House Ways and Means Committee and mirrors much of RESA.

As shown on the House’s legislation tracking website, the lower chamber’s version of RESA was last addressed on February 6th, when the bill was referred to both Ways and Means as well as the Committee on Education and Labor. The referral was open-ended and will last “for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the Committees.”

Encouraged by the fact that the SECURE Act zipped through the Ways and Means Committee in less than a week, sources engaged in retirement industry lobbying say they cautiously expect full House passage of the SECURE Act potentially within the month. If or when the SECURE Act advances through the House in this session, it would then remain to be seen whether Republican leadership in the Senate would agree to work within the SECURE Act’s framework, as opposed to the RESA legislation. 

While the path ahead remains uncertain, industry advocates say the opportunity for rectifying one or more these bills is supported by the fact that both the SECURE Act and RESA (and various other bills pending in Congress) enjoy broad support from the retirement plan and asset management industries—and from more grassroots advocates, including independent small-business owners, members of the gig economy and part-time workers. However, another variable thrown into the mix this week was the reintroduction by U.S. Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, of the Retirement Security & Savings Act (RSSA), which they describe as a broad set of reforms designed to strengthen Americans’ retirement security. Like the SECURE Act, the bill echoes key provisions of RESA.

Industry Urges Progress, Not Just More Bills

In public comments issued this week, retirement industry providers say they support any sensible legislation that will make it easier for more employees to access high-quality retirement plans at work. They urge the Senate and House to take advantage of the fact that a critical bipartisan mass of lawmakers has publicly and consistently voiced support for bills like RESA and the SECURE Act.

“We commend Senators Portman and Cardin for introducing a bipartisan bill that includes so many common-sense changes to current law that improve individuals’ ability to save for retirement,” said Robert Higginbotham, head of global distribution at T. Rowe Price.  “Among many other things, it encourages sponsors to adopt automatic contribution plans with higher contribution rates, simplifies disclosures, and allows individuals saving through large 403(b) plans to enjoy the same lower costs that participants in larger 401(k) plans enjoy through the use of collective trusts. For the benefit of the millions of Americans who save and invest for their retirement, we urge Congress to clear the way for the passage of this important bill.”

Wayne Chopus, Insured Retirement Institute president and CEO, expressed strong support for RESA and urged the Senate to quickly advance the measure and then begin working with the House to approve a final version for President Trump’s signature.

“The House and Senate legislation are close to identical and both chambers would likely need only a short time to work together to resolve their differences and finalize a bill for the president,” Chopus added. “IRI is grateful to Chairman Grassley and Senator Wyden for their commitment and leadership to help improve the opportunity for millions of American workers to achieve a financially secure and dignified retirement.

Chpous said both RESA and the SECURE Act would remove critical barriers that discourage small business employers from banding together in an open multiple employer plan (MEP) to achieve economies of scale and delegate responsibility for sponsoring the plan to a professional plan fiduciary, thereby facilitating the offering of a retirement plan to their workers. 

“To help workers ensure that they do not outlive retirement savings, the measures clarify fiduciary responsibilities of employers that will allow them to make lifetime income products available as an option within their retirement plan,” Chopus said. “A related technical provision will ensure the portability of lifetime income products. Current law jeopardizes the guarantees associated with those investments if their employer changes recordkeepers. RESA and the SECURE Act will permit plan participants to preserve their lifetime income investments and avoid surrender charges and fees.”

Chopus and other advocates highlight that both bills will help savers make more-informed decisions regarding their finances by providing lifetime monthly income estimates on benefit statements. Further, the bills will increase opportunities for workers to save by enhancing automatic enrollment and escalation features.

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The Department of Labor (DOL) has issued two sets of frequently asked questions (FAQs) regarding the administration of association health plans (AHPs) following a federal court decision that final rules issued by the DOL last year violated the Employee Retirement Income Security Act (ERISA).

The first FAQs assure participants covered under AHPs established based on the final rules that they will continue to get benefits. The second FAQs clarify that AHPs established based on previous definitions are not affected by the court decision and that new employers cannot join AHPs set up under the new rules.

AHPs have been in existence. In what is called a Pathway 1 AHP, the AHP generally may not include working owners without other employees.  In addition, Pathway 1 AHPs may provide benefits to employees of employers who have a sufficiently close economic (such as those that are in the same trade, industry, line of business or profession) or representational nexus to the group or association, but may not establish commonality based on geography.

The DOL’s final rules last year expanded the nexus to include geography. AHPs established under the new rules are called Pathway 2 AHPs. Following the federal court’s decision, the DOL’s Employee Benefit Security Administration (EBSA) issued a statement saying “employers participating in insured AHPs can generally maintain that coverage through the end of the plan year or, if later, the contract term.”

In the second FAQs, the DOL says no new employer members may sign up for Pathway 2 AHPs, but “existing employer members can continue to enroll new employees upon special enrollment events (for example, upon marriage, birth, adoption, placement for adoption, or loss of eligibility for other coverage) and consistent with the plan’s terms for eligibility (for example, enrolling new hires) while the enforcement relief remains in effect.”

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