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Insight on Plan Design & Investment Strategy
Updated: 4 hours 43 min ago

Wolters Kluwer Releases Guide About Tax Reform Effects

Fri, 2018-01-19 10:45

Wolters Kluwer Legal & Regulatory U.S. issued a white paper, “Tax Cuts and Jobs Act Will Present Retirement, Benefits, Executive Compensation and Payroll Professionals with New Challenges in 2018,” examining impacts of the tax bill recently signed into law by President Donald Trump.

Authored by Wolters Kluwer experts John W. Strzelecki, J.D., Glenn Sulzer, J.D., and Tulay Turan, J.D., the white paper unpacks aspects of the new law that will affect a wide range of retirement, benefits and payroll professionals, including the elimination of individual mandate penalty, modification of personal income tax rates, revised standard deduction, and the repeal of Roth re-characterization.

Highlights of the paper include analyses of the following topics:

  • The impact on qualified plans of revised pass-through deductions,
  • Deferral election for qualified equity grants,
  • Modification of $1 million deduction limit on executive compensation,
  • Limitations on employer deductions for fringe benefits, and
  • Suspension of personal exemptions.

“The Tax Cuts and Jobs Act is the most sweeping tax legislation in decades and will affect several areas of the law—from payroll and employee benefits, to pensions and executive compensation,” said Glenn Sulzer, a senior analyst for the Corporate Compliance division of Wolters Kluwer and a co-author of the paper. “This white paper will help a wide range of professionals to fully understand these changes and how they will impact their clients.”

The white paper may be downloaded from here.

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Categories: Industry News

Unbundled Plans Gained Significant Ground in 2017

Fri, 2018-01-19 10:40

Callan has published its 2018 DC Survey, offering up a highly detailed overview of the U.S. defined contribution (DC) plan industry.

The extensive analysis covers a broad range of topics, including a section on the topic of “bundled versus unbundled” plan arrangements. As the research lays out, the proportion of plans that are at least partially bundled fell dramatically from 53.8% in 2016 to 44.0% in 2017, a continuation of the unbundling trend.

“In 2010, 65.1% of plans reported that their plan was at least partially bundled,” Callan says.

Today, just 8.8% of “mega plans” with assets greater than $1 billion utilize a fully bundled structure. Underscoring the strong influence of plan size in this area, nearly two thirds (62.5%) of mid-sized plans with asset levels between $100 million and $500 million report using a partially bundled structure, while approximately a fifth indicating they currently utilize a fully bundled structure (21.9%).

To be clear, according to Callan’s definitions, in fully bundled plans the recordkeeper and trustee are the same entity, and all of the investment funds are managed by the recordkeeper. Partially bundled plans also have the recordkeeper and trustee as the same entity, but not all of the investment funds are managed by the recordkeeper. Finally, in fully unbundled plans, the recordkeeper and trustee are independent of one another, and none of the investment funds are managed by the recordkeeper.

Regardless of how they interact with these key providers, most DC plans—including both ERISA-governed plans and those voluntarily seeking to follow the Employee Retirement Income Security Act (ERISA)—seek to be in compliance with ERISA section 404(c).

“Notably, the number of plan sponsors that do not know if their plan is compliant dropped considerably—from 12.6% in 2016 to 2.2% in 2017,” Callan confirms. “Most DC plan sponsors (84.9%) said they took steps within the past 12 months to ensure compliance—up slightly from 2016 (81.4%). More than six in 10 (60.5%) personally reviewed compliance. Many engaged third parties to review 404(c) compliance, such as their consultant (50.0%) and their attorney (40.7%).”

While the number that did not know what steps had been taken to ensure compliance rose from 9.3% in 2016 to 11.6% in 2017, Callan notes fewer plan sponsors had taken no steps to ensure compliance (9.3% in 2016 versus 3.5% in 2017).

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Categories: Industry News

5 Actions to Elevate Your Defined Contribution Plan in 2018

Fri, 2018-01-19 10:12

While unpredictable factors can always arise that influence defined contribution (DC) plans, we expect industry-leading plan sponsors will align their efforts this year with several particular trends and themes. Based on these trends and themes, Capital Group’s retirement strategy team, identified five actions plan sponsors can take in 2018 to truly elevate their DC plans:


1)  Define the plan’s objective. It’s surprising how many company retirement plans, even some larger ones, lack a clear and defined objective. DC plans used to be supplemental savings plans but now are primary retirement plans. Plan sponsors are starting to ask themselves questions such as:

  •    What is the fundamental objective of the plan?
  •    Who is the plan serving, and how will it help these employees accomplish their goals?
  •    Is this the sole retirement savings plan?


Objective-setting conversations should cover topics such as: the role of the DC plan and interaction with other benefit plans—such as a defined benefit (DB) plan—and in what way does the DC plan serve employees? For many plan sponsors, the DC plan is now their sole retirement plan. This may suggest an objective of: “A plan that serves employees throughout their working career and post-retirement to achieve and maintain a successful retirement.” A plan sponsor with a clearly defined objective for its DC plan will be better positioned to make all subsequent decisions.


2)  Consider the options and impact of “auto” everything. More and more corporations are embracing automatic features, which shift employees into an appropriate retirement savings vehicle. But the trend toward automation, or even “DB-ization,” is just beginning. We expect more companies will adopt auto-features that push more participants into retirement savings plans, raise levels of contribution and guide employees to appropriate investment funds. If you’re not already auto-enrolling employees annually, it may be time to start. We expect more conversations about auto-escalation and investment re-enrollment as companies grow increasingly comfortable with a more proactive approach to DC plans.


3)  Optimize investment structure. Simplification is a topic that has been gaining steam for a while but now seems to be catching on, especially among mega plans. The benefits of offering many investment options makes sense on the surface, but multiple options can cause indecision, which keeps employees from making good, or any, investment decisions for their retirement assets. In 2018, we believe we’ll see top-tier companies focusing on offering fewer, broader investment options, renaming options for ease of choice, and encouraging use of their qualified default investment alternative (QDIA). Simplification will be key.


4)  Add a post-retirement tier. Ten thousand Baby Boomers retire every day in the U.S., according to Pew Research Center and the Social Security Administration (SSA). With so many new Boomers entering the retirement phase of investing each year, post-retirement income was a major industry theme last year. In 2018, expect to see companies take action, by adding a post-retirement tier to their investment structure. This tier would consist of options managed for withdrawals—i.e., investments that are liquid, portable and, importantly, understandable.


5)  Measurement matters. With increased transparency in the industry and more information available to investors and employers than ever before, measuring the impact of your plan, today, is the key to its success. To elevate your DC plan in 2018, tie results to plan objectives, keep it simple and meaningful, and focus where you can have the most impact.



Toni Brown, CFA, senior vice president, Retirement Strategy, Capital Group



Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.


Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.


Securities offered through American Funds Distributors, Inc.


This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Strategic Insight or its affiliates.

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Categories: Industry News

Retirement Industry People Moves

Fri, 2018-01-19 09:49

WEX Health and dailyVest Form Collaboration for HSA Consumers

WEX Health has selected dailyVest to further enhance the investment capabilities and user experience for WEX Health consumers utilizing health savings account (HSA) investment tools.

The new partnership leverages dailyVest’s core investment personalization and performance calculation engine known as PIP for producing interactive, real-time investment and personal rate of return content and visualization for WEX Health’s platform. The addition of the new portal technology can provide employers and benefits administrators access to improved data analytics and customization tools that can create a more seamless, integrated experience for consumers.

According to the Devenir Research 2017 Midyear HSA Market Report, the number of HSA accounts surpassed 21 million, holding about $42.7 billion in assets, from June 2016 to June 2017. The report also states that HSA investments have seen substantial growth—with assets reaching an estimated $6.8 billion in June 2017, up 44% year over year. With HSA investing on the rise, WEX Health hopes to enhance consumer engagement within this growing space by partnering with dailyVest.

“The dailyVest platform aligns nicely with the user experience and the team brings a wealth of expertise to the table. They have the ability to present important financial information to consumers in a way that is impactful, yet easy to understand,” says Matt Dallahan, senior vice president of Strategy and Development at WEX Health. “By providing user-friendly visualizations, we can now offer an experience that appeals to both novice and experienced investors.”

FIA Promotes Consultants and Analysts Within Firm

Fiduciary Investment Advisors, LLC (FIA) has announced the following promotions within the firm.

Kevin O’Brien, has been named a partner and senior consultant of the firm. He most recently served as a senior consultant after joining FIA in 2011. O’Brien is a member of FIA’s Investment Committee and the Discretionary Investment Subcommittee. His experience includes advising institutional clients and assisting them with asset allocation, investment manager selection, and pension plan issues such as de-risking strategies and plan terminations.

Peter Nadeau, has been named a senior consultant at the firm. He most recently served as a consultant after joining FIA in 2014. Nadeau is a member of FIA’s Employee Communication and Education Committee. His focus is on defined contribution (DC) retirement plans in both the corporate and tax-exempt markets.

Scott Boulton has been named a consultant and research analyst at the firm. He most recently served as a research analyst and associate consultant after joining FIA in 2014. He is a member of the defined contribution team, advising both ERISA (Employee Retirement Income Security Act) and non-ERISA defined contribution plans. He is a member of FIA’s Employee Communication and Education Committee.

Andrea McAndrew, has been named a consultant and research analyst at the firm. She most recently served as a research analyst after joining FIA in 2015. McAndrew has over 15 years of investment experience, with a focus on alternative investments. She is a member of the CFA Institute and the Hartford CFA Society.

Dennis Scarpa, has been named a consultant and research analyst at the firm. He most recently served as a research analyst and associate consultant after joining FIA in 2013. Scarpa is a member of the defined contribution team and services clients including for-profit corporations, colleges and universities, and healthcare organizations. He is a member of the CFA Institute and the Hartford CFA Society.

Matthew Pranaitis has been named a research analyst at the firm. He most recently served as an associate research analyst after joining FIA in 2016. Matt is a member of the client-focused research group. He interned at FIA for two summers before joining the firm full-time.

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Categories: Industry News

Fiduciary Questions Still Stymie In-Plan Income for Many Sponsors

Fri, 2018-01-19 09:11

Callan has published its 2018 DC Survey, offering up a highly detailed overview of the U.S. defined contribution (DC) plan industry.

The extensive analysis covers a broad range of topics, including the “leakage challenge” faced broadly by plan sponsors large and small.

According to Callan’s research, most plan sponsors (79.6%) have taken steps in the recent past to prevent plan leakage, but they have met only moderate success. Some of the more common strategies observed by Callan researchers included offering partial distributions and encouraging rollovers in from other qualified plans, which tied for the most common strategies cited by plan sponsors, both at 56%.

“More than half offer installment withdrawals (50.5%),” Callan reports. “Nearly two-thirds (62.4%) anticipate taking additional steps to prevent plan leakage in 2018—most notably, more actively seeking to retain terminated/retiree assets.”

As others have reported, Callan suggests the ongoing Department of Labor (DOL) fiduciary rule reform effort—even with all its tribulation and uncertainty—is helping to shape the increased reports of plan design and investment changes. For the most part, Callan says, plan sponsors are being very conscious and cautious with respect to decisions made to manage the implications of the rule.

The analysis highlights some additional common steps that plan sponsors say they will take in 2018 to combat plan leakage. These include making the fund lineup more attractive to terminated/retired participants and allowing terminated/retired participants to continue paying off loans. Tied to the leakage challenge, Callan reports two-thirds of plans now offer a retirement income solution to employees. Of those that offer in-plan guaranteed income products, 60% are government plans, suggesting corporate America is still somewhat hesitant to turn DC plans into pension-like vehicles for retirees. 

“No plan sponsors report offering qualified longevity annuity contracts (QLACs) or longevity insurance in their plans, despite a 2014 Treasury Department ruling making it easier to do so,” Callan reports.

The research shows plan sponsors cite a number of reasons for being unlikely to offer an annuity-type product in the near term. The top reasons include the belief that it is unnecessary or not a priority and being uncomfortable or unclear about the fiduciary implications.

“Plan sponsors also cite that they are concerned about additional factors,” Callan reports. “These include a lack of participant need or demand; availability of a defined benefit [DB] plan, and annuities being too costly. One plan sponsor noted that annuities had previously been removed from the plan due to low usage.”

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Categories: Industry News

Participants Made Record-Low Number of Trades in 2017

Thu, 2018-01-18 13:40

2017 was the slowest trading year in the 20 year history of the Alight Solutions 401(k) Index.

According to the latest data published by Alight Solutions, there were 13 days of above-normal daily transfer activity in 2017—less than half the number in 2016 (28) and the trailing 5-year and 10-year averages (30 and 32 days, respectively).

“Part of the light trading activity can be explained by the prevalence of target-date funds, the largest asset class in the 401(k) Index,” the firm reports. “The percentage of assets invested in target-date funds grew in 2017 from 24.1% at the beginning of the year to 27.2% by the end of the year. Much of this growth can be attributed to the fact that target-date funds receive the lion’s share of new 401(k) contributions.”

In 2017, 43% of all contributions were made to target-date funds.

“Strong investment returns also likely contributed to the light trading activity,” Alight reports. “2017 proved to be a generally positive year for investors. Large cap U.S. equities (represented by the S&P 500 Index) and international equities (represented by the MSCI All Country World ex-U.S.A. Index) provided strong returns with little volatility throughout the year.”

On the fixed-income side, bonds (represented by the Bloomberg Barclays Capital U.S. Aggregate Bond Index) and small cap U.S. equities (represented by the Russell 2000 Index) both experienced periods of volatility. But in the end both still provided positive returns over the last 12 months.

“During the 20-year history of the 401(k) Index, trading activity typically spikes when there is a downturn in the market,” confirms Rob Austin, head of research at Alight. “In general, 2017 saw the markets steadily rise, so rather than rebalancing, 401(k) investors stayed the course and enjoyed positive market returns.”

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Categories: Industry News

Study Proposes a “Simple” Strategy for Retirement Income

Thu, 2018-01-18 12:21

A new retirement study by the Stanford Center on Longevity, conducted in conjunction with the Society of Actuaries, “Optimizing Retirement Income by Integrating Retirement Plans, IRAs, and Home Equity,” presents a framework of analyses and methods that plan sponsors, financial advisers, and retirees can use to compare and assess strategies for developing lifetime retirement income. 

Steve Vernon, a research scholar at the Stanford Center on Longevity and a co-author of the study, has had a long career as a consulting actuary for retirement plans, and he runs a firm that does retirement planning workshops, called Rest of Life Communications. He says the strategy suggested by the study is straightforward and simple to administer. “If a plan sponsor wants to put in more complex methods, that’s fine. There are lots of different retirement income strategies; this one is just not as complex or as involved as other strategies,” he tells PLANSPONSOR. “We’re not suggesting things that take a lot of expense—the strategy uses existing tools plan sponsors have as well as existing capabilities of providers.”

The authors of the study recommend a portfolio approach for retirement income strategies that integrates Social Security claiming decisions, investing and deploying retirement savings, and utilizing home equity if necessary. Social Security benefits, pensions, annuities, and tenure payments or lines of credit from reverse mortgages can be considered the “bond” or “guaranteed” part of a retirement income portfolio. If retirees achieve sufficient secure income from these sources, the analyses justify investing remaining savings significantly in equities, which are more volatile but have the potential for growth. The researchers acknowledge there can be behavioral constraints regarding this conclusion.

The study report notes that for most middle-income retirees, Social Security is the foundation of retirement income, providing anywhere from half to more than three-fourths of total retirement income. Social Security has several desirable features that, in aggregate, aren’t available with any other retirement income solution. As such, optimizing Social Security benefits through delayed claiming is often an important component of a retirement income strategy. Risk-averse retirees should consider drawing from savings in order to optimize Social Security benefits, before purchasing an annuity or investing in bonds. When middle-income retirees optimize Social Security benefits, they might have all the “annuity” income they need, particularly if they reduce their living expenses.

Researchers say it’s important for the target group of this report—workers and retirees with less than $1 million in savings—to understand Social Security’s critical role in their retirement security. Social Security retirement income has several valuable features:

  • It’s paid for the rest of the retiree’s life, helping address longevity risk;
  • It’s not subject to capital market risk, helping address investment risk and sequence of returns risk;
  • It’s increased by the Consumer Price Index (CPI), helping address inflation risk;
  • Part or all of Social Security income is exempt from federal income tax, helping address taxation risk; and
  • Social Security benefits are paid automatically (and often electronically), helping address the risk of cognitive decline, fraud, and making mistakes.

“No other method of generating retirement income includes all these desirable features, so Social Security benefits represent a unique, valuable resource. This is one reason it’s important for middle-income retirees to optimize the value of their Social Security benefits,” the study report says.

Vernon agrees that the main factor in the success of the study’s strategy is to delay Social Security until age 70, but he says the strategy is not inflexible. “For every month retirees delay receiving Social Security, it increases lifetime income; they just get the biggest boost from waiting until age 70,” he says. “The strategy is targeted for people with less than $1 million in savings. For them, Social Security may be 60% to 80% of retirement income, so why not optimize that?”

While the study targets middle income retirees, it can be used for higher-income retirees. Social Security may provide less income for higher-income retirees than for middle- or low-income retires, so the higher-income will need to work with a financial adviser to refine the strategy.

While the study focuses on individuals with less than $1 million in retirement savings, Vernon says the less savings one has, the more Social Security is important. The strategy may not work for those who have $100,000 in savings or less unless they are able to work until age 70. He says those with $300,000 to $400,000 may be able to retire at age 65 and withdraw $20,000 from savings each year to delay claiming Social Security. Whereas if an individual has $100,000 or less, the strategy may deplete their savings.

The “Spend Safely in Retirement” Strategy

The researchers’ analyses show whether total retirement income can be expected to keep pace with inflation. For the solutions they analyzed, the solutions using the Internal Revenue Service (IRS) required minimum distribution (RMD) and fixed index annuities (FIAs) did the best job of keeping up with inflation. The analyses also show retirement income solutions with a high withdrawal percentage—7%—naturally spend down savings more quickly than a 3% withdrawal rate.

A strategy that enables delaying Social Security until age 70 and uses the IRS RMD to calculate income from savings produces a reasonable tradeoff among various retirement income goals for middle-income retirees. The researchers note that this strategy has a significant advantage: It can be readily implemented from virtually any IRA or 401(k) plan without purchasing an annuity (which many plan sponsors are hesitant to offer and many retirees are reluctant to purchase on their own).

For the purposes of this report, they call this strategy the “SS/RMD retirement strategy.” For worker and consumer audiences, they call it the “Spend Safely in Retirement Strategy.” The best way for an older worker to implement the SS/RMD strategy is to work enough to pay for their living expenses until age 70; if possible, they shouldn’t start Social Security benefits or begin withdrawing from savings to pay for living expenses.

The next best way to implement the SS/RMD strategy is to use a portion of savings to enable the delay of Social Security benefits as long as possible, but no later than age 70. Then, invest remaining savings and use the RMD to calculate retirement income from savings. The primary disadvantage of this approach is that it can use a substantial amount of savings to enable delaying Social Security; this is the reason the best way to implement the strategy is to continue working, if possible, the researchers suggest. They analyzed the approach, assuming the worker retires at age 65 but uses a portion of savings to enable delaying Social Security until age 70. In addition, the retiree uses the RMD to calculate retirement income with remaining savings.

The SS/RMD strategy offers the following results:

  • Produces more expected average total retirement income compared to most strategies that were analyzed;
  • Projects total income that keeps pace with inflation;
  • Produces a moderate, compromise level of accessible wealth, for flexibility and the ability to change direction in the future. It produces more accessible wealth compared to strategies that use annuities. But it provides less accessible wealth than strategies that maximize flexibility, such as systematic withdrawal plans (SWPs) with low withdrawal rates and/or strategies that don’t use savings to enable the delay of Social Security benefits;
  • Provides a moderate, compromise level of bequests, for the same reasons; and
  • Produces low measures of downside volatility, depending on asset allocation.

The researchers note that the amount of retirement income generated from savings can be impacted by performance of retirement income approaches through:

  • Asset use decisions, such as whether to use savings to enable a strategy that optimizes Social Security benefits, and allocation between invested assets and annuities;
  • Asset allocation decisions, which is the mix of stocks and bonds in invested assets;
  • Investment timing decisions, including selling stocks when the market is down;
  • The level of fees charged for the management of retirement savings, and
  • Annuity product features, including transaction charges and the competitiveness of insurance company pricing.

Vernon notes these are not necessarily all negative; the allocation between invested assets or annuities is a choice. The list reflects some mistakes and some preferences.

The researchers say their analyses confirm conclusions from their prior report, “Optimizing Retirement Income in Defined Contribution Retirement Plans,” which focused on solutions that employers could offer to their older workers for deploying in-plan strategies. Vernon says the new study offers solutions that can be implemented outside of plans; it reflects that a lot of people have both defined contribution (DC) plans and IRAs and many have home equity. It reflects the use of all available assets.

As for home equity, the report notes that reverse mortgages can be used to:

  • Increase monthly income in predictable ways through a monthly tenure payment;
  • Increase accessible wealth in predictable ways, to be used for unforeseen emergencies or long-term care expenses; or
  • Reduce downside volatility and the chances that total income will fall below specified thresholds.

“A reverse mortgage should be one of the tools that retirees and their advisers consider on a case-by-case basis, using analyses to quantify how financial security can be improved by strategically deploying reverse mortgages. A reverse mortgage is most appropriate when retirees intend to stay in their house for an extended period, perhaps for the rest of their lives. They also need to understand the costs of reverse mortgages, which can be considerable, so they can decide if the costs justify the benefits,” the study report says. “Older workers and retirees will want to analyze the amount of retirement income they can realistically expect from all of their retirement savings sources. For some, this can be a retirement reality check if their income falls far short of their needs for living expenses. They could then analyze how they could deploy their home equity to boost their retirement income.”

Implementation strategies for plan sponsors and advisers

The SS/RMD strategy should be straightforward to implement in most employer-sponsored defined contribution retirement plans and IRA platforms, as many retirement plan providers can calculate the RMD and automatically pay it to the retiree according to the frequency elected by the retiree.

The researchers suggest the portion of savings that enables delaying Social Security could be invested in a liquid fund with minimal volatility in principal, such as a money market fund, a short-term bond fund, or a stable value fund in a 401(k) plan. In the years leading up to retirement, an older worker might want to start building a “retirement transition fund” that will enable delaying Social Security benefits. This fund can protect a substantial amount of retirement income in the period leading up to retirement, since the retirement transition fund should be invested in stable investments and Social Security is not impacted by investment returns. Vernon suggests plan sponsors can amend their plans to allow for systematic or periodic withdrawals. “That will really help out,” he says.

The researchers support investing the RMD portion significantly in stocks—up to 100% if the retiree can tolerate the additional volatility (which is modest because of the dominance of Social Security benefits). However, the asset allocation to stocks for a typical target-date fund for retirees (often around 50%) or balanced fund (often ranging from 40% to 60%) also produces reasonable results, and these funds are commonly available in IRA and 401(k) platforms, they say.

Financial advisers and institutions may need new business models to implement many of the strategies and retirement income solutions outlined in the report. Vernon explains that this includes recognizing what are the most important decisions those approaching retirement need to make—coming up with a delay strategy, deciding how to deploy a savings strategy in retirement, and how to claim Social Security benefits. He adds that many financial institutions charge asset fees on savings and transaction fees, which have no bearing on these decisions. “Getting a good return on savings is important, but it doesn’t have nearly the magnitude of a delaying Social Security strategy,” he says. 

To communicate this strategy to retirees, plan administrators and advisers should characterize Social Security as a secure retirement paycheck that a retiree might use to pay for basic living expenses, the researchers suggest. They should characterize the RMD income as a variable annual retirement bonus that can fluctuate in order to pay for discretionary living expenses. “Many middle-income workers are accustomed to managing their finances with secure paychecks and variable bonuses, so it’s natural to continue this financial discipline in retirement,” the report says. The SS/RMD strategy works best when the retiree delays Social Security until age 70, but delays until earlier ages, such as 67, 68, or 69 still provide significant advantages. Employers can also offer alternative career trajectories that enable their older workers to continue working.


Vernon admits there are valid arguments for not planning to work until age 70. “We’re not saying this is easy for people to do; there is no magic bullet, but it can work if an employee retires earlier if he or she has enough assets,” he says. “A lot of employers have robust retirement plans, but another thing they could do is offer alternative situations for older workers that have health issues or have to take care of a loved one to help them work longer.”

For those who don’t have any retirement savings, any strategy is just not applicable, according to Vernon. Their only choice is to work longer or reduce living expenses, and Social Security will offer more income to lower-income retirees on a relative basis. Vernon says one possible saving grace is home equity, but some employees don’t have home equity; those are in a tough spot.

Vernon also notes that the future of Social Security is on the minds of lots of people, but he believes the thinking that future retirees will get nothing is extremely unrealistic. “If you think about how Social Security is funded—from current taxes paid by workers—in the worst case, if Social Security runs out of money, we still have a system where current workers are paying for benefits, and that still can be up to three-fourths of income for retirees,” he says. “As long as we have a Democracy, we will have Social Security.” He adds that he believes those ages 50 or older will get Social Security benefits as now described, but younger generations could see a program change which may affect their draw down strategy. “Legislators may push back the retirement age a little more or may raise Social Security taxes, but there will not be a wholesale devastation of the system, and tweaking is needed,” Vernon says.

The Institutional Retirement Income Council (IRIC) suggests other retirement income strategies. How to employ retirement savings is an intimidating decision for employees, and they trust employers, so it is god for employers to look into different strategies. “Plan sponsors would be well served to review the study and the conclusions it makes regarding draw-down strategies participants can use when optimizing their DC account use in conjunction with Social Security optimization,” says Bob Melia, IRIC’s executive director.

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Categories: Industry News

Investment Products and Services Launches

Thu, 2018-01-18 12:01

American Century Releases First ETFs

American Century Investments has launched American Century STOXX U.S. Quality Value (VALQ) and American Century Diversified Corporate Bond (KORP) Exchange Traded Funds (ETF), the first two ETFs to be offered by the global asset management firm. 

“Our goal with the launch of American Century ETFs is to provide innovative strategies that strive to deliver better outcomes for investors,” says Edward Rosenberg, senior vice president and head of ETFs for American Century. “We are excited to be launching our first two ETFs, which we see as ‘core’ investments that can serve as a central, foundational component of a long-term portfolio.” 

Senior Vice President Peruvemba Satish, a portfolio manager on one of the new ETFs and director of global analytics for American Century, says the firm leveraged its cross-discipline investment capabilities and analytical skills to create the new funds. “Informed by decades of experience, our strategies apply our unique insights to solve common investment problems and help investors achieve their goals,” Satish says. 

American Century STOXX U.S. Quality Value ETF is an index-based value fund designed for investors pursuing capital appreciation. It seeks to deliver a more attractive risk/reward profile than the market capitalization-weighted value investing typical of traditional index funds. The fund utilizes American Century’s Intelligent Beta methodology, which strives to dampen the cyclicality of value investing in pursuit of strong risk-adjusted returns throughout the market cycle. 

The portfolio management team’s analysis begins with the broad universe of U.S. large-cap stocks based on the STOXX 900 Index. The team applies measures such as profitability, earnings quality, management quality and earnings revisions to identify high-quality companies at attractive valuations. It complements them with sustainable dividend-payers to help mitigate risk when value investing falls out of favor. 

The fund is co-managed by Satish and Rene Casis. Satish joined American Century in 2014 to establish and lead the firm’s global analytics team. Casis joined American Century in early 2018 after serving in ETF portfolio management roles with BlackRock, Barclays Global Investors (BGI) and 55 Institutional. 

American Century Diversified Corporate Bond ETF is an actively-managed corporate bond fund designed for investors seeking current income. The fund emphasizes investment-grade debt while dynamically allocating a portion of the portfolio to high yield in a single, systematically managed portfolio. By integrating fundamental and quantitative expertise, the portfolio management team strives for enhanced return potential versus traditional capitalization-weighted passive portfolios. 

The fund is comanaged by Kevin Akioka, Jeffrey Houston, Gavin Fleischman and Le Tran. Vice President and Senior Portfolio Manager Akioka joined American Century in 2010 and leads the fixed-income group’s corporate credit team. Vice President and Senior Portfolio Manager Houston has been with the company since 1990. Vice Presidents and Portfolio Managers Tran and Fleischman joined the firm’s fixed income team in 2004 and 2008, respectively. 

Putnam Reveals Two ESG Fund Offerings

Putnam Investments has announced plans to offer two funds with dedicated environmental, social and governance (ESG) strategies to the marketplace toward the end of Q1 2018, pending SEC staff review. The new funds, to be named Putnam Sustainable Leaders Fund and Putnam Sustainable Future Fund, will bring two distinct investment lenses to identify opportunities driven by corporate sustainability practices and solutions, respectively.  

The two new Putnam ESG funds will be formed through the repositioning of two existing products offered by the firm. Putnam Multi-Cap Growth Fund will become Putnam Sustainable Leaders Fund, a multi-cap fund—with $4.3 billion in assets at the end of December 2017—focused on identifying companies with demonstrated commitment to sustainable business practices. The fund will be managed by Katherine Collins, head of Sustainable Investing and Shep Perkins, co-head of Equities. They will be joined by Assistant Portfolio Manager Stephanie Henderson, an analyst on the firm’s sustainable investing team. Rob Brookby, who previously managed Putnam Multi-Cap Growth Fund, will be leaving the firm to pursue other opportunities.

Additionally, Putnam Multi-Cap Value Fund will become Putnam Sustainable Future Fund, a mid-cap fund—with $450 million in assets at the end of December 2017—focused on identifying companies with products and services that provide solutions directly contributing to sustainable social, environmental, and economic development. The fund will continue to be managed by Katherine Collins, who will be joined by Assistant Portfolio Manager Stephanie Henderson.    

“There is a growing realization in the marketplace that companies engaged in sustainability often show enhanced fundamental and financial performance,” says Aaron Cooper, chief investment officer, Equities, Putnam Investments.  

The two Putnam ESG-focused funds are expected to be available in the marketplace in March 2018.

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Categories: Industry News

University of Chicago 403(b) Suit Gets Claims Added Back

Wed, 2018-01-17 10:50

What the University of Chicago may have seen as a small win in the lawsuit alleging fiduciary violations of the Employee Retirement Income Security Act (ERISA) in the administration of its 403(b) plans was short-lived, based on a new federal district court decision.

The original case alleged violations for both the University of Chicago Retirement Income Plan for Employees (ERIP), a plan for faculty and staff members, and the University of Chicago Contributory Retirement Plan (CRP), a plan for non-academic employees. In addition to various counts regarding excessive fees, the complaint accused the university of approving a TIAA loan program that required excessive collateral as security for repayment of the loan, charged grossly excessive fees for administration of the loan, and violated U.S. Department of Labor (DOL) rules for participant loan programs.

However, last fall, U.S. Chief District Court Judge Ruben Castillo dismissed claims related to the CRP and the TIAA loan program because the plaintiffs were not participants in the CRP plan nor did they participate in the TIAA loan program. The judge also at the time dismissed the claims for failure in the duty of loyalty under ERISA, saying the plaintiffs did not show that the defendant engaged in any self-dealing or failure to communicate material information.

The plaintiffs filed an amended complaint, introducing Walter R. James as a plaintiff. James participated in the CRP and invested in funds challenged by the complaint. He alleged breaches of fiduciary duty by the defendant related to the selection and retention and failure to monitor CRP investments. However, University of Chicago moved to dismiss James’ claims, saying he failed to allege an injury-in-fact. The defendant says an independent calculation showed James “may have paid approximately $37 per year” in recordkeeping and administrative fees. It argues that this is not excessive or unreasonable based on the plaintiffs’ allegation that the industry benchmark for these fees is $35 per year.

Castillo disagreed. “Accepting as true the allegations that CRP incurs excessive administrative expenses and Defendant failed to monitor CRP’s investment offerings, coupled with the allegations James is a CRP participant and has suffered direct economic loss, the Court concludes that James sufficiently alleges as to Count I that he personally suffered and injury-in-fact in the form of a concrete and particularized ‘direct economic loss’ due to Defendant’s alleged conduct,” he wrote in his latest opinion.

The plaintiffs argued that the University of Chicago’s calculation of fees James “may have paid” does not account for the fact that each participant pays a different amount of administrative fees, and that each participant is invested in a wide variety of funds, not just the funds on which the university based its calculation.

“Defendant’s independent calculation merely underscores a factual dispute concerning the amount of administrative fees that James paid, which is a point of contention the Court cannot resolve on a motion to dismiss,” Castillo wrote.

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Categories: Industry News

Those Close To and In Retirement Still Feeling Unprepared

Wed, 2018-01-17 09:15

The Society of Actuaries (SOA) ninth biennial Risks and Process of Retirement Survey identified an overall increase in consumers’ level of concern for their finances both prior to and during retirement in 2017.

The survey revealed that inflation, health care and retirement costs rank as Americans’ top retirement concerns. Among pre-retirees, 78% selected inflation as a top concern, 74% chose health care, and 73% selected long-term care. Among retirees, the percentages were 57%, 54% and 59%, respectively.

Many pre-retirees state they plan to take a number of steps to protect themselves financially as they age. Seven in ten (70%) state they intend to completely pay off their mortgage, including the 26% who have already done that. Fifty-eight percent have or plan to take less risky investments and 42% have or plan to postpone taking Social Security.

“I am encouraged to see pre-retirees and retirees alike taking steps to mitigate these risks, such as eliminating debt, saving money and cutting back on spending. But I am still concerned that there is not a greater focus on long-term planning, risk management, or dealing with the major uncertainties of life,”  says Anna Rappaport, fellow of the SOA and chair of the SOA’s Committee on Post-Retirement Needs and Risks.

A significant number of retirees and pre-retirees report that they feel unprepared to navigate financial shocks and unexpected expenses—61% of pre-retirees and 47% of retirees feel unprepared for expenses in retirement that could deplete their assets. For instance, according to the survey report, only one in three say they could financially handle a 25% drop in their home value, running out of assets or a family member needing financial support. While a majority feel they are prepared to handle small financial shocks, there are still a significant number who would have trouble dealing with car repairs or home repairs.

About half of pre-retirees (51%) say their savings are behind schedule, and one in three (33%) say they are on track.

Most are not currently consulting with a financial professional, but retirees report a moderate amount of interest and pre-retirees a high amount of interest in receiving support and education on a variety of finance-related topics.

The online survey of Americans ages 45 to 80 was conducted in July 2017 by Greenwald & Associates on behalf of the SOA.

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Categories: Industry News

Verizon Pensioners Still Want to Recoup ERISA Protections

Wed, 2018-01-17 09:00

Back in February 2015, the pension risk transfer by Verizon of the assets of tens of thousands of former Bell Atlantic employees to Prudential grabbed a significant amount of retirement plan industry attention.

This was not just because the risk transfer deal at the time represented one of the largest-to-date group annuity transactions ever negotiated, nor because it was suggested (rightly) by many to be a bellwether of a very significant pension de-risking trend taking shape in corporate America. The risk transfer deal was challenged forcefully in the district and appellate courts, leading to a series of important decisions that have helped to shape the way employers think about transferring their pension assets and liabilities to insurers.

Eventually the matter reached the 5th U.S. Circuit Court of Appeals, resulting in a decision by that court to toss pensioners’ effort to halt the risk transfer. In a phrase, the appellate court ruled that the decisions to amend the plan and transfer certain assets to an annuity contract were settlor, not fiduciary, functions. Thus, Verizon was more or less freed to pursue the sizable risk transfer on the terms it had negotiated in good faith with Prudential.

The main worry of the retirees, as Jack Cohen, Association of BellTel Retirees chairman, told PLANSPONSOR at the time, was that their billions of dollars in income annuities would be less well-protected than they would be if they remained Employee Retirement Income Security Act (ERISA)-covered benefits, for example in the case of a personal bankruptcy or the admittedly unlikely bankruptcy of Prudential. The plaintiffs further claimed they received insufficient notice in advance of the transfer of their promised pension benefits from Verizon’s to Prudential’s balance sheet and that no such right to enact a transfer was established by plan documents. Again, these arguments ultimately fell short, per the difference between fiduciary and settlor functions.

Today the BellTel Retirees are several years down the road of the pension risk transfer, and according to a new conversation with Cohen, who continues in the role of chairman for the Association of BellTel Retirees, the group’s retirement income has not been disrupted in any significant way. Cohen even freely admits that Prudential has so-far effectively served his fellow retirees well, all things considered.

“But that was not by any means the whole point we were trying to make with our challenge, and not every insurer is a Prudential,” Cohen says. “As we predicted and forewarned, we have seen, since Verizon became an early mover, so many other companies that have gone down the road of risk transfers. The horse has left the barn and this represents, in our opinion, the final unfortunate act for the once-great U.S. private pension system.”

On his reading, the Pension Benefit Guaranty Corporation (PBGC), which insures corporate and union pensions in the U.S., has admitted this much in its most recent reporting. Pointing specifically to the 2017 Annual Report of the Participant and Plan Sponsor Advocate, for example, Cohen says he is galled by the recent increase in concern about risk transfers—arguing that his association and others have been warning the agency for a long time that an increase in the popularity of pension risk transfers, now colloquially known as “PRTs,” would eventually lead to severe harm to the PBGC insurance system.

“Back when our plan at Verizon was risk transferred, they told us that they would only lose less than $2 million in annual premiums, and so it was not even a reportable event from their perspective,” Cohen says. “Now all of a sudden in 2018 they are starting to pay attention to the very dire warnings we were giving back then. Unfortunately they did not take action when they still could have done something about it.”

Cohen suggests it is “something of an insult to the BellTel Retirees to see the PBGC’s emerging stance here.” He notes that, new to the 2017 Advocate Report, is an appendix that includes a full pension de-risking study “commissioned by the Office of the Advocate at the request of plan sponsors.” The study focuses on PBGC and Congressional actions that may slow pension de-risking activity, and highlights the drivers and causes of de-risking, about which Cohen has long been sounding the alarm.  

“The study found that reducing PBGC single-employer premium levels or stemming their rapid growth is likely to decrease risk transfer activity,” Cohen notes. “This is the same warning we have been giving for a long time now. Back when we were still held within the Verizon plan the premium charged by the PBGC was $42 per participant. That was already too high, but the flat-rate premium for PBGC insurance coverage of a pension funding shortfall has gone up significantly since then. The annual fixed-rate in 2019 will rise to $80 per participant, while the variable rate will rise to 4.1% on unfunded vested benefits.”

For its part, the PBGC says simply that these rate hikes are undesired but necessary to cover the costs of insuring the many millions of beneficiaries of a pension system that holds such significant and shifting risks. Cohen says he has some sympathy here, but he also says the fact that premium hikes are still occurring is an indication that PBGC “perhaps does not truly intend to try to slow or halt the pace of risk transfers.” And anyway it would most likely require a concerted action by Congress to solve these issues. 

“It’s really an unfortunate picture, but we also have to be realistic and keep working hard,” Cohen concludes. “I know that de-risking is a phenomenon whose time has come. But this does not mean we should stop asking questions and stop working to make risk transfers the best we can for retirees. We have to wonder if the insurance companies can stand to take all that risk, and how they will manage it. What we are concerned with is trying to recoup at least some of the protections that we had under ERISA. We are not looking for pie in the sky—we’re looking for Congress and the state legislatures to recognize this could become an economic disaster if we do not protect peoples’ pensions.”

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Categories: Industry News

Millennials May Have Wrong Expectations About Retirement

Wed, 2018-01-17 08:35

A survey of Millennials, ages 21 to 37, finds 58% are saving for retirement.

Of those saving, 84% have saved less than $50,000, according to the survey by Aperion Care. Ten percent have saved in the $50,000 to $100,000 range.

One-third (34%) of Millennials say they plan to save $200,000 or less to be comfortable in retirement. Aperion Care notes that according to the AARP, in order to live off of $40,000 a year, a retiree needs to save about $1.18 million for a 30-year retirement. Only 20% of Millennials plan to save $500,000 to $1 million for a comfortable retirement, and only 15% plan to save $1 million to $2 million.

But, Millennials, on average, expect to live to age 81. And, while 61% expect to live to an older age than both their parents, nearly four in ten do not.

In addition, the majority (57%) of Millennials expect to die in their homes, rather than in a retirement community (4%), hospital (18%), hospice (4%) or assisted living facility (5%). Aperion Care notes that studies show only about 20% of people die in their own home.

Sixty percent of Millennials expect to be in an average financial state when they die, while 11% believe they will be poor. Forty-five percent say they will be in a better financial state than their parents, but 38% say they will be in the same financial state. Only 16% expect to be in a worse financial state than their parents when they die.

More results from the study may be found here.

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Categories: Industry News

City and County Retirement Systems Struggling With Funding

Tue, 2018-01-16 12:39

Wilshire Consulting estimates the ratio of pension assets-to-liabilities, or funding ratio, for the city and county pension plans it studied was 67% in fiscal 2016, down from 70% in fiscal 2015.

Aggregate pension liabilities grew by 4.9%, or $32.8 billion, from $664.5 billion in 2015 to $697.3 billion in 2016, while aggregate pension assets declined by 0.4%, or $1.8 billion, from $465.8 billion in 2015 to $464.0 billion in 2016. These plans saw their resulting aggregate shortfall increase $34.6 billion over fiscal 2016 from $198.7 billion to $233.3 billion.

“Despite relatively strong performance for U.S. stocks, institutional investors found their total portfolio performance dampened by a stronger U.S. dollar, hampering the performance of their non-dollar assets, as well as the United Kingdom’s vote to leave the European Union in June 2016,” says Ned McGuire, Managing Director and a member of the Pension Risk Solutions Group of Wilshire Consulting.

He notes that, “On average, city and county pension portfolios have a 63.0% allocation to equities, including real estate and private equity, a 24.5% allocation to fixed income, and a 12.5% allocation to other assets. This equity allocation is somewhat lower than the 66.3% equity allocation in 2006. However, asset allocation varies by retirement system. Twelve of the 107 retirement systems have allocations to equity that equal or exceed 75%, and eleven systems have an equity allocation below 50%.”

An Issue Brief from the Center for Retirement Research (CRR) at Boston College suggests that  since 2001, the aggregate funded status of local pension plans has lagged behind that of state plans, but the gap has been closing recently. The CRR says this gap has been closing for two reasons. First, local plans continue to receive more of their required contributions than state plans and are a bit more likely to use stringent funding methods. Second, in recent years, local plans have earned stronger investment returns than state plans, perhaps partly due to a lower allocation to alternative investments.

“Despite this progress, many local plans—like their state counterparts—still face significant funding challenges,” the CRR concludes.

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Categories: Industry News

Pressing Financial Needs Derail Successful Savers

Tue, 2018-01-16 12:18

During a recent webinar hosted by Broadridge, expert speakers from Market Strategies International presented their latest data detailing the aims and expectations of retirement plan participants.

The data shows strong ongoing increases in the offering and uptake of automatic plan design features, such as auto-enrollment and auto-escalation of salary deferrals, leading collectively to better-performing retirement plans. Tied to the greater use of more aggressive qualified default investment alternatives, most notably target-date funds and managed accounts, these automatic plan design features have had a strong positive impact on the anticipated outcomes of many participants, experts noted, and they should continue to do so. 

However, the experts also presented findings having to do with participants who are not necessarily making optimal decisions within their defined contribution plans. One clear issue the experts addressed is the sizable group of participants who moved to decrease their retirement salary deferrals during the last year.

Within this group, the data shows 27% cited “needing to pay down debt and bills” as the primary reason for redirecting income away from retirement accounts. Another 25% cited “needing money for day-to-day expenses,” while 18% reduced salary deferrals to “finance a major life event” and 16% did so to “address less income.”

As the experts explained, these stats show the retirement planning effort can really only be successful once participants’ shorter-term financial priorities are addressed. Another common hurdle leading to meeker salary deferrals was “increased medical expenses” (10%).

The experts noted that the “end-to-end journey for a single participant experience with a given provider will have between 100 and 200 points of inflection across the consumer lifecycle.” By focusing on delivering the right educational content at the right time to the right people, plan providers and employers have a tremendous opportunity to improve overall outcomes, experts agreed.

The group concluded that retirement plan participants broadly benefit from financial wellness programming that on its surface might have very little to do with the strict topic of retirement planning. Again, this is due to very real possibility that financial hardship in the short term will prevent people from participating in tax-qualified retirement plans, or cause them to reduce their otherwise-appropriate deferrals. 

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Categories: Industry News

Ascensus Finds Increase in 401(k) Employer Contributions

Tue, 2018-01-16 10:46

An analysis by Ascensus, based on its daily valued book of business, finds a dramatic increase in the number of retirement plan sponsors who have chosen to fund an employer contribution for their 401(k) plans.

According to the data, 53% of plan sponsors funded an employer contribution in 2013. This increased to 55% in 2014, 69% in 2015 and 81% in 2016. According to Geno Cufone, senior vice president of retirement administration at Ascensus in Drescher, Pennsylvania, there are a of couple reasons so many plan sponsors didn’t fund employer contributions in 2013. But, one reason he offers PLANSPONSOR is that many reduced or eliminated employer contributions due to the 2008 financial crisis, and it took them a while to be able to do so again.

“The real story is what has been happening in the past two years; the uptake in the market has definitely let more employers with the opportunity to make discretionary contributions take that up,” Cufone says. But, he also attributes the number of employers increasing employer contribution funding to the fact that they see how much employees are not saving enough for retirement and are taking action to increase participants’ retirement readiness.

He says Ascensus has seen a number of profit sharing contributions increase year over year especially. “We urge advisers to remind clients that if they are paying out bonuses because the company is doing well, they may want to make a profit sharing contribution if they have the opportunity to make a discretionary contribution, at least for some portion of the bonus,” he says, noting that the plan sponsor gets other benefits, such as tax breaks, or it may help with nondiscrimination testing.

Cufone adds that as knowledge about safe harbor plans increases, plan sponsors see relief from testing, and these plans require a certain amount of employer contributions. “Start up plans are more and more establishing safe harbor plans, but also augmenting benefits to employees drives decisions when establishing a plan,” he notes.

The Ascensus data is in line with data gathered from Strategic Insight, parent company to PLANSPONSOR. Department of Labor information shows employer contributions have increased steadily from $108.1 billion in 2010 to $139.2 billion in 2016.

Brooks Herman, VP of Data and Research in Strategic Insight’s San Diego office, attributes the rise in employer contributions to several factors: automatic enrollment (and auto escalation, to a lesser degree) becoming more and more prevalent, the country pulling out of the Great Recession giving participants the financial comfort needed to defer savings for retirement, and better education from plan sponsors and advisers to plan participants about the power of tax-deferred savings.

The Ascensus analysis also found a correlation between participation rates and the offering of employer contributions.

In 2013, plans that funded employer contributions had an average 7% higher participation rates than those that did not, while in 2014 plans with an employer contribution had 9% higher participation rates. In 2015, participation rates on average were 12% higher for plans with an employer contribution than for those without, and in 2016 participation rates were 19% higher.

Rather than an increase in the use of automatic enrollment, Cufone thinks the correlation is more about additional education plan sponsors and advisers are doing to incent participants to take advantage of free money. “Much of the increase in participation rates is attributable to this and to new plan creation,” he says.

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Categories: Industry News

Vanderbilt University 403(b) Plan Suit Continues to Next Stage

Tue, 2018-01-16 10:00

A federal district court has moved forward a lawsuit alleging that Vanderbilt University retirement plan fiduciaries have not managed its plan with loyalty or prudence, in violation of the Employee Retirement Income Security Act (ERISA).

Chief United States District Judge Waverly D. Crenshaw, Jr. of the U.S. District Court for the Middle District of Tennessee dismissed some claims, but moved forward others pertaining to the Vanderbilt University Retirement Plan and the Vanderbilt University New Faculty Plan.

The lawsuit claims fiduciaries of the plans breached their fiduciary duties by locking the plan into a certain stock account (CREF) and into the services of a certain recordkeeper (TIAA); engaging in prohibited transactions by locking the plan into the CREF Stock Account and the recordkeeping services of TIAA; breaching their fiduciary duties by paying unreasonable administrative fees; engaging in prohibited transactions by paying excessive administrative fees; breaching their fiduciary duties by agreeing to unreasonable investment, management, and other fees and failing to monitor imprudent investments; engaging in prohibited transactions by paying fees to certain third parties in connection with the plan’s investment in those parties’ investment options; and failing to monitor other fiduciaries.

Dismissal of loyalty and prohibited transaction claims

Crenshaw first dismissed all claims for breach of duty of loyalty, saying he found the plaintiffs have not alleged sufficient facts to show that the defendants engaged in transactions involving self-dealing or that otherwise involved or created a conflict between the defendants’ fiduciary duties and personal interests. According to Crenshaw, even though the plaintiffs allege that various third parties benefited from the defendants’ alleged mismanagement, the complaint alleges that the defendants followed an imprudent process, not that they acted disloyally.

The plaintiffs allege that the arrangement with TIAA-CREF that mandated inclusion of TIAA’s Traditional Annuity, locked the plan into using TIAA as a recordkeeper, and locked the plan into including the CREF Stock and Money Market Accounts as plan investment options restricted the plan’s ability to obtain reasonable fees and to eliminate imprudent investments. They argue that the defendants breached their fiduciary duties by failing to independently assess the prudence of each investment option on an ongoing basis, by failing to act prudently and solely in the interest of the plan’s participants in deciding whether to maintain a recordkeeping arrangement, and by failing to remove investments that were no longer prudent for the plan.

However, the Vanderbilt fiduciaries argue this claim is barred by the six-year statute of limitations under ERISA, which provides that no action may be commenced with respect to a fiduciary’s breach of any duty after the earlier of six years after the date of the last action which constituted a part of the breach or violation or three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation. Crenshaw agreed that the initial commitment of the plan to the TIAA-CREF arrangement is time-barred, because that initial commitment occurred at the latest in 2009. In addition, to the extent that the alleged prohibited transaction is the single action of committing the plan to be locked into an allegedly unreasonable arrangement with TIAA-CREF, that claim is time-barred. So these claims he dismissed.

However, plaintiffs argue that the defendants breached their fiduciary duty of prudence by maintaining this imprudent arrangement and failing to monitor and remove CREF stock. Crenshaw said this claim will be considered in connection with the plaintiffs’ claims for excessive fees, failure to monitor, and failure to remove underperforming investments. But, he noted there is no such thing as a continuing prohibited transaction because the plain meaning of “transaction” is that it is a point-in-time event.

More for the court to consider

Crenshaw found the plaintiffs have made specific factual allegations that a competitive bidding process would have benefited the plan. “It is plausible from those facts to infer that Defendants could have obtained less expensive recordkeeping services by soliciting competitive bids. The Amended Complaint sufficiently alleges that Defendants’ failure to secure competitive bids under these circumstances was not consistent with that of a prudent man or woman acting in a like capacity,” he wrote in his opinion. However, he said, “Whether it was actually imprudent involves questions of fact that the Court cannot consider at this stage of the litigation.”

Concerning the claims regarding revenue sharing, the defendants maintain that revenue sharing does not violate ERISA and is a common and accepted practice. But, Crenshaw noted that even though revenue sharing is a common industry practice, a fiduciary’s failure to ensure that recordkeepers charged appropriate fees and did not receive overpayments may be a violation of ERISA. He found the plaintiffs have sufficiently alleged that the defendants failed to adequately monitor and ensure that the plan’s recordkeepers were being paid reasonable and not excessive fees, but what is reasonable depends on the factual circumstances and on the services provided, so Crenshaw said this claim may be more appropriately addressed on summary judgment.

Likewise, the defendants contend there is no statute or regulation that prohibits fiduciaries from using multiple recordkeepers, but Crenshaw found the plaintiffs’ allegation that a prudent fiduciary would have chosen fewer recordkeepers and thus reduced costs for plan participants is sufficient to state a claim.

The plaintiffs allege that, in causing the plan to use four recordkeepers from year to year, the defendants caused the plan to engage in prohibited transactions, asserting that, as service providers to the plan, the recordkeepers were “parties in interest,” and the prohibited transactions occurred each time the plan paid fees to these recordkeepers. Crenshaw found any claim based upon the initial commitment with TIAA-CREF is barred by the statute of limitations, but when the initial decisions were made to engage the other three recordkeepers (Fidelity, VALIC and Vanguard), however, is not clear from the complaint and, therefore, is a factual issue which cannot be determined currently. However, any claims for continuing violations with any of the recordkeepers are not considered “transactions,” and those claims will be dismissed.

Investment decisions and monitoring fiduciaries

Crenshaw agreed with other court decisions regarding university retirement plans that having too many options does not hurt plan participants, but provides them with greater opportunities to choose the investments they prefer. “There is no allegation of any specific harm to any specific person caused simply by the number of options available in the Plan…, therefore, the claim that having too many options was a breach of the fiduciary duty of prudence will be dismissed,” he wrote.

While Crenshaw agreed that nothing in ERISA requires every fiduciary to scour the market to find and offer the cheapest possible fund, nonetheless, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones. “There are numerous factors that a prudent fiduciary must consider besides the amount of the fees. Fiduciaries have latitude to value investment features other than price (and, indeed, are required to do so), as recognized by the courts,” he said. But, he determined that these issues are better suited for summary judgment, when discovery is complete and the record is more developed.

Regarding some fiduciaries’ failure to monitor other fiduciaries, the opinion notes that the plaintiffs allege only that “to the extent any of these Defendants’ fiduciary responsibilities were delegated to another fiduciary,” they had a duty to monitor those appointees. Crenshaw found this allegation suggests that the plaintiffs do not know whether the defendants in fact delegated their fiduciary duties or to whom. Additionally, he found the plaintiffs allege no facts showing what process of monitoring other fiduciaries existed or how it was deficient. So, he dismissed the claim for failure to state a claim upon which relief may be granted.

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Categories: Industry News

SPARK Rolls Out Updated RFP Guide

Tue, 2018-01-16 08:27

The SPARK Institute, a non-profit organization lobbying for the interests of the retirement services industry and its clients, released a new version of its “RFP Guide for Selecting Defined Contribution Service Providers.” 

According to Tim Rouse, executive director of The SPARK Institute, his organization developed the guide to assist advisers, consultants and plan sponsors alike. Using the guide, these professionals can streamline and professionalize the important task of preparing and evaluating requests for proposal (RFPs) for 401(k) and other defined contribution retirement plans.

SPARK originally issued an RFP Guide in 1997, published a major update in 2014, and has made minor changes to it each year. This new edition, Rouse says, “represents significant updates to incorporate the latest industry regulations, products, services and technologies and the addition of The SPARK Institute’s Cyber Security Best Practice Standards.”

“SPARK also wants to acknowledge the efforts of Cynthia Hayes and Matthew Smith of Oculus Partners for their time and dedication in the making of this document,” Rouse notes. The pair conducted a survey that enabled SPARK to better determine how the RFP Guide is used by advisers and providers today, and incorporate key changes to make the Guide easier to use, and reflective of the tremendous growth in the scope of products and services offered as part of DC plan support today.

The new SPARK Institute Request for Proposal Guide is available at no cost to SPARK member firms and for $100 to all other organizations.  Copies may be ordered by contacting SPARK at 860-658-5058.

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Categories: Industry News

SURVEY SAYS: Pet Expenses or Retirement Savings?

Tue, 2018-01-16 02:30

Last week, I asked NewsDash readers, “Do you own a pet, and what would you sacrifice to pay for an emergency pet expense?”


Eighty-one percent of responding readers own a pet, and 19% do not.


Asked which steps they would take to pay for an emergency pet expense (readers could select more than one choice), 17.5% said they would borrow from a retirement account, and 22.8% said they would suspend contributions to a retirement account. The most popular selection, by 73.7% of responding readers was “reduce or give up discretionary spending (e.g. dining out, movies, etc.). Nearly one-quarter (24.6%) reported they would give up TV services, while 10.5% indicated they would give up cell phone services. More than one-quarter (26.3%) said they would borrow from a friend or relative, 14% would forego paying credit card bills, and 7% would forego paying other bills. “None of the above” was chosen by 17.5% of respondents, and “all of the above” was selected by 12.3%.


In verbatim comments left by some respondents, there was a good mix of those who would sacrifice more financially for their pets in an emergency and those that would not. Some indicated they have pet insurance, and others reported they have an emergency fund to cover such things. One reader went further into credit card debt to pay for emergency pet expenses. Editor’s Choice goes to the reader who said: “Our pet is a very important part of our life (family). That being said we have been there and done that before. We usually have extra money stashed should that happen. I will say I am sure my wife would sacrifice me to save the dog…LOL.” I found another comment very funny, but didn’t want to offend the husbands.


Thanks to all who participated in the survey!



I pay over $600 each month for my dog’s chemotherapy and medical visits. Though she is 14 she is playful, happy, insists on 3 mile-long walks every day, and loves life. She is worth every penny and makes life worth living!

some emergency services are OK but I think it’s ridiculous when people spend hundreds of dollars a month on pet medicine, chemo etc

Isn’t this one of the categories one would use an emergency fund to cover? Interesting that reducing one’s emergency fund balance isn’t one of the choices.

I briefly thought about obtaining pet insurance but in the end elected not to purchase it. That said, like a child our dog’s expenses are more than I signed up for. If something happens where he does need emergency care I’m sure we’ll end up weighing the cost vs benefit and his quality of life. Since he’s only two I’m hoping this day never comes.

As someone who owned a diabetic cat, I paid over $200 for a vial of insulin every 68 days. I gave up discretionary expenses to keep her alive. With that being said though, when she had a stroke and her quality of life was expected to be poor, I sent her across the rainbow bridge. I am willing to pay just about anything if the quality of life is expected to be good.

I decided from my first cat who got ill at age 14 that after I tried to save him and had a $1000 vet bill, that I would not go to that length again. I will make the hard choice to stop the suffering sooner.

My pets are like my children…..I’ve spent a lot of money on them for medical care. It’s worth it!

Pet’s – especially Dogs contribute so much to our health and quality of life- unconditionally. They understand us better than most of our family do. They become family.

I love my cat, but would not spend more than a few hundred dollars for his medical care. I certainly would not sacrifice family income to prolong the suffering of a pet with severe injuries, cancer etc.

We have an emergency fund for unexpected expenses, so if the expense couldn’t be covered reasonably with the discretionary money we have, then it would come from the emergency fund. If it was more than the emergency fund could handle, then it would be a big expense and our pet would likely be in pretty bad shape. Sadly, we might have to give up the pet.

Depends on the pet…

We have such great medical insurance at work that the amount I pay for pet insurance is more than I pay for our people insurance!

If you have a pet and you consider it a family member, perhaps you should have health insurance for it.

I have saved money and would pay them from my emergency fund.

There’s not much I wouldn’t do for my fur babies. They are part of the family, and probably liked more than some members of the human family!

Fortunately, I have earned and saved enough that this has not been an issue, but my pets are my furry children, and I would do whatever was necessary to get them the care they need.

Some people are really connected to their pets, treating them like children. I can understand how they can react when an emergency comes up–the same way I am with my kids.

I keep a Care Credit card with a $3,500 limit for emergency pet care.

Savings account

I would sacrifice just about anything that didn’t hurt my human family. Keeping the mortgage paid, the lights and heat on and food on the table would trump pet care. But everything else is fair game. My dogs are family, too.

Our pet is a very important part of our life (family). That being said we have been there and done that before. We usually have extra money stashed should that happen. I will say I am sure my wife would sacrifice me to save the dog…LOL

The value a pet brings to your life is far more than the money involved to keep them healthy.

We have actually done this on a few occasions. One option not given was going further into credit card debt, which is what we did.

There is, however, a limit. Years ago I had a Siberian Husky that I took in for tests. She was acting strangely and so we started with a few hundred dollars’ worth. At about 1K I told the vet it has to stop. Because I wouldn’t have any money left over for treatment. And they could nickel and dime me to death trying to figure it out. So I do have a limit on what I will spend

It would be a last resort to have to dig into one of the methods above. My husband and I put quite a bit away into savings for a “rainy day” fund…or an emergency pet fund…or one of the many things in my house broke down fund…etc etc etc…

It truly depends on how much the expense was going to be. Anything more than $500 would probably be too much. There are lots of pets needing homes and care.

I’d take all the steps for my dog no matter the cost or expected results. For the cats, well… I’d reduce discretionary spending.

For some, pets are like their children, but it seems ridiculous to spend thousands on them. Friends recently spent thousands on their dog for chemo and cancer treatments, knowing full well that there was no hope for recovery. They were just buying a few more months. They sold some personal belongings to cover the cost. Not having pets to begin with prevents me from having to make decisions like this!

Dogs are better than husbands. I don’t know any husband that greets you at the door crazy happy that you’re home!!

I would pay for emergency pet expenses….out of my emergency fund.

We have an emergency fund for unexpected pet bills so hopefully I would not have to take any of the steps above but we would do anything we have to for our pets.

Pets are family, period.

When our pet got sick we didn’t think twice about how much the treatment would cost. Our largest concern was for his quality of life in light of the treatment. Fortunately we had the ability to pay for the treatment without making major sacrifices.

This is why I have pet insurance: so I am never forced into the position of having to make a financial decision over the life and well-being of my pets.

My three dogs are my kids. I’d do just about anything for them. In fact at one point I was laid off, and didn’t have much money for food after paying rent. At that time I was making my dogs meals due to allergies they had. I lived on pasta and salad, and my dogs ate chicken breasts, grains and veggies.

If an emergency pet expense jeopardized my retirement savings, I’d sacrifice the pet!



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

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