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Bill Provides Retirement Plan Withdrawal Relief for Employees Affected by Government Shutdown
Members of the House of Representatives have introduced a bill to provide relief to federal employees affected by the partial government shutdown, H.R. 545, the Financial Relief for Feds Act.
The bill would allow furloughed federal employees, “essential” federal employees working without pay and contractors whose sole source of earned income is their federal contract to make a withdrawal from their retirement savings accounts without the 10% penalty that normally applies. That includes not only the federal Thrift Savings Plan (TSP) but also accounts such as IRAs.
There would be no limit to the number of distributions made to an individual and each distribution would be $4,000, multiplied by the number of 14-day periods beginning during any Federal appropriations lapse with respect to such individual.
In addition, any individual who receives a Federal Government shutdown distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16), of the Internal Revenue Code of 1986. These repayments of distributions would be treated as eligible rollovers.
The bill has been referred to the Committee on Ways and Means and the Committee on Oversight and Reform.The post Bill Provides Retirement Plan Withdrawal Relief for Employees Affected by Government Shutdown appeared first on PLANSPONSOR.
Study Suggests ‘Optimal’ Range of 401(k) Investment Categories
Any 401(k) plan that has fewer than 12 and more than 20 investment categories is an outlier, according to the 401(k) Portfolio Study of Investment Categories by ERISApedia.com.
The study report says that offering fewer than 12 categories may mean that participants are not being given sufficient opportunity to diversify. Offering more than 20 investment categories could lead to lower average investment in each fund, which may cause higher fees. An overly large number of investment categories may also contribute to participant confusion.
The ERISApedia.com Market-Based Portfolio Model (EMBP) provides a model to help establish investment lineups in 401(k) plans. It is not based on any formal academic principles but instead relies on market data at the investment category and the fund level to provide guidance to investment fiduciaries and financial advisers. EMBP involves a two-step process for establishing investment lineups in 401(k) plans. First is to determine the core investment categories to offer (including the number categories and the specific categories to include), and second is picking the individual fund or funds within each investment category. Based on the EMBP, the optimal number of investment categories is between 12 and 20.
The study finds the top five investment categories ranked by number of plans is Large Blend, Large Growth, Intermediate-Term Bond, Large Value and Target-Date. The top five ranked by average balance per plan are Target-Date, Stable Value, Large Blend, Large Growth and Intermediate-Term Bond.
However, there appears to be a fair amount of investment category variance among all plans. On average there are about 5.8 missing investment categories (the absence of categories in the top 20) and 4.0 extraneous categories (inclusion of categories not in the top 20) per plan for a total variance of 9.8. Much of the variance is concentrated in plans with less than $10 million in assets, which the study report says could be an indication that smaller plans do not have the resources to design a rational investment lineup.
Overall, the study finds that fund redundancy is relatively low, as only about 20% of all plans have fund redundancy in excess of six. However, the amount of fund redundancy increases as plan size increases. Fund redundancy most frequently is four for plans with more than $500 million in assets.
The report notes that there may be good reasons for relatively high fund redundancy. For example, an investment fiduciary may wish to provide an actively managed and passive fund for each of several of the major investment categories.
Interested parties may request a free copy of the report at https://www.erisapedia.com/signupv2?FreeSearch=1.The post Study Suggests ‘Optimal’ Range of 401(k) Investment Categories appeared first on PLANSPONSOR.
Putnam Supreme Court Petition Asks About Comparisons to Index Funds
Putnam Investments has filed a petition for writ of certiorari with the U.S. Supreme Court asking it to settle questions in a case in which it was accused of engaging in self-dealing by including high-expense, underperforming proprietary funds in its own 401(k) plan.
The U.S. District Court for the District of Massachusetts, last year, ruled for Putnam. However, “finding several errors of law in the district court’s rulings,” the 1st U.S. Circuit Court of Appeals vacated the District Court’s judgment in part and remanded the case for further proceedings. In its opinion, the Appellate Court said “we align ourselves with the Fourth, Fifth, and Eighth Circuits and hold that once an ERISA plaintiff has shown a breach of fiduciary duty and loss to the plan, the burden shifts to the fiduciary to prove that such loss was not caused by its breach, that is, to prove that the resulting investment decision was objectively prudent.”
Putnam asked, and the Appellate Court agreed, to stay the case pending the filing and disposition of a petition for a writ of certiorari to the Supreme Court.
However, in addition to asking the high court to weigh in on whether the plaintiff or the defendant bears the burden of proof on loss causation under Employee Retirement Income Security Act (ERISA) Section 409(a), Putnam asked the court to determine “whether, as the First Circuit concluded, showing that particular investment options did not perform as well as a set of index funds selected by the plaintiffs with the benefit of hindsight, suffices as a matter of law to establish “losses to the plan.”
Notably, in his decision in the case, U.S. District Judge William Young of the U.S. District Court for the District of Massachusetts found the comparison of the Putnam mutual funds’ average fees to Vanguard passively managed index funds’ average fees flawed. Vanguard is a low-cost mutual fund provider operating index funds “at-cost.” Putnam mutual funds operate for profit and include both index and actively managed investments. Young said the expert’s analysis “thus compares apples and oranges.”The post Putnam Supreme Court Petition Asks About Comparisons to Index Funds appeared first on PLANSPONSOR.
PBGC to Take on Sears/Kmart Pension Plans
The Pension Benefit Guaranty Corporation (PBGC) is taking steps to assume responsibility for Sears Holdings Corporation’s two defined benefit pension plans, which cover about 90,000 people.
The national retail chain headquartered in Hoffman Estates, Illinois, operates through its subsidiaries, which include Sears, Roebuck and Co. and Kmart Corporation.
Both Sears and Kmart have faced Employee Retirement Income Security Act (ERISA) lawsuits over their offerings of company stock in their retirement plans when the two companies’ financial situations declined.
Sears filed for Chapter 11 protection on October 15, 2018. PBGC is stepping in to become responsible for the company’s two pension plans because it is clear that Sears’ continuation of the plans is no longer possible.
PBGC has worked with Sears for several years to improve funding for the company’s plans, first reaching an agreement in 2016. As part of agreements with the agency, Sears first sold its Craftsman brand to bring in funding for the pension plans, then was allowed to sell properties to raise funding.
PBGC estimates that the Sears’ plans are underfunded by $1.4 billion, leaving them 64% funded. PBGC is seeking to terminate the plans as of January 31, 2019. The agency will become responsible for the pension plans when Sears agrees or a court orders plan termination.
“Our mission is to protect the retirement income of plan participants and their families,” says PBGC Director Tom Reeder. “When it’s no longer possible for plan sponsors to maintain their pension plans, PBGC plays the crucial role of providing lifetime retirement income for the workers and retirees.”The post PBGC to Take on Sears/Kmart Pension Plans appeared first on PLANSPONSOR.
LIMRA Hopeful for Open MEP Progress in 2019
LIMRA has published a new white paper outlining its 2019 predictions for the investment markets, the economy and employer-sponsored retirement benefits.
In 2019, LIMRA expects equity markets to slow, but interest rates will continue to rise. The organization expects to see gains in disposable income and bond rates, coupled with low unemployment.
LIMRA predicts artificial intelligence (AI) to grow both in the number of companies utilizing it and in its range of applications, especially within the financial services sector. While many companies are already using this technology via chatbots and automated underwriting, a large percentage of executives see AI as being extremely important to business development and client service in the next three years.
“AI is a natural extension of predictive modeling building and companies will look to technology to utilize their vast amount of data and to enhance the existing stills of data scientists,” LIMRA says.
According to LIMRA, this year will likely see an increase in access to workplace retirement savings plans for private sector employees.
“This will be due to increased interest in multiemployer plans [MEPs] and the rise of FinTech,” LIMRA’s report says. “Recent federal initiatives, such as President Trump’s executive order to expand the number of small employers who can offer MEPs and the proposed Department of Labor rule expanding MEPs, have also helped pave the way for increased access to workplace retirement savings plans in 2019.”
One area LIMRA sees a slowdown in growth is with supplemental benefits. While the growth of overall workplace benefits have been moderate at best, supplemental plans have seen some success in recent years due to the growing popularity of high deductible health plans (HDHPs) paired with health savings accounts (HSAs).
“In October, Kaiser Health News suggested the sales of HDHPs have peaked and will now start to trend down,” the white paper says. “LIMRA believes if that downward trend is to happen and continue, then the sales of supplemental plans will likely follow suit.”
LIMRA members can download the full white paper here.
The post LIMRA Hopeful for Open MEP Progress in 2019 appeared first on PLANSPONSOR.
SURVEY SAYS: Super Bowl 53 Contenders
It’s almost time for the Super Bowl, but before that, two conference championship games will determine who the contenders will be.
The NFC Championship game is between the Los Angeles Rams and the New Orleans Saints. The AFC Championship game is between the New England Patriots and the Kansas City Chiefs.
Last week, I asked NewsDash readers which two contenders they would like to see in the Super Bowl and which team they would like to win the Super Bowl.
As for the NFC Championship, the majority (56.1%) of responding readers indicated they would like to see the New Orleans Saints win, while 26.5% would like to see the Los Angeles Rams win, and 17.3% said they don’t care which team wins. For the AFC Championship, three-quarters (75.5%) are pulling for the Kansas City Chiefs, while only 18.4% said they would like to see the Patriots win, and 6.1% don’t care.
Twenty-eight percent of respondents indicated they want to see the Chiefs win the Super Bowl. This was only beat out by the 30.2% of respondents who said they want any team but the Patriots to win. The Saints and the Patriots each received 13.5% of reader votes, while 10.4% want the Rams to win. However, 1% said they want any team but the Rams to win. Slightly more than 3% reported they do not care who wins the Super Bowl this year.
Among readers who chose to share verbatim comments, many expressed either distaste for or boredom of the New England Patriots and/or Tom Brady. A number of respondents just want to see a good game. And, of course, there were those who said they would only watch for the commercials and/or half-time show. Editor’s Choice goes to the reader who said: “Looking forward to high scoring game that is exciting and close until the last minute. Very smart to play the game on a Sunday and start when it does (as opposed to championship in almost all other sports- hear that MLB) so everyone can stay up until end.”
Thanks to all who participated in the survey!
Verbatim
Go Chiefs!!
Full disclosure: I live in LA now and am trying to become a fan of the LA teams (instead of my MN Vikings). I’d like to see the Rams face the Chiefs in the Super Bowl. The Chiefs because they’re a young, exciting team and we’re all sick of the Patriots being there. The Rams because they’re my new home team. (I think the Saints are the better team, and will likely win, but you asked who I wanted…) In the Super Bowl, I have to root for the home team in what should be a great game!
How good will the commercials be?!
As a life-long Kansas City resident, I want the Chiefs to win it all!!
Any team will be fine, as long as it is not the Patriots……growing very tired of the Patriots.
I’m only watching for the commercials. The company with the best is the real winner.
We need new blood. Die Patriots! (Not literally, but more like when Steve Martin is dodging the cans he thinks the shooter hates in the movie “The Jerk.”)
You should’ve included a question about the half time show
I have to root for the Rams – my Dad’s been a fan for over 70 years.
I am tired of the Patriots every year. Kansas City needs to win this, they deserve to be relevant again.
Looking forward to high scoring game that is exciting and close until the last minute. Very smart to play the game on a Sunday and start when it does (as opposed to championship in almost all other sports- hear that MLB) so everyone can stay up until end.
If Brady returns to the Super Bowl for his NINTH appearance, it would be special if he faced off against the Rams, the team he defeated for his first championship.
My team was awful this year and I really don’t care about the outcome this year – except I don’t want to see the Patriots win OR lose again. If they aren’t playing I might tune in for commercials or halftime. But probably not.
Saints/Patriots would be a great game (again).
I used to LOVE to watch football, but since the prima donnas started taking a knee, I am done with the NFL for good.
First off, hockey is the superior sport simply because it doesn’t have an overblown final game. Having said that, I only chose KC because they haven’t been to the big game in such a long time.
I would love to see an exciting game, where the score is close and the teams display talent with remarkable catches, fantastic runs and amazing defensive plays. The commercials have not been as good the last couple years so let’s get back to great football. And maybe the Patriots can win so that Tom Brady can retire and another rising star quarterback can make his mark.
Go Pats!
Although my team isn’t in the playoffs, I’ll still be watching. It’s time for a team other than the Patriots to win…
Unfortunately, it will probably be the Saints and the Patriots. My wish, though, is they both lose!
Please Lord, please no Patriots!
I’m just sick and tired of seeing New England.
Love to see some new faces in the Super Bowl this year.
I live in California – so Rams all the way.
GO CHIEFS!!!!!!!!!!!!!
CHIEFS, CHIEFS, CHIEFS!!! ALL THE WAY. Yeah, I like the CHIEFS!!!!
GO SAINTS!!!
Most people watch for the commercials, which is a fun discussion for work the next day. It’s a nice event for all people to come together and talk about the weird, crazy commercials and everyone’s mutual hatred of Tom Brady….
Retirement Industry People Moves
Art by Subin Yang
Consulting Firm Founder Joins Alan Biller and AssociatesAlan Biller and Associates has hired Russell Kamp, formerly of Kamp Consulting Solutions, as managing senior consultant, effective immediately. Kamp will be based in Midland Park, New Jersey, primarily covering the firm’s east coast clients and prospects.
“Russell Kamp has demonstrated a commitment to preserving the promise of retirement” says Alan Biller, CEO. “His insights as a pension asset/liability specialist make him a natural fit with our organization’s focus.” The firm serves in both a traditional and discretionary consulting capacity for institutional plans.
Kamp was formerly founder and managing partner of Kamp Consulting Solutions, a full-service asset/liability consulting firm. His approach to managing a defined benefit plan is enhanced through a greater understanding of each plan’s specific liability stream. The output from this analysis informs both investment structure and asset allocation strategies.
Prior, he was director, asset nanagement at Two Sigma Investments as well as the Global CEO at Invesco’s IQS Group (Quantitative Strategies). He is a frequent speaker at industry events and has been quoted in numerous articles and industry periodicals.
BPAS Announces Institutional Sales VPBPAS has named Kenneth G.Y. Grant as executive vice president of Institutional Sales.
Grant will be responsible for further developing the distribution of collective investment funds for Hand Benefits & Trust (HB&T), a BPAS company. He will also join the HB&T Board of Directors.
“Reporting directly to me, and operating out of our Boston office, Ken will work closely with the HB&T team in Houston where his relationships in the industry will be of tremendous benefit in the channels where HB&T operates,” says Barry Kublin, BPAS CEO. “Ken will focus on the creation of new funds and the marketing of existing CIFs.”
Grant joined NRS/GTC, a BPAS company, in 2003, where he most recently held the position of executive vice president (EVP) of Corporate Development. He has also served the Advisors Charitable Gift Fund since 2005, most recently as EVP, and the Savings Banks Employees Retirement Association since 2003, most recently as EVP.
“The BPAS family of trust companies is unique in the industry,” says Grant. “Our companies offer a full range of collective and common trust funds, and specialized fiduciary products. I’m eager to work with the HB&T team to share the firm’s outstanding lineup and superior ease of use with new clients. Delivering this level of excellence is exciting.”
Grant holds a bachelor’s degree from Syracuse University, a master’s of theology from Boston University, and an master’s from Clark University.
Ascensus and State Farm Conclude Pension and IRA TransferAscensus announced its completion of the transition of over 15,000 State Farm SEP (simplified employee pension) and SIMPLE IRA (savings incentive match plan for employees individual retirement accounts) plans to its platform. The transitioned plans contain more than 45,000 IRAs.
State Farm agents will continue to sell SEP and SIMPLE IRA plans, with all new business going to the Ascensus platform.
“It goes without saying that transitioning more than 15,000 plans required tremendous effort from both State Farm and Ascensus,” says Scott Hintz, assistant vice president, investment planning services at State Farm. “The fact that all of the plans were in place and ready to be serviced as scheduled following the transition is a testament to the skill and dedication of the people who made it happen.”
Morrison & Foerster Brings In ERISA PartnersMorrison & Foerster has added two partners, Ann Becchina and Ron Aizen, to its Executive Compensation and Employee Retirement Income Security Act (ERISA) Group in New York. Both join from Davis Polk.
Becchina has more than 20 years of experience and focuses on federal tax and securities law aspects of executive compensation arrangements. She advises issuers, financial institutions, private funds and investment managers on a range of SEC-related issues, and counsels multinational clients on their cross-border executive compensation arrangements.
Aizen, who has 15 years of experience, advises clients involved in M&A, corporate restructurings and bankruptcies, and equity capital markets matters, such as IPOs. He often counsels clients on compensatory and benefit arrangements in connection with a particular corporate transaction, handling the negotiating and drafting of relevant plans and agreements.
“The current strategic expansion of the firm’s tax offerings, which includes executive compensation, makes this a particularly exciting time to come to MoFo,” he says.
Prime Capital Investment Advisors (PCIA) has agreed to acquire the assets of Longer Investments Inc. (LII) of Fayetteville, Arkansas. The new company will be known as Longer Financial, an affiliate of Prime Capital Investment Advisors.
Longer Investments was founded by Elaine M. Longer in 1985. She will remain with the new firm, along with the other employees of LII.
PCIA’s portfolio manager, Eric Krause, has been actively involved in Northwest Arkansas for several years, working with individual clients and corporate retirement plans. Krause will lead PCIA’s operations in Fayetteville as part of the Longer Financial team, and will be responsible for integrating LII’s private wealth management business and continuing to grow the firm’s qualified plan presence.
“We’ve now built a presence in 14 markets and continue to grow,” says Glenn Spencer, CEO of PCIA. “Under Elaine and Eric’s leadership, Longer is already a premier financial services firm in Northwest Arkansas. Eric’s background and relationships in the area make him a great candidate to lead PCIA’s efforts in Fayetteville.”
Krause is a member of the firm’s Investment Advisory Committee, which is responsible for the management and oversight of the firm’s assets. With more than 10 years of wealth management experience, Krause will continue in this role, working with both individual investors and retirement plan sponsors.
“We work on behalf of our clients, with a personal approach to their portfolio – one that makes the most sense for their needs, both now and for their future,” says Krause. “I’ve been fortunate to have spent a great deal of time working with clients in Northwest Arkansas for the past several years. I’m very pleased to have the opportunity to partner with Elaine and her team as we continue to grow our firm together in this community.”
Seyfarth Shaw LLP Names Employee Benefits ChairDiane V. Dygert has been appointed chair of the Employee Benefits & Executive Compensation department at Seyfarth Shaw LLP.
A partner in the Chicago office and co-founder of the firm’s Health Care Reform Task Force, Dygert focuses much of her practice on health and welfare plans compliance, such as the Affordable Care Act (ACA). She regularly counsels and trains clients extensively on HIPAA privacy compliance and helps implement compliance plans. In addition, Dygert frequently provides counsel to clients on voluntary and involuntary severance and reductions in force.
“Diane is a natural leader with tremendous knowledge in all aspects of employee benefits, especially the current intricacies involving health care plans,” says Pete Miller, Seyfarth’s chair and managing partner. “As a former chair of the department, I know Diane is a perfect fit for this position. She is well-respected by colleagues and clients alike and will thrive in her new role.”
Dygert also has experience helping establish, implement and administer both qualified and nonqualified retirement plans, and she regularly defends clients in audits with government agencies, including the IRS and Department of Labor (DOL). Her practice also focuses on executive compensation matters, including deferred compensation plans, employment and severance agreements, stock options, restricted stock, and performance-based compensation.
Investment consulting and advisory firms Meketa Investment Group, Inc. (Meketa) and Pension Consulting Alliance, LLC (PCA) have agreed to merge, scheduled to occur in the first half of 2019. The combined firm will be called Meketa Investment Group, Inc.
Founded in 1978, Meketa serves a variety of public and private institutional investors, including defined benefit (DB) and defined contribution (DC) plans as well as nonprofits and corporations, in discretionary and non-discretionary capacities.
PCA, founded in 1988, serves U.S. tax-exempt and public pension fund clients and has non-discretionary consulting relationships representing more than $1.4 trillion in institutional investor assets.
Together, Meketa and PCA’s collective client assets will represent approximately $1.7 trillion, with the combined firm consulting on over $100 billion in private markets and real estate assets. As combined, it will continue to serve as an independent fiduciary and remain fully employee-owned.
“This is a true combination of two well respected and innovative institutional investment firms,” says Stephen McCourt, co-CEO, Meketa. “It is a pleasure to join forces with the team at PCA and with Allan, a pioneer in the pension consulting industry who will continue to provide valuable services to institutional clients under a larger umbrella. Furthermore, the combination significantly enhances our private markets resources, particularly in real estate, an area of the marketplace ripe for growth. We believe leveraging the best ideas and concepts learned by the respective firms will result in an even stronger combined organization for our clients and employees.”
The staffs of Meketa and PCA, whom are intended to remain at the combined company, number approximately 160 and 30, respectively. The combined firm will serve clients from six locations across the United States, as well as London. Co-CEOs McCourt and Peter Woolley, supported by their existing senior management team, will continue to lead the organization. Allan Emkin, founder and managing director of PCA, will serve on Meketa’s Board of Directors and will continue to work as a consultant for several clients. Christy Fields, managing director at PCA, will also join the Meketa Board of Directors. PCA Managing Directors Judy Chambers and Neil Rue will join Meketa’s Executive Committee. Other management committees will include representatives from both Meketa and PCA. All of PCA’s board members will become Meketa shareholders and equity will be offered to additional PCA employees as well.
Chard Snyder Brings In Operations VPChard Snyder, an Ascensus company, has appointed Ron Wetzel as vice president of operations.
As vice president of operations, Wetzel will provide oversight and leadership for the administration, implementation, data, and customer service departments.
Prior to joining Chard Snyder, Wetzel held a variety of positions in the customer service field. In previous roles at US Bank and RDI Corporation, he was responsible for establishing strategic vision and goals for customer service while leading day-to-day operations.
Wetzel holds a bachelor’s degree in business administration from Bowling Green State University and has a certification in leadership from the Carnegie School.
“We are excited for Ron to join the Chard Snyder team,” says Barb Yearout, president of Chard Snyder. “His deep operational experience paired with his passion for collaboration and focus on leadership development will be a great addition to our organization.”
Drinker Biddle Welcomes Employee Benefits Partner
Drinker Biddle & Reath has added Jason S. Luter as a partner in the Employee Benefits and Executive Compensation Group. He is based in the Dallas office.
Luter advises clients on all aspects of employee benefits, Employee Retirement Income Security Act (ERISA) and executive compensation matters, including plan design, tax qualification, administration, fiduciary responsibility, employee stock ownership plans (ESOPs), and compliance with and litigation involving ERISA. He represents clients in disputes with the IRS and Department of Labor (DOL) and in defending audits of welfare and pension benefit plans. His work in executive compensation includes handling complex issues related to Code Sections 409A deferred compensation and 280G change in control or “golden parachute” arrangements.
Luter’s clients include Fortune 500 companies, privately held companies, governmental and quasi-governmental entities, and tax-exempt entities, as well as trustees, lenders, management groups and fiduciaries involved with employee stock ownership plans (ESOPs).
“Jason will be an important addition to the continuing expansion of our national employee benefits and executive compensation group,” says Andrew C. Kassner, chairman and CEO of Drinker Biddle. “His extensive benefits and transactional experience deepens Drinker Biddle’s bench of skilled attorneys in one of our important practice areas.”
Prior to joining the firm, Luter was a partner at Foley & Lardner LLP.
Hooker & Holcombe, provider of employer-based actuarial, investment advisory and retirement plan consulting, is expanding within its Investment Advisory Group. The firm has hired long-time portfolio strategist and consultant Pam Minish to the role of managing director, and Brenda Bachman as retirement plan education specialist. This growth better positions the group as a strong competitor within the investment advisory marketplace.
As managing director, Minish is responsible for managing client relationships, in addition to projects within the sales and management areas of the firm. A chartered financial analyst (CFA) charterholder and recipient of the chartered alternative investment analyst (CAIA) designation, her strategy and consulting background extends from Chicago to China and includes working with high net worth individuals, educational institutions, and nonprofit organizations.
Prior to joining Hooker & Holcombe, Minish was with Key Bank as vice president and portfolio strategist, where she managed trust and nonprofit portfolios. Previous positions include strategic consultant for A.T. Kearney Ltd. in Hong Kong and vice president of loan syndications and trading with Bank of America. Minish is a board member of the CFA Society Hartford, a member of the Board of Governors at the Hartford Club and has been a conference panel speaker and student mentor at the UConn School of Business. She earned her bachelor’s degree from Vanderbilt University and her master’s from The Thunderbird School of Global Management at Arizona State.
As a retirement education specialist, Bachman is responsible for developing a portfolio of retirement education and financial wellness programs for the firm’s institutional clients and their participants.
Most recently, Bachman was with CM Smith Financial, LLC, serving as a registered investment adviser for individual clients. Prior to that, she was with Cigna Corporation in various capacities, including roles in Healthcare National Accounts and team development in Integrated Care and Group Insurance. Bachman earned her degree from Central Connecticut State University, holds the FINRA Series 6, 63, and 66 licenses and is an accredited investment fiduciary (AIF).
“We are thrilled to welcome Pam and Brenda to our team. They are experts in their respective areas and having them will elevate the level of knowledge and service we can offer our valued clients,” says Rodger Metzger, president and chief investment officer, Investment Advisory Group.
Leadership Changes Occur at Marsh & McLennan CompaniesMarsh & McLennan Companies has announced key leadership changes. Martine Ferland has been appointed to the role of president and chief executive officer of Mercer, effective March 1. In her new role, Ferland will report to Marsh & McLennan’s President and CEO, Dan Glaser, and join the company’s Executive Committee.
Glaser says, “Martine is a talented executive who possesses broad global experience and a proven record of success. Her deep understanding of our business and clients, and more than 30 years of experience across the health, wealth and career spectrum, has uniquely prepared her for the challenge.” Ferland joined Mercer in 2011 as Retirement Business Leader for Europe and Pacific Region. She then served as Europe and Pacific Region President and Co-President, Global Health, before being named Mercer Group President.
Julio A. Portalatin, who served with distinction as Mercer’s president and CEO for seven years, will become a vice chairman of Marsh & McLennan Companies. In this new role, he will continue to report to Glaser.
Cafaro Greenleaf Hires Head of Boston OfficeCafaro Greenleaf (CG) has added Jared J. Manville to its team of advisers and consultants, where he will be heading CG’s Boston office.
“We are absolutely thrilled that Jared is joining our firm. Cafaro Greenleaf is growing and to have a new partner of Jared’s caliber will only accelerate our momentum. His experience in helping plan sponsors to optimize their retirement programs is a tremendous asset and will support our mission to help American workers retire with dignity,” says Brian Clark, managing director of Operations at Cafaro Greenleaf.
Prior to joining the firm, Manville was the managing director of the retirement division at Marsh & McLennan, where he was responsible for strategic oversight and management of the firm’s more than 400 clients and over $5 billion in assets. He was also a retirement plan adviser at Alpha Pension/LPL where he specialized in fiduciary oversight, plan design, investment analysis, the Employee Retirement Income Security Act (ERISA), Department of Labor (DOL) policies and legislative changes. Manville is an accredited investment fiduciary (AIF), holds FINRA Series 6, 63 and has his 65 Investment Advisor Law license. He is also a member of the Retirement Advisor Council (RAC) and served as the chairperson for the Standards & Ethics Committee for the Council.
He graduated from Hartwick College with a bachelor’s degree in political science and business.
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Franklin Templeton and Principal Each Make HSAs a Priority
Franklin Templeton announced it has expanded eligibility of the increasingly popular institutional R6 share class for health savings accounts (HSA), while another retirement plan services provider, Principal Financial Group, unveiled its first collaboration with an HSA provider, HealthEquity.
Franklin Templeton explains its move is aimed at establishing the firm as a leading “HSAIO” provider, short for “HSA investment only,” as opposed to DCIO—or “defined contribution investment only.” Principal says its new partnership is designed to give retirement customers a holistic picture of their retirement outlook, including their HSA balances.
Talking about his firm’s recent work with PLANSPONSOR, Kevin Murphy, Franklin Templeton’s head of strategic accounts for the defined contribution division, said the HSA topic has been front and center for his team and is about to gain a significant amount of momentum in the DC plan space. Murphy said advisers and plan sponsors are asking questions about how to effectively integrate HSAs with retirement plan benefits in order to promote more holistic financial wellness for participants.
This matches to a significant degree Principal’s explanation for its own HSA-focused activity. Its agreement with HealthEquity allows Principal customers with an HSA through HealthEquity to have the option to access a consolidated view of their financial picture. The Retirement Wellness Planner currently allows people to link to information for other investment accounts to see their full financial picture in one quick snapshot, but this move will bring health care savings into the picture.
“There’s a tremendous benefit in being able to take a holistic view of your financial picture,” said Joleen Workman, vice president of customer care at Principal. “And with health care costs being a top concern for employers, employees and retirees, it’s an important piece of overall retirement planning.”
Like Murphy at Franklin Templeton, Workman said Principal will continue to work with other leading HSA providers to bring a simplified approach to more employees in the workplace. She also noted that, in addition to the HSA enhancement, Principal Milestones, a new plan-focused financial wellness offering from Principal, now includes educational resources on HSAs “to help people use them to their fullest, which may include using the funds for retirement health care costs.”
“More than seven in 10 workers say it would be helpful if their workplace offered education on planning for health care expenses in retirement,” Workman said.
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DC Plan Sponsors Still Shunning Annuities
Half of defined contribution (DC) plans surveyed by Callan offered some sort of retirement income solution to employees, in 2018, with the most common solutions providing access to a defined benefit (DB) plan (27.4%) or offering a managed account service (14.2%).
Only 12.3% of the 106 respondents to Callan’s 2019 Defined Contribution (DC) Trends Survey indicated they provide an annuity as a form of distribution, 3.8% said they use an annuity placement service and 3.8% offer an in-plan guaranteed income for life product. The rate of plan sponsors that reported offering qualified longevity annuity contracts (QLACs) or longevity insurance in their plans remains low, at 1.9%, despite a 2014 Treasury Department ruling making it easier to do so.
Asked why they do not offer an annuity-type product in their DC plans, plan sponsors reported being uncomfortable or unclear about the fiduciary implications. Legislation has been introduced to try to address this problem.
Plan sponsors also report that an annuity-type product is unnecessary or not a priority and that there is a lack of participant need or demand. However, studies have shown that participants would prefer retirement income certainty.
Other reasons for not offering an annuity-type product in their DC plans cited by respondents include the difficulties in communicating to participants and concern over insurer risk.
Full survey results may be found here.The post DC Plan Sponsors Still Shunning Annuities appeared first on PLANSPONSOR.
DC Plan Sponsors Increasing Focus on Fees
Retirement plan fees ranked as the most likely primary area of focus over the next 12 months among the 106 plan sponsors that participated in Callan’s 2019 Defined Contribution (DC) Trends Survey, with one-third ranking it as a “4” on a 5-point scale and one-quarter ranking it as a “5.”
Almost half of the plan sponsors surveyed had a written fee payment policy in place, either as part of their investment policy statement (19%) or as a separate document (27%).
The percentage of plan sponsors that calculated their DC plan fees within the past 12 months was 77.1%, and 57.6% said they evaluated indirect revenue when calculating fees.
Over four in five plan sponsors (83.3%) benchmarked the level of plan fees as part of their fee calculation process, up from last year (77.2%). In the majority of cases, their plan consultant/adviser conducted the benchmarking (82.4%), which was consistent with last year. More plan sponsors benchmarked their own plan fees in 2018 than in 2017 (22.1% vs. 14.1%, respectively).
The survey found plan sponsors tend to use multiple data sources in benchmarking. Consultant databases (67.7%) were the most heavily used method, showing a substantial increase year-over-year. Requests for information (RFIs) (25.8%) and data from the plan recordkeeper’s database (24.2%) were the next most frequently cited. General benchmarking data fell in half from last year (46% in 2017 vs. 22.6% in 2018). Two-thirds (66.3%) both calculated and benchmarked plan fees within the past 12 months.
Over half of plan sponsors kept fees the same following their most recent fee review (54.7%), while about three in ten plans (29.3%) reduced fees. After reducing fees, the next most common activity resulting from a fee assessment in 2018 was changing the way fees were paid (14.7%).
According to the survey results, investment management fees were most often entirely paid by participants (77.1%), and almost always at least partially paid by participants (91.6%). In contrast, about one-third (32.5%) of all administrative fees were paid entirely by participants, down significantly from 62.7% in 2017. This was offset by an increase in fees being entirely paid by the plan sponsor (17.8% in 2017 vs. 27.7% in 2018) and fees being split between the sponsor and participant (19.5% in 2017 vs. 38.6% in 2018).
Most plan sponsors (71.1%) noted that at least some administrative fees were participant-paid. In a modest increase from last year, 29.3% of participants paid administrative fees either solely through revenue sharing or through a combination of revenue sharing and some type of out-of-pocket fees. Only 13.8% paid solely through revenue sharing (vs. 14.7% in 2017). Of those paying through an explicit fee, using a per-participant fee continued to be more popular than an asset-based fee, and by a much wider margin in 2018.
Revenue sharing
No plans with revenue sharing reported that all of the funds in the plan provided revenue sharing, a decrease from 2017. The most common was to have between 10% and 25% of funds paying revenue sharing, consistent with 2017. Still, about 6% said they are not sure what percentage of the funds in the plan offer revenue sharing.
Eight out of 10 plan sponsors with revenue sharing had an Employee Retirement Income Security Act (ERISA) account. This was up significantly from 2017 (54.2%) and even more so since 2011 when just over one-third reported having one. For the first time, no plan sponsors responded that they did not know if they had an ERISA account.
In most cases (61.5%), reimbursed administrative fees were held as a plan asset. Consulting fees were the most commonly paid expense through the ERISA account (57.1%), taking over the number one spot from communications, which came in fifth place. Rebating excess revenue sharing, auditing fees, and legal fees tied for second place.
2019 Actions
Five in 10 plan sponsors reported they are either somewhat or very likely to conduct a fee study in 2019
(52.5%), somewhat down from last year (60%). Other somewhat or very likely actions include switching to lower-fee share classes (56.1%) and switching to more institutional vehicles such as collective trusts or separate accounts (42.1%).
Renegotiating recordkeeper and investment manager fees will also be on plan sponsors’ to-do lists (33.8% and 26.7%, respectively). Survey results suggest recordkeeper search activity is likely to continue in 2019, with 19% saying they are very or somewhat likely to conduct a search, up from last year.
And in 2019, more plan sponsors intend to shift fees from the participant to the plan sponsor rather than from the sponsor to the participant.
Results from the survey can be found here.The post DC Plan Sponsors Increasing Focus on Fees appeared first on PLANSPONSOR.
Investment Product and Service Launches
Art by Jackson Epstein
ProShares Unveils ETF SuiteProShares will launch four new exchange-traded funds (ETFs) benchmarked to the S&P Communication Services Select Sector Index next week. The new ETFs (XCOM, UCOM, YCOM and SCOM) will seek daily investment results that correspond to +/- 2x and +/- 3x the daily performance of the index, before fees and expenses. The suite of ETFs will be listed on New York Stock Exchange (NYSE) Arca.
“ProShares is committed to providing knowledgeable investors with a comprehensive set of tools for tactical investing,” says Ben Fulton, managing director of ProShares’ tactical products business. “To that end, we are particularly excited about adding leveraged and inverse communication services ETFs to our sector suite.”
The S&P Communication Services Select Sector Index covers the new communication services sector, which focuses on the evolution of communication, entertainment and information sharing. The sector brings together certain FAANG stocks, media giants and telecom leaders, among others. While this future-oriented corner of the equity market may be attractive for its long-term growth potential, ProShares leveraged and inverse communication services ETFs offer the opportunity for investors to seek profit from short-term moves—both up and down—as well.
TRPC Adds Stadion StoryLine to Retirement Solutions Platform
The Retirement Plan Company (TRPC) has made Stadion’s StoryLine available on its retirement solutions platform. TRPC is a national provider of account recordkeeping, third-party administration (TPA), and actuarial services for qualified retirement plans.
“For the past 25 years, TRPC’s platform has been an important vehicle for plan advisers looking for solutions that can help Americans realize their retirement dreams,” says Jud Doherty, president and CEO of Stadion Money Management. “We’re delighted that they’ve chosen StoryLine to be part of the TRPC family and look forward to a long and positive relationship with them.”
The StoryLine process first seeks insight into the overall plan make-up with the intent of tailoring default options for each plan sponsor. With Stadion’s participant-centric web interface, employees can further define their individual investment paths based on personal risk profiles. StoryLine allows—at the employee’s discretion—the inclusion of outside and spousal assets to facilitate retirement planning. The end goal is to have each participant on a personalized path that goes well beyond typical age-based investment strategies.
T. Rowe Price has launched the Dynamic Credit Fund, a total return-oriented bond fund designed to generate returns through a combination of income and capital appreciation. The fund pursues returns that aim to be above the three-month LIBOR in U.S. dollar terms over a full market cycle. The strategy is designed to invest, both long and short, in a wide variety of global credit instruments and is not tied to particular benchmarks, asset classes, or sectors. The Dynamic Credit Fund also has the flexibility to invest across a broad range of traditional and non-traditional fixed income securities to find opportunities across sectors.
The Dynamic Credit Fund’s benchmark-agnostic strategy seeks to deliver attractive returns and defensively preserve capital through the credit cycle. It joins the T. Rowe Price Dynamic Global Bond Fund in T. Rowe Price’s suite of “Dynamic” bond fund offerings.
The fund will seek out high-conviction opportunities created by dynamic global market conditions and expects to hold a relatively concentrated portfolio of traditional and non-traditional fixed income securities, including corporate and sovereign bonds, bank loans, and securitized instruments, including mortgage- and asset-backed securities, across global and U.S. fixed income markets. The fund may also invest in non-investment grade and unrated bonds.
The fund plans to use more derivatives than traditional bond funds in order to limit volatility while generating excess returns.
The Dynamic Credit Fund will be managed by Saurabh Sud, CFA, who joined T. Rowe Price in April 2018 to develop this strategy. Sud has 11 years of investment experience spanning corporate credit, high yield, securitized, emerging markets, and interest rate sectors.
“T. Rowe Price has managed global bond portfolios for more than 30 years and this is a very exciting time for the evolution of our platform,” says Sud. “We listened to our clients and designed Dynamic Credit to seek an attractive return stream with a strong emphasis on capital preservation. As such, this fund can be seen as a complement to investors’ existing fixed income portfolios over the long term, and especially in volatile markets like now.”
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Details Available About Duke University 403(b) Lawsuits Settlement
A case accusing fiduciaries of the Duke Faculty and Staff Retirement Plan of causing the plan to pay unreasonable and greatly excessive fees for recordkeeping, administrative, and investment services, and a second complaint—this one focusing on revenue sharing it took but didn’t deliver for distribution to plan participants—have been combined for a settlement agreement.
A settlement agreement was announced by counsel for both parties, but details of a settlement had not at that time been reported to the U.S. District Court for the Middle District of North Carolina.
The recently filed settlement agreement calls for a gross monetary payment of $10.65 million to a settlement fund for the plaintiffs.
The agreement also lists non-monetary actions by Duke University. Duke agreed for a three-year period to hire an independent consultant regarding bids for recordkeeping services; ease the ability of participants to transfer their investments out of frozen annuity accounts; analyze the cost of different share classes of mutual funds considered for inclusion in the plan; and avoid the use of plan assets to pay salaries of Duke employees who work on the plan.
Duke University denies all allegations of wrongdoing and denies all liability for the allegations and claims made in the lawsuits.
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Bogle’s Death Inspires Reflection on 401(k) Fee Landscape
While there are many big names in the financial services industry, few individuals command the widespread respect and admiration enjoyed by John Clifton Bogle, known as “Jack,” who founded the Vanguard Group. Bogle died this week at age 89.
Vanguard’s own press release paints a clear and compelling portrait of the influential “inventor of the index mutual fund.”
“Mr. Bogle had legendary status in the American investment community, largely because of two towering achievements: He introduced the first index mutual fund for investors and, in the face of skeptics, stood behind the concept until it gained widespread acceptance; and he drove down costs across the mutual fund industry by ceaselessly campaigning in the interests of investors,” Vanguard writes. “The company he founded to embody his philosophy is now one of the largest investment management firms in the world.”
It is important to acknowledge the accomplishments of the individual and the grief felt by many when they learned the news that Bogle died. Rightly so, many publications have already published obituaries detailing various aspects of his life and work. But it is also important to step back and consider to what extent the challenges Bogle so commonly talked about remain unsolved.
The Vanguard Experiment
Bogle coined the term “The Vanguard Experiment” to describe his first attempt to create mutual funds that would operate “at cost and independently,” with their own directors, officers and staff. He talked about this as being a radical change from the traditional mutual fund corporate structure, whereby an external management company ran a fund’s affairs on a for-profit basis.
“Our challenge at the time,” Bogle once recalled, “was to build, out of the ashes of major corporate conflict, a new and better way of running a mutual fund complex. The Vanguard Experiment was designed to prove that mutual funds could operate independently, and do so in a manner that would directly benefit their shareholders.”
Vanguard’s statement on Bogle’s death says his approach was “ridiculed by others in the industry as un-American and a sure path to mediocrity,” and the fund collected only $11 million during its initial underwriting. Now known as the Vanguard 500 Index Fund, the still-running fund has grown to hold more than $441 billion in assets, while the sister fund, Vanguard Institutional Index Fund, has $221.5 billion in assets. Today, index funds account for more than 70% of Vanguard’s $4.9 trillion in assets under management.
Bogle and Vanguard again broke from industry tradition in 1977, when the firm ceased to market its funds through brokers and instead offered them directly to investors. The company eliminated sales charges and became a pure no-load mutual fund complex. Bogle at the time said this was a move that would save shareholders hundreds of millions of dollars in sales commissions.
Since that time, passive mutual funds and exchange-traded funds (ETFs) have exploded in popularity and now comprise more than 40% of all U.S. stock fund assets. The last two decades have seen the fastest growth for index funds, which held only 12% of U.S. stock fund assets in 2000. As passive investing has grown more popular, new technologically enabled approaches have been introduced, including most recently “smart-beta” ETFs.
Interestingly, Bogle was often quoted to the effect that he did not like the idea behind ETFs, basically because they can be bought and sold more like individual stocks. Thus, ETFs are used for fast trading and for the shorting and hedging of dynamic positions. Bogle argued this arrangement causes their prices to jump around too much to be useful for long-term investors.
Progress Made and Progress Needed
A day before news broke that Bogle had died, PLANSPONSOR sat down for a fee-focused conversation with America’s Best 401k President Tom Zgainer. He talked about a firm that, like Vanguard in the 1970’s and 80’s, sees itself as working hard to revolutionize the investment services industry—particularly within the tax-qualified retirement plan arena.
Bogle was not directly talked about in that conversation, but Zgainer channeled a similar enthusiasm in discussing what he sees as the ethical shortcomings of the traditional approach to investment management for the masses. He agreed that the investment services industry has made some progress on growing more transparent about fees and lowering fees to the benefit of individual investors. But from Zgainer’s perspective, there is still a huge amount of progress that needs to be made, especially in the 401(k) world.
“The vast majority of 401(k) studies that talk about the lower fees being paid today are compiled using data from the publicly available Form 5500, which is required of all 401(k) plan sponsors,” Zgainer said. “The challenge is, for plans under 100 participants, the government only requires a ‘short’ Form 5500, which contains very little data and excludes very pertinent information such as the name of the plan provider; the compensation paid to brokers and advisers; the compensation paid to recordkeepers and third-party administrators, and the mutual funds in the plan, along with their corresponding expenses.”
Thus, the information discussed and disseminated by the industry—talking about the fact that fees have fallen by significant amounts in the last decade—effectively excludes the plans with under 100 participants.
“This is a massive blind spot because of the approximately 533,000 401(k) plans in the US, 89.8% of them have under 100 participants,” Zgainer said. “By omitting nearly 90% of all 401(k) plans from comprehensive analysis, one might draw false conclusions about broader industry trends such as the lowering of fees or greater access to low-cost index funds.”
Analyzing data from the top 11 providers to the small plan market, Zgainer said, America’s Best 401k found that they charge an average of between 1.19% and 1.95% to participants. This is nowhere near the average for large plans as reported by the Investment Company Institute—just 0.27%.
Despite Vanguard’s influence and the emergence of many providers of index funds, Zgainer said, most small plans on his firm’s analysis have exclusively or a substantial majority of actively managed funds.
“Next-generation providers are leveraging open-architecture solutions that eliminate brokers and associated commissions and sell plans direct to business owners,” Zgainer said. “Many of these next-generation providers are using low-cost index funds as the core lineup and don’t get paid a share of the revenue, thus eliminating most conflicts of interest. These providers create a more level playing field by offering a similar fee structure for all plans, regardless of size, and giving participants access to the same institutional class shares that much larger plans enjoy.”
According to Zgainer, in terms of cost, most next-generation providers can average asset-based fees between 0.55% and 0.75% annually, and this includes the cost of the funds in the plan, custody/recordkeeping fees and financial advisory services.
Pace of Industry Change Exaggerated?
Decades after Vanguard proved the concept of index-based mutual funds, investors and asset managers are still deeply engaged in debate about alpha, beta, smart beta and passive versus active strategies. Hundreds of billions of dollars have shifted from active strategies to passive index investing, however, and for good reason. Depending on the study cited, something in the ballpark of 85% of active managers consistently underperform their stated benchmark index over long time horizons.
While index funds have some clear advantages in terms of costs and transparency, retirement industry research suggests many investors have expectations that don’t reflect a full understanding of the risks of index funds versus the benefits.
According to Natixis Global Asset Management, for example, 64% of investors believe “using index funds will inherently help minimize investment losses,” despite the fact that the simple category title of “index fund” says next to nothing about the actual risk characteristics of the investment being considered. Similarly, nearly seven in 10 investors believe “index funds offer better diversification,” and nearly the same number (61%) believe index funds “provide access to the best investment opportunities in the market.”
According to research from Cerulli Associates, the fact is that most advisers serving individuals and retirement plans believe that both active and passive investing play a vital role. More than 80% believe that passive investments can reduce fees and that active managers are ideal for certain asset classes.
“Approximately 75% of advisers agree that active and passive investments complement each other,” said Brendan Powers, senior analyst at Cerulli. “We would argue that the debate of active or passive has shifted to active and passive, with more focus on how to best use both as tools to build the most efficient and effective client portfolios.”
In general, active will retain a key role in asset classes where it adds value over passive, Powers explained. “The asset classes where more than half of advisers prefer actively managed mutual funds include international/global fixed income (61%), multi-asset class (60%), emerging markets fixed income (58%), emerging markets equity (53%) and international/global equity (51%).”
Despite these figures, Cerulli found advisers continue to pretty strongly favor active funds. Cerulli discovered that advisers currently allocate 64% of client assets to actively managed strategies, 25% to passively managed exchange-traded funds (ETFs) and 11% to passively managed index funds. Fifty-five percent of advisers create customized investment portfolios for each client, with 42% starting with investment models that they then alter. Among those advisers using models, 80% use models created by their practice, 68% use home-office models, and 66% use asset manager models.
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ICMA-RC Now a Public-Sector 403(b) Plan Provider
ICMA-RC, provider to public-sector 401(a) and 457 defined contribution (DC) plan sponsors and participants, will now provide services to public-sector 403(b) plan sponsors and participants.
One of the ways ICMA-RC plans to help 403(b) participants reach their retirement goals and build retirement security is by providing open architecture and a comprehensive selection of investments with lower fees and expense ratios. In addition, ICMA-RC’s full-time representatives will be available to 403(b) participants to assist them in developing a retirement savings plan—including providing education about how their 403(b) plan works to complement other retirement savings programs (pensions, 457 plans, etc.), as well as providing personalized assistance with asset allocations.
According to ICMA-RC, its overall plan costs in some cases may be more than 33% lower than what other 403(b) participants pay.
“We’re looking forward to giving 403(b) participants the products and services they need at a reasonable cost to help them fill the gap between their pension benefit and the income they need in retirement,” says Michael Guarasci, ICMA-RC senior vice president and chief financial officer. “We are aiming to make a dramatic impact on the 403(b) market by disclosing fees, providing high-value participant services and eliminating cross-marketing and solicitation for non-retirement products.”
For more information about ICMA-RC’s new 403(b) retirement planning services, contact Scott Vensor, vice president, 403(b) national practice leader at (888) 803-2725.
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Best Practices for Managing ERISA Litigation Risk in 2019
Mayer Brown partners Nancy Ross and Laura Hammargren, from the firm’s Chicago office, and Brian Netter, out of Washington D.C., hosted a webcast on Wednesday to discuss the Employee Retirement Income Security Act (ERISA) litigation landscape and the ongoing compliance risks facing benefit plan fiduciaries.
In 2016 and 2017 there were over 100 complaints filed in federal courts targeting 401(k) plans, the attorneys said. The results of these complains have been both positive and negative from the perspective of plan fiduciaries, according to Hammargren.
“The most positive outcome has been overall improvements in transparency and the most negative is that plans are offering less diverse investments—they are taking a more conservative approach to designing their plan menus,” Hammargren said.
Committee members are being made defendants and there has been very little consensus or direction from the federal courts so far as to what exactly constitutes prudent administration of tax-qualified benefit plans, the attorneys agreed.
Looking back to earlier waves of litigation, there was more of a focus on investment selection, with attacks on stock funds being common due to the financial climate at that time—especially in the early 2000’s. Within the last three years, though, the majority of cases have been fee related and tied to allegations of self-dealing, disloyalty or imprudence.
In the last year in particular, there have been new areas of litigation emerging as the plaintiffs’ bar is learning more about the possibility of extracting large settlement fees from retirement plans. There is greater uncertainty about the eventual outcomes of these cases due to partial dismissals and situations where judges may not see much merit in a compliant, but they allow discovery nonetheless due to the complex nature of retirement plan disputes.
“The precedents are all over the map,” Hammargren said.
From a plan sponsor’s perspective, a key concern is not achieving dismissal at an early stage of a suit. This is because the next stage is discovery—still technically a preliminary stage but one which can be very distracting and expensive. In 2017 more than 30 cases settled, totaling $529 million.
Of late, new defendants have come into the fold, including service providers that have become defendants even though they are not necessarily named fiduciaries. These cases have also resulted in mixed rulings and settlements.
Best Practices
The attorneys discussed the firm’s thoughts on best practices based on recent litigation. They shared the following list of best practices to consider:
- Pick committee members carefully. It is not wise to have general counsel or an organization’s CFO on a plan committee. Because they advise the company on a number of issues and are wrapped up with happenings across the organization, there could be disclosure issues.
- If a plan sponsor has one committee, there should be at least one member with a financial background and one with an HR background. The investment adviser should be part of the team and attend committee meetings.
- Be sure that committee members have written delegations of authority and they understand their limits of authority.
- If the plan has a stated mission and goals including types of investments they want to provide, it is imperative to adhere to that which is written.
- It is critical to have quarterly committee meetings but most importantly there must be more than just an annual meeting. Document as many details as possible. This will help when there is a lawsuit. Also, be cognizant of attorney-client privileges.
- Committee members should be familiar with plan terms and should read the plan documents at least occasionally.
- Committee members need to undergo annual fiduciary training.
- When selecting providers either use an RFP/RFI or reliable databases. Do go through the exercise of a formal RFP/RFI process at times, but it is not necessary to do so every three years, as some have suggested.
- Plan sponsors must be transparent with participant fees and monitor fees for competitiveness.
- Study 408(b)(2) disclosures—regulations that cover service providers.
- There are generally 10 to 15 investment options in an average plan and the menu should offer both passive and active investment choices. This diversity allows funds for the less and more sophisticated investors.
- Benchmark the plan for fees and performance and document this benchmarking. Stay abreast of peer plan investment choices and evaluate the pros and cons of particular share classes.
- Consider caps on company stock investments and an independent fiduciary for stock plans.
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ADP Adds SmartDollar to its Stable of Financial Wellness Programs
ADP is partnering with SmartDollar to offer the latter’s mobile-friendly financial wellness program to all of ADP’s clients.
ADP already offers a number of financial wellness programs, including those of Pay Activ, Daily Pay, Loan Benefits, MeYou Health, Gradifi and Peanut Butter. The cost will be borne by employees.
“At ADP, we offer a holistic financial wellness program that can be customized to meet the workplace needs of employers and their employees,” says Chris Lungo, division vice president of strategy, marketing and business services at ADP Retirement Services. “We accomplish this by building relationships with providers, like SmartDollar, specializing in delivering financial wellness solutions.”
Brian Hamilton, vice president at SmartDollar, adds: “Most Americans are living paycheck to paycheck, and nearly half couldn’t afford a $400 emergency without borrowing money. Together, with the extensive reach of ADP, and easy access through ADP Marketplace, more employees than ever can begin to use their most powerful wealth-building tool—their income—to eliminate debt, save for the future and be more productive at work.”
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