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Insight on Plan Design & Investment Strategy
Updated: 10 hours 26 min ago

Sources Say Invesco Will Buy OppenheimerFunds

Fri, 2018-09-21 13:10

Sources says that Invesco, Ltd., an American independent investment management company in in Atlanta, Georgia, will buy OppenheimerFunds, a leading global asset manager located in New York City. The acquisition will bring $248 billion in new client assets.

According to the PLANADVISER DCIO survey, Oppenheimer’s total DCIO assets are over $48 billion. Their top fund is the Developing Markets Fund/Emerging Markets Equity Strategy.  Oppenheimer is the 12th largest U.S. mutual fund family by assets; Invesco is the 14th, according to data from Morningstar.

MassMutual is the parent company of Oppenheimer. Oppenheimer was purchased in 1990 from British & Commonwealth Holdings for roughly $150 million. Invesco purchased Guggenheim Investments’ exchange traded fund (ETF) business last year. At that time, it had $36.7 billion of assets under management.  

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Categories: Industry News

Retirement Industry People Moves

Fri, 2018-09-21 12:44

The Wagner Law Group Hires Attorneys Quinn and Burwick

The Wagner Law Group
has hired attorney Candace Quinn as a partner and attorney Michael Burwick as of counsel. Quinn has extensive experience in tax law, the Employee Retirement Income Security Act (ERISA), employee benefits and compensation law. She has more than 25 years of experience advising clients on domestic and international tax, ERISA regulatory and operational compliance of qualified retirement plans, non-qualified deferred compensation arrangements and employee benefits, executive compensation, strategic tax optimization plan design, and equity and non-equity employee incentive plans. Quinn also advisers on executive compensation in mergers and acquisitions and compensation benchmarking.

Burwick is experienced in tax and securities law, real estate. He has considerable knowledge and experience with the Internal Revenue Code, state and local tax regulations, ERISA, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisors Act of 1940, the Investment Company Act of 1940, Securities and Exchange Commission (SEC) rules and FINRA rules. He is highly skilled in legal and compliance issues with respect to broker/dealers, registered investment advisers (RIAs) and asset managers.

Independent Retirement Hires Retirement Plan Consultant

Independent Retirement, a woman-owned company that provides 401(k), defined benefit and cash balance plan third-part administration, as well as compliance and consulting services to small and medium sized companies in the pacific northwest, has hired Anna Valencia as a retirement plan consultant. In this role, she will support new sales, internal staff training and development and corporate communications.

Valencia has 34 years of experience, most recently as the Employee Retirement Income Security Act (ERISA) compliance officer for an independent third-party administrator in southern California, where she ensured that plan operations were compliance with ERISA and Department of Labor (DOL) rules and regulations.

“After a long search process, we are very pleased to have Anna join our team of highly experienced plan administrators and plan consultants,” says Linda Burnside, president at Independent Retirement. “Her extensive knowledge and diverse background will not only add value for our clients and partners, but it will also create opportunities to expand our current service offerings in the months and years to come.”

SageView Hires Managing Director

Tom Demko has joined SageView Advisory Group as a managing director in Southern California. Demko has worked with retirement plans for more than 13 years and provides retirement and fiduciary services to plan sponsor and private wealth clients. He acts as an outside chief investment officer (OCIO) or 3(38) fiduciary on pensions, defined contribution (DC) plans, global retirement organizations and OPEB benefits.

Demko was previously president of Bay Mutual Financial, a registered investment adviser (RIA) in Santa Monica, California. There, he was a member of the plan advisers, endowments and entertainment groups. Before that, he was an executive with several entertainment management and production entities.

“Tom’s fiduciary knowledge is complemented by his leadership and educational experience, making him an asset to both our clients and SageView advisers around the country,” says SageView CEO Randy Long. “We are excited to have Tom on board and working closely with our home office and national wealth management teams.”

The PFE Group Hires Senior Retirement Plan Consultant

Adam Dani has joined The PFE Group as senior retirement plan consultant. In this role, he will focus on business development with corporate retirement plan sponsors and growing the firm’s client base. He has 11 years of experience selling in the corporate retirement plan space. He has worked both as an adviser and with recordkeepers, giving him a deep knowledge of the retirement industry.

Prior to joining The PFE Group, Dani worked for John Hancock, Lincoln Financial Group, Wells Fargo Advisors and Merrill Lynch.

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Categories: Industry News

Sanctions Called for Workers and Attorneys in Sacerdote et al. v. NYU

Fri, 2018-09-21 09:47

The fiduciaries of several 403(b) plans sponsored by New York University (NYU) defeated a class action lawsuit last month brought by participants. Sacerdote et al. v. New York University is one of a glut of cases brought against higher learning institutions, alleging that excessive recordkeeping and investment fees were charged and underperforming investment options were offered by the plans. The U.S. District Court for the Southern District of New York found that NYU’s retirement plan committee adequately managed the plan’s recordkeepers and investment options.

While a number of such cases have settled or been dismissed, this was the first to proceed to trial. The case provides helpful guidance for other fiduciaries subject to the Employee Retirement Income Security Act (ERISA) and particularly those responsible for 403(b) plans.

But in a new turn of events, on September 19, NYU called for sanctions against the workers and attorneys (Schlichter Bogard & Denton) behind the now-dismissed proposed class action suit arguing in New York  federal court that their suit had been an attempt to avoid unfavorable rulings in an earlier, identical case.

  • There were four different bases on which the court could sanction the workers and their attorneys, for their “frivolous and vexatious conduct,” the university said. NYU argued that the workers and attorneys violated Federal Rule of Civil Procedure 11 with the allegedly duplicative lawsuit.

  • Secondly, the university contended that the workers’ attorneys should be held liable for the costs of its motions to dismiss the suit under Title 23 Section 1927 of the U.S. Code.

  • Thirdly, NYU said that the court could also use its inherent authority to sanction the workers and attorneys, arguing that the court already found the claim was “without a colorable basis” and brought “in bad faith.”

  • In addition, the school said attorneys’ fees could be awarded under ERISA, because the alleged improper conduct was willful and in bad faith, the workers’ counsel could afford the fees and the award could deter the counsel from bad behavior in other cases.


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Categories: Industry News

Auto-Portability, Universal Coverage Would Reduce Retirement Shortfall

Fri, 2018-09-21 07:55

In June, the Employee Benefit Research Institute (EBRI) issued a report saying that if the Automatic Retirement Plan Act of 2017 were passed, it would reduce the $4.13 trillion retirement savings shortfall for U.S. households headed by those between the ages of 35 and 63 by $645 billion, or 15.6%.

The act would require all but the smallest employers to offer a retirement plan to all employees age 21 and older. It would automatically enroll participants at a 6% deferral rate and conduct reenrollments every three years. It would also include automatic escalation of 1% every year up to a 10% cap.

EBRI has now considered how auto-portability of retirement plans from one company to another would eliminate cashouts, which are particularly common for plans with low balances. If this were combined with the Automatic Retirement Plan Act of 2017, it would reduce the retirement savings shortfall by an additional $287 billion for a total reduction of $932 billion, or 22.6% of the total deficit.

“In other words, the analysis shows that while policy to expand retirement plan coverage can significantly impact aggregate savings shortfalls, initiatives to reduce plan leakage can materially augment such efforts,” EBRI says.

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Categories: Industry News

Protecting the Rights of Alternate QDRO Payees, When it Comes to Divorce

Fri, 2018-09-21 07:49
Senator Patty Murray (D-WA), Ranking Member of the Senate Health, Education, Labor and Pensions (HELP) Committee, sent a letter to Government Accountability Office (GAO) Comptroller General Gene Dodaro requesting a study on the process for obtaining a Qualified Domestic Relations Order (QDRO), which allows for pensions or retirement accounts to be divided following a divorce or legal separation.

The Senator’s letter to the GAO includes from a GAO study which found that women’s household income and assets, on average, fell by 41% with divorce, with the income decline being almost twice the size of the decline that men experienced. One protection available to women is the QDRO, which creates or recognizes the existence of a right to receive a share of retirement benefits. She says in her letter, “The DOL issued interim regulations governing QDROs in 2007, with final regulations issued in 2010. Since that time, there have been concerns that the current QDRA process has not been wholly effective in protecting the rights of alternate payees, especially women.”

Murray asks that this study looks at the process for dividing retirement assets that looks at the timeline, costs, barriers, opportunities for improvement, and impacts on various segments of the population.  In efforts to address retirement gap, Senator Murray has introduced legislation  focused on challenges that disproportionately affect women and legislation to enhance Social Security benefits for divorcees and widows.

This action is the latest in Senator Murray’s ongoing efforts to address the retirement gap women face as they prepare for their financial futures. Earlier this month, Senator Murray reintroduced the Women’s Pension Protection Act (WWPA), a package of solutions to help strengthen women’s retirement security by addressing some of the challenges that disproportionately affect women. She also introduced the Stronger Safety Net Act (SSN) earlier this year, legislation that included provisions to enhance Social Security benefits for divorcees and windows.

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Categories: Industry News

How Sponsors Can Offer Guaranteed Lifetime Income

Thu, 2018-09-20 12:42

DIETRICH and OneAmerica Retirement Services hosted a webinar Thursday, “Securing Guaranteed Income in Retirement: Strategies for lifetime income in Defined Contribution plans,” that explored the need for guaranteed lifetime income, the obstacles sponsors face when trying to offer in-plan annuities, and one way to offer guaranteed lifetime income outside of a 401(k) plan.

“With the decline of the defined benefit (DB) plan, we at DIETRICH feel very strongly that plan sponsors, administrators, retirement plan advisers and insurance companies can make a difference in how participants benefit from a defined contribution (DC) plan,” said Geoff Dietrich, vice president at DIETRICH. “Plan sponsors continue to shift away from DB pension plans to the DC model, and DC plans are now the main retirement savings vehicle for Americans, even though they originally intended to be a supplemental savings plan.”

Dietrich went on to say that one of the main concerns of retirees is outliving their savings. “As a result, employers, employees and the government are starting to recognize the deficiencies of DC plans,” Dietrich said. “The vast majority of employers, 84%, are not confident their workers will have adequate savings for retirement.”

As the model has shifted from DB plans to DC plans, “the consequence has been the elimination of the guaranteed lifetime income benefit provided by these former DB plans,” he said. “Only 5% of 401(k) plans offered a guaranteed retirement income product in 2015, according to the Plan Sponsor Council of America. The single biggest advantage of annuities over other investments is that you cannot outlive them.”

Dietrich then pointed to several legislative developments meant to encourage sponsors to offer in-plan annuities. In 2008, the Department of Labor issued safe harbor conditions on the selection of annuity providers in a DC plan. A 2015 Field Assistance Bulletin (FAB) further clarified the safe harbor.

The first document said that sponsors should engage in an objective, thorough and analytical search and consider competing annuity providers. They should consider the financial security of the insurer and its ability to make all future payments, and they should consider the reasonableness of fees. Importantly, the FAB said that sponsors were only responsible for relying on information about the insurer available at the time of the selection of the annuity.

The proposed 2018 Retirement Enhancement and Savings Act would provide a fiduciary safe harbor for the selection of a lifetime income provider and protect sponsors from liabilities for any losses that may result due to an insurer’s inability to satisfy its financial obligations.

Despite these assurances, sponsors are still hesitant to offer in-plan annuities because of their complexities and portability issues, Dietrich said.

This is why OneAmerica Retirement Services has developed OnePension, said Pete Welsh, vice president of distribution at the firm. It is a profit-sharing plan that invests the money in an annuity at the time of a participant’s retirement, he said.

“It allows the plan sponsor to determine how much they would like to put into the profit sharing plan and to invest it as they and their adviser see fit,” Welsh said. “Then, at age 65, the account balance is annuitized. It is designed for those paternalistic plan sponsors to provide lifetime income without the cost of a defined benefit plan—the mandatory contributions, Pension Benefit Guaranty Corporation premiums and actuarial costs. They can dial up or down their contributions based on their profitability.”

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Categories: Industry News

Principal Expands Financial Wellness Program

Thu, 2018-09-20 10:13

Principal Financial Group has launched a new financial wellness program, Principal Milestones, that includes iGrad’s Enrich financial wellness platform. The platform helps participants access comprehensive financial education resources all in one place, including information on student loans, will and legal document preparation, health savings accounts (HSAs), budgeting and more.

Principal notes that nearly half of Americans are stressed out by their financial situation, and 70% of Americans postpone making financial decisions. Less than one-third say they are comfortable with their knowledge on making financial decisions, according to research conducted by Principal and behavioral economist Dan Goldstein. The research also found that people who spend even a little bit of time learning about financial planning are 75% more likely to be confident in their financial future.

The platform includes an in-depth online assessment to evaluate a participant’s strengths and challenges. It then delivers personalized information to help participants minimize financial stress and reach their goals.

“The decision to further expand our financial wellness offering with Enrich was easy when the research so clearly ties confidence to postponing financial decisions,” says Joleen Workman, vice president of customer care at Principal. “We selected the Enrich financial wellness platform in large part because of its expansive set of content and tools, and the customization available, which makes each person’s experience more personalized and relevant.”

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Categories: Industry News

Investment Product and Service Launches

Thu, 2018-09-20 10:05

The MassMutual RetireSMART Target Date Funds, available through 401(k)s and other defined contribution (DC) retirement plans offered by Massachusetts Mutual Life Insurance Co., now offer enhanced glide paths sub-advised by J.P. Morgan Asset Management Inc.

Formally, the fund family will now be called the MassMutual RetireSMART by J.P. Morgan Target Date Funds.

The new glide paths are available within the 12 MassMutual RetireSMART TDFs, ranging from the In Retirement Fund to the 2060 Fund. Important to note, the MassMutual RetireSMART Target Risk Funds are not being sub-advised by J.P. Morgan.

Tina Wilson, head of MassMutual’s Investment Solutions Innovation group, says the new glide paths are “more sensitive to balancing investment risk and investors’ goals, especially as retirement savers approach and enter retirement.”

As the sub-adviser, J.P. Morgan will create a glide path using its long-term capital market assumptions and MassMutual participant data.  J.P. Morgan employs four main principles to managing glide paths, which include defining success as maximizing the number of retirement savers who attain an adequate level of income replacement at retirement; designing glide paths to withstand the stresses of real-life saving and withdrawal patterns; dynamically managing the multi-faceted risks of defined contribution investing, balancing the need to minimize risk and maximize returns; and employing a well-diversified glide path allocation strategy.

In addition, J.P. Morgan will provide tactical asset allocation expertise to take advantage of short- to intermediate-term opportunities.

AXA Boosts SRI/ESG Integration

AXA Investment Managers says it is moving to the next phase of its commitment to strengthen its socially responsible investment (SRI) capabilities, further integrating these with the firm’s environmental, social and governance (ESG) investing expertise.

AXA leadership says the firm is integrating ESG analysis into all of its investment platforms, providing fund managers with access to proprietary ESG scores and key performance indicators (KPIs) in their front office tools, as well as additional ESG data and research.

Additionally, new specialists are progressively being embedded into each investment team to help fund managers incorporate ESG and impact analysis into their investment processes.

Within AXA, the firm is building a central SRI team focusing on thematic research, corporate governance and shareholder engagement as well as on developing quantitative solutions. Climate, human capital and health have been identified as the key thematic priorities of the centralized team, and specialists are appointed for each of these three themes. ESG analytic experts are also embedded in the investment teams to enhance capabilities most relevant to the firm’s key asset classes.

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Categories: Industry News

MassMutual Paper Serves As Primer for PRT Considerations

Wed, 2018-09-19 11:30

In a new white paper, MassMutual discusses how pension risk transfers (PRTs) can be successfully conducted.

“A long-term view is especially important for sponsors of DB [defined benefit] plans when managing DB risks and liabilities,” MassMutual says in the paper, “Pension Risk Transfer: Insights from an Institutional Risk Manager About How to Successfully De-Risk and Transfer Pension Obligations.”

“While PRT can be a highly effective tactic for plan sponsors to reduce risk and shift liabilities off their books,” MassMutual continues, “it’s possible to increase pension costs and risks if a PRT is not executed with long-term goals in mind.”

A sponsor should first assess its pension funding status, MassMutual suggests. They should then look at the quality of their assets, the makeup of their employee and retiree populations, the quality of their participant data and longer-term goals.

As sponsors have come to realize that life insurers are better equipped than they are to manage the long-term risks of their pensions, the PRT market has been growing steadily in recent years, MassMutual says.

Sales of single premium PRT product sales in the U.S. were $23.9 billion in 2017, up 68% from 2016, according to the LIMRA Secure Retirement Institute. The 10-year bull market has helped improve the health of pension funding ratios, putting many pensions in a position to conduct a PRT or other risk mitigation strategies.

Because the low interest rate environment has persisted for so long, plan sponsors now accept this as the “new normal.” It can actually work in their favor as they look to borrow money to improve pension funding. In addition, liability driven investing (LDI) has allowed sponsors to lock in gains, and the tax reform has prompted companies to increase their contributions through mid-September 2018, when the current 35% corporate tax rate deductions dropped to 21%.

“Additionally, the federal government is unintentionally encouraging PRT by passing on higher costs for backstopping pensions to employers,” MassMutual says. “Premiums for the Pension Benefit Guaranty Corp. have climbed dramatically and continue to rise.” In addition, 35 years from now, life expectancies are expected to rise 126%. All of these factors have prompted many pension plan sponsors to move their long-term liabilities and risks off of their books.

The life insurer’s point of view

To achieve this, MassMutual looked at what life insurers consider when handling PRT. If a pension is frozen by limiting eligibility to existing participants, this contains future risks. Many plans that do this switch from a DB plan to a defined contribution (DC) plan.

Sponsors can also offer deferred participants a lump-sum buyout, eliminating the risks of future payments. Once a plan is frozen, sponsors should then focus on their investment strategy, looking to match payment liabilities with investment durations, sometimes reducing exposure to equities or reevaluating the mix of the investments within the portfolio, which is known as LDI.

A sponsor will also be in a stronger position if they simplify the benefits available through the plan. “This means that the more straightforward a DB plan, the easier it is for an insurer to evaluate its risks and price it accordingly,” MassMutual says.

Another factor to consider is the type of pension plan it is. A cash balance plan, for example, allows a participant to select either a stream of income or a lump-sum payment. Not knowing when a participant will retire or which option they will select raises the financial risks for a sponsor, MassMutual says.

Some pensions include cost of living adjustments (COLA), payment of lump sums, early or late retirement, disability payments and supplemental benefits such as joint-and-last-survivor benefits, and they could also allow participants to make additional contributions; all of these options increase the pension plan’s complexity and, therefore, risk.

Insurers consider all of these risks when assessing a PRT, and they find that not all of the risks are equal, according to MassMutual. Today, they are looking more closely at mortality risks, especially for jumbo plans with more than $500 million in assets. They are also evaluating the makeup of a company’s workforce, as white collar workers tend to live longer than blue collar workers.

Insurers also consider how a pension plan’s assets are invested. “Does the employer intend to transfer liquid assets, assets in kind (AIK) or some combination of the two?” Mass Mutual asks. “It’s an important consideration because not all insurers accept AIKs and most that do impose limitations on them.” The sponsor can also take out a loan to boost pension reserves.

Because many companies conduct PRTs late in the year, it is wiser for a sponsor to start the process early, before insurers are faced with more transactions and costs rise, MassMutual says.

A sponsor’s fiduciary responsibility

The sponsor also must ensure that it is obtaining the safest annuity available, according to the Department of Labor’s (DOL’s) Interpretive Bulletin 95-1. “A fiduciary must evaluate a number of factors relating to a potential annuity provider’s claims-paying ability and creditworthiness,” MassMutual says. “Reliance solely on ratings provided by insurance rating agencies would not be sufficient to meet this requirement.

“Transferring pension assets to an insurer is a transfer of liability and is, therefore, a fiduciary act,” MassMutual continues. “That means the plan sponsor must act in the best interest of employees.” They also need to evaluate the “quality and diversification of the annuity provider’s investment portfolio, and level of the insurer’s capital and surplus.”

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Categories: Industry News

Principal to Launch Online Chat for Retirement Plan Administration Questions

Wed, 2018-09-19 11:04

Principal Financial Group announced the fall launch of an online chat feature to answer retirement plan administrative questions.

The new support option will connect retirement plan sponsors to Principal client service associates in real time throughout their work day.

The new functionality was co-designed with the end user and centers on providing responsive support, and self-sufficiency all in one place. Principal says retirement plan sponsors value the problem resolution ability of an experienced service team member. The new online chat feature offers an easy way to get administrative questions answered at a time that is most convenient to plan sponsors while minimizing disruption to their work day.

“It’s important for Principal to support plan sponsors in real time so they can focus on the most impactful features of their retirement plan design, such as event automation and personalized participant engagement,” says Jerry Patterson, senior vice president of Retirement and Income Solutions at Principal. “Those features help improve retirement outcomes for our customers and their employees.”

The new chat feature will be launched in a staged format to a pilot group of small and medium business customers beginning this fall. At launch, the service will be available from 8 a.m. to 5 p.m. CT.

An example of what the chat feature will look like is here.

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Categories: Industry News

Business Owner Gets Prison for Benefit Plan Embezzlement

Wed, 2018-09-19 10:59

The U.S. District Court for the District of Maryland has sentenced a Maryland business owner to one year and one day of imprisonment, and ordered him to pay $354,175 in restitution for violations of the Employee Retirement Income Security Act (ERISA).

Nathan Williams pleaded guilty to one count of theft or embezzlement from his company’s employee benefit plan.

The order comes after an investigation in which the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), working with the U.S. Department’s Office of the Inspector General (OIG), determined that, from January 2012 to September 2012, Williams failed to deposit employee contributions to the plan. According to the EBSA and OIG, Williams withheld these contributions from employees’ paychecks, but used some of these funds for corporate and personal expenses.

The order shows Williams was the sole owner and chief executive officer of NW Systems Inc., based in Largo, Maryland. The company was the sponsor of the employee benefit plan in question.

“The embezzlement of employee contributions to company retirement plans undermines the private pension system,” observes EBSA Regional Director Michael Schloss, in Philadelphia. “The U.S. Department of Labor will aggressively pursue those who misuse funds from employee benefit plans.”

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Categories: Industry News

Employees Not Fully Prepared to Manage Health Care Responsibility

Wed, 2018-09-19 10:55

Consumers struggle with finances and don’t think they can afford to save for health care, according to an Alegeus survey of 1,400 U.S. health care consumers.

This perception impacts their willingness and ability to realize the cost savings a tax-advantaged health care benefit account delivers, whether a health savings account (HSA), flexible spending account (FSA) or health reimbursement account (HRA). The firm says if consumers used pre-tax dollars, instead of post-tax dollars, to pay for their eligible out-of-pocket medical expenses, they would save 30% on average each year.

When choosing health insurance plans, 51% of survey respondents indicated they struggle to understand the tradeoffs between different plan options, and 42% said they are not confident they understand how health insurance works. In addition, respondents were unable to differentiate the following themes:

  • FSA use-it-or-lose-it versus HSA saving and investment opportunities;
  • FSA one-time contributions versus HSA flexibility to open an account and contribute at any time; and
  • FSA fund access on day one versus HSA fund access upon contributions.

Respondents also lacked knowledge about who is eligible to participate in tax-advantaged savings accounts and what constitutes a qualifying health plan, as well as HSA portability if they leave their employer.

Predicting out-of-pocket health care costs remains the most stressful aspect of managing health care. Fifty-five percent said they can’t predict the amount of health care services they will consume this year; 51% can’t forecast likely out-of-pocket costs for this plan year; and 58% don’t know or underestimate the amount health care costs in retirement. And, while some HSAs allow employees to invest their health care savings, 55% of survey respondents reported they are not confident in their ability to evaluate and make decisions about investments.

Alegeus found 40% want to take a more active role in managing their health care finances; however, they cited lack of knowledge, time, access to information, encouragement and support tools as impediments to doing so.

Consumers that are already enrolled in HSAs are more fluent, more engaged, and make savvier health and financial decisions than the general public, according to the survey. Eighty percent of HSA holders are more likely to be saving aggressively for their long-term health care costs; 57% say their No. 1 health care priority is getting better value for their money or saving for the future; and 54% are more confident when forecasting out-of-pocket costs.

The full survey report may be downloaded from here.

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Categories: Industry News

Fixed-Income ETFs Used to Address Bond Market Issues

Wed, 2018-09-19 09:27

Because global bond market liquidity has diminished, institutional investors are investing more in fixed income exchange-traded funds (ETFs), according to Greenwich Associates.

Challenges in trading, liquidity and security sourcing are particularly pronounced in Europe, where 78% of institutions say this is a problem. Sixty percent of all institutions say that over the past three years, it has become difficult to execute large bond trades. More than two-thirds of respondents to the survey say these challenges are impacting their investment management processes.

This is why 60% of institutions have increased their usage of bond ETFs, with this asset class now comprising an average of 18% of their portfolios.

“A majority of institutions around the world now consider bond ETFs as an alternative for fixed-income exposure and liquidity,” says Greenwich Associates Managing Director Andrew McCullum.

Institutions that are investing more in bond ETFs say they allow them to obtain narrow and broad fixed-income exposures in both high-level strategic functions and targeted, tactical allocations.

One-third of current ETF investors plan to increase their bond ETF allocations over the next 12 months. In this U.S., this is 30%, and in Europe, 19%.

“Based on those results and investors’ continued concerns about bond market liquidity, Greenwich Associates expects steady and, perhaps, even accelerating growth in bond ETF usage and investment among U.S. and European institutions for the next three to five years,” McCollum adds.

A previous report by Greenwich Associates suggests ETF trading practices on both the sell side and buy side are leading to suboptimal executions, limiting ETF use. In addition, Greenwich found 41% of institutional investors are using ETFs to maintain exposure to a liquid investment, and 29% are doing so to meet potential cash flow needs.

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Categories: Industry News

Funding Level Rises for City and County Pension Plans

Wed, 2018-09-19 08:41

The funding level for city and county pension plans reversed two consecutive years of declines in fiscal 2017, rising to 71%, up from 67% the year before, according to Wilshire Consulting.

The “Wilshire 2018 Report on City & County Retirement Systems: Funding Levels and Asset Allocations” is based on information from 107 city and county retirement systems.

“The increase in global equity values for the 12-month period ending June 30, 2017 was a primary driver of the improved funding levels,” says Ned McGuire, managing director and a member of the Pension Risk Solutions Group at Wilshire Consulting. “Robust investment returns and contributions also drove asset values higher for the year. With that, we found that 93% of the plans in this year’s study have market value of assets less than pension liabilities or are underfunded.”

In the aggregate, pension liabilities grew by 4%, from $697.3 billion in 2016 to $725.4 billion in 2017. Despite the increase in aggregate liabilities, pension plans saw a decrease in aggregate shortfall by $22.7 billion, from $233.3 billion to $210.6 billion. This decline in the aggregate shortfall is the result of the significant increase in aggregate assets by over 10%, from $464.0 billion in 2016 to $518.8 billion in 2017. The estimated aggregate value is the highest since Wilshire began reporting on city- and county-sponsored retirement system funding levels 16 years ago.

“Discount rates have trended lower over the past several years and continued for this year’s study, as nearly half of the plans lowered their discount rate,” McGuire adds. “The range for discount rates this year is 5.13% to 8.50%, with a median of 7.25%, which is down 25 basis points from last year.”

On average, city and county pension portfolios have a 64.3% allocation to equities, including real estate and private equity, a 24.7% allocation to fixed income, and an 11% allocation to other assets. This equity allocation is slightly lower than the 65.9% equity allocation a decade earlier in 2007.

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Categories: Industry News

Lively Launches HSA Marketplace

Wed, 2018-09-19 08:30

Lively, Inc. launched its new health savings account (HSA) marketplace.

HSA account holders spent over $22.5 billion on qualified out-of-pocket medical expenses in 2017, but are frequently challenged to use their funds on the products and services they want and need, Lively says. With this in mind, the marketplace connects Lively’s account holders to cost-effective and convenient qualified medical expense products and services. They get exclusive health care discounts and save time.

Lively’s HSA Marketplace combines cost-effective solutions with a simple-to-use interface—at no cost to its account holders.

Initial HSA Marketplace partners include a variety of recognized industry leaders as well as up-and-coming online brands. The selection of these partners showcases the wide range of HSA-eligible expenses and better consumer options, including general expenses, primary care, vision and dental.

Lively is a HSA platform for employers and individuals. Lively’s solution includes easy sign-up (it takes less than five minutes), payroll syncing, paperless account management and transparent pricing. More information is at

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Categories: Industry News

ICI: IRAs Continue to Serve American Savers Well

Tue, 2018-09-18 12:38

The Investment Company Institute (ICI) has issued two new reports on individual retirement accounts (IRAs) that show they remain successful vehicles for retirement savers. The reports, “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007 – 2016” and “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007 – 2016,” analyze data from The IRA Investor Database, which tracks more than 17 million IRA investors.

“Though there are significant differences between traditional and Roth IRA investors, both [types of accounts] provide savers with flexibility and diversification in their retirement savings options,” says Sarah Holden, ICI senior director of retirement and investor research. “Traditional IRAs are a popular option for savers who are looking to roll over a workplace retirement plan account, while Roth IRAs are often started with contributions. Both IRAs have options that appeal to workers in various stages of their lifetime savings cycle and help millions of Americans prepare for retirement.”

The reports show that Roth IRA investors tend to be younger than traditional IRA investors. At year-end 2016, 31% of the former were younger than 40, compared with 16% of the latter. Only 26% of Roth IRA investors were 60 or older, compared with 41% of traditional IRA investors.

New traditional IRAs are typically opened by rollovers, while Roth IRAs are more often started with contributions. More than 80% of new traditional IRAs in 2016 were opened exclusively with rollovers from other tax-deferred retirement savings vehicles, and more than half of traditional IRA investors with an account balance at year-end 2016 had rollovers in their account. By contrast, 70% of new Roth IRAs as of in 2016 were opened through contributions.

IRA investors who make contributions tend to maintain their contribution activity from year to year. More than 70% of traditional IRA investors who contributed in tax year 2015 also did so in 2016. The same can be said for 80% of Roth IRA investors.

Roth IRA assets are allocated more to equities and equity funds that are traditional IRAs. At year-end 2016, 65% of Roth IRA assets were invested in equities and equity funds, compared with 53% of traditional IRAs’ assets. For both types of accounts, allocation to target-date funds (TDFs) and balanced funds was similar: 19% to Roth IRAs and 18% to traditional IRAs. But it differed with respect to bonds and bond funds, with 7% of Roth IRAs having this exposure and 9% of traditional IRAs having it.

Withdrawal activity is much lower among Roth IRA investors than traditional IRA investors. In 2016, only 4% of Roth IRA investors ages 25 or older made withdrawals, compared with 24% of traditional IRA investors.

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Categories: Industry News

Senator Murray Reintroduces ‘Women’s Pension Protection Act’

Tue, 2018-09-18 11:03

Senate Health, Education, Labor, and Pensions (HELP) Committee Ranking Member Patty Murray, D-Washington, has reintroduced legislation “to address some of the challenges families face as they plan for retirement,” especially women.

According to Senator Murray, the Women’s Pension Protection Act of 2018 (WPPA) includes a set of solutions to help strengthen women’s retirement security by addressing some of the challenges that disproportionately affect women as they plan for their financial futures.

“The legislation would strengthen consumer protections to safeguard retirement savings, improve access to retirement savings plans for long-term, part-time workers, help increase women’s financial literacy, and give support to low-income women and survivors of domestic abuse seeking the retirement benefits they are entitled to following a divorce,” Murray says.

The legislation is divided into key sections, including an introduction highlighting the fact that approximately 29% of households headed by individuals aged 55 through 74 have no retirement savings and 34% of the private sector workforce lack access to a workplace retirement plan. Senator Murray further warns that women often lag significantly behind their male counterparts in preparing for retirement—as their median retirement income in 2014 was 54% of men’s retirement income.

To address these challenges, the Women’s Pension Protection Act would extend the spousal protections that are currently available for defined benefit (DB) plans to defined contribution (DC) plans. Specifically, this provision requires a spouse’s consent for certain distributions made from a defined contribution plan as well as any designation or change of beneficiary. The provision also explicitly outlines the rights of participants and beneficiaries to bring a civil suit for violations of these new requirements—rights which Murray says are currently available for participants and beneficiaries of defined benefit plans.

The bill would further amend the minimum participation standards for certain long-term part-time workers. This provision would “allow employees to participate in a plan once they have reached the current minimum participation standards (age 21 or the completion of one year of service defined generally as 1,000 hours of service during a 12-month period) or once they have completed at least 500 hours of service for two consecutive years, if earlier.”  This provision would not apply to employees that are covered by a collective bargaining agreement provided that retirement benefits were the subject of good faith bargaining.  The provision further provides that plans that fail to permit participation for these long-term, part-time workers may be subject to a civil penalty of $10,000 per year per employee.

The legislation would establish, “in any offer for the sale of a retirement financial product or service,” that financial providers “shall provide a link to the Consumer Financial Protection Bureau (CFPB) website where the consumer shall be able to access information and resources produced by the CFPB and/or other federal agencies relating to retirement planning or later life economic security.”

Additionally, there is a provision that provides the Secretary of Labor, acting through the Director of the Women’s Bureau, to award grants of at least $250,000 to “established community-based organizations on a competitive basis in order to improve the financial literacy of women who are of working or retirement age.” 

Finally, the Women’s Pension Protection Act provides the Secretary of Labor, again acting through the Director of the Women’s Bureau and in conjunction with the Assistant Secretary of the Employee Benefits Security Administration, to award grants of at least $250,000 to “established community-based organizations on a competitive basis to assist low-income women and victims of domestic violence in obtaining qualified domestic relations orders to ensure that these women actually obtain the benefits to which they are entitled through those orders.”

Read the full text of the bill here.

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Categories: Industry News

Frontier Communications Stock Drop Lawsuit Alleges Imprudent Telecom Concentration

Tue, 2018-09-18 09:29

Lead plaintiff Mary Reidt is seeking class certification for similarly situated Frontier Communications 401(k) Savings Plan participants in a new Employee Retirement Income Security Act (ERISA) stock drop lawsuit filed in the U.S. District Court for the District of Connecticut.

This action “concerns the plan’s excessive concentration in Verizon common stock.”

By way of background, starting in July 2010, Frontier began acquiring significant capital assets of Verizon—starting with wireline operations providing services to residential, commercial and wholesale communications customers. Subsequently, Frontier has purchased broadband and fiber optic assets in certain Western states.

According to the complaint, between July 2010 and December 30, 2011, the Frontier Communications 401(k) plan received and retained approximately $150 million in Verizon stock, at that time representing over 15% of the plan’s total assets. In April 2016, Frontier acquired additional Verizon assets, and the plan fiduciary defendants allegedly invested over $200 million of additional plan assets in Verizon stock.

The lead plaintiff suggests the failure of the plan’s fiduciaries to timely liquidate the significant holdings in Verizon common stock, and the decision to concentrate plan investments in Verizon common stock, breached their “fiduciary duty under ERISA to diversify the investments of the plan so as to minimize the risk of large losses.” The plaintiff further alleges the decisions of plan fiduciaries “violated ERISA’s prudence and loyalty requirements under 29 U.S.C. § 1104(a)(1)(A) and (B).”

As a result of these breaches, plaintiff alleges, defendants caused the plan and the proposed class to suffer more than $100 million in losses.

In presenting these arguments, the lawsuit seems keenly aware of the poor record other such stock drop complaints have had in federal court since the crucial Supreme Court ruling in Fifth-Third vs. Dudenhoeffer. This is to say the lawsuit focuses its arguments for standing and remuneration more on the imprudent concentration of employer stock as opposed to alleging that fiduciaries knowingly allowed participants to buy (and continue to buy) stock at inflated valuations.

“Defendants’ failure to liquidate the plan’s Verizon common stock holdings subjected participants to additional risks because, for much of the class period, the plan was also heavily invested in AT&T common stock,” the complaint states. “Verizon and AT&T are telecommunications stocks—exposing the plan to an enormous concentration within a single sector and industry. At the end of 2014, the plan’s Verizon and AT&T common stock holdings collectively comprised more than 15% of the plan’s total assets (7.8% was Verizon; 7.3% was AT&T).”

The complaint suggests the “imprudence of defendants in holding such massive amounts of Verizon common stock is further evidenced by the fact that Verizon is a volatile stock.” According to the plaintiff, in the year prior to the plan’s new $200 million investment in Verizon stock in 2016, Verizon common stock “was approximately 31% more volatile than the stock market as a whole.”

Other allegations of wrongdoing in the complaint more closely resemble the typical stock drop arguments that have so far broadly failed to even surmount defendants’ motions to dismiss—let alone to convince a judge or jury. One such example is the following: “Defendants knew long in advance of the December 2011 and April 2016 acquisitions that Verizon stock should be sold. In light of the Verizon Stock Fund’s undiversified nature, its volatility, and the facts that it represented the largest investment in the plan, was positively correlated with another major, undiversified plan investment (AT&T company stock), and was no longer was an ‘employer security’ exempt from ERISA’s diversification requirements, defendants should have immediately commenced a process to liquidate the plan’s investment in the Verizon Stock Fund. Had they done so, all or at least most plan participants would have divested their Verizon Stock Fund holdings by the beginning of the class period or, in the case of participants acquired in 2016, at or shortly after their accounts were acquired by the plan.”

Inside details of the Verizon-Frontier M&A activity show pension carried far less telecom stock

As with other stock drop litigation, the text of this lawsuit includes substantial background information, taken from SEC forms and other regulatory filings, regarding the corporate maneuvering that went into the various deals reached by Verizon and Frontier Communications

In one section it is noted that, as a result of the spin-off and merger, Verizon was given the authority to select three directors to Frontier’s board of directors. Verizon designated Edward Fraioli, Pamela Reeve, and Mark Shapiro to Frontier’s board, and they were formally elected to the board on July 6, 2010.

“Fraioli became a member of the board’s retirement plan committee, as did Virginia Ruesterholz, an executive vice president of Verizion who was elected to the Frontier Board of Directors in August, 2013,” the complaint states. “As of January 31, 2012, Ruesterholz owned over $15 million in Verizon common stock, stock options, and stock-based units of deferred compensation and incentives.”

As is common practice, the Frontier board’s retirement plan committee oversees Frontier’s retirement plans, which includes review of the investment strategies and asset performance of the plans and the overall quality of the asset managers.

“As a result of the spin-off and merger, a portion of the Verizon Savings Plan for Management Employees was spun off to form the FCCSI Management Plan,” the complaint explains. “The spun-off portion related to employees with accounts under the Verizon Management Plan who became employees of Frontier through the acquisition. Those accounts remained under the FCCSI Management Plan until December 30, 2011, at which time the FCCSI Management Plan was merged in its entirety into the 401(k) plan.”

Between July 1, 2010, and December 30, 2011, the assets of the FCCSI Management Plan were technically not assets of the 401(k) plan, but both the 401(k) plan and the FCCSI Management Plan, along with other defined contribution plans, were held within the Frontier Communications Corporation Master Trust.

“Frontier also had a separate trust, the Frontier Communications Pension Plan Master Trust, for its defined benefit plan,” the complaint alleges. “Because defined benefit plans promise participants a set level of future benefits, the risk of investment losses is borne by Frontier in the pension plan, whereas the risk of investment losses is borne by participants in defined contribution plans like the plan.”

According to the complaint, on December 31, 2011, Verizon stock represented 15.32% of the assets of the DC Master Trust compared with 0.07% of the assets of the pension.

“As a result, the DC Master Trust was 219-times more concentrated in Verizon stock than defendants felt was appropriate for the pension plan—for which they bore the investment risk,” the complaint states. “Throughout the class period, Verizon stock was included in the S&P 500 Index, a diversified stock index tracked by numerous large-cap domestic equity mutual funds. During the class period, the S&P 500 and its diversified tracking index funds invested less than 1.5% of their assets in Verizon stock. Verizon is a telecommunications stock. The largest telecommunications mutual fund in the United States is the T. Rowe Price Comm & Tech Fund (ticker PRMTX), which invests 2.53% of its assets in Verizon stock. Thus, the plan is approximately 10-times more concentrated in Verizon than a diversified investment and 6-times more concentrated than a concentrated telecommunications investor.”

The full complaint is available for download here

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Categories: Industry News

August Saw No Above-Normal Trading in Retirement Plans

Tue, 2018-09-18 08:07

August had no days of above-normal trading, the second consecutive month this has occurred since a year ago May and June, according to the Alight Solutions 401(k) Index. During the month, 15 out of 23 days favored fixed-income funds, representing 65% of the trades. By comparison, eight days favored equities, representing 35% of the trades.

Trading inflows mainly went to stable value funds (32%), mid U.S. equity funds (20%) and large U.S. equity funds (19%). Trading outflows were primarily from target-date funds (TDFs) (38%), company stock (32%) and emerging markets funds (13%).

On average, a mere 0.013% of 401(k) plan balances were traded daily. Asset allocation in equities increased to 69.2% at the end of last month, up slightly from 68.9% at the end of July. As for new contributions, 68.1% were invested in equities, the same percentage as in July.

Asset classes with the largest percentage of total balances at the end of August were target-date funds (28%, or $58.24 billion), large U.S. equity funds (25%, or $53.43 billion) and stable value funds (10%, or $20.55 billion).

Asset classes with the most contributions in August were target-date funds (47%, or $524 million), large U.S. equity funds (20%, or $223 million) and international funds (8%, or $88 million).

Domestic equities delivered positive returns for the month, with large U.S. equities up 3.3% and small U.S. equities up 4.3%. U.S. bonds gained 0.6%. International equities lost 02.1% during August.

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Categories: Industry News

An Accurate Perception of Their Finances Eludes Many Americans

Mon, 2018-09-17 11:56

One-third of Americans do not have an accurate handle on the state of their own finances, thinking they are better or worse off than they actually are, Prudential Financial Inc. learned in its Financial Wellness Census.

This is one of a three-pronged effort “to kick-start a conversation among Americans from all walks of life about their relationship with money and its impact on their well-being,” a representative from the company says.

“Our relationship with money can affect our physical health, stress levels and state of mind, family dynamics and even our performance at work,” says Stephen Pelletier, executive vice president and chief operating officer (CIO) of Prudential’s U.S.-based businesses. “That’s why it’s so important to us as a company to hear from Americans across the country about the financial challenges and opportunities they face. Only by listening can we truly learn what people need, to help them get on the path to financial wellness and stay on the right track throughout their lives.”

The survey also found that Americans’ biggest financial worry is that they will never be able to retire and will have to continue working as long as they can hold a job. More than 50% think they will be able to achieve their financial goals, but less than 50% are on track to achieve them.

Prudential and Chadwick Martin Bailey conducted the survey among 3,013 adults.

In addition, Prudential also launched a new campaign created in partnership with Droga5 called “The State of US,” which includes a series of films that spotlight the financial challenges facing Americans, particularly young parents, women, pre-retirees and the self-employed. The stories reflect the most common financial challenges facing Americans, such as longer life expectancies, the cost of higher education and the changing nature of employment.

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Categories: Industry News