Industry News

Plan Sponsors Should Address Financial Squeeze Put on Gen X - Fri, 2019-09-13 12:56

Forty-two percent of Gen Xers are more focused on paying off debt than saving for retirement, according to research by Schwab Retirement Plan Services. The nationwide survey of 1,000 401(k) plan participants, including 368 Gen Xers, 315 Millennials and 317 Baby Boomers, found that 70% of Gen Xers feel that they are on top of their 401(k) investments but still experience financial stress while trying to meet their long-term goals.

Asked what is preventing them from saving more for retirement, Gen Xers say unexpected expenses like home repairs (38%), credit card debt (31%), monthly bills (29%), paying for their child’s education (22%) and paying off their student loans (11%).

As to what is causing the most financial stress for Gen Xers, they say it is saving for retirement (40%), credit card debt (27%) and keeping up with monthly expenses (23%).

“Plan sponsors and advisers are primarily focused on Millennials and Boomers, and rightly so, but I am not sure they call out to Generation X to offer them the help and guidance they need,” Catherine Golladay, president of Schwab Retirement Plan Services, tells PLANADVISER. “Gen X is feeling pressure on all sides. While they are in their prime earning years, they are getting close to retirement, and they are taking care of both their children and their parents.”

The first thing retirement plan providers can do to help alleviate Generation X’s financial stress is to make sponsors and advisers aware that this generation needs their help, Golladay says. “Specifically, they are struggling with debt and budgeting and want a holistic view of their finances. Many plan sponsors and advisers are in a position to help Gen Xers with these goals through financial wellness programs that cover paying down debt, budgeting, establishing emergency savings and how to invest their 401(k).” It is also important to offer them advice through managed accounts, Golladay says.

Chad Parks, founder and CEO of Ubiquity Retirement + Savings, and himself a Gen Xer who is also feeling competing financial priorities, says the first place advisers and sponsors can start is by offering Gen Xers account aggregation, so that they can see where their money is going. From there, they can establish a budget. “I would challenge Gen Xers that for the sake of their future, they make retirement savings the first line item in their budget, even if it is only $300 or $500 a month.”

Mark Grimaldi, founder and president of Navigator Money Management, says that in spite of their competing priorities, Gen Xers should put themselves first, and then their parents and then their children. “There’s an unspoken belief among many retirement planners that Generation X consists of ‘those younger people,’” Grimaldi says. “They’re actually in their 40’s and 50’s, so some are just 10 years away from retirement. They have mortgages, second homes, kids going to college and elderly parents. They’re even thinking about long-term care policies. So, don’t underestimate their competing needs.”

According to Schwab’s research, 58% of Gen Xers say that their 401(k) is their largest or only source of retirement savings. This is true for 68% of Millennials and 48% of Boomers. While Gen Xers saved slightly more in their 401(k)s last year than the other two generations surveyed ($9,499 on average), this is only about half of the 2018 IRS contribution limit of $18,500 for those younger than 50. Boomers saved an average of $9,433 and Millennials, $7,257.

On average, Gen Xers think they will need $1.81 million for a comfortable retirement, while Millennials say the figure is $1.78 million and Boomers, $1.51 million.

Thirty-one percent of Gen Xers have taken out a loan from their 401(k), and of this group, 61% have done so more than once—higher than the other two generations. Forty-one percent do not know which investments in their 401(k) plan to select to have enough for retirement, and only 28% say they are very confident in making 401(k) investment decisions on their own.

They say they want help with calculating how much they need to save for retirement (41%),  determining at what age they will be able to afford to retire (38%) and how to invest their 401(k) assets (37%).

It is critical that financial wellness programs aimed at Gen Xers address the debt they are carrying, Golladay says. And since so many of them have taken out one or more loans from their 401(k), advisers and sponsors need to educate them about the negative ramifications of doing so, and help them create emergency savings.

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Categories: Industry News

Retirement Plan Providers Can Get Plan Sponsor Website Audit - Fri, 2019-09-13 12:19

Corporate Insight announced the launch of its Defined Contribution (DC) Plan Sponsor Digital Audit.

The new audit service provides an in-depth assessment of the digital user experience offered by retirement plan recordkeepers to plan sponsors, measuring their plan sponsor-facing websites against key competitors. The audit identifies competitive strengths, weaknesses and opportunities for improvement, enabling recordkeepers to set the right development priorities and deliver a best-in-class digital experience to sponsors.

Six core categories are featured:

  • Education and Help Resources;
  • Participant Data & Management;
  • Plan Administration;
  • Plan Information;
  • Reporting; and
  • Website Design and Settings

The audit framework, grade definitions and criteria are based on industry best practices identified by Corporate Insight’s Retirement Plan Monitor—Institutional research service, which tracks and analyzes the plan sponsor websites of 15 leading recordkeepers. Its latest survey found 91% of plan sponsors say that the site experience is either of equal or greater importance to the participant site experience.

Andrew Way, director of research, annuity, life and retirement at Corporate Insight, says recordkeepers have put far more work into updating participant websites than they have sponsor websites. “Sponsors hold these websites up to the high quality service they get from non-financial websites, such as Google. If [recordkeepers] don’t offer an intuitive plan health dashboard or haven’t updated it in a few years, they need to do so.”

“When it comes to digital platform importance, our survey found that the quality of the plan sponsor portal can have a greater impact on the choice of recordkeeper than the quality of the participant digital experience,” says Michael Ellison, president of Corporate Insight. “We believe that this audit can play an instrumental role in helping clients optimize their plan sponsor digital experience, leading to greater client retention.”

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Categories: Industry News

Retirement Industry People Moves - Fri, 2019-09-13 12:10

Art by Subin Yang

Seyfarth Shaw LLP Announces ERISA Expert as Partner

Seyfarth Shaw LLP has announced new partner, Jeffrey Bauer, to the Employee Benefits & Executive Compensation department in Chicago. Bauer joins from Dorsey & Whitney LLP, where he was a partner in its Employee Benefits group in Minneapolis.

Bauer’s practice is focused on qualified and nonqualified retirement plans, including employee stock ownership plans (ESOPs), employee retirement income security act (ERISA) fiduciary law and executive compensation. He represents a broad range of employers, including private and public companies, government entities, and nonprofit organizations, on the design, operation and termination of all types of benefit plans and compensation arrangements.

As a certified public accountant, Bauer often works with employers and fiduciaries on their fiduciary obligations under ERISA and counsels company stakeholders on the applicable ESOP laws involved in the purchase and sale of employer securities. In addition, he is knowledgeable in the many compensation and benefits issues that frequently result from ERISA and tax litigation, as well as mergers and acquisitions.

Bauer earned his J.D. from Stetson University College of Law and his LL.M. in Taxation from Georgetown University Law Center. He received a master’s degree in taxation and a bachelor’s degree in accounting from the University of Central Florida.

OneAmerica Adds Regional VP

Greg Poplarski will lead OneAmerica’s central division as a regional vice president, joining Mark Glavin, who continues as the west region RVP, and Todd Smiser, who is staying on as east region RVP.

Poplarski succeeds Pete Schroedle, who was promoted in December 2018 to lead sales for the small and mid-market as the company restructured under new Retirement Services President Sandy McCarthy. Schroedle retained his central region responsibilities in the position until now.

Poplarski comes to OneAmerica from Allianz Global Investors, where he served as a Midwest-based investment specialist in the retirement space. Prior to Allianz, he served in sales management roles with Prudential Retirement and Merrill Lynch.

Mercer Appoints Western Region Leaders

Mercer has appointed Don Bobo to office leader for Southern California and Trudi Sharpsteen as partner, Health & Benefits and leader of the Large and Jumbo Employer Team, west market. Bobo will report to Macaire Pace, west market CEO and Sharpsteen will report to Maura Cawley, Large and Jumbo Employer Team leader, U.S.

Prior to this role, Bobo served as office leader for the Mountain States, where he was responsible for Mercer’s business across four offices and seven states. He has more than 26 years of domestic and international experience in human resources, both as a consultant and practitioner. Bobo earned his bachelor’s degree from California Poly, San Luis Obispo and his master’s from Houston Baptist University.

Sharpsteen has more than 30 years of experience at both national benefits consulting firms and health plans. She has served the large and jumbo employer community for the majority of her career. Before joining Mercer, she served as area vice president at Blue Shield of California refining strategy for the national accounts market. Prior to that role, she was a senior consultant at Willis Towers Watson, serving on the West Division Leadership Team.  She earned her bachelor’s degree at University of California, Berkeley.

Business Leader Joins Mercer’s Northern California Health Team

Mercer has added Scott Grenn as office business leader, Health in Northern California. In this role, he will consult with clients, drive revenue growth and build Mercer’s brand and market awareness across Northern California. Grenn will report to Trisha Tyler, west market business leader, Health. He is based in Mercer’s San Francisco office.

Grenn has more than 25 years of industry experience, including extensive work in the large employer market. Prior to this role, he was a principal and senior consultant at Mercer with a primarily focus on long-term benefit strategy, design and execution. Before joining Mercer, Grenn spent nine years with BridgeStreet Consulting Group. He earned his bachelor’s degree in finance from California State University, Chico.

Collective Health Announces Two Hires

Collective Health has hired Haleigh Tebben to oversee partnerships across Collective Health’s business and Marianna Holt as new director of Benefits.

Previously, Tebben was a partner at Mercer where she co-led the health and benefits practice in the broader west market. At Collective Health, Tebben will oversee the new Platform Partnerships & Strategy (PP&S) unit. Collective Health reported Tebben’s role as chief business development officer, however noted the title is subject to change.

Holt’s past experience includes director of benefits at Lululemon, as well as Uber.

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Categories: Industry News

Spooked Participants Flee Into Inflated Fixed-Income - Fri, 2019-09-13 11:21

August 2019 proved to be the 19th month in a row during which net 401(k) trades have flowed from equities into fixed income, according to the newly updated Alight Solutions 401(k) Index.

Followers of the index will know that when equity market become volatile, the index tends to see trading activity spike towards fixed-income. Index data shows this has certainly been the case to-date in 2019.

At the start of the year, as the market had been going up from early year lows, people had mostly been selling out of equities and into fixed income. This represented the “correct” trading behavior of buying low and selling high. However, the second half of the month of October brought renewed volatility in U.S. and global equity markets. After several weeks featuring relatively large price swings for major indices including the DJIA, S&P 500 and the NASDAQ, 401(k) trading activity towards fixed income jumped on Monday, October 29. That day, trading was 2.26-times the normal level, according to the Alight Solutions 401(k) Index.

Then, on August 5th, the index again reported a high level of trading activity—2.78-times the normal level—towards fixed income. The trading spike came after a two-day drop in the S&P 500 of nearly 3.7%. At the time, Rob Austin, vice president and director of research for Alight Solutions, told PLANSPONSOR the spike in trading activity was about as surprising as it was well-timed.

“The money was going out of depressed equities and into inflated fixed income,” Austin explained. “So, it’s disappointing.”

Now that Alight Solutions has published the full August numbers, the extent of the trading towards fixed income is clear. Overall, 16 of 22 trading days in August favored fixed income funds. Net trading activity for the month was the highest in 2019, at 0.24% of balances. Additionally, there were six above-normal days, the highest monthly total since December 2018. 

Important to point out is the fact that these (likely ill-timed) trades are still occurring in a small fraction of accounts. The average day of trading as measured by the Alight Solutions 401(k) Index is 0.016% of balances trading per day.

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Categories: Industry News

There’s a New IRS Mailing Address Plan Sponsors Need to Know - Fri, 2019-09-13 09:59

Effective immediately, the mailing address for Employee Plans (EP) submissions for determination letters, letter rulings and Individual Retirement Arrangement (IRA) opinion letters is:

Internal Revenue Service
7940 Kentucky Drive
MS 31A
Florence, KY 41042

The IRS says submissions that have already been sent to the previous address will be forwarded to this new address.

Specifically, submissions affected by the address change include:

  • Form 5300, Application for Determination for Employee Benefit Plan;
  • Form 5306, Application for Approval of Prototype or Employer Sponsored Individual Retirement Arrangement (IRA);
  • Form 5306-A, Application for Approval of Prototype Simplified Employee Pension (SEP) or Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA Plan);
  • Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans;
  • Form 5308, Request for Change in Plan/Trust Year;
  • Form 5310, Application for Determination Upon Termination;
  • Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities; Notice of Qualified Separate Lines of Business;
  • Form 5316, Application for Group or Pooled Trust Ruling;
  • Letter rulings under Revenue Procedures 87-50, 90-49, 2003-16, 2010-52, 2017-55, 2017-57, or 2019-4; and
  • Nonbank trustee approval letters under section 3.07 of Rev. Proc. 2019-4.

The address for pre-approved plan submissions under Rev. Proc. 2017-41 has not changed from the address stated in Rev. Proc. 2019-4.

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Categories: Industry News

Parties in MIT Excessive Fee Lawsuit Agree to Settle - Thu, 2019-09-12 14:07

The plaintiffs and defendants in an excessive fee case against the Massachusetts Institute of Technology (MIT) have filed a joint motion to stay all trial dates, saying they have reached an agreement in principle to settle the case.

No settlement details were given. The motion says the plaintiffs anticipate needing 45 days to file a motion for preliminary approval of the settlement.

Just this week, the plaintiffs requested leave to file new evidence of MIT President Rafael Reif’s unique knowledge related to the case. Last week, U.S. District Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts moved forward most claims in the Employee Retirement Income Security Act (ERISA) lawsuit, but granted summary judgment to the defendants for a claim alleging a prohibited transaction between MIT and Fidelity Investments.

Trial was to begin on the case September 16.

Attorneys recently pointed out there has actually been relatively little helpful legal insight published by the courts, due to the fact that many Employee Retirement Income Security Act (ERISA) cases end with settlements, while others are dismissed early on for pleading deficiencies.

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Categories: Industry News

Investment Product and Service Launches - Thu, 2019-09-12 13:00

Art by Jackson Epstein

Wilmington Trust and Federated Offer CITs to DC Clients

Wilmington Trust and Federated Investors, Inc. have collaborated to provide collective investment trusts (CIT) for defined contribution (DC) plan clients.

The collaboration allows Wilmington Trust to broaden its product spectrum by offering the Federated High Yield Bond Collective Investment Fund and the Federated Prime Cash Collective Investment Fund, which will be the first prime cash vehicle from Wilmington Trust.  

CITs are pooled investment vehicles maintained by a bank or trust company exclusively for qualified retirement plans. They offer benefits similar to mutual funds, but at generally lower costs, making them an attractive option for plan sponsors to consider in carrying out their fiduciary responsibilities. CITs can also be tailored to fit unique investment goals and risk appetite, offering more innovative investment opportunities and customized options than before.

“Our collaboration with Federated marks another milestone for the CIT industry, and for our efforts as fiduciary trustee to deliver solutions that help clients meet their long-term goals,” says Rob Barnett, group vice president and head of Retirement Distribution at Wilmington Trust. “The modern-day CIT is not your grandfather’s investment fund and today offers scalability, flexibility, customizable options and transparency that empowers advisers, plan sponsors and participants to make fully informed decisions. We are on a mission to increase education among advisers and investors about the benefits of CITs and to advance the widespread adoption of CITs across the industry.”

Cohen & Steers Closes Real Estate Fund Share Classes

Cohen & Steers is closing its share classes of the Cohen & Steers Real Estate Securities Fund (Class A: CSEIX; Class C: CSCIX; Class I: CSDIX; Class R: CIRRX; Class Z: CSZIX; Class F: CREFX) to new investors, effective at the close of business on November 8. The fund will remain open to its current shareholders, participants in qualifying retirement plans, and existing intermediary-sponsored discretionary models.

As of August 31, the fund had assets under management of $6.0 billion and carried a five-star Morningstar rating. It ranked in the top decile of Morningstar’s U.S. Real Estate fund category for the five- and 10-year periods, and in the top quartile for the one- and three-year periods.

“Striving to deliver consistent outperformance is central to our competitive advantage and reputation,” says Joseph Harvey, Cohen & Steers president and chief investment officer. “The fund invests across the REIT market-capitalization spectrum and opportunistically invests in international real estate securities, real estate fixed income securities and options. Closing the fund to new investors should allow us to maintain an asset level that will preserve our ability to meet the fund’s investment objectives.”

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Categories: Industry News

Employer Health Benefit Costs to Rise 6.5% in 2020 - Thu, 2019-09-12 12:35

U.S. employer-provided medical benefit costs are forecasted to rise 6.5% in 2020, outpacing general inflation by 3.8%, according to the 2020 Global Medical Trend Rates Report released by Aon plc.

The increase for U.S. employer-sponsored medical plans expected next year is due to a combination of higher costs for specialty drugs, moderate price increases for care and flat or decreasing health utilization.

Aon’s report confirms the increasing impact of non-communicable diseases on health care costs globally. In the U.S., musculoskeletal, cancer, cardiovascular, diabetes and high blood pressure were the most prevalent health conditions driving health care claims. Aon’s report also confirms the growing prevalence of risks from unhealthy personal habits in the U.S., such as physical inactivity, obesity, bad nutrition, aging and excessive alcohol and substance abuse.

“Many of the risk factors lead to chronic conditions with long-term medical costs that make them difficult to treat and result in long-term medical cost increases,” says Tim Nimmer, Aon’s global chief actuary for health solutions. “As a large portion of our waking hours are spent on the job, the workplace is a logical place to create a healthier culture and change behaviors. Our goal is to guide employers as they become more critical in helping individuals and their families to take a more active role in managing their health, including participating in health and well-being activities and better managing chronic conditions.”

Of the health care initiatives large employers participating in the National Business Group on Health’s (NBGH) latest Health Care Strategy and Plan Design Survey cited, implementing virtual solutions (51%) and developing a more focused strategy to address high-cost claims (39%) were at the top of the list.

Increasingly, employers are working with partners to develop innovative solutions and address emerging challenges. Another reason for increased reliance on partners for 2020 is necessity, especially in the area of high-cost specialty therapies. Some therapies already on the market are in excess of $1 million per patient, and it is likely that new drug therapies will cost even more. As a growing number of high-price drugs from the pipeline are approved, the need to work closely with partners on how to finance and manage these therapies will only increase, the NBGH survey report says.

As for decreasing health care utilization, Lively found many employees don’t understand health benefits—including that most insurance covers preventive care. Better education can lead employees to use benefits correctly and become healthier, it says.

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Categories: Industry News

Public-Sector Employees Shouldering More Risk in Retirement Plans - Thu, 2019-09-12 12:15

Many people in the private sector may not realize that for the vast majority of employees of state and local governments, both participation in a public pension plan and contributing toward the cost of the pension are mandatory terms of employment.

In a recent report, the National Association of State Retirement Administrators (NASRA), says since 2009, more than 35 states increased required employee contribution rates. As a result of these changes, the median contribution rate paid by employees has increased to 6% of pay for employees who also participate in Social Security, and has remained steady at 8% for those who do not participate in Social Security.

Contribution requirements for certain employee groups in some states that previously did not require some employees to make pension contributions were established in recent years for newly hired employees, existing workers, or both.

NASRA says a growing number of states are exposing employee contributions to risk. More states maintain plans in which the employee contribution rate may change, depending on the pension plan’s actuarial condition or other factors. NASRA’s report, “In-Depth: Risk-Sharing in Public Retirement Plans,” describes a range of variable employee contribution rate arrangements, including those based on the plan’s actuarial funding level, the plan’s normal cost, and a rate that is tied to a percentage of the employer rate.

In addition, an increasing number of public employees now participate in hybrid retirement plans, which combine elements of defined benefit and defined contribution plans, and that transfer some risk from the employer to the employee. In one type of hybrid plan, known as a combination defined benefit-defined contribution plan, employees in most cases are responsible for contributing all or most of the cost of the defined contribution portion of the plan.

Data compiled by NASRA, based on U.S. Census Bureau data, shows in the period from 1989 to 2018, investment earnings made up 63% of public pension’s sources of revenue, with employer contributions making up 26% and employee contributions 11%.

The report, “Employee Contributions to Public Pension Plans,” may be downloaded from here.

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Categories: Industry News

Inherent Murkiness of ERISA Litigation Prevents Progress - Thu, 2019-09-12 11:13

During a conference call with retirement industry analysts and reporters, Mayer Brown attorneys Nancy Ross and Brian Netter dove into the labyrinth of Employee Retirement Income Security Act (ERISA) lawsuits.

Netter is a partner in the Washington, D.C., office of Mayer Brown’s litigation and dispute resolution practice and co-chair of the ERISA Litigation practice. Ross is a partner in Mayer Brown’s Chicago office and also co-chair of the ERISA Litigation practice.

According to the pair, there is an ongoing proliferation of lawsuits that continue to be filed under ERISA—about fees being too high, about inappropriate investment options being offered by plans, and about conflicts of interests alleged to exist between plans and their service providers. Plaintiffs in the cases have named as defendants both individuals and different types of institutional entities—from employers to recordkeepers to mutual fund companies.

“To date, there has actually been little direction or guidance published in these cases by the courts,” Ross suggests. “This is because the majority of these cases have settled, while others are dismissed very early on for pleading deficiencies. That’s the general pattern we have seen. Those cases which are not dismissed go into an expensive discovery process, which often means settlement talks begin in earnest.”

In Ross’ estimate, one negative outcome of all the litigation is that plan sponsors feel they cannot embrace innovative plan designs or investment options without fear of litigation. One positive consequence, she says, is that fiduciaries running these plans have come to better understand their risks and responsibilities.

“A recent development in this long-running litigation trend is the proliferation of plaintiffs’ lawyers pursuing these types of claims,” Netter says. “When these lawsuits first became popular, it was only a few law firms active in the space. Today, more and more firms are trying to get in on the action, attracted by the large settlements. Their playbook is the same: survive a motion to dismiss and subject the defendant to a very expensive discovery process. It creates incentive to enter into a large settlement.”

Ross and Netter suggest that, for ERISA litigation defendants, the dismissal stage is very significant, yet it is very unpredictable. This is because courts across the U.S. differ in their willingness to dismiss cases outright. Judges for the most part are also wary of seeing their dismissals appealed and overturned, so they more often allow repleading or even full discovery on claims that, in the opinion of defense attorneys, are wholly meritless.

Netter says judges appear particularly adverse to dismissing ERISA cases that allege not just imprudence by plan fiduciaries but actual disloyalty and/or self-dealing.

Looking away from the defined contribution plan side of the marketplace, Netter adds, there are numerous pension-focused lawsuits as well. “Most companies have frozen their legacy pension plans, but there is still a lot of money in those plans waiting to be distributed,” he explains. “For the most part, the issues raised in these cases have to do with the actuarial assumptions associated with disbursement.”

In simple terms, when an individual in a pension plan approaches retirement, he will have some choices in terms of taking the money. Those might be a lump sum, a single life annuity that will pay monthly for life, or a joint/surviver annuity that will make payments until the last spouse dies. Under ERISA, there are rules for converting amounts among these options, with the goal of ensuring the different payment options are “actuarially equivalent.” The two primary assumptions going into this analysis are, first, the interest rates today and projected into the future, and second, the mortality assumptions in terms of how long the payments are expected to last.

“In the last 50 years, the mortality tables have gotten longer, and so these lawsuits allege that the plan sponsors of pensions are purposefully and improperly using outdated mortality tables that improperly assume the participants will receive fewer annuity payments in the course of doing one of these conversions,” Netter explains. “If the plaintiffs begin to see some success in these sorts of lawsuits, the same sorts of theories can be directed against dozens or hundreds of pension plan sponsors.”

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Categories: Industry News

Increasing Employers’ Return on Health Benefit Spend During Open Enrollment - Thu, 2019-09-12 10:55

In past years, employers had the idea that the more employees who use high-deductible health plans (HDHPs), the better the cost savings, but that push backfired, says Kim Buckey, vice president of DirectPath, a health care consultant for large employers, in Boston.

“Participants see the high deductible and panic. Employers may have seen cost savings in the short term because participants were not using the plan. But not getting regular checkups and treatments lead to major health issues down the road that drive up costs,” she says. “Now employers are focusing on getting employees in the right plan for them.”

The key to increasing employers’ return on health care benefit spend is helping employees be as healthy as they can be, according to Tracy Watts, a partner and leader for U.S. health care reform at Mercer in Jacksonville, Florida.

But, it’s not that employers just want to help employees be healthy for cost reasons. “Sometimes employees get skeptical about who has their best interest in mind, but employers work hard to offer special programs designed to help employees get healthier. It’s disappointing if employees don’t participate or engage in enrolling in a health care plan” Watts says. “Employers should stress that they want participants to get healthy and get the right medications, because a healthy employee is a happy employee, and if employees’ family members are healthy, they are also more likely to be happy.”

Getting employees into the right plan

According to Buckey, employers should focus on general education about how health benefits work. Because it is such a confusing topic, she notes, studies have shown people spend much more time researching cell phones for a purchase than evaluating health benefits.

“Employers will save in both the short and long term when employees understand how to choose the plan that is right for them,” she says. “If they don’t understand, they tend to take easy way out: make no change at all, rolling over their prior year’s election; ask friends what they sign up for and do the same; or go with cheapest option, which may end up not really being the cheapest.”

Buckey says the biggest thing is focus to focus on, “What’s in it for me?” Plan sponsors should make clear to employees that the benefit of researching options is to ensure an employee and his family’s heatlh is protected.

Bob Armour, chief marketing officer (CMO) at Jellyvision in Chicago, calls this WIIFM, and it can be different for different people. Plan sponsors should craft a different WIIFM for different groups. For example, he says, Millennials want to be part of something and are always looking for free money, someone new to the company will have a different WIFFM than someone close to retirement, etc.

“At Jellyvision, we have a statement that plan sponsors need to approach open enrollment like a marketing event, and use the basic tenets of that to get people to turn out—and excited about turning out,” Armour says. To do that, he suggests plan sponsors fashion motivating messages. “When plan sponsors take a rinse-and-repeat approach, employees end up thinking, ‘This is the same old thing, so I’m just going to stick with what I’ve selected because it seems to work for me.’”

According to Armour, there are two primary motivators for messaging for any event—love and fear. People love making the right choices, love knowing their family is secure and love saving money. On the other hand, people fear missing out on the opportunity to choose for themselves rather than have something chosen for them, and they fear missing out on benefits others are getting.

Armour adds that the message can also be flipped from something employees have to do to one of the biggest components of their financial wellness.

Decision support

DirectPath advocates for coaching or decision support tools, Buckey says. “An employer can sign up with us and arrange to have benefit educators available to employees either on site or via telephone. During 20 minutes with employees and spouses or significant others, they can ask any question no matter how embarrassing, which they wouldn’t ask in a group meeting. The benefit educator will present all options available to the employee and make sure they understand them, then help them through the decision making process.”

According to Watts, tools that pull in prior claim history and show what out-of-pocket costs will be under each plan are very effective. She says most tools today have a way for employees to simulate their circumstances—they can put in an estimate how many doctor office visits or prescription refills they expect in the next year, but others automatically bring in data from prior claims.

Other cost savings for employers

Armour points out that employers incur costs from printing health benefit education and open enrollment materials, traveling to different locations to meet with employees, and having productive workers moved to other tasks during open enrollment. They should consider whether there are ways to cut down on those expenses.

Plan sponsors should also set goals for what they want to get out of communication materials and education efforts; for example, how much participation they want to get in their HDHP. “CFOs are not going to be pleased with human resources staff just doing communications; they want to know how it affects the bottom line,” he says.

Armour adds that, unlike defined contribution retirement plans for which employee deferrals have no cost benefit to employers, there is a cost benefit to employee contributions to health savings accounts (HSAs). “Half of the FICA tax that employers would pay from an employee’s salary doesn’t get taken from employer. This saves employers 7.5 or 7.65 cents per dollar,” he says. “Tax benefits resonate with employees, but also with the finance folks in the company.”

Armour suggests the messaging to participants should be: “You’re going to have health expenses between now and the end of your life no matter what, so why not pay at a discount using HSAs.

“Past surveys have shown that employees who feel their employers benefits communications are effective are far more satisfied with their jobs (and as such, are more likely to be productive and less likely to leave)—having a real impact on the employer’s bottom line. Interestingly, even companies with below-average benefits but effective communications tend to have a high employee satisfaction level,” says Buckey.

Post enrollment education

For employers and employees to realize health benefit savings, employees need to maximize the use of their benefits. According to Watts education about how to get the most out of their health plans and free offerings by employers is great for after open enrollment and all year long.

Buckey says employees should understand they can save money on premiums and total cost of plan by making the right decisions. For example, they can go to an urgent care facility instead of and emergency room, or they can shop prescription drug prices.

“One of our other lines of business is transparency,” she says. “An employee of our client can call and say he needs an MRI, and we provide a report with prices at different facilities.”

Both Buckey and Watts point out that many employees don’t understand that preventive care is covered and should be reminded of that.

Watts adds that if more specialized networks available, such as accountable care organizations (ACOs) or narrow networks, employers should remind employees how using these networks will bring savings to them.

Employers should also promote low-cost or no-cost types of care they offer, such as nurse lines or telemedicine. In addition, Watts says, many employer plans now offer special support services for people with certain chronic conditions—diabetes, blood pressure, asthma—designed to help employees be as healthy as they can be.

And Watts has seen programs designed to help people get expert medical opinions—something different from a second opinion. “When an employee gets a super scary diagnosis or has a condition for which he has gone to several doctors and is not getting better, he can be referred for an expert medical opinion.

“Employers need to talk about ways to take advantage of health benefits a lot—not just at open enrollment,” Watts says. “People forget about things. It’s one thing to offer a program, but it’s another to make sure people are of aware and know how to use them.”

The post Increasing Employers’ Return on Health Benefit Spend During Open Enrollment appeared first on PLANSPONSOR.

Categories: Industry News

MIT ERISA Lawsuit Plaintiffs Seeking More Information About Gifts From Fidelity - Wed, 2019-09-11 11:11

The plaintiffs in an Employee Retirement Income Security Act (ERISA) lawsuit alleging mismanagement and disloyalty on the part of Massachusetts Institute of Technology (MIT) defined contribution retirement plan fiduciaries have requested leave to file new evidence of MIT President Rafael Reif’s unique knowledge related to the case.

The plaintiffs say that new evidence came to light after they filed an opposition to the defendants’ Motion in Limine 2 seeking to prevent the testimony of Reif and former chairman John Reed.

According to the court document, in response to revelations that improper donations were received by MIT from the now-deceased financier Jeffrey Epstein, who was involved in a criminal investigation, Reif addressed what MIT’s policy for improper donations would be in the future. He also “asked MIT’s General Counsel to engage a prominent law firm to design and conduct [a thorough and independent investigation].”

The plaintiffs also noted that in an earlier letter to the MIT Community, Reif said “decisions about gifts are always subject to longstanding Institute processes and principles” and “despite following the processes that have served MIT well for many years, . . . we made a mistake of judgment.” They contend this new declaration reveals that Reif is uniquely responsible for the oversight of MIT employees and the investigation, compliance and enforcement of conflict of interest policies related to donations.

The plaintiffs are seeking to inquire about whether the policy changes Reif instructed the committee to investigate include donations to MIT from MIT Supplemental 401k Plan vendors paid by employees’ retirement assets. “His failure to initiate the same type of investigation related to Fidelity’s gifts and donations to MIT, both today and in the past, is something to which only Reif can testify,” the plaintiffs state.

They also note that two of Reif’s subordinates received gifts from Fidelity and instructed their subordinates to stop all actions related to the plan’s payment of fees to Fidelity. The plaintiffs point out that one of Reif’s subordinates did not disagree with an email stating that MIT expected large donations after retaining Fidelity as the plan’s service provider.

“These and other disturbing engagements with the Plan’s primary service provider, Fidelity, went uninvestigated and unchecked,” the plaintiffs state. They add that they intend to seek injunctive relief preventing MIT from hiring vendors for the plan that are donors (or foundations controlled by common ownership with the vendor) or accepting donations from existing vendors to the plan.

U.S. District Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts last week moved forward most claims in the lawsuit, but granted summary judgment to the defendants for a claim alleging a prohibited transaction between MIT and Fidelity Investments.

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Categories: Industry News

Greystar Moves to Compel Arbitration of ERISA Complaint - Wed, 2019-09-11 10:43

Greystar Management Services, L.P. has filed a Motion to Compel Arbitration and Dismiss the Complaint with the U.S. District Court for the Western District of Texas in a case alleging it breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by allowing excessive administrative and investment fees to be charged.

Greystar argues that the plaintiff signed a Mutual Agreement to Arbitrate Claims that not only requires arbitration of her claims against Greystar but delegates to the arbitrator the power to decide questions regarding the applicability and enforceability of the agreement. In addition, it says the agreement contains a class action waiver foreclosing the plaintiff from bringing any class or collective action.

According to the motion, in July 2016, Greystar implemented a new policy requiring all new and existing employees to enter into the Arbitration Agreement as a condition of employment with Greystar. All Greystar employees were given notice of the required Arbitration Agreement by email four times between July and September 2016. To facilitate employees’ review of the Arbitration Agreement, the Information Technologies (IT) department at Greystar created a module on Greystar’s employee training portal through which all employees could review the Agreement in full and either accept or decline the Agreement.

The motion further states that on August 1, 2016, as a condition of her continued employment, the plaintiff logged in to the employee portal using her Greystar credentials and assented to the Arbitration Agreement by clicking “I agree” on the appropriate screen in the portal. The plaintiff later confirmed by email to her supervisor that she and all other employees at her property had accepted the agreement. Greystar subsequently terminated any employees who had not accepted the Arbitration Agreement by October 1, 2016.

Specifically, the Agreement provides: “Except for the claims expressly excluded by this Agreement, both you and the Company agree to arbitrate any and all disputes, claims, or controversies (claim) that the Company may have against you, or that you may have against the Company and/or its parent corporation, affiliates, subsidiaries, divisions, officers, directors and agents thereof, which could be brought in a court of law, including, but not limited to, all claims arising out of or relating to your employment with the Company and/or the end of your employment with the Company.”

Greystar adds that the Arbitration Agreement also provides that “all claims must be pursued on an individual basis only,” and contains an explicit waiver by the plaintiff of any right to bring a class or collective action against Greystar.

The company contends that filing the class action lawsuit was in violation of the plain language of the Arbitration Agreement. On September 4, 2019, Greystar reminded her of her Arbitration Agreement and asked that she withdraw the complaint and proceed with arbitration, but she has not.

Greaystar says the Federal Arbitration Act (FAA) sets forth a “strong federal policy in favor of enforcing arbitration agreements.” As a result, “a court’s sole task is to determine whether a valid arbitration agreement has been presented and, to the extent the question is not delegated to the arbitrator, whether the claims alleged are arbitrable,” it adds. “Indeed, this Court’s task is particularly straightforward given that the Arbitration Agreement provides that the arbitrator, rather than a court, should decide questions of arbitrability.”

The move by Greystar comes after the 9th U.S. Circuit Court of Appeals in August issued a ruling in the Michael F. Dorman et al vs. The Charles Schwab Corp. et al case that Schwab could enforce its retirement plan’s arbitration clause requiring participants to file individual claims and to waive class-action claims.

Legal sources have said that the 9th Circuit’s ruling leaves unanswered questions, and arbitration is not the perfect option plan sponsors may think.

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Categories: Industry News

Edmit and NFP Create College Financial Planning Offering - Wed, 2019-09-11 10:27

Software and student loan advice provider Edmit has partnered with insurance broker and consultant firm NFP to provide families with access to college financial planning.

The partnership offers NFP clients access to Edmit’s advisers and online tools, including Edmit Plus, and looks to assist those families new to the college search process by determining best value and return on investment (ROI), and understanding how to pay for tuition via scholarships, financial aid, student loans and work study.

“Edmit was founded because college is one of the biggest financial decisions we make in our lives, but it’s hard to get advice on how to do that,” Sabrina Manville, cofounder of Edmit, tells PLANSPONSOR. 

Edmit works with families to go through the different options before selecting a school of choice. This includes considering student loans, calculating cost and scholarship estimates, and learning about resources to pay for college, according to Manville. Other offerings include personalized advice and estimates on the affordability for each school. Clients of NFP will receive a special pricing for the benefit, which will be based on employer size, according to Manville.

The objectives of the new partnership align with a recent study by Fidelity Investments, which found that 47% of Americans advise future college students to do more research on saving, scholarships and grants to decrease out-of-pocket cost. Other recommendations include saving as early as possible for college (37%), understanding the financial toll of borrowing student loans (34%), and acquiring as little debt as possible (34%). The “College Savings: Lessons Learned” study also highlights the importance of a 529 savings account; only 17% in the study had opened one before attending college.  

When asked how they went about affording higher education, 41% of respondents say they had to cut back on other expenses; 38% went back to work or acquired a second job; and 29% lived at home and commuted instead of living in a dormitory. A small number of others packed more classes in their semesters to graduate earlier (13%) and some took online courses for class credit (17%).

Another factor when planning for college is the importance of communicating as a family. The study finds that for many respondents, family conversations surrounding college funding remain taboo. Only one in four participants suggest discussing these finances with parents and family early on in the college planning process. Fidelity Investments recommends families speak to an adviser or create a plan of their own.

The Edmit and NFP partnership hopes to work with those families cautious to discuss their college planning finances. The college planning process—minus the finances—is stressful enough, says Manville. Discussing options opens employees up to their own financial situation, while understanding the best choices and goal targets for them.

“We’ve seen stories of how expensive college is and how difficult college is,” says Manville. “So we work with families as they’re thinking about where to go to college, and find a college where they can take the right loans for the right school.”


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Categories: Industry News

Real Estate Could Be a Prudent Investment Choice for DC Plans - Tue, 2019-09-10 13:11

“While investments in real estate have long been common for defined benefit plans, more plan sponsors are turning to property markets to diversify their defined contribution (DC) portfolios,” Thomas M. Anichini, CFA, chief investment strategist at GuidedChoice, a digital investment advisory firm, wrote in a blog post.

Aside from capital market assumptions, he noted, investors cite several common considerations for including a dedicated allocation to real estate, including: inflation hedging, portfolio diversification, high tangible asset value, competitive risk-adjusted returns and attractive and stable income returns. “A substantial portion of the world’s wealth consists of property. It would seem obvious that real estate would be a part of a long-term investment portfolio,” Anichini said.

A new survey from of 2,000 Americans between the ages of 35 and 65 examines which investment option they consider to be the safest for long-term retirement investing. According to the findings of the survey, when asked which option they would choose from, 22.4% of all respondents selected real estate as the safest long-term investment for retirement—the top choice. When demographic filters were applied to the survey results, 25.1% of respondents between the ages 45 and 54 selected this investment option.

Very few defined contribution (DC) plans invest directly in real estate, according to Anichini. He added that, as a result, the only type of real estate investment typically available within a DC investment menu is a REIT. REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors. These companies have to meet a number of requirements to qualify as REITs. Most REITs trade on major stock exchanges.

According to Anichini, REITs perform a lot like small/mid-cap value stocks than like private real estate. He said this is not surprising, considering that most public REITs are in the major broad stock indexes.

A 2014 Callan study found that about 70% of target-date funds (TDFs) have some exposure to REITS. And, DC plan sponsors and participants may be surprised to learn that most publicly available REITs are already available in their plan’s index funds. For example, Anichini said, if a DC plan already has a large cap index fund and a small-cap index fund, it already has exposure to all the REIT exposure it could obtain by adding a dedicated REIT fund.

However, he noted that does not mean there is no basis for having a dedicated REIT fund in a DC plan. The Callan study found 22% of DC plans offer REITs in their fund lineup. The tendencies of REITs both to perform like stocks and to belong to broad indexes tend to weaken the case for including a dedicated REIT fund in the lineup, but two additional rationales may support including a dedicated REIT fund in a DC plan lineup:

  • If capital market assumptions extend to the level of equity market sectors, at times DC plan sponsors and participants may find the REIT sector specifically appealing. Anichini said this rationale would make a dedicated REIT fund desirable to enable overweighting the sector.
  • The lineup’s active mid-cap or small-cap funds might underweight REITs or not hold them at all. He said this rationale is the case for a completion strategy that seeks to avoid an inadvertent underweight in the sector.

James Veneruso, vice president and defined contribution consultant in Callan’s Fund Sponsor Consulting, previously told PLANSPONSOR, “The problem with REITS is that they tend to behave a lot like equities so they may have volatilities similar to that of equities. But what we’ve been seeing slowly over time is that through TDFs, participants are now able to access direct or private real estate. Private real estate gives you the advantage of a lot less volatility. So you’d have an asset class that over the long term could have a return similar to REITS but with a dampened volatility profile.”

But despite all the potential benefits of real estate exposure, they come with some risks. “When it comes to direct real estate, plan sponsors need to understand the valuation process,” Veneruso said. “Understand how you’re taking something that inherently doesn’t have a daily valuation and using an appraisal process to get to a daily valuation. And understand the liquidity provisions.”

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Categories: Industry News

Study Suggests Reasons Most Physical Wellness Programs Don’t Work - Tue, 2019-09-10 11:01

Earlier this year, a trial administered by researchers from the University of Chicago and Harvard among a large group of employees found a couple of positive self-reported outcomes by participants after 18 months of using a physical wellness program, but measures of health improvements and employer cost savings were not significant.

And, according to, a strategic planning firm, a Rand study found that the average annual health care expense savings tied to physical wellness programs is statistically insignificant.

After years of research, believes it has revealed why most wellness programs don’t work.

For one thing, contends many wellness program incentives are geared to those who are already healthy. They include incentives such as gym memberships and health care premium reductions for achieving certain biometrics.

For those employees who know they have health challenges, the focus on a single set of numbers or going to a gym is discouraging. People struggling with their weight frequently feel self-conscious going to a gym, and a person already struggling with their cholesterol numbers is going to find certain biometrics unattainable. suggest that a plan that provides incentives for logging food intake will allow the employees with weight-control issues to take steps to improve their health without making them feel like they are “exposed,” as they might feel at a gym. In addition, it says, the details about reasonable accommodations for people with medical conditions shouldn’t be relegated to the small print; it should be a point of pride that the wellness program is for everybody.

Wellness Programs Focus on the Results, Not Progress

“In order to have the most impact, the target audience for a wellness program should be individuals with chronic conditions. The impact of an obese individual lowering their BMI [body mass index] by two points is much greater than a healthy-weight individual doing the same,” points out. But, it says, too many wellness programs only touch in with the participants once or twice per year, resulting in a focus on the end result, not the progress someone has made. “Many of the individuals with chronic conditions are struggling with a lifetime of medical challenges or bad habits. In order to help them move forward in the right direction, it takes frequent touches so that they feel that their progress is being recognized.”

Wellness Programs Are Set on Repeat notes that many physical wellness programs are set on a never-ending cycle: January is Weight Loss month, February is Heart Health month, etc. The same focus and the same tools for every group, year in and year out, results in a stale program that doesn’t excite engagement and may not even be relevant to employees. It suggests that a wellness program should be dynamic, responding to the interests and needs of individual employees.

A survey from Welltok found delivering more personalized programming would motivate 82% of employees to participate more in physical wellness programs. More than 80% of respondents believe everyone at their company is offered the same resources, regardless of individual needs and goals.

Wellness Programs Don’t Have a Relationship Factor

Many wellness programs today rely on on-line applications, videos and phone calls, and while these can be excellent support tools, they cannot take the place of a face-to-face health coach, says. “By having the individual meet one-on-one with the same person on a regular basis, they form a relationship with that individual. A level of comfort and trust that cannot be obtained digitally is formed. The individual feels more accountable for their choices and is more likely to stick with the program so that they don’t let their coach down.”

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Categories: Industry News

Principal Pledges Seamless Transition for Wells Fargo Recordkeeping Clients - Mon, 2019-09-09 13:51

Principal Financial Group made public some much-anticipated details about its ongoing integration of the Wells Fargo Institutional Retirement and Trust business.

Principal’s acquisition of Wells Fargo was first announced early in 2019 and more recently made final. Through the acquisition, Principal effectively doubled the size of its U.S. retirement business, while bringing on institutional trust and custody offerings for the non-retirement market and expanding its discretionary asset management footprint.

As explained to PLANSPONSOR by Renee Schaaf, Principal’s president of retirement and income solutions, the firm remains busy incorporating capabilities from the Wells Fargo recordkeeping platform into its own proprietary recordkeeping platform, “which will serve Principal and transitioning Wells Fargo customers moving forward.”

“We believe a better retirement begins with a better customer experience, both in-person and online,” she explains. “Investment in our digital capabilities in combination with our top-tier service model will enable plan sponsors to deliver more successful outcomes for their participants.”

According to Schaaf, the Principal platform, serving defined contribution and defined benefit participants, “will evolve to incorporate the best capabilities from Principal and Wells Fargo IRT.” She says Principal has accelerated investments in the Principal Total Retirement Suite (TRS) and its retirement recordkeeping system by launching “next generation financial wellness resources” such as Principal Milestones and Principal Real Start.

Schaaf adds that, with the addition of key Wells Fargo capabilities, including “deep plan benchmarking and real-time performance monitoring and feedback to promote plan health,” plan sponsors and participants will be able to seamlessly access a single service provider for multiple retirement plan types.

“We know that plan sponsors want help with gauging the effectiveness of their plan,” Schaaf says. “Wells Fargo IRT has a method to help improve this and taken alongside the Principal best-in-class experience and data automation, is a perfect example of how we’re bringing the best from each organization to drive customer outcomes.”

Schaaf claims plan sponsor clients will gain access to helpful tools and resources to manage administrative functions such as payroll processing, loans, participant notices and more. She says the firm is rolling out a chat feature for retirement plan sponsors connecting them with real-time answers to administrative questions. With the combined platform, Schaaf says, participants will benefit from tailored onboarding, education and communications.

“From the next-generation Principal Real Start onboarding experience and Retirement Wellness Score to the robust Retirement Wellness Planner, all capabilities are tailored to the participant,” Schaaf says. “Customizable features on the website enable participants to build a retirement savings dashboard that supports their priorities and outline a path to reaching goals.”

Schaaf further emphasizes how the combined platform will enable retirement specialist advisers and consultants to do more to help improve participants’ financial confidence and retirement readiness. Advisers can leverage detailed reports generated out of the participants’ online experience.

“Together, these capabilities will enable an optimal experience for plan sponsors and participants and furthers the Principal focus on customer care,” Schaaf suggests.

The enhancements to the Principal platform are expected to be available in 2020 and coincide with the transition of Wells Fargo IRT clients to the Principal platform. Upon completion of the integration, Schaaf says, Principal will have a stronger and more efficient and flexible technology offering for all Wells Fargo and existing customers.

“We remain 100% focused on bringing the best people, processes and technology together for plan sponsors and participants. Obviously this announcement is an important milestone but there is work left to do. In the remainder of 2019, we will continue to make these enhancements to the technology platform, and then throughout the late part of this year and throughout 2020 we will start working with plan sponsors on specific migration plans for them,” Schaff adds. “The idea is that the actual migration will occur sometime in 2020, depending on plan sponsors’ needs. We are very confident in the ability to migrate plan sponsors and participants in a way that is really seamless and provides for great continuity of service and customer experience.”

According to Schaaf, this means that from the plan sponsor perspective, there will be no change to the service team, no payroll formatting changes, and no losses of transaction history or other critical records. She says additional information about the transition can be found at

“We will do everything we can to make this a non-event for plan sponsors and participants,” Schaaf concludes.

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Categories: Industry News

Lowe’s Defense Fails to Get ERISA Suit Dismissed - Mon, 2019-09-09 11:47

Following recommendations from a Magistrate Judge a federal judge from the U.S. District Court for the Western District of North Carolina granted in part and denied in part Lowe’s Companies’ motion to dismiss an Employee Retirement Income Security Act (ERSIA) lawsuit.

The core of the fiduciary breach complaint is summarized as follows in case documents: “Lowe’s imprudently selected and retained the Hewitt Growth Fund for the Plan, in consultation with Hewitt (which served as the plan’s fiduciary investment consultant), despite the fact that (1) the Hewitt Growth Fund was a new and largely untested fund at the time it was added to the plan; (2) the Hewitt Growth Fund was underperforming its benchmark at the time it was added to the plan and continued to underperform after it was added to the plan; and (3) the Hewitt Growth Fund was not utilized by fiduciaries of any similarly-sized plans and was generally unpopular in the marketplace.”

According to the text of the complaint, defendants placed $1 billion of the Lowe’s 401(k) plan’s assets into the new fund. At least some of the money, plaintiffs allege, was inappropriately reallocated from eight existing funds in the plan, “which were generally performing well,” when the Hewitt Growth Fund replaced these options on the investment menu.

The decision comes after the District Court conducted a de novo review of Magistrate Judge David C. Keesler’s formal memorandum and recommendation (M&R) issued in this matter. For his part, Judge Keesler recommended that the Lowe’s motion to dismiss be denied, which in turn sparked the defendants’ to file an objection to the magisterial memorandum and recommendation.

In arguing against the Magistrate Judge’s recommendation, the Lowe’s defendants asserted a variety of objections, including that the M&R inappropriate applied a relaxed pleading standard derived from an 8th U.S. Circuit Court of Appeals opinion that has not been adopted by the 4th Circuit. The defense also challenged the finding that Lowe’s had any fiduciary duty for selecting or monitoring investment choices.

The text of the new decision examines each of six distinct objections individually.

On the first objection, U.S. District Judge Kenneth D. Bell explained that the Lowe’s defendants contend that the Magistrate Judge improperly applied Braden v. Wal-Mart Stores to create a lower pleading standard for ERISA cases. However, Bell stated that Braden does not create a lower pleading standard for ERISA cases.

“Rather, Braden simply stands for the proposition that courts should draw all reasonable inferences from the totality of the allegations, and not dismiss ERISA claims because the complaint fails to allege all the specifics of the conduct that leads to the breach of fiduciary duty,” Bell wrote. “In any event, notwithstanding the Magistrate Judge’s citation of Braden, the [District Court] has undertaken a careful and holistic evaluation of the complaint as a whole in accordance with Iqbal and Twombly.”

A similar result was reached after consideration of the objection that Lowe’s status as a fiduciary to the plan can be disputed.

“Because the 4th Circuit has expressly stated that a fiduciary may either be formally designated or exist by nature of de facto performance, the plan document is not dispositive of Lowe’s status as a plan fiduciary,” the decision states. “Further, the [District Court] agrees with prior decisions in this district that whether plaintiff will be able to show the requisite degree of control over the plan is a question to be addressed at later stages of this action. Therefore, the Court will not dismiss Count I on the grounds that plaintiff failed to adequately plead that Lowe’s is a de facto fiduciary of the plan.”

One area where the new decision sides with the Lowe’s defendants has to do with its monitoring of Aon Hewitt. In short, Bell agreed with Lowe’s argument that the M&R is “incorrect in finding that plaintiff has stated a claim against Lowe’s for failure to monitor Aon Hewitt.”

“The plan document provides that the administrative committee, not Lowe’s, has sole authority to appoint Aon Hewitt,” Bell wrote. “While Lowe’s admittedly has the obligation to monitor the fiduciaries it appoints directly, it stretches the bounds of the duty to monitor too far to hold Lowe’s responsible for monitoring every fiduciary employed by the plan, including those fiduciaries which the plan explicitly envisions being appointed by the administrative committee. Accordingly, Count II is dismissed to the extent that it is based on a claim that Lowe’s had a duty to monitor Aon Hewitt.”

With this logic in mind, Lowe’s motion to dismiss Count II was denied to the extent it alleges that Lowe’s failed to monitor the administrative committee, but granted to the extent it asserts claims against Lowe’s for the failure to monitor Aon Hewitt.

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Categories: Industry News

DB Plan Funding Takes a Hit From Record-Setting Low Interest Rates in August - Mon, 2019-09-09 09:36

The estimated aggregate funding level of defined benefit (DB) pension plans sponsored by S&P 1500 companies decreased by 4% in August 2019 to 82%, as a result of a decrease in discount rates and equity markets, according to Mercer.

As of August 31, the estimated aggregate deficit of $451 billion increased by $129 billion as compared to $322 billion measured at the end of July.

The S&P 500 index decreased 1.81% and the MSCI EAFE index decreased 2.88% in August. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 3.38% to 2.95%.

“Funded status dropped sharply in August with interest rates now at their lowest point in modern history,” says Matt McDaniel, a partner in Mercer’s Wealth business. “Interest rates decreased dramatically during August with the 30-Year Treasury falling to an all-time low at under 2%. The yield curve inverted, which has historically signaled an impending recession, and equity returns for August were negative as well.”

According to McDaniel, “Plan sponsors who banked recent gains and de-risked effectively are now in a much better position for having done so. The current environment leaves us with a puzzling dilemma: where to invest when most asset classes look expensive. With historically low interest rates and a potential market correction on the horizon, it’s more important than ever for plan sponsors to evaluate their risk management plans and adjust as necessary.”

Legal and General Investment Management America (LGIMA) suggests while sponsors are certainly focused on expected return, a significant driver of allocation decisions is based upon expected volatility. However, plans often realize a much different level of volatility than originally expected. Market volatility can be risk-managed and controlled to a specific target with the use of an overlay.

LGIMA estimates that the average plan’s funding ratio fell 5.4% to 76.9% through August. The Treasury component decreased by 55 basis points while the credit component widened 13 basis points, resulting in a net decrease of 42 basis points. Overall, liabilities for the average plan increased 6.67%, while plan assets with a traditional “60/40” asset allocation decreased by approximately 0.36%.

According to Wilshire Consulting, the aggregate funded ratio for U.S. corporate pension plans decreased by 3.8 percentage points to end the month of August at 81.3%.

It says the monthly change in funding resulted from a 7% increase in liability values partially offset by a 2.1% increase in asset values. The aggregate funded ratio is estimated to be down 6.2 and 11.4 percentage points year-to-date and over the trailing twelve-months, respectively.   

“August’s decrease in funded ratio was driven by the perfect storm of economic forces for corporate pension plans: falling discount rates and negative equity returns,” says Ned McGuire, managing director and a member of the Investment Management & Research Group of Wilshire Consulting.  “August’s 3.8 percentage point decrease in funded ratio is the second largest monthly decrease this year and fourth monthly decrease in 2019.”

The funded status for DB plans that were not hedged likely decreased significantly for the month, according to River and Mercantile’s September Retirement Update.

It says discount rates plummeted in August, dropping 0.44%. Current rates are now down 1.22% since year end 2018 and are 1.07% lower than rates from this time last year. The FTSE pension discount index finished August at 3%. Global equity markets were down, while bond markets rallied due to the flight to safety. On August 14, the yield curve inverted and equity markets experienced the worst trading day so far this year. In the month, emerging markets were hit the hardest, falling 4.9%, while the U.S. and international developed markets trailed by 2% and 2.6%, respectively.

Both model plans that October Three tracks lost ground last month, ending August at the low point for the year. Plan A lost more than 5% last month and is now down almost 7% for the year, while Plan B lost more than 1% and is now down 1% through the first eight months of 2019. Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds.

Brian Donohue, partner at October Three Consulting, says corporate bond yields hit new all-time lows during the month. “Pension liabilities increased 4% to 6% in August and are now up an astounding 15% to 25% for the year, with long duration plans seeing the largest increases.”

Looking to the future, Donohue says, “Pension funding relief has reduced required plan funding since 2012, but under current law, this relief will gradually sunset. Given the current level of market interest rates, it is possible that relief reduces the funding burden through 2028, but the rates used to measure liabilities will move significantly lower over the next few years, increasing funding requirements for pension sponsors that have only made required contributions.”

According to Northern Trust Asset Management (NTAM), the average funded ratio of corporate pension plans declined in August from 86% to 82.5%. It also says both negative returns in the equity market along with higher liabilities led to lower funded ratio. According to NTAM, global equity market returns were down approximately 2.4% during the month, and the average discount rate decreased from 2.99% to 2.56% during the month.

Jessica Hart, head of OCIO Retirement Practice, notes, “Recession fears have escalated as the yield curve inverted and trade tensions escalated. Pension plans that have invested in long bonds would have benefited from its favorable performance as rates at the long end of the curve have declined.”

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Categories: Industry News

LIMRA Finds Growing Interest in PRTs and MEPs - Mon, 2019-09-09 07:00

Emerging data from a new LIMRA report studies awareness and interest in Pension Risk Transfer (PRT) transactions and multiple employer plans (MEPs), given the growing challenge among plan sponsors in funding retirement plans.

The LIMRA Secure Retirement Institute (SRI) study reports eight in 10 private-sector defined benefit (DB) plan sponsors—that are also offering a defined contribution (DC) plan—have at least minimal interest in PRT. Four in 10, however, are saying they have a high interest in the feature. This attention towards PRT has gone up considerably since 2014, from 32% of employers reporting an interest up to 44% in 2019. According to the study, half of all employers with frozen DB plans would like to offer PRT products, while 39% of those with active DB plans are curious about them. 

While PRT transactions continue to gain momentum, MEPs are just growing traction in the plan sponsor community, largely due to the recent attention towards the Setting Up Every Community for Retirement Enhancement (SECURE) Act of 2019. Just 36% of all employers are somewhat or very familiar about MEPs, and only 29% of small employers with fewer than 50 workers understand the term, according to Dave Levenson, president and CEO of LIMRA. However, given recent participant reaction towards MEPs and new legislation from the SECURE Act, Levenson is hopeful employer awareness will swing upwards.

“From an employee perspective, they want the benefit of a plan, but from an employer perspective, they’ve got concerns about costs in the administration,” he says in an interview with PLANSPONSOR. “But they’re not really aware of these MEPs, which hopefully the new piece of regulation will create a big opportunity for the industry.”

The SECURE Act was first introduced in the House of Representatives earlier in the year, and gained wide attention due to its similarity in core provisions with the Retirement Enhancement and Savings Act (RESA), one being the creation of open MEPs. It’s since been passed by the House and is now awaiting Senate approval following the summer recess.

Should the SECURE Act pass through the Senate and be signed into law, Levenson believes the industry will likely see greater awareness surrounding MEPs among small employers who typically cannot afford the cost in offering a retirement plan. Currently, LIMRA findings show that if eligible, 56% of U.S. employers would consider providing a MEP.

“Employers generally want to offer plans, but there’s challenges,” he says. “A MEP creates a lot of opportunities for employers, especially to employees who don’t have access to plans.”

The post LIMRA Finds Growing Interest in PRTs and MEPs appeared first on PLANSPONSOR.

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