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Industry News 2

Few 401(k) Participants Make Trades in July

Plansponsor.com - Mon, 2019-08-12 15:22
Despite volatility, July was a slow trading month for 401(k) investors, according to the Alight Solutions 401(k) Index. July also marks the 18th month in a row that net trades have moved from equities to fixed income. Nineteen of the 22 trading days favored fixed income. On average, only 0.014% of 401(k) balances were traded daily, and there was only one above-normal trading day.

Year-to-date, investors have favored fixed income on 186 trading days, or 86% of the trading days available.

Asset classes with the most trading inflows in the month were bond funds (taking in 52% of the inflows, worth $189 million), international equity funds (14%, $52 million) and money market funds (12%, $43 million).

Asset classes with the most trading outflows were company stock (42%, $154 million), large U.S. equity funds (40%, $143 million) and small U.S. equity funds (9%, $33 million).

Asset classes with the largest percentage of total balances at the end of July were target-date funds (TDFs) (29%, $62.166 billion), large U.S. equity funds (25%, $54.291 billion) and stable value funds (10%, $21.188 billion). Asset classes with the most contributions in July were TDFs (47%, $511 million), large U.S. equity funds (20%, $220 million) and international funds (7%, $79 million).

Returns were very muted during the month, with large U.S. equities rising 1.4%, small U.S. equities up 0.6%, U.S. bonds up 0.2% and international equities down 1.2%.

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Walgreen 401(k) Participants Seek $300M in Lawsuit Over TDF Mismanagement

Plansponsor.com - Mon, 2019-08-12 14:15

A group of current and former participants in the Walgreen Profit-Sharing Retirement Plan, individually and as representatives of a class of participants and beneficiaries of the plan, have filed a lawsuit on behalf of the plan for breach of fiduciary duties under the Employee Retirement Income Security Act (ERISA).

The lawsuit names as defendants Walgreen Co., the Retirement Plan Committee For Walgreen Profit-Sharing Retirement Plan and its members, and the Trustees for the Walgreen Profit-Sharing Retirement Trust and its members.

The complaint notes that as fiduciaries, the Walgreen defendants must prudently curate the plan’s investment options. They must regularly monitor plan investments and remove ones that become imprudent. The lawsuit alleges that the defendants breached these fiduciary duties by adding to the plan in 2013 a suite of poorly performing funds called the Northern Trust Focus Target Retirement Trusts and keeping these funds in the plan despite their continued underperformance.

Despite a market “teeming with better-performing alternatives,” the plaintiffs say, Walgreen selected the Northern Trust Funds, which already had a history of poor performance. According to the complaint, they had significantly underperformed their benchmark indexes and comparable target-date funds since Northern Trust launched the funds in 2010.

The lawsuit contends it was predictable that the Northern Trust Funds continued underperforming through the present. For nearly a decade, these investment options performed worse than 70% to 90% percent of peer funds, according to the complaint. The plaintiffs say not only does Walgreen refuse to remove the funds, it has actually added Northern Trust funds to the plan’s investment lineup, and selected the Northern Trust target-date funds as the plan’s default investment.

According to the complaint, the funds now comprise 11 of the 24 investment options in the plan and collectively hold more than $3 billion in plan assets, which represents more than 30% of the plan’s assets. “Walgreen’s imprudent decision to retain the Northern Trust Funds has had a large, tangible impact on participants’ retirement accounts. Based on an analysis of data compiled by Morningstar, Inc., Plaintiffs project the Plan lost upwards of $300 million in retirement savings since 2014 because of Walgreen’s decision to retain the Northern Trust Funds instead of removing them,” the complaint states.

It further says, “The Northern Trust Funds have also impaired the Plan’s overall performance. According to Brightscope, the average Plan participant could earn $193,925 less in retirement savings than employees in top-rated retirement plans of a similar size. The $193,925 disparity translates to an additional 10 years of work per participant.”

The plaintiffs are seeking to enforce the Walgreen defendants’ personal liability under ERISA to make good to the plan all losses resulting from each breach of fiduciary duty occurring during from January 1, 2014, to the date of judgment. In addition, they seek such other equitable or remedial relief for the plan as the court may deem appropriate.

Notably, given the impending U.S. Supreme Court decision in the case of Intel v. Sulyma regarding when “actual knowledge” actually starts for retirement plan participants for use in deciding when a case is filed beyond the statutory limits under ERISA, the Walgreen complaint says the plaintiffs did not have knowledge of all the material facts until shortly before they filed the complaint. “Further, Plaintiffs do not have actual knowledge of the specifics of the Walgreen Defendants’ decision-making processes with respect to the Plan, including the Walgreen Defendants’ processes for monitoring and removing Plan investments, because this information is solely within the possession of the Walgreen Defendants prior to discovery,” the complaint states.

Walgreen declined to comment on pending litigation.

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Caesars Owes No Withdrawal Liability for One Closed Pension in Controlled Group

Plansponsor.com - Mon, 2019-08-12 12:40

A federal appellate court has determined that Caesers Entertainment Corporation owes no withdrawal liability for ceasing to make contributions to a multiemployer pension plan for a closed casino while it continued to make contributions for others.

The 3rd U.S. Circuit Court of Appeals notes that the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) imposes liability on employers who withdraw from covered plans by ceasing contributions in whole or in part. The current case involves one type of partial withdrawal, “bargaining out,” which occurs when an employer “permanently ceases to have an obligation to contribute under one or more but fewer than all collective bargaining agreements under which the employer has been obligated to contribute … but continues to perform work… of the type for which contributions were previously required.”

Caesars Entertainment Corporation (CEC) once operated four casinos in Atlantic City: Caesars, Bally’s, Harrah’s and Showboat. These comprised a “controlled group” under the Employee Retirement Income Security Act (ERISA), with CEC being the “single employer” of the group. CEC bargained with the International Union of Operating Engineers, Local 68, for engineering work at all four casinos.

In 2014, the Showboat casino closed, and CEC stopped contributing to the fund for engineering work there. The other three casinos under CEC’s control remain open, and CEC continues to pay the fund for their union work. Showboat’s closure reduced CEC’s total contributions to the fund by 17%—well below the MPPAA’s 70% threshold that would have automatically triggered liability for a partial withdrawal.

The fund claimed CEC was liable under the “bargaining out” provision of the MPPAA, but CEC disagreed. So the parties went to arbitration, and CEC lost. The arbitrator held CEC had triggered both clauses of the bargaining out provision. The arbitrator reasoned clause [2] applied because“[t]he type of work for which contributions were required at the closed Showboat is the same type of work currently being done at the remaining casinos.”

The U.S. District Court for the District of New Jersey, reversed the arbitrator’s decision. The Court assumed without deciding that, under clause [1], the jurisdiction of the Showboat collective bargaining agreement (CBA) included all engineering work in Atlantic City. But it held that, under clause [2], liability exists only when an employer replaces work that contributes to the pension fund with “work—of the same sort—that does not.” Such replacement hadn’t occurred because CEC’s “constituent members [aside from the shuttered Showboat] continue to contribute to the fund for all engineering work they perform throughout Atlantic City.”

The 3rd Circuit agreed with the District Court that the dispositive question is whether under the bargaining out provision of the MPPAA “work… of the type for which contributions were previously required” includes work of the type for which contributions are still required. The appellate court said the statutory text and Pension Benefit Guaranty Corporation (PBGC) guidance confirm that the answer is no.

The 3rd Circuit first noted that the bargaining out provision typically applies when there is a change in union representation or the employer negotiates out of an obligation to contribute to a plan. “Neither of those things happened here,” it wrote in its decision. However, the fund claims CEC continues to perform “work … of the type for which contributions were previously required,” because engineering work continues at Caesars, Bally’s, and Harrah’s. According to the court document, in the fund’s view, it is irrelevant that CEC still must contribute to the plan for the work performed by Union members at those three casinos. The appellate court disagreed.

“[W]ork … of the type for which contributions were previously required” means “work … of the type for which contributions are no longer required,” the court wrote, citing prior case law. In arriving at this conclusion, the appellate court gives “previously” its ordinary meaning at the time Congress enacted the relevant provision. “If Congress had meant to adopt the fund’s interpretation, it could have omitted ‘previously’ to no effect,” the decision states. “The provision would have targeted work ‘for which contributions were required.’ Because that’s not what Congress wrote, we give ‘previously’ some meaning. And that meaning tracks what we’ve learned from dictionaries and corpus linguistics.”

For these reasons, the appellate court said the best reading of “work … of the type for which contributions were previously required” excludes work of the type for which contributions are still required. “To hold otherwise would put us in conflict with our sister courts’ interpretation of identical language in another MPPAA provision,” the court wrote. For example, the court noted Section 1383(b)(2)(B)(i) imposes complete withdrawal liability on employers in the construction industry when they continue to perform “work… of the type for which contributions were previously required.” Two of its sister courts have held that the same provision imposes liability only when employers “cease making payments to the plan” for a type of work (e.g., construction) “while continuing to do [that work] in the area.”

The 3rd Circuit found additional support for its view in longstanding guidance from the PBGC. In the case, the District Court found persuasive PBGC Opinion Letter 83-20, which says that no withdrawal liability results from “merely ceasing or terminating an operation.” According to the PBGC, liability under the bargaining out pro-vision arises “only [in] situations where work of the same type is continued by the employer but for which contributions to a plan which were required are no longer required.” So an employer isn’t liable when it “closes one [facility] and shifts the work of that [facility] to other [facilities] which are covered by other [CBAs] under which contributions are made to the plan.”

The appellate court said, “That’s precisely what happened here. And we, like the District Court, find that the PBGC’s view tracks the text of the MPPAA.”

The appellate court affirmed the judgement of the District Court finding that, because CEC continues to contribute to its pension plan for engineering work at its remaining three casinos, it is not liable under the bargaining out provision of the MPPAA.

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Looking at User-Friendliness of Recordkeeper Websites

Plansponsor.com - Mon, 2019-08-12 11:02

A positive participant website experience is something retirement plan sponsors want to make sure they are getting from their recordkeepers.

A study from Corporate Insight found 69% of participants deemed the ability to manage future investment allocations to be very or extremely important when rating the value of transaction types on recordkeeper websites. However, a more recent study found participants can be confused by terminology and frustrated by design features.

For example, one firm titles the transaction Change How My New Money Will Be Invested and the balloon tip states, “I want to make changes to how new money like contributions or rollovers are being invested.” The term “new money” confused multiple respondents. The majority of firms use the term “future contributions” in both titles and descriptions, which proved to be a strong indicator for respondents when choosing between transaction options.

In another example, multiple participants incorrectly selected one recordkeeper’s option, Investment Elections, which opens a page with information about participants’ current investment instructions. Participants did not expect the page to include a link to a data page, given its action-oriented name. Once they returned to the overview screen and scanned the options again, they all chose the correct option, Change Investments.

According to Corporate Insight’s report, participants consistently expressed a desire to view investment performance data in a manner that did not interfere with their ability to use the transactional interface. They also wanted the information to be statically available, as this makes it easier to compare funds. Thus, the overall consensus among respondents was that providing fund data directly on the interface is the most helpful, followed by new browser tabs or windows that house this data. One participant summed up the general sentiment by saying, “The performance data is really what I am using to make my decisions here, so I like being able to see it or open it in any way. But when I am using it, I should be able to compare funds.”

Participants all appreciated the asset allocation advice available on a few recordkeeper’s participant sites. However, when Corporate Insight asked participants to reallocate their investments to align with the provided recommendations, they consistently raised the same issue: the pie charts depicting suggested allocations were not viewable throughout the transactional interface. Following the advice on one recordkeeper’s site requires users to consistently open and close a lightbox, while following it on another’s requires users to continuously scroll up and down the page.

The study also found respondents preferred firms giving them the option to allocate by source, rather than requiring them to do so, a transactional feature 41% of the recordkeeper websites tested offered.

Organizational features are particularly important when it comes to future investment transactional interfaces, as many plans offer a litany of fund options, Corporate Insight says. Participants in its test consistently expressed frustration when investment lists were particularly long; long lists often made key interface features less findable. To help participants locate and browse funds, Corporate Insight says firms should organize funds by asset class, which 76% of recordkeepers tested do. Further, incorporating expandable sections can shorten potentially long fund lists, but only 18% of recordkeepers take this approach.

Information about how to obtain the July 2019 Corporate Insight Retirement Plan Monitor Report is here.

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SURVEY SAYS: Work Spaces for Optimal Productivity

Plansponsor.com - Mon, 2019-08-12 06:30

Last week, I asked NewsDash readers, “Which type of work space do you prefer for optimal productivity?

Nearly two-thirds (65.5%) of responding readers said they prefer a private office with the door closed, while one-quarter prefer an open work space in which employees have their own desks but may be in cubicles or in rooms together. The rest prefer to work from home for optimal productivity.

Having worked in all three types of work spaces, I feel cubicles and a room full of desks are both definitely “open” work spaces. However, many responding readers who chose to leave a comment didn’t agree. In addition, many noted that my qualifier “with the door closed” was limiting. I agree I should have said “with a door that can close.” Of course noise was the most commonly cited problem with open work spaces, and I agree with all the respondents that said these types of work spaces are not conducive to work calls; one reader had a funny story about that. Editor’s Choice goes to the reader who said: “It is very distracting hearing ‘neighbors’ discussing personal things when I am trying to work. Kind of like bathrooms, prefer one with a closed door and not stalls to get the job done!!”

Thank you to all who participated in the survey!

Verbatim

Open work spaces tend to get too noisy.

Home is the only true uninterrupted work space. When at the office, with a door or not; or in an open space, the distraction from co-workers who need “just a minute” of my time is relentless.

I chose private office but your qualifier “with the door closed” was an unfortunate addition that confuses the issue. I love my own office but I never close the door unless I am discussing confidential matters. You can have an open environment with separate offices!

I like to do my own thing without being watched by whomever.

Depends on the nature of specific tasks. When quiet concentration is needed, certainly a private office or home setting are preferred. When engaged in a variety of daily collaborative tasks, open work areas are more productive

Coworkers with loud ringtones and/or loud indoor voices always seem to ruin “open” work spaces for me.

Definitely some walls around me – cubicle or otherwise. The totally open office space sounds terrible.

I don’t have an office but it would be my preferred work space for productivity. Next best is my current situation the cube. Kiddos would never let me get anything done at home and I’m useless without my double screens so working offsite would be less productive.

Like a private office, but the door need not be closed.

Just moved from a job with an office to a new job with a completely open office environment. I don’t need an office (small conference rooms are usually available), but I’d love some short walls to provide physical personal space.

I like a small private office, but with the door OPEN!

For my team, I like an open workspace. For me, as an old guy, I like having my own office. Nothing like a little consistency, right?

The first choice above doesn’t differentiate between individual, permanently assigned cubicles that offer some degree of privacy and one’s own permanent, personal “space” and the true open work space that requires employees to sit close together, in a different location daily, and carry all belongings away nightly. We used to mock assigned cubicles, long the norm. In hindsight they were so much better than the subsequent open workspaces that are like a high school lunch room in every way. Noise, smell, proximity to co-workers. So demoralizing and distracting.

An office door can remain open for anyone to walk in as they need to and remain closed as needed. Open space is always open irrespective of the need for privacy.

Our company is slowly moving to open, unassigned space and I’m dreading the day it comes to me. I need a desk that’s mine alone!

Years before ‘cubicles’ the open floor was just a huge room with desks-virtually no privacy, but also lots of noise – for some they might consider it white noise after a while, but mentally and physically exhausting at the end of the day. The cubicle brainchild came along (really a marketing scam) that gave the appearance of privacy, but only visually and then only if the partitions used where ‘tall’. Unfortunately, what people need/desire is quiet, not a cave. Glass partitions to the ceiling, maybe with doors, is a better solution, but office pecking orders, i.e., size of office, solid walls, desk size, and other accoutrements, are difficult traditions to break.

Actually, I don’t mind a private cube. When I did have an office with a door, it was always open unless I was speaking with employees. Needed more options on your survey.

As the Director of my department, I deal with sensitive and confidential information all day long. I can’t imagine doing this without being able to close my door from time to time. The door is open 95% of the time however!

Open space is too noisy – too many people playing with their phones. I have a private office, but rarely close the door unless I’m discussing confidential information. Working from home is fine, but I feel disconnected from the rest of the team. All things in moderation. I’m 68 yrs old.

I find an open workspace to be distracting. And I spend a lot of time on the phone with clients and would prefer privacy and not to overhear other conversations.

We recently retooled our office to the open floor plan and I hate it. As an “older” employee who had an office, I feel there is less office working space and forget privacy. My subordinates also think I am now breathing down their necks as well. I’m sure some people like it.

Cubicles need high walls–the noise can be too much!

There are at least two other options, one office shared by two, a private office with glass wall and open door, both of which I have had that are in between the full open office concept.

I have an office but the door is frequently open. If closed, I miss out on the discussions and updates in our office.

I find it less distracting to be in a private office. If I want to collaborate with colleagues, all I need to do is leave my office.

Open workspaces don’t really work for engaging clients where background noise and confidentiality are important considerations.

As I try to respond to this survey, there are 4 different loud conversations occurring around me, making any concentration impossible. With proper consideration for coworkers, open space works; unfortunately, that’s the exception rather than the rule.

I don’t generally need the door closed, but being in HR, I do feel I need a door TO close when necessary rather than the open plan. Some jobs would work well with that, however, especially when it’s a team environment and collaboration throughout the day is necessary.

Don’t need to close the office door, would just like to have real walls. I work with a bunch of people who apparently never developed “indoor voices” – they yell over walls instead of getting up and going to someone’s desk to ask questions. And the use of telephone headsets has them “projecting” into mid-air for all to hear. I can’t stand wearing anything on my head, so wearing headphones is out of the question (it’s also been banned). Very difficult to concentrate on reading Treasury regs with all of the not-so-background noise.

I have confidential conversations and cannot speak freely in an open area. They are also noisy and distracting, and there is absolutely no privacy. To be productive I need to feel comfortable in my space, which to me means that I can close the door if need be.

Prefer office with OPEN door with ability to close

I work with numbers, so I prefer quiet. Plus I work with a group of people who talk politics all day, so let me shut my door!!

A private office with an open door is best. I only close it when dealing with a confidential issue or when I am having trouble focusing with it open.

It boils down to the type of work that determines which workspace that is most productive.

Open spaces are a joke. Everyone thinks Millennials want open collaborative spaces…but, when you look around the office, these same Millennials all have their headphones in their ears. Maybe I am just getting old…

As long as the space is relatively quiet, I don’t think it matters what the format is too much.

Funny story about an open office setup where a number of people were on the same conference call. One individual muted their phone and asked a question of a colleague one table down….whose phone wasn’t muted. Other side heard more than what was intended.

I’ve worked in both, and open work spaces create a lot of challenges. Searching for an open conference room to take a phone call with a client is difficult because people camp in them to do their regular work.

As long as I have my own cubicle I’m fine. I have no desire to sit in a mosh pit right next to my co-workers and smell them all day. That is reserved for immediate family only!

It is very distracting hearing “neighbors” discussing personal things when I am trying to work. Kind of like bathrooms, prefer one with a closed door and not stalls to get the job done!!

I prefer an office but with some glass in the walls to bring in light, and so that visually I can see activity within the office. I also like the option of keeping the office door open or closed.

I just want a place to put family pictures down, without having to put everything away in a middle school locker. These ‘hoteling’ environments are the result of decisions made by people who will never work in that environment.

The “open work space” that our company is adopting are long banquet tables where everyone sits right next to everyone else. A cafeteria type setting. How is that productive when everyone has to make phone calls to clients?

Having a door allows you to signal when you are open for drop in conversation. If the door is closed, you are busy. If the door is open, you are available.

Noise is very distracting to me. Even someone who is a loud typer.

I work in Human Resources, and need an area with privacy to work with sensitive information as well as when dealing directly with employees or on telephone calls regarding employee items such as compensation, benefits, performance, etc.

Open work spaces are filled with distractions that impede concentration. My idea of hell!

I like the higher cube walls, the low ones (waist high) are just not conducive to a good working environment.

Quieter … allows focus … you can have a call with clients w/o the entire floor being privy … offices are a simply superior form of employee space for productivity, and therefore net return

Prefer cubicles. Work in open work space now and there is too much of everyone in each other’s business with too much arguing and not enough productivity

The only people who like open spaces are the as*holes who get to keep their offices. The only thing worse than the ubiquitous cube “farms” are these frigging “plug and play” “open” work spaces. And by “open,” I assume they mean abandon all hope of getting any actual work done…ever.

I don’t need the door closed, but I need a door that can close. I can certainly see the benefit with communications and collaboration in our office areas. Besides the confidential information HR deals with, I am too easily distracted by every other conversation to work in an open environment.

 

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

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Retirement Industry People Moves

Plansponsor.com - Fri, 2019-08-09 14:42

Art by Subin Yang

BPAS and F&M Trust Link Regional Retirement Plan Businesses

BPAS will partner with F&M Trust for its retirement plan business across southern Pennsylvania.  

BPAS began working with F&M Trust in 2007 on various retirement plan opportunities, providing recordkeeping, administration, and trading/custody services to bank clients. F&M Trust began to see differences among platforms and started getting requests for a higher level of plan consulting and HR outsourcing capabilities. This change has led clients to migrate to the F&M Trust/BPAS partnership.

“Having worked with BPAS for many years, we kicked the tires thoroughly,” says Ronald Froeschle, director of Retirement Plans at F&M Trust. “We felt good transitioning our DC and DB plans because of our overall comfort level with the BPAS people, expertise, and flexibility. We are excited to enhance our retirement plans through this partnership and consolidate the rest of our client plans as well.”

When all client plans are converted, the F&M Trust/BPAS partnership will serve approximately 50 qualified plans.

According to Paul Neveu, president of BPAS Plan Administration & Recordkeeping Services, “The focus of corporate trustees has shifted over the last decade. There has always been a focus on investments and fiduciary processes, but now we see more emphasis on outcomes—working with participants and retirement plan committees to drive key success measures for each plan. Our partnership with F&M Trust is a great example of this. We appreciate the expertise and commitment that F&M Trust brings to client relationships, as well as their open dialogue and constant evaluation of the plan sponsor and participant experience. We look forward to growing our partnership in the coming years as an extension to the range of banking and investment services that F&M Trust brings to the marketplace.”

Grant Thornton Brings in Advisory Services Principal

Grant Thornton LLP has named Jim Peko as the national managing principal of its Advisory Services practice. In this role, he will oversee the strategic direction and operations of the firm’s advisory-services offerings.

Peko succeeds Srikant Sastry, who led Advisory Services for the past five years of his 15-year tenure with the firm and has most recently served as national managing principal of the firm’s Transaction Services practice, where he guided a wide range of clients through a variety of complex transactions.

In addition to building and expanding Transaction Services as a key offering for Grant Thornton, Peko has served as a member of the firm’s Partnership Board for the past 20 months. He is also a member of the board of directors for the American Bankruptcy Institute, and is a chartered financial analyst, a certified insolvency and restructuring adviser and certified in distressed business valuation.

Peko received a master’s degree in finance from Fordham University and a bachelor’s degree in economics and accounting from St. Peter’s College.

Nuveen Updates Portfolio Management Group for Two Funds

The Nuveen Real Estate Income Fund and Nuveen Diversified Dividend and Income Fund have updated their portfolio management teams.

Effective September 3, Nathan Gear will be named to the funds’ current portfolio management teams and will focus on the portions of the funds managed by Security Capital Research & Management Incorporated. Each fund’s investment objectives, investment strategies and management philosophies remain unchanged.

Gear is an executive director of Security Capital Research & Management Incorporated where, as a senior member of the Investment Analysis Team, he leads the fundamental analysis and pricing of REIT fixed income senior securities. Prior to joining Security Capital in 2006, he was involved in the underwriting and analysis of real estate loans for JPMorgan. Gear received his bachelor’s degree with honors from Pensacola Christian College and is a member of the Chartered Financial Analyst Institute.

Trinity Names Asset Management SVP, Among Other Hires

Trinity Real Estate Investments LLC appointed hospitality industry veteran Christopher Ford as senior vice president of Asset Management.

Ford joins Trinity from Host Hotels & Resorts, Inc., where he most recently served as senior vice president, Asset Management Europe and Asia. In his new position, he is responsible for operational oversight of Trinity’s investment portfolio. Ford will work closely with Vice President of Development Craig Lovett, who manages the execution of Trinity’s capital improvement initiatives. Both executives report directly to Managing Partner Greg Dickhens, who oversees Trinity’s asset management functions.

In addition to Ford, Trinity has incorporated a number of strategic hires over the past year. Most recently, Drew Wallace joined the firm as director of Asset Management from Davidson Hotels & Resorts, and Ana‑Cecilia Aguilar joined as an associate from JLL Hotels & Hospitality Group. Both Wallace and Aguilar will report to Ford.

Prior to joining Host Hotels & Resorts in 2006, Ford served as vice president of Finance, North America at The Ritz-Carlton Hotel Company, L.L.C. He also spent 15 years working in various roles at Marriott International, Inc. Ford received a bachelor’s degree in accounting from the University of Kentucky, a master’s degree from Georgetown University, and a master’s in real estate from Johns Hopkins University.

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Measuring the Success of Financial Wellness Programs

Plansponsor.com - Fri, 2019-08-09 13:01

While some employers are merely concerned with offering financial wellness programs at a reasonable price, others are intent on achieving a specific return on investment (ROI), according to Cerulli Associates.

To help sponsors measure the success of their financial wellness programs, it is important to first determine what specific goals the sponsor has for the program. Next comes setting a realistic time frame for achieving those goals, Cerulli says. Some goals such as improving retirement readiness, cited by 27% of sponsors, are relatively easy to measure. However, others, such as improving financial literacy, cited by 30% of sponsors, increasing workplace productivity (20%) and decreasing employee stress (14%) can be more nebulous.

Cerulli says that to benchmark success, sponsors should ask their recordkeepers to track participant behaviors, such as click rates and interactions per website visits, and work with an adviser or consultant to consolidate data from each of their financial wellness vendors.

Cerulli asked recordkeepers how they measure the effectiveness of their financial wellness programs. Seventy-one percent said participation, 67% website activity, 62% contribution rates, 57% participant surveys, 38% retirement income replacement ratios, and 38% a financial wellness score.

Matt Gnabasik, a partner at Cerity Partners, agrees with Cerulli that measuring financial wellness website activity and obtaining “high-level usage activity information from providers that are part of the program can lend insights into how many employees are using the resources and how frequently they are checking into the offerings. Additionally, plan sponsors can issue a company-wide survey asking for anonymous, candid feedback on the program. This will allow plan sponsors to adjust the program moving forward to address the varying financial needs of their workforce.”

Kent Allison, a partner and national leader of PwC’s Employee Education and Wellness Practice, says that the effects of a financial wellness program that seeks to change participants’ behaviors can be measured by such things as 401(k) deferral rates, 401(k) loans and hardship withdrawals, as well as payday loans. Alan Glickstein, managing director, retirement, Willis Towers Watson, also reports that more companies are beginning to realize that having a workforce that is financially sound does impact productivity and a company’s bottom line.

“We can make a clear business case that when a company’s employees are not financially stressed, they are more productive, which enhances a company’s financial results,” Glickstein says.

Allison concurs: “Our research and data from our current programs has shown that there is a direct correlation between financial stress and lower productivity—which comes at a significant cost to employers and something they measure all of the time.”

Sources of Financial Stress

Cerulli says a survey of 1,500 401(k) plan participants it conducted in the second quarter of this year found that participants under the age of 40 are markedly more concerned about student loan debt. Those between the ages of 30 and 49 are most stressed about saving for retirement, while those 50 and older are most focused on health care expenses. Those with less than $100,000 in investable assets are more likely to cite lack of emergency savings and credit card debt as a financial concern compared to their more affluent peers. Women say their top stressor is retirement savings, and men say it is health care expenses.

Cerulli says the majority of recordkeepers offer retirement income calculators or scorecards as well as a library of educational articles on a variety of financial topics. Cerulli found that 43% of recordkeepers offer financial wellness programs included in the recordkeeping fee, while another 43% say some components are included in the recordkeeping fee but some may require an additional cost.

Large firms might consider creating their own financial wellness programs in-house, while smaller companies may turn to technology providers. To decide whether to build internally or to turn to an outside partner, sponsors should weigh the costs and the time frame.

“Cerulli views partnership activity as a positive development because it helps ensure that participants receive high-quality service from specialized partners,” the firm says. “Additionally, partnerships give niche firms the opportunity to play a larger role in the retirement market, which can facilitate new ideas related to holistic financial planning.”

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Explaining the ‘New Normal’ for Interest Rates

Plansponsor.com - Fri, 2019-08-09 12:32

During a recent series of interviews with U.S. investment experts focused mainly on the topic of equity market volatility, another topic frequently mentioned was the machinations of the global bond markets.

Bob Browne, chief investment officer, Northern Trust, summarized the matter: “I continue to be surprised by my fellow asset management professionals who think that the long-term norm for the 10-year U.S. Treasury should be closer to 4% or even 4.5%,” Browne says. “This is just too high when you consider among other facts that there is $15 trillion invested the bond markets globally right now that is carrying a negative interest rate.”

Browne and others explain this as one of the lingering legacies of the Great Recession. “On the day of this discussion the Swiss 10-year is at negative 90 basis points, the German 10-year is trading at negative 56 basis points, and the Japanese 10-year is at minus 20 basis points,” Browne says. “So, why would the U.S. 10-year trading at close to 1.5% or 1.75% seem low? It’s in fact unusually high in the global context.”

Steve Foresti, CIO at Wilshire Consulting, offers a similar take: “I don’t think we can expect to get back to the levels of the 1970s or 1980s in this new global world. I agree that if you compare where U.S. yields are versus Europe, it really puts things into perspective. In Germany, France and other places you have negative yields right now. That means you’re paying to hold these ‘safe’ assets, not getting paid. So, seeing a U.S. rate down below 2% makes sense in that perspective. They are relatively high compared with other developed markets.”

Why Fixed Incomes Rates Are So Low

Browne suggests the unprecedented ability of technologically enabled manufacturers and service providers to deliver supply fast and nimbly to the global marketplace has done a lot to reshape the inflation outlook. Among other outcomes, Browne says, this supply-side dynamic has allowed interest rates to move much lower than was the assumption 15 or 20 years ago.

“From a simple macroeconomic perspective, people have underestimated how quickly supply can shift and adapt to meet changes in demand,” Browne says. “This helps keep rates low because there is not much if any supply-based price inflation in the globalized and Internet-informed economy. We will need to see a fundamental shift in the demand curve in order to see bond yields go much higher, either in the U.S. or globally.”

Browne further observes that, in recent years, when U.S. GDP growth was in the range of 3%, the markets barely pushed the 10-year Treasury rate to 2.25%. In his opinion, the U.S. Federal Reserve is underestimating the likely response of the bond market to sub-2% GDP growth.

“We believe we have peaked in this rate cycle and that the 10-year yield could eventually go down to 1%,” Browne says. “Again, thanks to macroeconomic forces that are here to stay, it appears that yields can remain dramatically lower versus what people would have thought possible just 10 years ago.”

Portfolio Implications for Individuals and Institutions

What are the investment experts doing with this information?

“We’re looking for interest rate exposure without simply owning bonds, and we’re having to compensate by utilizing more equity exposure,” Browne says. “We’re buying global infrastructure equities, global real estate investment trusts [REITs] and high-quality stocks with growing dividends. These are liquid strategies that should be helpful for the retirement market moving forward. You can’t be overly dependent on one source of income.”

Foresti says the recent bout of equity market volatility has shown some of the risks in this approach, but it is nonetheless necessary in the new normal.

“Any time you go through a bout of volatility like we are in now, it tests a few things,” he says. “First, it tests whether the portfolio you have in place is truly consistent with your tolerance for risk.  Times like these are a really good test of the connection between perception and reality around risk and return. We’ve come off some market highs after an extended bull market.”

Foresti encourages investors, both institutions and individuals, to take the emotion out of the picture when adjusting to the new normal. “Each bout of volatility always feels a bit like the first time, and to some extent there is truth to that. It is always something different that causes the sell-off and it’s always a new set of concerns and expectations about the future which one must deal with,” he explains.

Facing this picture, institutional investors have the advantage of following a well-articulated governance structure that makes it harder to deviate and let negative behavioral tendencies impact the portfolio. Individual savers, on the other hand, don’t necessarily have the checks-and-balances of a governance structure and stated long-term goals. It’s easier for the individual’s gut to take over.

“This is important to understand because the new normal for interest rates simply means that retirement investors have to take more risk,” Foresti concludes. “If I need to generate 7% returns and a low-risk fixed-income investment is not even going to give me 2%, this outlook starts to paint the picture of the additional risk you’ll need to take with your growth assets. It will mean more investment in equities or perhaps having to take illiquidity risk in private market investments. It’s a challenge that both institutions and individuals are going to have to deal with.”

Browne and Foresti conclude that it is as important today as ever to educate people about what volatility really means. Just because the dollar value of a portfolio went down for two or three days, if one didn’t sell anything, one didn’t suffer any harm in that respect.

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Lower Interest Rates Continue to Plague DB Plan Funded Status

Plansponsor.com - Fri, 2019-08-09 11:54

Defined benefit (DB) plan funding ratios decreased throughout the month of July, primarily driven by tightening credit spreads, resulting in a decrease in the discount rate, according to Legal & General Investment Management America (LGIMA). It estimates that the average plan’s funding ratio fell 0.8% to 82.3% through July.

LGIMA’s Pension Solutions’ Monitor report notes that, “The rates market once again took its cues from the central bank. Echoing sentiments other members had voiced in June speeches, Fed Chair Powell’s comments before Congress at the Humphrey Hawkins meeting emphasized concerns over trade issues, slowing global growth, and inflation trending below target. This testimony, coupled with the release of the June FOMC minutes, set the groundwork for the first Fed cut since the financial crisis. At the July 31 meeting, the Fed cut interest rates by 25 basis points and ended their balance sheet runoff two months earlier than planned.”

LGIMA estimates the discount rate’s Treasury component increased by 1 basis point while the credit component tightened 7 basis points, resulting in a net decrease of 6 basis points. The negative impact due to the change in Treasury rates is a function of positive carry of the liabilities. Overall, liabilities for the average plan increased 1.21%, while plan assets with a traditional “60/40” asset allocation increased by approximately 0.28%.

Due to lower interest rates, liability values increased, and were only partially offset by muted asset performance, according to Ned McGuire, managing director and a member of the Investment Management & Research Group of Wilshire Consulting. According to the firm, the aggregate funded ratio for U.S. corporate pension plans decreased by 0.4 percentage points to end the month of July at 85.6%. It says liability values increased 0.7% for the month, while asset values increased 0.3%.

Northern Trust Asset Management (NTAM) also says positive returns in the equity market were not enough to offset higher liabilities which led to lower funded ratios. It estimates the average funded ratio for S&P 500 DB plans slipped in July from 86.5% to 86%. NTAM says global equity market returns were up approximately 0.3% during the month. The average discount rate decreased from 3.06% to 2.99%, leading to higher liabilities.

According to Mercer, the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by 1% in July to 86%, as a result of a decrease in discount rates. As of July 31, the estimated aggregate deficit of $322 billion increased by $14 billion as compared to $308 billion measured at the end of June. The S&P 500 index increased 1.44% and the MSCI EAFE index decreased 1.26% in July. Typical discount rates for pension plans as measured by the Mercer Yield Curve decreased from 3.44% to 3.38%.

“Plan sponsors should review their risk management toolkit to consider whether their investment policy is aligned with the current market environment and to explore potential risk transfer activity, such as a lump sum window, which may be attractive to pursue before the end of the year,” said Scott Jarboe, a partner in Mercer’s Wealth Business.

However, River & Mercantile’s “Retirement Update – August 2019” calls July “uneventful.” “Modest movement in discount rates with generally small equity gains should leave most plans in more or less the same funded position at the end of the month as they were in at the end of June,” it says.

October Three reports pension finances dipped slightly in July as long-term corporate bond yields hit record lows. Both model plans it tracks lost a fraction of 1% in July and are basically treading water (Plan A down 1%, Plan B flat) through the first seven 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, “Discount rates fell a few basis points last month and have now reached the lowest yields on record. We expect most pension sponsors will use effective discount rates in the 3.2% to 3.7% range to measure pension liabilities right now.” He also notes that, “Pension funding relief has reduced required plan funding since 2012, but under current law, this relief will gradually sunset by 2023, increasing funding requirements for pension sponsors that have only made required contributions.”

Aon’s Pension Risk Tracker shows the S&P 500 aggregate pension funded status decreased slightly in July, from 86.8% to 86.6%. Pension asset returns were positive in July, ending the month with a 0.6% return. The month-end 10-year Treasury rate increased by 2 basis points (bps) relative to the June month-end rate, and credit spreads narrowed by 7 bps. This combination resulted in a decrease in the interest rates used to value pension liabilities from 3.20% to 3.15%.

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DOL Issues Fact Sheet on Retirement Benefits for Vets Returning to Work

Plansponsor.com - Fri, 2019-08-09 10:08

The U.S. Department of Labor’s (DOL’s) Veterans Employment and Training Services (VETS) has released a fact sheet to help employers better understand their responsibilities toward reemployed service members under the pension provisions of the Uniform Services Employment and Reemployment Rights Act (USERRA) and related regulations.

USERRA requires that returning service members, on reemployment, be treated as though they did not have a break in civilian employment for the purpose of participation, vesting and accrual of pension benefits from their employers.

The VETS USERRA Fact Sheet #1: Frequently Asked Questions-Employers’ Pension Obligations to Reemployed Service Members under USERRA provides quick and direct guidance to employers and employees in a readily understandable format concerning the application of USERRA to employers that pay pension benefits as a percentage of total earnings of employees.

VETS says that USERRA can help employers reemploy and retain valued service member employees on their return from the performance of uniformed service in support of the national defense.

“Ensuring our service men and women enjoy the appropriate rights and benefits of their civilian employment on their return from duty encourages future service and provides for the security of our nation,” says Sam Shellenberger, deputy assistant secretary of VETS. “No employer wants to lose a valued employee, and VETS wants to help both employers and employees understand their rights and responsibilities under the Uniform Services Employment and Reemployment Rights Act. This guidance seeks to do just that.”


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Court Issues Mixed Ruling in Case Over ESOP Stock Purchase

Plansponsor.com - Thu, 2019-08-08 15:00

In a case arising from the sale of stock of Kruse-Western Inc. to the Western Milling Employee Stock Ownership Plan (ESOP), U.S. District Judge Dale A. Drozd from the U.S. District Court for the Eastern District of California has moved forward some claims and dismissed others.

Background in the opinion explains that Western Milling LLC is a milling and feed manufacturer, and at all relevant times manufactured Western Blend Horse Feed and other animal feed blends. After Western Milling faced legal and financial challenges when hundreds of horses died after being poisoned by an antibiotic included in the feeds provided by Western Milling, the ESOP was established.

The ESOP is a retirement plan under the Employee Retirement Income Security Act (ERISA) that is primarily invested in the stock of Kruse-Western, the parent company of Western Milling. On the same day the ESOP was created, according to the complaint, GreatBanc Trust Company caused the ESOP to purchase 100% of the outstanding shares of Kruse-Western stock. GreatBanc was appointed trustee of the ESOP by defendants John and Jane Doe 10–20, the individual members of the Kruse-Western Board of Directors. The ESOP purchased the stock from defendant Kruse and John and Jane Doe 20–30 (the selling shareholders), which the ESOP financed by borrowing the entire purchase price of $244 million from Kruse-Western.

Less than two months later, the value of Kruse-Western had dropped to $26.6 million. By the end of 2016, that value had fallen still further, to $24.8 million. By the end of 2017, the value had recovered only marginally, to $27.4 million. Thus, the lawsuit alleges, as of that date, the ESOP had purchased Kruse-Western’s outstanding stock for almost ten times its actual value.

The plaintiff in the case, a former Kruse-Western employee and current participant in the ESOP, alleges that the sale to ESOP did not adequately reflect the future revenue and earnings, given the recurring contamination in Western Milling’s animal feed, nor did it reflect Kruse-Western’s potential liability for wage and hour law violations. It is also alleged that Kruse-Western and its officers knew of these problems at the time of the sale, but the financial projections used to value Kruse-Western’s stock did not account for them.

Four causes of action are alleged against defendants, all of which arise under provisions of ERISA. Count one alleges a violation against the selling shareholders and GreatBanc, alleging that they engaged in a transaction prohibited by ERISA. Count two alleges a violation against the Board defendants who sold Kruse-Western stock to the ESOP, and also contends that these individuals engaged in a transaction prohibited by ERISA. Count three alleges that defendant GreatBanc breached its fiduciary duties to the ESOP. Count four alleges that the Board defendants failed to monitor GreatBanc and ensure that the ESOP paid no more than fair market value for the Kruse-Western stock. On April 15, the defendants moved to dismiss the complaint.

First, defendants argue for dismissal under Federal Rule of Civil Procedure 10(b), which provides that “each claim founded on a separate transaction or occurrence … must be stated in a separate count” if doing so “would promote clarity.” Drozd found that Rule 10(b) is inapplicable. “By its terms, that provision applies only where a single cause of action encompasses multiple transactions or occurrences. Thus, so long as each cause of action addresses only a single transaction or occurrence, Rule 10(b) is satisfied,” he wrote in his opinion.

The defendants also argue that the complaint is deficient under Rule 8(a) in multiple respects. Drozd said most of these arguments are mooted by the discussion that follows; however, he addressed the defendants’ contention that the plaintiff has failed to meet its pleading requirements because he has alleged claims against Doe defendants. Drozd notes that as a general rule, “Doe pleading” is disfavored in federal court. However, the practice is not entirely forbidden, particularly where the identities of alleged defendants are unknown prior to filing the complaint. The complaint lists three groups of Doe defendants: (1) persons serving on the Administration Committee of the ESOP; (2) the individual members of the Kruse-Western Board of Directors; and (3) the shareholders who sold their stock to the ESOP. Drozd said, of the second and third groups, only defendant Kruse is personally known, but the identities of others are almost certainly known to the defendants and should be readily ascertainable in discovery. He permitted the plaintiff to proceed on claims asserted against Doe defendants.

The defendants argue that the allegation that the selling shareholders and GreatBanc engaged in a prohibited transaction in violation of ERISA must be dismissed because it fails to assert that defendant Kruse and the selling shareholders were fiduciaries to the ESOP, and the complaint does not include a prayer for “appropriate equitable relief,” even though plaintiff is required to include this by law. The parties agree that GreatBanc is unquestionably a fiduciary to the ESOP; however, as to the selling shareholders, the defendants say the complaint contains no allegations indicating that they are themselves fiduciaries to the ESOP. Drozd agreed, noting that rather than alleging that the selling shareholders are fiduciaries, the complaint instead defines the selling shareholders as “parties in interest” within the meaning of ERISA.

According to Drozd, in the specific context of ERISA claims, whether the relief sought can be characterized as legal or equitable turns on whether the money or property sought is “in the defendants’ possession.” “The complaint in this case contains no such allegations. With respect to the selling shareholders, the allegations of the complaint state merely that they ‘participated in the sale of the company … and received in total $244 million in cash and loans from the ESOP for the company.’ There is no allegation that the proceeds from this sale were directed to any particular account over which plaintiff might have a valid claim,” Drozd noted.

However, the plaintiff argues that there is no requirement “that the funds or property must be identified in the complaint.” Imposing such a requirement at the pleading stage would, in plaintiff’s view, require him “to engage in a significant degree of pre-filing investigation and obtain information peculiarly in the possession of the defendant that is normally part of the discovery process in civil actions.” Yet, Drozd said he is bound by prior case law that the plaintiff has not persuasively argued that it may be meaningfully distinguished from this case. He dismissed the cause of action due to the plaintiffs’ failure to allege the location of the funds or property, but granted the plaintiff leave to amend.

As for the defendants’ argument that the plaintiff’s first cause of action must be dismissed against defendant GreatBanc because the transaction in question was “made for adequate consideration,” Drozd found nothing in the complaint establishing that the consideration paid in the transaction at issue was adequate. He denied the defendants’ motion to dismiss the first cause of action as to defendant GreatBanc.

For other counts in the complaint, there was disagreement as to whether the Board defendants are fiduciaries. Drozd considered the definition of fiduciary in ERISA and said, “Of particular relevance to this case, the Ninth Circuit has recognized that under the definition of a fiduciary, ‘where members of an employer’s board of directors have responsibility for the appointment and removal of ERISA trustees, those directors are themselves subject to ERISA fiduciary duties, albeit only with respect to trustee selection and retention.” Drozd noted that the second cause of action is unrelated to the appointment of GreatBanc as trustee but relates to the sale of Kruse-Western’s stock, contending that because the Board defendants were fiduciaries of the ESOP, any transaction between the ESOP and themselves effectively amounted to self-dealing in violation of ERISA. Drozd said such an allegation is not cognizable under ERISA unless the complaint plausibly alleges that the Board defendants exercised control over the ESOP and caused it to buy the Kruse-Western stock. He dismissed the plaintiff’s second cause of action with leave to amend.

The defendants contend that the complaint contains insufficient factual allegations to state a claim that GreatBanc breached its fiduciary duty to the ESOP. Drozd looked at the Supreme Court decision in Fifth Third v. Dudenhoeffer, saying that it required a plaintiff to allege “special circumstances,” which “might include something like available public information tending to suggest that the public market price did not reflect the true value of the shares.” But, he noted that in the current case, the stock is privately held, so that logic breaks down. He rejected the defendants’ argument in favor of dismissal of the third cause of action. “Defendants will be free to argue that the amount paid was in fact an accurate reflection of the value of Kruse-Western’s stock, and that they are therefore entitled to summary judgment. Such a factual dispute, however, cannot be resolved at the motion to dismiss stage of this litigation,” Drozd wrote.

Finally, defendants move for dismissal of the fourth cause of action, which alleges that the Board defendants violated ERISA by failing to monitor GreatBanc. Specifically, it contends that the Board defendants breached their duties under ERISA both by failing to ensure that the ESOP paid no more than fair market value for Kruse-Western’s stock, and by failing to ensure that GreatBanc took remedial action after Kruse-Western’s stock lost value. Defendants argue that because the complaint contains only conclusory allegations in support of this cause of action, it must be dismissed.

However, Drozd found additional, non-conclusory allegations in the complaint that indicate a failure to monitor. He said the complaint does allege that defendants failed to investigate, as any such investigation would have been revealed on a Form 5500 filed with the Department of Labor. In addition, the allegation that the value of Kruse-Western’s stock lost most of its value almost immediately after it was purchased by the ESOP, when combined with the allegation that GreatBanc took no remedial action following this decline in value, makes it quite plausible that the Board defendants failed to act with care, skill, prudence, or diligence in overseeing GreatBanc. These allegations are sufficient to survive a motion to dismiss.

Drozd directed the plaintiff to, within twenty-one days from the date of service of his order, either file a first amended complaint or notify the court that he intends to proceed only with the claims found cognizable in the order.

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Investment Product and Service Launches

Plansponsor.com - Thu, 2019-08-08 13:56

Art by Jackson Epstein

Northern Trust Builds Portfolio Analytics Tool

Northern Trust has launched a new investment analytics tool, providing institutional investors with insights when tracking and analyzing risk and performance across portfolios.

This latest enhancement from Northern Trust’s Investment Risk and Analytical Services (IRAS) group introduces Performance RADAR, a new proprietary reporting tool offering a contemporary user experience for accessing performance, attribution, contributions and ex-post risk results online across individual and aggregated portfolios.

“Performance RADAR allows asset owners and asset managers to amalgamate and synthesize large amounts of complex data though flexible visualization tools,” says Serge Boccassini, product lead – Investment Accounting and Analytic Solutions at Northern Trust. “Our clients can find information quickly using powerful graphics and intuitively compare performance results. The result is that we provide clients with greater insights into their analytics—faster and more efficiently than ever before.” 

American Century to Launch New Suite of Investment Solutions

American Century Investments has hired three senior portfolio managers for the investment team supporting Avantis Investors, a new suite of broadly diversified, tax-efficient and low-cost investment solutions slated to launch later this year. Ted Randall, Mitchell Firestein and Daniel Ong bring 45 years of combined investment management experience to their new roles.   

Working with the firm’s Chief Investment Officer Eduardo Repetto Ph.D., Randall, Firestein and Ong will manage a range of investment solutions across market capitalizations and geographies. In late June, the firm filed a registration statement with the Securities and Exchange Commission to offer five new equity strategies. Available in exchange traded fund (ETF) and mutual fund vehicles, the new strategies are expected to rely on a proprietary investment approach based on market prices and designed to capture higher expected returns.

Randall has prior experience as a portfolio manager and vice president at Dimensional Fund Advisors (DFA), where he managed U.S., international developed and emerging market portfolios. During his 17-year tenure at DFA, Randall also led the research group’s trading support efforts and its management of security data. In this role, he designed portfolio management and trading applications to optimize the rebalancing and management of portfolios. Randall earned his master’s degree in business administration from the UCLA Anderson School of Management and holds a bachelor’s degree in business administration with a concentration in finance from the University of Southern California.

Prior to joining Avantis Investors, Firestein was a senior portfolio manager and vice president at DFA, where he led a team of investment professionals that managed approximately $40 billion in emerging market equity portfolios. He was responsible for strategy and portfolio oversight, implementation, and performance analysis. Firestein started his investment career at DFA in 2005 as a trading assistant supporting the international equity desk after graduating from Tulane University with a bachelor’s degree of science in management and finance. 

Ong also served as a senior portfolio manager and vice president at DFA for 14 years. Ong’s responsibilities spanned across managing international developed and emerging markets equity strategies, leading the emerging markets desk, and engaging with clients. Prior to that, he was an account manager at Metropolitan West Asset Management and a structure analyst at Pacific Investment Management Company. Ong is a CFA charterholder and earned a bachelor’s degree in economics from the University of California and an earned his master’s degree in finance and accounting from the University of Chicago Booth School of Business.

Transamerica Lowers Multiple Investment Fund Fees

Transamerica has reduced its fees for multiple investment funds, effective August 1 and August 2.

Fees were reduced by up to 13 basis points for certain classes of the following investments, representing more than $11.4 billion in assets as of June 30: the Transamerica Short-Term Bond; Transamerica Large Cap Value; Transamerica Intermediate Muni; Transamerica Unconstrained Bond; Transamerica U.S. Growth (effective August 2); Transamerica WMC U.S. Growth VP (effective August 2); and Transamerica Aegon U.S. Government Securities VP.

“At Transamerica, we strive to provide strong investment returns and competitive fees. Today’s announcement illustrates that commitment to our mutual fund, variable annuity, and retirement plan customers,” says Marijn Smit, head of Transamerica Asset Management, Inc.

Transamerica Asset Management, Inc. advises 69 mutual funds, 58 underlying funds for its variable annuity and variable life products, and five DeltaShares exchange-traded funds (ETFs).

Sun Life Financial Announces First Sustainability Bond Issuance

Sun Life Financial Inc. will issue $750 million dollars’ worth of principal amount in Canada, of Series 2019-1 Subordinated Unsecured 2.38% Fixed/Floating Debentures. The offering is expected to close on August 13.

The Debentures will represent Sun Life’s inaugural sustainability bond in Canada and marks the first issuance of a sustainability bond by a life insurance company globally.

In March 2019, Sun Life published its Sustainability Bond Framework, outlining its criteria for the bonds. Distinguishing them from green bonds, Sun Life’s bond and its Sustainability Bond Framework include criteria for both green and social assets. Potentially eligible social investments focus on access to essential services, facilities and equipment that contribute to the long-term health of communities while delivering excess returns to investors, such as infrastructure investments for hospitals or childcare centers. Sun Life’s Sustainability Bond Framework and an independent second party opinion by Sustainalytics on the framework’s alignment with the International Capital Markets Association’s Sustainability Bond Guidelines are available publically on Sun Life’s Investor Relations website. 

“We’re proud to be the first life insurance company globally to issue a sustainability bond. At Sun Life, our purpose is to help our clients achieve lifetime financial security and live healthier lives. This issuance demonstrates our commitment to embed sustainability into our business while contributing positively to society and advancing technologies that enable a healthier future,” says Melissa Kennedy, executive vice president, chief legal officer and executive sponsor of Sustainability, Sun Life. “The financial market plays a key role in the transition to sustainable practices and we’re pleased to broaden the opportunities for sustainable investments in Canada.”

Mesirow Financial Issues U.S. Small Cap Suitability Vehicle

Mesirow Financial has released its Small Cap Value Sustainability Fund. This vehicle capitalizes on the firm’s U.S. Small Cap sustainable investment strategy while addressing the increasing desire of institutional, corporate and individual investors to emphasize responsible investing within well-diversified portfolios.

“With this strategy, we link environmental, social and governance [ESG] factors with our fundamental assessment of macro, sector and company-specific trends,” notes Kathryn Vorisek, senior managing director and head of Equity Management at Mesirow Financial. “We believe that actively incorporating well-defined ESG factors can offer attractive investment potential—and a lower overall portfolio risk profile—while driving positive environmental and societal outcomes.”

“Social responsibility has been a core value of Mesirow Financial since its founding in 1937,” remarks Dominick Mondi, president and CEO of Mesirow Financial. “For decades, we have served as a catalyst for positive change in our communities, and so it is a natural extension to incorporate environmentally and socially sound principles as we design investment solutions for our clients.”

Going forward, the firm says it will continue to seek positive impact through active engagement with companies and further integration of ESG elements into a growing line-up of investment strategies and solutions that are good for society and good for investors.

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Case Studies Suggest Move From Public Pensions Hurts Taxpayers

Plansponsor.com - Thu, 2019-08-08 12:10

A new series of case studies finds that states that shifted new employees from defined benefit pensions to defined contribution or cash balance plans experienced increased costs for taxpayers, without major improvements in funding.

The research, published by the National Institute on Retirement Security (NIRS), also indicates that the move away from pensions cuts employees’ retirement security and that employers may face increasing challenges hiring and retaining staff to deliver public services.

The research looked at four states that closed their pension plans in favor of alternative plan designs: Alaska, Kentucky, Michigan and West Virginia.

According to the study report, “Enduring Challenges: Examining the Experiences of States that Closed Pension Plans,” in Alaska, closing the pension plans has not helped the state manage the existing unfunded liability. Despite a $3 billion infusion of the state’s financial resources, the combined unfunded liability for pension benefits was higher in 2017 than it was in 2005. Alaska has managed to improve the funded status of both its plans modestly after increasing its commitment to funding, yet the unfunded actuarial accrued liability for pension benefits has increased in the pension plans since 2005. And, many workers face a retirement with no Social Security or pension.

In Kentucky, the legislature enacted a new tier of benefits for plans in the Kentucky Retirement System (KRS). Public employees hired since January 1, 2014, participate in a cash balance hybrid plan instead of the pension plan. This move was positioned as a way to improve KRS funding. One of the KRS plans (KERS Non-Hazardous) was funded in fiscal year 2004 at 85.1%. By fiscal year 2018, the funded status was down to 12.88%.

“What’s important to understand is that switching away from pensions starves the plan of employee contributions while the liabilities remain. This can reduce the economic efficiencies of a pension system as the number of retirees grows compared to the number of employees paying in. Ultimately, taxpayers are left with the bill,” explains Dan Doonan, NIRS executive director and report co-author.

In Michigan, the State Employees’ Retirement System (SERS) pension plan has been closed for more than 22 years with all new-hires participating in a defined contribution (DC) plan. When the SERS pension plan closed in 1997, the plan was actually overfunded with 109% of assets. As of September 30, 2017, the plan was only 66.5% funded and had an unfunded liability of $6 billion. And, the system now must be managed with six retirees per worker.

In West Virginia, the Teachers’ Retirement System (TRS) pension plan was closed in 1991, placing new teachers in a DC plan. With teachers facing low retirement account balances, the state re-opened the pension after calculating that it could provide equivalent benefits at half the cost of the DC plan. When West Virginia reopened the pension plan in 2005, the funded status of the plan was at 25%. The state has made steady progress improving the funded status with disciplined contributions. By 2008, the plan improved its funded status to 50%. In 2018, the plan was 70% funded.

Each analysis examines the key issues and the impact of the plan change over time. Specific areas include: the impact on the overall demographics of the system membership; changes in the cost of providing benefits under the plan; the percent of the actuarially determined employer contribution made by the state and other public employers each year; the effect on the retirement security of workers impacted by the change; and the impact on the overall funding level of the plan over time. To the extent possible, the case studies also examine subsequent action taken by policymakers to address the results of the plan changes.

Key findings from the study show costs for these states increased after closing the pension plan, and workforce challenges are emerging as a result of the retirement benefit changes. Alaska is experiencing increased difficulties recruiting and retaining public employees since the pension plans were closed to new hires.

The NIRS has scheduled a webinar for Tuesday, August 13, at 2:00 PM ET to review the findings. Registration is here.

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Participants, Plans Already Feeling the Impact of U.S-China Trade War

Plansponsor.com - Wed, 2019-08-07 15:24

On August 5th, the Alight Solutions 401(k) Index 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%. 

According to Rob Austin, vice president and director of research for Alight Solutions, the spike in trading activity was about as surprising as it was well-timed.

“Followers of the index will know that when we see the market tumble we tend to see trading activity spike towards fixed-income,” Austin says. “While we expected to see the spike in trading, I will say I was a little bit surprised with this one. The reason is that so far this year, as the market had been going up, people had mostly been selling out of equities and into fixed income.”

Generally speaking, that’s the “correct” thing to be doing, selling assets while they are priced high and buying assets that are discounted.

“So, leading up to this week, people were demonstrating more positive trading behaviors for 2019,” Austin says. “But sure enough, the market dipped this week, and we saw three-times the trading of an average day, and the money was going out of depressed equities and into inflated fixed income. So, it’s disappointing.”

Important to point out is the fact that these 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.

“What we saw on Monday was 0.044% of balances trading,” Austin says. “In absolute terms, it’s still quite a small percentage of balances that end up getting traded at the wrong time. Of course, it’s still a shame that this is happening. Even if it’s a small number of people we want them to avoid these negative behaviors.”

Thinking About the Trade War, and ‘Stuckflation’

Reflecting on the current global market conditions, Bob Browne, chief investment officer, Northern Trust, is much more neutrally minded than alarmist, noting that his base-case expectation for the next several years does not include a likely recession. However, beyond the trade tensions between the U.S. and China, Browne is concerned about an emerging market dynamic he calls “stuckflation.” This refers to the idea that inflation will be stuck at lower levels over the next decade than one would expect based on the historic behavior of the markets. Low inflation, he says, can have a ripple effect in the economy, impacting interest rates and many other important factors. 

“We believe that muted growth in global demand and timid policy responses suggest low inflation is here to stay for some time,” Browne says. “Most major central banks continue to miss their 2% inflation targets, and supply-side forces driving this dynamic remain strong. Technological innovations, along with vast troves of data, are enhancing price discovery and optimization techniques globally. This is reflected in low interest rates and flat yield curves.”

Putting the argument in different terms, Browne cites the example of how Amazon has disrupted the online retailer marketplace.

“Even though Amazon says it is considering paying its workers $15 as a minimum wage, which would support inflation, it’s also using new technologies to drive long-term costs out of it business model. Amazon is, in this way, putting incredible competitive pressures on the online and in-person retail industries at large,” Browne says. “That’s just one example of how a large, powerful firm is using technology to keep prices lower. This drives competitors to do similar things, leading to deflationary pressure. The other important factor here is that it has become very easy for any of us today to simply Google what is the right price for this television or that coat. These are two systematic factors that will lead to lower inflation.”  

For retirement plan investors, inflation is often seen as a negative—how do you keep up with inflation and beat inflation? With that thought in mind, it might not seem like bad news for long-term investors that inflation will be stuck at low levels. On the other hand, however, basic economics indicates that controlled inflation is an important part of a healthy global economy that is growing.

“It’s not a bad environment to take debt, as rates remain relatively low today and we think they will [remain so] for some time,” Browne says. “But as a retiree thinking about income in this environment, you’ll be hard pressed to find adequate income just from bonds and safe assets. You’re going to have to take more risk to meet the funding needs. The search for yield is going to put the focus on high quality stocks, real estate investment trusts [REITs], high quality fixed income, and other investments that can generate decent income.”

Zooming into the China-U.S. relationship, Browne says this is “a really big deal for the markets,” and it will by all accounts remain so. 

“What has happened in 2019 is that the two largest economies in the world have changed the tone and the nature of their relationship,” Browne says. “Until recently, the marketplace expected the U.S. and China would, year over year, continue to integrate and overlap their economic systems. Increasingly, it seems the two spheres are instead pulling apart. They won’t ever separate completely but they won’t be overlapping as much as the market was assuming.”

As Browne and others explain, investors seem to increasingly believe there is less of an opportunity for China and the U.S. to end up in a win-win situation.

“There is more of a sense that both sides view each other as a competitive threat, and this has changed the relationship fundamentally looking forward,” Browne says. “[Plan sponsors] have to get used to this as another part of the new normal. It remains to be seen how much long-term economic growth could be taken out of the global economy as a result of the declining symmetry. It’s also another deflationary force.”

Long-Term Perspective Remains Critical

Bob Waid, managing director at Wilshire Associates, points out that the recent market moves have had an outsized impact on those with greater exposure to the global markets.

“Even before the recent bout of market volatility, international equities had underperformed for the year,” Waid says. “You typically hope that global diversification pays off, but in this case it didn’t. Another factor is that, when you have high volatility, there are money managers out there that are going to take defensive moves that then cause investors to underperform the market when the upside comes. All of these things have tied together this year.”

According to Waid, diversification into private equity funds has also negatively impacted institutional investors so far in 2019, but he expects the situation to be temporary.  

“One of the themes that you hear all the time from really successful investors is that you have to have a long-term perspective and you have to stay the course,” Waid explains. “You will be rewarded for your courage to ride it out. This proved to be true in a big way for people who rode out the Great Recession. It’s true right now as well. Those people who stayed the course from Q4 2018 through the last few weeks have done well. It’s the whipsaw days in the market that cause people to make poor decisions.”

During bouts of market volatility, pensions and perpetual trusts such as university endowments have an inherent advantage over individual accounts.

“Retail individuals like you and me, we’re looking at retiring sometime,” Waid observes. “For this reason, we may not always have the luxury of a 10-plus year view. We have to make sure we aren’t exposing ourselves at the wrong time. For anyone who is on the younger side, you can act like a pension and keep that long-term view. Jack Bogle used to always tell me, buy the entire market and hold it forever and you’ll do great. It’s a bit tongue in cheek but it’s an important lesson.”

Retirement investors, in this way, find a fundamental tension between addressing sequence of returns risk versus taking advantage of what markets do in the long-term, which is go up. It’s a huge challenge for the defined contribution (DC) plan space to balance near-retirees’ need for continued growth with their need to avoid losses near the retirement date. 

“Sometimes when we talk about solving this tension between solving sequence of returns risk and taking advantage of long-term market growth, people start to think this sounds like market timing. But really it’s not,” Waid adds. “It’s about understanding when you have to shift form risk assets to safer assets in a rational way. It’s having a strategic plan in place and not trading on fear near retirement. It’s not an easy message to get across to novice investors. It’s why dollar cost averaging investing from the retail perspective typically pays off, because you take the emotion out.”

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Court Moves Forward Suit Over Plans’ Use of Retail Funds

Plansponsor.com - Wed, 2019-08-07 15:12

In a case alleging fiduciaries of Kaleida Health’s 403(b) and 401(k) plans failed to take advantage of the plans’ bargaining power by only offering actively managed retail mutual funds as investment options instead of identical investor class mutual funds with lower operating expenses, a federal court judge has denied motions to dismiss.

According to the decision by U.S. District Judge Elizabeth A. Wolford of the U.S. District Court for the Western District of New York, the defendants’ first motion to dismiss is denied as moot. After the defendants filed the motion, the plaintiffs filed an amended complaint, which alleges significantly more facts than the initial complaint. Woldford cited case law in saying, “Where plaintiffs have substantially bolstered their factual allegations through amendments to the complaint, it makes little sense for the Court to assess those claims based on briefing that does not consider the additions.”

Secondly, the defendants contend that neither Susan Vallance, the director of Employee Benefits at Kaleida, nor the plans’ retirement committee are fiduciaries with respect to the alleged conduct at issue. The plaintiffs allege that Vallance has numerous responsibilities with respect to the plans, including to “[r]esearch, design, develop, negotiate, communicate and implement new or enhanced benefit programs, including retirement and pension plans.” Wolford said someone who had the responsibility of negotiating the plans could very well have played a role in deciding which share class to invest in. Plaintiffs also allege that Vallance signed the plans’ Form 5500s from 2014 to 2017 on the line labeled “signature of plan administrator.” Wolford found that these are statements about Vallance’s job description that sufficiently allege Vallance exercises “discretionary authority or discretionary control respecting management” and/or administration of the plans.

The defendants argue that the plans do not explicitly identify Vallance as an administrator or a fiduciary for the plans. But, Wolford cited Mertens v. Hewitt Assocs., which states “ERISA, however, defines ‘fiduciary’ not in terms of formal trusteeship, but in functional terms of control and authority over the plan, thus expanding the universe of persons subject to fiduciary duties.” Wolford concluded that the amended complaint sufficiently alleges that Vallance has functional control and/or authority over the plans so as to fall within the scope of an Employee Retirement Income Security Act (ERISA) fiduciary.

Additionally, Wolford found the plaintiffs’ allegations regarding the retirement committee’s status as a fiduciary are also sufficient at this stage of the proceedings. The amended complaint alleges that the retirement committee “has discretionary authority … to fix omissions, to resolve ambiguities regarding the plans and to construe terms of the plans,” as well as “to approve or disapprove funding vehicles under the plans.”

The defendants argue the retirement committee should not be considered a fiduciary because the Charter of the Kaleida Health Retirement Plan Committee “carved out responsibility” for the plans’ funding and oversight of the plans’ investments from being delegated to the retirement committee. “Defendants’ arguments do not persuade the Court; if anything, they create an issue of material fact that would be inappropriate to resolve in a ruling on a motion to dismiss,” Wolford wrote in her decision.

In addition, Wolford noted that Section 1.03 of the Charter states; “The purpose of the [Retirement] Committee is to serve as the plan administrator of the plans and, as a named fiduciary, to exercise authority and control over the management of the plans, excluding responsibilities for funding and investment of plan assets that have been delegated to the [Investment Committee.]”

Wolford wrote, “It is not clear at this point in the litigation that a failure to properly minimize administrative fees falls exclusively within the scope of funding and oversight responsibilities of the plans that the Charter delegated to the Investment Committee, or that such a claim is not within the scope of the Retirement Committee’s other administrative and managerial responsibilities.” However, she noted that Department of Labor (DOL) regulations provide that the performance of trustees and other fiduciaries should be reviewed regularly to “ensure that their performance has been in compliance with the terms of the plan and statutory standards, and satisfies the needs of the plan.”

In other words, Wolford explained, even though the Charter does delegate the responsibilities of funding the plans and oversight of plan investments from the Retirement Committee to the Investment Committee, it does not relieve the retirement committee of its fiduciary duty to monitor the investment committee. “Therefore, the Court will not dismiss Vallance or the Retirement Committee at this stage of the litigation,” she wrote.

The defendants argue the amended complaint fails to state a breach of fiduciary duty claim because the retail funds at issue are part of a wide range of options, and the fees associated with those retail funds fall within ranges permitted by the courts. Wolford said courts in her court’s circuit have found allegations that the “defendants breached their fiduciary duties by selecting specific retail funds over lower-cost, but otherwise identical, institutional funds … are sufficient to survive the motions to dismiss.”

Wolford also noted the 2nd U.S. Circuit Court of Appeals has found that “ERISA plaintiffs generally lack the inside information necessary to make out their claims in detail unless and until discovery commences,” and accordingly an omission in the complaint of the fiduciary’s “knowledge, methods, or investigations at the relevant times … is not fatal to a claim alleging a breach of fiduciary duty.” Instead, “a claim for a breach of fiduciary duty under ERISA may survive a motion to dismiss … if the complaint alleges facts that, if proved, would show that an adequate investigation would have revealed to a reasonable fiduciary that the investment at issue was improvident.”

She denied the defendants motion to strike without prejudice.

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Mercer, Club Vita Team Up to Offer ZIP Code Model for Longevity

Plansponsor.com - Wed, 2019-08-07 14:01

Club Vita, a provider of longevity risk data, has produced a new white paper, “Zooming in on ZIP Codes,” which explains how integrating CIP codes and identifying other socioeconomic factors can help pension plan sponsors have a better handle on the life expectancy estimates for their participants.

Club Vita teamed up with Mercer to develop a proprietary model, VitaCurves, that uses the nine-digit ZIP code, or ZIP+4 code. Employing the nine-digit ZIP code offers significantly more detail on geographical differences in life expectancy than other methods.

By honing in on each participant’s ZIP+4 code to capture a wealth of lifestyle information, and analyzing them alongside factors such as gender, annuity amount and retirement health, Club Vita can help plan sponsors make more informed decisions on funding and risk management, often reducing costs.

Statistics from the VitaCurves model identified specific characteristics of individuals within pension plans that resulted in increases and decreases of liabilities of up to 6% relative to the standard Society of Actuaries tables. With a reduction of liabilities on average, the paper says most plans could be over-valuing their liabilities.

Mercer has previously contended that industry-specific mortality tables also are more accurate for use in defined benefit (DB) plan assumptions.

“ZIP code modeling has several practical benefits for the risk management of pension promises for groups of individuals,” says Dan Reddy, CEO of Club Vita US. “Not only are ZIP codes insightful for assessing how healthy the lifestyles are of people living in different neighborhoods, but they are also readily available, so there is no need to collect sensitive individualized health information.”

Club Vita’s ZIP+4 code model will also facilitate the development of new products, allowing pension plans to prepare themselves for extreme longevity events, such as medical breakthroughs, while keeping control of plan assets. In addition, Douglas Anderson, founder of Club Vita, points out the reduction in uncertainty enables insurers of blocks of pensions to offer lower prices to take on this risk, which makes insurance more affordable and long-term pension promises more secure.

Anderson adds, “The barrier to many pension plan sponsors using life insurers to secure participants’ benefits is the confidence in getting value for money, and that’s where ZIP code modeling helps. The amount of each retiree’s pension is unaffected and the security of the promise is strengthened.”

Club Vita’s ZIP code model will be available for use on September 1, 2019 by Mercer clients and any pension plan that signs up directly with Club Vita.

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Settlement in Johns Hopkins 403(b) Plan Lawsuit Includes Recordkeeper Bid

Plansponsor.com - Tue, 2019-08-06 16:16

The plaintiffs in a 403(b) ERISA lawsuit targeting John Hopkins University have filed a settlement motion and other case-closing documents in federal court.

In their initial complaint and subsequent argumentation, plaintiffs alleged that fiduciaries of the Johns Hopkins University 403(b) plan violated Sections 404 and 406 of the Employee Retirement Income Security Act (ERISA). The case was one of a number filed in district courts across the country by the same counsel—Schlichter, Bogard and Denton—that brought virtually identical claims against several other big-ticket universities.

In this particular case, the plaintiffs argued Johns Hopkins had “not prudently managed its pension plan, known as a 403(b) plan, in violation of ERISA.” Plaintiffs further alleged, like their counterparts suing other universities, that Johns Hopkins had not managed the plan for the exclusive purpose of providing benefits to participants and their beneficiaries.

News that the parties have reached a settlement comes nearly two years after the U.S. District Court for the District of Maryland granted in part and denied in part the defendants’ motion to dismiss the Employee Retirement Income Security Act (ERISA) lawsuit. Technically, the motion was granted to the extent plaintiffs alleged under Counts I, III, and V that “Johns Hopkins acted imprudently by offering too many investment options or higher-cost share classes in the plan,” and for Counts II, IV, and VI, to the extent that plaintiffs alleged that maintaining “mutual funds or that revenue sharing from a mutual fund is a prohibited transaction.” The motion was denied in all other respects.

Following the Maryland Court’s order, plaintiffs asserted that two of the district court decisions upon which the Court relied erred by conflating institutional non-mutual fund vehicles with institutional mutual fund share classes, and overlooked the Supreme Court’s instruction to apply trust law when evaluating the scope of a fiduciary’s duty regarding mutual fund shares. As a result, Plaintiffs moved for partial reconsideration of the dismissal order on October 12, 2017. Plaintiffs’ motion was later denied on August 14, 2018.

From here, the parties proceeded to discovery after defendant’s motion to dismiss was decided. The parties negotiated a stipulated confidentiality and seal order and a stipulation for discovery of hard copy documents and electronically stored information. According to case documents, at the time the parties reached a settlement, the defense had completed its production of all minutes and meeting materials of the plan’s fiduciaries, fee and performance disclosures, and other materials requested by plaintiffs.

Case documents show the defendants moved to certify the court’s dismissal order for an immediate interlocutory appeal under 28 U.S.C. Section 1292(b) on November 10, 2017. The Court granted the defendants’ motion on August 15, 2018, and stayed the case pending appeal. The 4th U.S. Circuit Court of Appeals subsequently granted the defendants’ petition for interlocutory appeal. To allow settlement discussions to proceed, the briefing schedule for the appeal was extended multiple times. As a result, John Hopkins has not filed its opening brief and appendix with the 4th Circuit.

While the appeal was pending, the parties engaged in settlement discussions, case documents explain. In accordance with the 4th Circuit’s Local Rule 33, a mediation conference was scheduled with a 4th Circuit mediator. On April 11, 2019, the parties participated in an in-person all-day mediation session, which resulted in an agreement on the monetary portion of the settlement. Over more than two months, the parties negotiated non-monetary terms involving actions to be taken by defendants and changes to the plan. Only on July 17, 2019, did the parties finally reach an agreement on all terms.

According to the settlement motion filed by the plaintiffs, the settlement will cause John Hopkins defendants to deposit $14 million as the gross settlement amount in an interest-bearing settlement account. The settlement fund will be used “to pay the participants’ recoveries, administrative expenses to facilitate the settlement, and plaintiffs’ counsel’s attorneys’ fees and costs, and class representatives’ compensation if awarded by the court.”

In addition to the monetary component of the settlement, the defendants agreed to substantial non-monetary terms in accordance with Article 10 of the settlement agreement. These terms include the following:

  • John Hopkins agreed to comply with the non-monetary terms for a three-year settlement period, during which time plaintiffs’ counsel will stay involved to monitor compliance with the settlement terms and bring an enforcement action if needed;
  • Within 30 days after the end of each year of the settlement period, defendants will provide plaintiffs’ counsel a list of the plan’s investment options, fees charged by those investments, and a copy of the investment policy statement (if any);
  • If the plan’s fiduciaries have not done so, within 90 days of the settlement’s effective date, the plan’s fiduciaries shall retain an independent consultant with expertise in designing investment structures for large defined contribution plans who will thereafter assist the fiduciaries in reviewing the plan’s existing investment structure.
  • With the assistance of the independent consultant, the plan’s fiduciaries (or a delegate thereof) shall issue requests for proposals for recordkeeping and administrative services. The requests for proposal shall request that any proposal provided by a service provider for basic recordkeeping services to the plan include an agreement that the service provider will not solicit current plan participants for the purpose of cross-selling proprietary non-plan products and services, including, but not limited to, IRAs, non-plan managed account services, life or disability insurance, investment products, and wealth management services, unless a request is initiated by a plan participant.
  • After conducting the request for proposal for recordkeeping services, the independent consultant shall provide a recommendation to the plan’s fiduciaries regarding whether the plan should use a single recordkeeper or more than one recordkeeper. To the extent the plan’s fiduciaries decide not to follow a recommendation, the plan’s fiduciaries shall document the reasons for that decision and provide those reasons in writing to plaintiffs’ counsel along with the consultant’s written report(s), if any, or other documentation reflecting the consultant’s recommendation and basis for such recommendation;
  • Within 30 days of selecting the recordkeeper(s), the plan’s fiduciaries shall provide to plaintiffs’ counsel the final bid amounts that were submitted in response to the request for proposals and shall identify the selected recordkeeper(s), which shall be accompanied by the final agreed upon contract(s). The final agreed-upon contract(s) for recordkeeping services shall contractually prohibit the plan’s recordkeeper(s) from soliciting current plan participants for the purpose of cross-selling proprietary non-plan products and services, unless a request is initiated by a Plan participant; and
  • Within 18 months of the settlement effective date, Johns Hopkins shall communicate, in writing, with current plan participants and inform them of the recordkeeping and investment structure for the plan resulting from the process described above. Plan participants shall be informed of the investment options available in the approved fund lineup, including any frozen annuity options. Participants shall be provided with a link to a webpage containing the fees and the 1-, 5-, and 10-year historical performance of the frozen accounts and the investment options that are in the plan’s approved investment structure and the contact information for the individual or entity that can facilitate a fund transfer for participants who seek to transfer their investments in frozen annuity accounts to another fund in the plan.

These are just some of the non-monetary requirements of the settlement. Also of note, in entering the settlement, John Hopkins University does not admit to wrongdoing or agree with plaintiffs’ characterization of its operation of the retirement plan.

More information is available in the text of the plaintiffs’ settlement motion, here

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PBGC Multiemployer Program Continues Move Toward Insolvency

Plansponsor.com - Tue, 2019-08-06 15:23

The Fiscal Year 2018 Projections Report by the Pension Benefit Guaranty Corporations (PBGC) projects the organization’s multiemployer insurance program will lose funds by the end of fiscal year 2025.

The report, which has related these expectations since 2016, explains how the program’s financial condition will deplete over the upcoming decade with nearly 125 multiemployer plans expected to run out of money in the next 20 years. Should the organization’s multiemployer program cease funding, PBGC says it would have to decrease guarantees to the amount that can be paid from the program’s premium income, therefore reducing a worker’s guaranteed payment while also spending more on financial assistance. Currently, the program covers multiemployer pension plans for over 10 million employees.

“The multi-employer plan remains in dire condition,” says PBGC Director Gordon Hartogensis. “The financial condition of PBGC’s multi-employer program will continue to worsen in the next years.”

Even as President Trump’s FY 2020 Budget proposes an added $18 billion in premium revenue over the next 10 years and an exit premium for the program, multiemployer guarantees have failed to increase since 2001, and is not indexed for inflation. Hartogensis adds that if Congress fails to act soon then after year 2025, any future revenue to the program would be sourced from premiums.

“We would not be able to satisfy the guarantee we have, and the financial assistance would drop to the level we could use for premiums. Guaranteed levels would drop 10 to 12 cents on the dollar,” he says.

As of now, the maximum annual guaranteed benefit for retirees in the multiemployer program is $12,870 annually, for 30 years of vesting, while a participant in the single-employer program averages at $67,295 a year. According to the report, projections for FY 2028 show the average negative net position is set at $66 billion in today’s dollars.  

Single-Employer Program Grows in 2019

PBGC’s single-employer insurance program is expected to increase throughout the next 10 years, especially as it emerged from a deficit since 2001. However, the report says these programs continue to be exposed to underfunding by financially unstable employers.

Still, projections from the report state the 10-year average net position for the program has slightly improved from 2018, aside from small changes in variability. Additionally, the average projected net position for FY 2028 is at $37 billion in future dollars, and $27 billion in current dollars.

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Considerations for 2020 Health Benefits Planning

Plansponsor.com - Tue, 2019-08-06 14:37

Employers and plan sponsors face no shortage of policy and compliance issues to consider when finalizing 2020 health and fringe benefit offerings, contribution strategies, vendor terms, plan operations and employee communications, Mercer says.

That’s why its Law and Policy group recently published “Top 10 Compliance Issues for 2020 Health and Fringe Benefit Planning.”

The top compliance-related priorities for 2020 health and fringe benefit planning, according to Mercer, include the following:

Ongoing ACA concerns for large employers. Mercer recommends that employers review 2020 coverage and eligibility terms in light of employer shared-responsibility (ESR) strategy, factoring in the 2020 affordability safe harbors and minimum value determinations. Evaluate ESR and minimum essential coverage (MEC) reporting processes, including the adequacy of records to respond to any IRS inquiries (e.g., Letter 226-J). Ensure employer-sponsored group health plan complies with Affordable Care Act (ACA) benefit mandates. Monitor ACA developments, including further Cadillac tax delay or repeal and litigation challenging the ACA.

State activity. Employers should appraise state laws raising concerns for group health plans. For insured plans, expect more activity on surprise medical bills, new health coverage mandates and association health plan (AHP) options. State initiatives that could affect all employers include health plan reporting mandates, prescription benefit manager (PBM) regulations, new or continuing health plan assessments, and telemedicine laws. Employers should also track state innovation waivers under ACA Section 1332 and state regulation of AHPs to identify any restrictions that may affect plan design. Employers should work with vendors to ensure compliance with these initiatives.

Data privacy and security. Evaluate each new tech vendor that has access to health and welfare plan data to determine whether HIPAA or other data-protection and privacy laws apply. Wellness and transparency tools, mobile apps, and artificial intelligence may implicate HIPAA and other laws. Regularly review vendor compliance, since any breach or violation could create plan sponsor obligations and liabilities. Monitor how HIPAA enforcement and guidance evolves to address apps and emerging technologies. Track whether changes to public-sector HIPAA rules have an impact on data sharing in the private sector.

Health savings accounts (HSAs) and health reimbursement arrangements (HRAs). Review employer-sponsored health benefits and programs that might provide HSA-disqualifying coverage, and determine if changes are warranted. This review should include stand-alone health-related benefits and programs available to all employees—regardless of high-deductible health plan (HDHP) enrollment—as well as benefits and programs available only to HDHP participants. Adjust plan design and administration, and update plan documents and other employee communications for 2020 HSA/HDHP inflation-adjusted amounts. Consider whether to offer either of the two new types of HRAs. Individual-coverage HRAs can be used to reimburse premiums for Medicare or individual health insurance chosen by the employee. Excepted-benefit HRAs, which qualify as HIPAA-excepted benefits, can be funded up to $1,800 annually (indexed) and used to reimburse a wide range of medical care expenses.

Mental health parity. In light of heightened focus on the Mental Health Parity and Addiction Equity Act (MHPAEA) and the opioid crisis, review benefit plans for compliance with parity guidance, Employee Retirement Income Security Act (ERISA) standards and best practices. Prepare to respond to disclosure requests.

Wellness programs. For wellness programs that include a health screening, evaluate the need for any design changes due to the removal of the Equal Employment Opportunity Commission’s (EEOC)’s incentive limit rules. Consider working with consultants and vendors to make adjustments that minimize litigation risk and program disruption. Keep in mind that the EEOC’s other Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA) rules for wellness programs still apply. If tied to a group health plan, wellness programs must also comply with HIPAA rules, including reasonable alternative standards for health-contingent wellness programs.

Paid leave. Assess employer-sponsored paid leave programs, including sick, disability and parental/family leave. Monitor state and local legislation for new and expanded mandates and programs. Evaluate processes for integrating state and local paid leave mandates with existing plans, and revise plans as needed to comply. Multi-regional or multi-national employers should consider developing a long-term strategy for equalizing leave benefits across jurisdictions and administering increasingly complex programs.

Prescription drug costs and coverage. Mercer suggests that employers monitor legal and other changes at the federal and state levels targeting the increasing cost of prescription drugs. Evaluate the impact of these changes on prescription drug benefits, and reassess health plans’ drug-purchasing strategies.

Cross-plan offsetting by ERISA plan service providers. Review whether third-party administrators (TPAs) or issuers are using a practice known as cross-plan offsetting to recoup overpayments to health care providers. Decide how to address this practice, if necessary. Comply with ERISA fiduciary standards when selecting and monitoring service providers, including reviewing fees for reasonableness.

Preventive services. Confirm non-grandfathered group health plans cover ACA-required in-network preventive services without any deductible, copay or other cost sharing. Modify preventive-care benefits for the 2020 plan year to reflect the latest recommendations from the U.S. Preventive Services Task Force (USPSTF), the Health Resources and Services Administration (HRSA), the Centers for Disease Control and Prevention’s Advisory Committee on Immunization Practices (ACIP) and ACA guidance. Adjust benefits for new or revised recommendations on skin cancer, HIV prevention, osteoporosis, cervical cancer, obesity, unhealthy alcohol use, perinatal depression and Vitamin D supplements for older adults. For employers with religious or moral objections to covering women’s contraceptives, watch for court or regulatory developments on this ACA requirement. Update plan documents, summary plan descriptions (SPDs), summaries of benefits and coverage (SBCs), and other materials as needed.

Download the 40-page print-friendly PDF for more detailed information and resources related to each compliance priority.

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OregonSaves Filling the Retirement Plan Coverage Gap

Plansponsor.com - Tue, 2019-08-06 10:59

Two years after its launch, OregonSaves, the state-run retirement program for private-sector employees, is reporting $25 million saved for retirement.

OregonSaves, a state facilitated payroll deduction individual retirement account (IRA) program, is the first program of its kind in the nation to launch. It is now leading a national movement, with five states and two cities following Oregon’s lead in creating programs that respond to the growing retirement savings crisis.

OregonSaves began with a pilot program in July 2017 and is expanding statewide in waves, having started with the largest employers. Right now, the rollout is ongoing for those with 10 or more employees and enrollment for all employers is set to conclude in 2020. Employers of any size can enroll early, and nearly 2,000 have already chosen to do so.

Kasey Krifka, engagement director of the Oregon Savings Network, with the Oregon State Treasury, tells PLANSPONSOR she is not aware of any employers dropping a retirement plan they sponsored to participate in OregonSaves—though the state is not formally tracking such information. She believes such a situation is unlikely, because employer-sponsored programs often offer employer match contributions and higher contribution limits. “Employers generally establish employer sponsored plans to allow people to save more than they can in an IRA and to attract and retain quality employees. They are not likely to risk creating an employee morale problem by replacing their employer sponsored retirement plan with a payroll deduction IRA program,” she says.

She cites surveys conducted by Pew Charitable Trusts and the State of Connecticut. These found 90% and 99% of employers, respectively, said they would maintain their current plan rather than terminate it in favor of a state facilitated payroll deduction IRA program.

Krifka adds that state-facilitated payroll deduction IRA programs such as OregonSaves have been designed for employers that do not sponsor their own retirement plan. They are a simple, no-cost alternative that allows employees to save for retirement through payroll deduction until their employers are able to take on the additional administrative complexity and higher costs of employer sponsored plans. “Essentially, not every employer has the resources to provide their own retirement plan,” she says.

OregonSaves has demonstrated success by a number of measures, with more than seven in 10 workers electing to stay in the program; workers saving at a higher percentage of pay than anticipated (an average of $117 per month); and millions of dollars saved by workers who were not saving before. In fact, program assets are currently climbing by more than $2.5 million a month (a rate which continues to accelerate), and most of those contributing are first-time savers.

While seven in 10 choosing to stay in the plan is good, it is lower than the figures for auto-enrollment in Employee Retirement Income Security Act (ERISA) 401(k)s or 403(b)s. But, Krifka says the opt-out rates are right on track with original projections. Boston College’s feasibility study projected a 20% to 30% opt-out rate; the revised number one year into the program was 30%.

“Our expectations for OregonSaves revolve around reaching those who are falling in the [coverage] gap and achieving long-term sustainability for the program. Despite the fact that OregonSaves is still in its early stages and is continuing to roll out, saving is already happening in our target population and the program became self-sustaining this year,” she notes. “The bottom line is that significant numbers of Oregonians now have access to a payroll-deduction retirement savings program when they were not given access to a payroll-based program before. Those workers are now saving for their retirement at an average rate of $119 per month. And the data shows those employees are accepting the auto-enroll, auto-increase features, even given simple ways to opt-out or make changes if they want.”

In another first, OregonSaves began welcoming cannabis businesses and their employees into the program in February 2019, a move toward inclusivity for an industry that has typically been excluded from other programs and benefits. The state’s goal is to help ensure all Oregonians have a chance to be in control of their financial future.

Late last year, OregonSaves made public that the program is now open to everyone, including the self-employed and gig economy workers. Hundreds of people have self-enrolled since that option was made available, joining the ranks of the more than 100,000 employees that have already enrolled through a facilitating employer and are saving for their future retirement needs.

Asked what she would say to other states and cities implementing or considering implementing such a program, Krifka says, “OregonSaves is achieving the exact policy goals for which it was created. Millions of dollars are being saved by people who haven’t saved before—and likely wouldn’t in the future without the program. This success has long-term positive implications for the savers and for the state as a whole.”

She reiterates that OregonSaves became self-sustaining in July 2019, years sooner than initially planned, which means the state of Oregon and the people of Oregon are benefitting from an important program at less cost than initially projected, and with no additional loans or general fund support.

“As the number of savers increases and their assets compound, individual financial security will be enhanced while demand for state services will be reduced,” Krifka adds.

The post OregonSaves Filling the Retirement Plan Coverage Gap appeared first on PLANSPONSOR.

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