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IRS Announces 2020 Contribution and Benefit Limits

Wed, 2019-11-06 08:37
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The IRS has announced contribution and benefit limits for 2020.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

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The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Other limits included in IRS Notice 2019-59 include:

  • Effective January 1, 2020, the limitation on the annual benefit under a defined benefit (DB) plan under § 415(b)(1)(A) is increased from $225,000 to $230,000.
  • The limitation for defined contribution (DC) plans under § 415(c)(1)(A) is increased in 2020 from $56,000 to  $57,000.
  • The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and408(k)(6)(D)(ii) is increased from $280,000 to $285,000.
  • The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of “key employee” in a top-heavy plan is increased from $180,000 to $185,000.
  • The limitation used in the definition of “highly compensated employee” under§ 414(q)(1)(B) is increased from $125,000 to $130,000.

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Categories: Industry News

Employees Are Making Each Other Sick

Tue, 2019-11-05 12:42

Ninety percent of employees admitted in a survey from Accountemps they’ve at least sometimes come to the office with cold or flu symptoms.

Of those respondents, 33% indicated they always go to work even when they’re under the weather. More employees ages 25 to 40 (39%) reported always coming to work sick than respondents ages 18 to 24, 55 and older (27% each) and ages 41 to 54 (26%).

More than half (54%) of respondents said they go into work sick because they have too much work to do, 40% don’t want to use a sick day, and 34% reported they feel pressure from their employers to come into work.

“Staying home when you’ve got a cold or the flu is the best way to avoid spreading germs to others and fight the illness faster,” says Michael Steinitz, senior executive director of Accountemps, a division of Robert Half. “Bosses should set an example by taking time off when they’re under the weather, encouraging employees to do the same and offering those with minor ailments the ability to work from home.”

The survey included responses from 2,800 workers ages 18 and older and employed in office environments in 28 U.S. cities.

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Categories: Industry News

U.S. Business Leaders Call for SECURE Act Passage in Senate

Tue, 2019-11-05 12:09

A group of more than 90 CEOs and senior executives from leading American corporations and business groups has issued a public letter calling on the U.S. Senate to pass the Setting Every Community Up for Retirement Enhancement Act, commonly referred to as the SECURE Act.

The plea, addressed both to Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer, comes some six months after the U.S. House passed its version of the SECURE Act with a nearly unanimous and bipartisan vote. Since that time and for a number of reasons, the SECURE Act has remained stalled in the Senate, despite the fact that the vast majority of Senators have voiced support for passage of the bill in its current form.

In their letter, American business leaders suggest that, if the SECURE Act is not signed into law, more than 700,000 small business workers will not be able to save for retirement at work; more than 4 million workers in private-sector pension plans will be at risk of losing future benefits; 1,400 religiously affiliated organizations will be at risk of losing access to their defined contribution retirement plans; and more than 18,000 children and spouses of fallen service members will continue to be economically disadvantaged by unfair taxation on their survivor benefits.

The full text of the letter runs over six pages, the last five of which include a long list of well-known signatories. Many of the executives signing the letter work in the insurance, advisory and asset management industries, but other sectors of the economy are represented as well: Michele Stockwell, executive director of Bipartisan Policy Center Action; Joseph Annotti, president and CEO of American Fraternal Alliance; Jess Roman, CEO of the Arizona Small Business Alliance; Glenn Hamer, CEO of the Arizona Chamber of Commerce and Industry; Annette Guarisco Fildes, president and CEO of the ERISA Industry Committee; Shirley Bloomfield, CEO of the Rural Broadband Association; and Gary Ludwig, president and chairman of the board for the International Association of Fire Chiefs.

Important to note, sources tell PLANSPONSOR the SECURE Act’s holdup is more logistical than substantial. That is to say, with the GOP’s clear focus on making appointments to the judicial branch, there is actually a great premium on floor time for the remainder of this year.

This is why the Senate leadership initially pushed first for the SECURE Act’s passage under a technical loophole known as “unanimous consent.” In short, if a bill enjoys unanimous consent among every Senator, it doesn’t require the standard procedure of debate—i.e., no floor time.

At this juncture, it appears three GOP Senators are refusing to allow the bill’s passage under unanimous consent: Ted Cruz, Mike Lee and Pat Toomey. Senator Cruz has concerns about certain 529 college savings plan provisions. Senator Lee has concerns about a provision that provides some relief for small community newspapers. And Senator Toomey has primarily voiced concerns about certain technical tax corrections that impact retailers, which he wants to see addressed through floor debate and amendment.

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Categories: Industry News

Attorneys Argue Plan Disclosures May Not Provide Actual Knowledge of Wrongdoing

Tue, 2019-11-05 12:05
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U.S. attorneys have filed a brief with the U.S. Supreme Court arguing that just because a retirement plan participant was delivered or had access to investment disclosures does not mean he had actual knowledge of a breach of fiduciary duty.

The Supreme Court has agreed to review the case of Sulyma v. Intel Corporation Investment Policy Committee, et. al. in which a participant in the Intel 401(k) plan claimed that plan fiduciaries’ decision to increase the allocation of alternative investments in the target-date funds offered in the plan violated the Employee Retirement Income Security Act’s (ERISA)’s duty of prudence, and resulted in higher fees and lower investment returns. The participant also alleged that fiduciaries failed to adequately disclose the risks, fees and expenses associated with the alternative investments.

A U.S. District Court agreed with Intel’s argument that the lawsuit was filed after ERISA’s statute of limitations, but the 9th U.S. Circuit Court of Appeals reversed the decision and remanded it back to the lower court. The appellate court held that the plaintiff “must have actual knowledge, rather than constructive knowledge,” and asked the district court to determine whether the plaintiff had the knowledge required to dismiss the case as untimely.

As the 9th Circuit’s decision was in conflict with decisions in other circuits, the Supreme Court was asked to answer whether the provision of plan documents, in itself, creates for participants “actual knowledge” of an alleged fiduciary breach under ERISA.

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In their brief, the U.S. attorneys note that ERISA Section 1113 specifies the limitations period for civil actions to redress fiduciary breaches or other violations of Part 4 of Title I of ERISA. In general, the statute provides for a six-year period for bringing suit, running from “(A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation.” However, they note that the statute also provides two alternative limitations periods. First, no civil action may be brought more than “three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation.” Second, “in the case of fraud or concealment,” the action “may be commenced not later than six years after the date of discovery of such breach or violation.”

The attorneys’ brief points out that the participant admitted he accessed Intel’s NetBenefits website numerous times. He testified, however, that he did not review the fund fact sheets referred to in the summary plan description and posted on the NetBenefits website. The participant also testified that he did not recall receiving or reviewing the summary plan descriptions and that he “was unaware that the monies that [he] had invested through the Intel retirement plans had been invested in hedge funds or private equity” until consulting with counsel before filing suit. He recalled reviewing certain periodic account statements, but those statements said “nothing about investments in private equity or hedge funds.” The participant also testified that, “while he worked at Intel, he had little experience with financial issues, and didn’t know what ‘hedge funds,’ ‘alternative investments,’ and ‘private equity’ were.”

The attorneys agree with the 9th Circuit’s view that “the statutory phrase ‘actual knowledge’ means what it says: knowledge that is actual, not merely a possible inference from ambiguous circumstances.” The appellate court reasoned that reading “actual knowledge” to exclude constructive or imputed knowledge was particularly warranted in light of the statutory history. It explained that, “when Congress first enacted ERISA in 1974, Section 1113 contained two kinds of knowledge requirement[s], actual knowledge and constructive knowledge,” and Congress “repealed the constructive knowledge provision in 1987.” The court viewed those amendments as “strongly suggest[ing] that Congress intended for only an actual knowledge standard to apply.” Thus, the court concluded “that the phrase ‘actual knowledge’ means the plaintiff is actually aware of the facts constituting the breach, not merely that those facts were available to the plaintiff.”

The Intel defendants contend that a plaintiff should be deemed to have “actual knowledge” of the contents of the disclosures that ERISA requires be provided to the plaintiff, even if the plaintiff does not read those disclosures. They liken that approach to the doctrine of willful blindness. But, the attorneys argue that willful blindness is not a form of actual knowledge, and it applies only when a person takes deliberate steps to avoid acquiring knowledge. They say that such a conclusive legal presumption that plan participants actually know all the information in the mandatory disclosures made available to them, no matter what is at best a form of constructive knowledge, which is not enough.

In addition, the attorneys say the defendants’ view threatens to frustrate the enforcement of the statute by other fiduciaries and the Secretary of Labor, all of whom can bring actions that are subject to Section 1113.  “If other fiduciaries or the Secretary were deemed to have actual knowledge of all the mandatory ERISA disclosures they receive or possess, they could regularly have only three years, rather than six years, to investigate potential misconduct and decide whether to bring a civil action,” the brief says.

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Categories: Industry News

Automating Emergency Savings for Retirement Plan Participants

Tue, 2019-11-05 10:12
At any given time, 20% of retirement plan participants have an outstanding loan from their workplace retirement plan, according to the National Bureau of Economic Research.

“Loan overutilization  is one of the biggest problems plaguing retirement plans,” says Michael Webb, vice president of Cammack Retirement Group in New York City. “Many people are living paycheck to paycheck and have no emergency savings. Plan sponsors are concerned about this and don’t really know how to deal with the problem. Their starting point is to restrict the number of loans their workers can take out, but that is a ‘stick’ approach. People still have the need to create an emergency savings account so that they don’t take out the loans.”

Indeed, a recent survey by PNC Financial Services Group found that 38% of people in the so-called “sandwich generation” do not have an emergency savings fund, and among those who do, 31% have an emergency savings fund that would last less than six months.

This is why Webb is calling for retirement plan sponsors to create automated emergency savings accounts, either by buying a service from a retail provider or asking their recordkeeper to create sidecar accounts.

“Technology that automates after-tax savings has come a long way,” Webb writes in a recent blog, “Automated Emergency Savings Funds: Why Plan Sponsors Should Consider Offering Them.” “From rounding up all purchases and saving the difference, saving when a raise is received or monitoring  spending patterns and automatically saving more when there is more money in an individual’s checking account(s)—there are far more options to save than simply deducting dollars form an account each month.”

Webb says he is beginning to discuss automated emergency savings accounts with his clients and that “large plan sponsors are already taking this seriously.” However, he says the number actually offering them is akin to those offering student loan repayment programs—in the single digits.

The benefits are real, Webb says. “Individuals with emergency funds are far more likely to use those funds in an emergency, instead of borrowing or withdrawing from their retirement plan,” he says. Further, “individuals with emergency funds are in a better financial position to save into the retirement plan, and the automation for retirement plan savings and after-tax savings [into an emergency fund] is similar. Thus, participants who are acclimated to one process are more likely to participate in both.”

Besides depleting individual’s much-needed retirement savings, defined contribution (DC) plan loans are detrimental to a plan’s overall health because they deplete the assets in the plan, and thus a plan’s leverage to bargain for lower fees, Webb says. Loans are also very complicated for recordkeepers to oversee, he adds.

As to whether participants should be saving into an emergency savings fund while participating in their retirement plan, Nancy Hite, president and CEO of The Strategic Wealth Advisor, based in Boca Raton, strongly believes that creating an emergency savings fund that would cover six month’s worth of spending should be people’s first priority.

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Categories: Industry News

Balancing Longevity and Market Risk in Enhanced TDFs

Tue, 2019-11-05 06:00

Target-date funds (TDFs) have become popular because they offer seemingly simple and logical solutions for retirement. The funds are designed to manage multiple, complex retirement risks, most notably longevity risk (outliving one’s savings) and market risk (losing substantial asset value), especially when it matters most—immediately before or shortly after retirement.

Most TDFs systematically reduce allocations to equities along a preset glide path. This is intended to reduce market risk, equities being historically volatile, and mitigate potential drawdown losses.

Yet, even as investors approach their typical retirement age—65 in the U.S.—TDFs often still allocate approximately 40% to 50% of their assets to equities. This means up to half of the assets that older plan participants are relying on for retirement are completely exposed to market downturns.

That may be too much equity exposure at the worst possible time.

Sudden market losses could devastate a participant’s ability to retire on time or with adequate assets. The typical investor may have to delay retirement, make higher catch-up contributions, if possible, or embrace a significantly lower standard of living than anticipated. Once individuals leave the workforce—and regular paychecks—and begin withdrawing capital from their retirement accounts, they reduce their base for recovery. This is referred to as sequence of returns (SOR) risk.

This risk hit traditional TDF plan participants who retired during the 2008 global financial crisis especially hard. Many TDFs, even those scheduled to retire in 2010—and that had already moved into “low risk” asset allocation—lost 25% to 40% of their value. Another such crisis could have devastating effects on participants nearing retirement.

To help protect older participants, plan sponsors may want to consider a managed volatility approach to TDFs. This can significantly enhance a TDF’s risk and return profile. Reduced volatility and less downside risk are always attractive to risk-averse investors. They can be just as important to those who are in or near retirement, when the sequence of returns can matter greatly.

Managed volatility strategies seek to capture broad equity market returns, as defined by market-cap-based indices, and dynamically adjust equity exposure to produce efficient portfolios with more stable stream of returns. Equity exposure can be adjusted by shorting—i.e., selling—equity futures to effectively reduce the size of the equity allocation.

Managed volatility strategies can limit upside capture; thus, it is prudent to limit their use to the capital preservation stages of investment life cycles.

More importantly, managed volatility strategies typically generate robust enhancements in tail risk reduction. Reduced downside risk potential can help investors prone to panicked selling—a behavioral bias known to be detrimental to portfolio performance—which generally increases in severe bear markets.

TDFs can be excellent vehicles for securing retirement—when volatility is actively managed. Otherwise, participants can risk losing big chunks of their retirement savings at the worst possible time. Plan sponsors that want to elevate the certainty that participants can confidently achieve their retirement goals should consider a managed volatility approach to TDFs.


Doug Sue is an asset class strategist at QS Investors, a subsidiary of Legg Mason. His opinions are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, or investment advice. All investments involve risk, including loss of principal.

This feature is to provide general information only, does not constitute legal or tax advice and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services Inc. (ISS) or its affiliates.

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Categories: Industry News

Ask the Experts – Can In-Service Distributions Be Rolled Over?

Tue, 2019-11-05 05:00

“Our 403(b) plan allows for in-service distributions. What is the income taxation of such distributions, and can such distributions be rolled over to another retirement plan or IRA as is the case with distributions at retirement/termination of employment?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

The answers is “It depends.” If the in-service distribution, otherwise known as a distribution while actively employed with the plan sponsor, is a qualifying distribution from a Roth account or a distribution of after-tax contributions then the distribution is not subject to income tax. However, all other distributions would be taxable income to the recipient. Also, if the participant is not yet 59 ½ years of age or older, a 10% premature distribution penalty would apply to otherwise taxable distributions, in addition to any income taxes owed.

As for whether such distributions can be rolled over, most in-service distributions can indeed be rolled over to another retirement plan or IRA. However, if a participant is taking a hardship distribution or a required minimum distribution (though those are not required until after the later of age 70 ½ or retirement) those are NOT eligible for rollover.


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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Categories: Industry News

AIG Confirms Investigation of 403(b) Annuity Sales Practices

Mon, 2019-11-04 13:29

In its Third Quarter 2019 Form 10-Q filing with the Securities and Exchange Commission (SEC), American International Group, Inc. (AIG) says it is currently responding to governmental investigations and examinations pertaining to certain sales and compensation practices and payments and related disclosures in connection with financial planning services and the sale and distribution of related products, including 403(b) and similar retirement plans, by its Individual and Group Retirement business segments.

Last week, the Wall Street Journal reported that the SEC is investigating sales and disclosure practices at VALIC, a unit of AIG, including the company’s dealings with retirement plan participants at school districts and universities, according to people briefed on the matter. The probe is focused on whether VALIC rewarded representatives for selling pricier products and whether representatives properly disclosed commissions, according to the unnamed sources.

According to PLANSPONSOR’s 403(b) Buyer’s Guide, VALIC is ranked No. 4 in 403(b) providers by total plan assets, and it is ranked No. 2 by number of K-12 plans.

The Wall Street Journal reported October 2 that the New York Department of Financial Services sent letters to a dozen major insurers requesting information about their 403(b) annuities sales practices. It is looking into whether agents are engaging in deceptive and unfair sales practices, such as failing to appropriately disclose product costs and merits.

Soon after, it was reported that the SEC is investigating certain practices in 403(b) and 457 plans. According to Jenner & Block attorneys, the SEC “sent letters to companies that administer Section 403(b) and 457 retirement plans, opening an investigation to determine whether violations of federal securities laws have occurred in the plans’ administration. The SEC is seeking details on how the plan administrators, which often serve crucial roles in selecting investments for the retirement plans of employees including teachers and government workers, choose investment options and police themselves when conflicts of interest arise.”

AIG says it has cooperated, and will continue to cooperate, in producing documents and other information with respect to the investigations and examinations of its practices.

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Categories: Industry News

Rethinking the Idea That There is a Retirement Crisis

Mon, 2019-11-04 10:34

With today’s retirement system, Americans today have greater access to workplace retirement plans than in the past, are saving proportionately more, will have more money in retirement, and have better protections in place to help guard their savings, the Empower Institute argues in a new report, “The Over-Stated Retirement Crisis.”

While some claim that employees were better off when defined benefit (DB) plans were the dominant retirement savings vehicle, the report notes that on a systemic level, DB plan coverage was not portable—and DB plans covered relatively few people. In 1950, 10 million Americans, or about 25% of private-sector workforces, had a DB plan. The percentage of workers with a DB plan increased, to about 50% in 1960, before dropping off again. In 1980, 38% of workers had DB plan coverage, and as of March 2018, 26% of civilian workers had access to a DB plan.

The Empower Institute notes that between 72% and 90% of pension participants did not qualify for DB plans because of strict vesting schedules. It says individual plans’ challenges included discrimination toward rank-and-file workers and occasional misuse by corporations. DB plans had positive qualities—employees with access to a DB plan had a clear retirement day with a fixed payout, and the employer, rather than the employee, assumed the burden of funding the plan. But, the report says, many of the positive aspects of DB plans are being replicated through the modernization of the current retirement system.

According to the report, approximately $7.5 trillion are held in defined contribution (DC) plans, and access to workplace plans has increased over time. Access at the household level has expanded, as well. While 71% of civilian employees have access to either a DB or a DC plan, in 80% of marriages, at least one spouse has access to a retirement plan. The shift from DB plans to modern DC plans has played an important role in this increase, the Empower Institute claims.

Modern plans are also more available to employees of small businesses, the report says. In 1981, there were only about 4 million participants in pension plans at companies with fewer than 100 people. In 2015, by contrast, DB and DC plans covered nearly 11 million participants at businesses of that size. The report notes that 97% of 401(k) plans are sponsored by companies with 100 or fewer employees. “It’s likely these employees would never have had access to any workplace retirement plan in the 1970 s and 1980s,” the report says.

Headlines say there is a retirement crisis in this country, but in reality it is an impending retirement crisis that sources say policymakers and retirement plan sponsors can take measures to avoid. One factor sources say could lead to a crisis is a coverage gap. The Empower Institute agrees that moving forward, coverage could increase if legislation approving open multiple employer plans passes. This is one feature of the SECURE Act, which lawmakers and industry groups are anxious to get passed.

Employees are saving more

According to the Empower Institute report, thanks to modern plan design, including auto-features, employees in workplace retirement plans are saving more now than they ever have. Total employee and employer contributions have increased from an average of 9.9% of employee salaries in 1984 to 12.8% of employee salaries in 2017.

In addition, the amount of money saved in retirement savings accounts is at near-record levels. In 1975, total retirement savings were equal to 48% of total employee wages according to Federal Reserve Board data. In 2017, retirement assets topped 337% of employee wages.

The report points out that these savings numbers do not include potential savings outside of employer-sponsored plans. And, employees still have Social Security to make up what was once called the “three-legged stool” of retirement savings.

“Consider the fact that future retirees will be able to maintain the standard of living set by previous generations. Retirees born during the Great Depression had a median income equal to 109% of their average inflation-adjusted earnings. Gen Xers are on track to replace 110% of their earnings,” the report says.

However, while the report authors are adamant that the current retirement system is not broken, they say the industry can still work to improve it. Within individual plans, employers can choose options, such as automatic features, company-matching contributions, financial wellness plug-ins and advice solutions that can help their employees save more.

More protections

Retirement savings in DC plans are portable, allowing employees to take their retirement assets with them as they move from job to job, the report notes. However, when DB plans were the dominant retirement savings vehicle, it was difficult—if not impossible—for employees to seek a new job without affecting their retirement readiness.

The report authors add that regulation has been refined over years to offer employees more protection of their retirement assets. They offer as examples, the nondiscrimination testing rules and increased transparency of plan fees.

And, while admitting it is not a protection in the regulatory sense, the authors note the increased availability of investment and retirement planning advice has been proven to improve overall retirement readiness.

One type of protection not mentioned by the report is guaranteed income. However, the SECURE Act includes a safe harbor provision for in-plan annuities, which are the most cost-effective way to purchase them. Lawmakers, regulators and retirement plan providers are hopeful that the SECURE Act, or at least increasing discussion about annuities in DC plans, will lead to more product innovation and adoption by plan sponsors.

“Far from existing in a state of crisis, the retirement system as a whole positions Americans for a successful retirement. The retirement services industry has many players who compete in a marketplace of ideas, helping to ensure the system remains robust, competitive and flexible,” the Empower Institute report says.

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Categories: Industry News

SURVEY SAYS Views on Performance Appraisals

Mon, 2019-11-04 03:30

Last week, I asked NewsDash readers, “What do you think about your company’s performance appraisal process?

Nearly all responding readers (93.5%) reported their company uses a formal performance appraisal process. Only 6.7% indicated they are “very satisfied” with the process, while 23.3% are “somewhat satisfied,” and 16.7% are “neither dissatisfied nor satisfied.” Twenty percent said they are “somewhat dissatisfied” with their company’s performance appraisal process, and one-third are “very dissatisfied.”

Asked what they like about their company’s performance appraisal process, 30% chose “nothing.” More than two in 10 said they like getting a raise afterward, 16.7% like being able to let their boss know about the work they’ve done, and 26.7% like getting input from their boss about their work. Only 6.7% indicated they like being able to set goals for their career, and only 3.3% like doing peer reviews. More than one-third (36.7%) said it is an affirmation of their skills, 26.7% like self-assessing their achievements, and 13.3% like being able to measure their progress on previous goals.

As for what they dislike about their company’s performance appraisal process, 17.9% chose “everything,” 46.4% said it has no relation to raises, and 39.3% said it takes too much time. Nearly three in 10 (28.6%) indicated they dislike self-assessments, 10.7% dislike peer reviews, and 32.1% said there is no action taken on anything. Slightly more than 7% said it leads to negative feelings about themselves, 21.4% dislike trying to set goals, and 28.6% said the questions/categories on the appraisal do not relate or relate well with their job function.

Most of the readers who left comments seemed to be in the “dislike” camp. Many mentioned that raises are not actually tied to performance. Some complained about the time it takes, and several indicated it serves no purpose. Many readers said feedback on performance should be done between employees and managers throughout the year. Editor’s Choice goes to the reader who said: “I would prefer a monthly ‘touch base’ session with my supervisor.”

Thanks to everyone who participated in our survey!


I have to conduct the performance appraisals and I find them a waste of time. The worksheet that we need to fill out is not really geared to professionals. I wish that we had something else to use as a framework to conduct the appraisals. With that being said, I check in with my staff regularly about their performance so nothing in the formal appraisal is ever a surprise.

We are supposed to set goals, but they end up being boilerplate. My manager knows what I am doing and checks in throughout the year. This annual process is only used to file a paper to justify a raise—which is always paltry, no matter how stellar our reviews are—because we are in a “competitive environment.” The entire process is a waste of time and effort.

They are by nature subjective. There’s a given pot of money dedicated to pay increases. Regardless of performance, the annual increase is tethered to that amount. By working in an HR function with access to the entire company’s pay information, it’s easy to see how this contributes to income inequality. Since increases are in percentages rather than flat dollar amounts, those in higher pay levels inexorably “win” and the gap gets wider. The lower paid jobs are crucial, so telling the incumbents to increase their education and skill levels doesn’t solve the issue. Somebody has to do the work. Disproportionately rewarding those subjectively deemed to be high performers necessarily negatively impacts others.

In my opinion, it doesn’t seem to matter what you indicate as the ratings are already pre-planned and so is the increase amount. Why go through the whole performance appraisal process? However, it does remind me all that has been accomplished over the past year, so I guess that is the good part!

Making people think the review process is linked to annual raises is a scam. The annual budget for raises is established well before the reviews are written but most employees think the process is the other way around.

Who reviews the reviewer?

I view performance reviews in the same category as I do overly complicated expense reporting: they’re part of any job and few companies get them right.

I would prefer a monthly “touch base” session with my supervisor.

Performance appraisals are much like donating to charities at Christmas—they assuage management’s guilt but don’t provide meaningful change or feedback. They’re done to “appease the masses,” not to facilitate a meaningful dialogue about the employee’s AND company’s performances over the last year. They are a necessary evil so management can justify a minimal raise to employees.

Ours is a website that I understand is used by a lot of companies. It is not user-friendly & difficult to navigate.

I have worked for 3 large insurance companies, and it’s the same at all three. The evaluation year is essentially just 11 months long, because self-appraisals must be completed by Thanksgiving—so you never get credit for anything that gets completed in December! Meanwhile, Management has secretly ranked all staff and decided on preliminary raise amounts. Pay is not tied to performance and performing the formal reviews is a huge waste of time for both employees, and managers who also tend to be worker-bees themselves.

Management is selective regarding who gets reviewed and who gets raises.

I have to do my own performance appraisal which I complete in less than 5 minutes. I just copy the one from the year before, change the date, change some figures which no one checks, sign it, and that’s it. My boss then writes one sentence. If you think this is fair, then you are the fool.

The need to improve the connection between performance and rewards continues to be the area for needed improvement identified from the annual all-employee survey at our firm.

The company touts pay for performance, but you can have a stellar year and the cap out for raises is 2%. Doesn’t feel like pay for performance.

Raises and bonuses are determined before appraisals are written. This results in appraisals being written to justify the raise, or lack thereof.

I don’t really know anyone that ‘likes’ giving or receiving appraisals. They are very time consuming and if open communication exists between manager and employee, the feedback is happening all year. That being said, I have a great boss who is very good at providing feedback, so it is nice to see it formalized in an appraisal. To get my current job, I used a prior appraisal as a ‘reference’ because I didn’t want to ask my then current supervisor. It worked very well!

I hate doing them. I feel like I am doing my bosses job—without the pay. All companies do them, so I guess you just have to suck it up and play the game. Can’t wait to retire.

What performance appraisal process???? Employers actually have that process in place????

I have found that, over the years, I wind up doing all the work on the appraisal so that my boss can check the box that it’s been done. Career development? Hey, it’s not like she has a clue… bitter? Nah.

No matter what “system” you choose to use, performance reviews are a necessary evil. The conversations should be happening on a regular basis, but frequently do not. You have to have something in the file for legal reasons…especially, if you need to let someone go.


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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Categories: Industry News

Evolving Best Practices: Recordkeeping Fees

Fri, 2019-11-01 10:15

Responding to PLANSPONSOR’s coverage of the recently revealed fiduciary breach lawsuit settlement entered into by the Massachusetts Institute of Technology (MIT), a reader sent the following query: “I noticed in the MIT lawsuit you reported that one of the non-monetary provisions was that fees paid to the recordkeeper for basic recordkeeping services will not be determined on a percentage-of-plan-assets basis. I assume MITs plan’s size [approximately $3.8 billion] was the reason that this was objectionable?”

The question sounds straightforward, but it actually keys into a complicated debate that is unfolding in the retirement plan industry about the appropriate way to pay for recordkeeping under the Employee Retiremnet Income Secuirty Act (ERISA). ERISA demands, among many other things, that fiduciary retirement plan sponsors carefully evaluate and monitor the reasonableness of fees being paid by their participants. The law does not stipulate, however, that one specific type of fee structure is superior in itself, nor does it suggest all prudent plan fiduciaries must run their plans the same way.

Taking a step back, the reader is right in that the general wisdom in the retirement plan industry was for a long time that small plans could reasonably pay for recordkeeping on a percentage-of-assets basis. Because 401(k) plans and accounts generally start out quite small, this approach makes for a good deal for new plans/participants, at least at first. Down the line, growing plans or those starting out with substantial assets can negotiate for per participant fees. But historically, even many large plans have long paid for defined contribution (DC) plan recordkeeping on an asset-based schedule.

Today, the landscape is rapidly shifting, and it definitely seems to be the case that per-participant recordkeeping fees are becoming the expected best practice, no matter what size the plan. Plaintiffs’ attorneys and progressive plan sponsors are driving this trend. Their argument is simply that, with today’s digital recordkeeping technology, it is no more work for the plan provider to administer an account with $1,000,000 versus an account with $100. Thus, the argument goes, it is not reasonable under ERISA for the fee to grow while the service being provided remains the same.

ERISA experts say the issue of what constitutes fair and reasonable recordkeeping fees is actually quite complex. One cannot simply say in isolation of other crucial details that one method of payment is better. In fact, some observers argue that asset-based fees are actually in a sense fairer and more progressive, in that participants with small balances pay less in fees relative to those people who have large accounts and presumably are wealthier. In the end, as explained by ERISA attorneys and judges ruling in ERISA cases, most important is that plan sponsors deliberate carefully and document their decisions—that a prudent process is followed in creating and then monitoring whatever fee structure is ultimately used.

Per Participant Fees Can Still Be Excessive

Theory aside, plaintiffs in ERISA lawsuits are having success arguing in favor of per-participant fees. Especially when cases have settled, as in the MIT affair, fiduciary plan sponsors are agreeing to engage in request for proposal (RFP) processes that will specifically demand recordkeeping fee schedules organized on a per-participant basis.

One pending proposed class action lawsuit, filed in August against TriHealth Inc.’s DC retirement plan, shows that per-participant fees can also be excessive—at least in the eyes of participants and their attorneys. The ERISA lawsuit suggests that the administrative fees charged to plan participants at TriHealth “are greater than 90% of its peer plans’ fees, when fees are calculated as cost-per-participant or when fees are calculated as a percent of total assets.”

The complaint shows that in 2017, for example, TriHealth’s plan carried a cost of 86 basis points per participant. This compares with the mean of 44 bps across 27 peer plans, plaintiffs argue. As a total of plan assets, in 2017, TriHealth’s plan cost 86 bps compared with a mean of 41 bps. For context, TriHealth’s plan was benchmarked against peer plans with an asset range of $250 million to $500 million.

“The total difference from 2013 to 2017 between TriHealth’ fees and the average of its comparators based on total number of participants is $7,001,443,” the complaint states. “The total difference from 2013 to 2017 between TriHealth’s fees and the average of its comparators based on plan asset size is $7,210,002.”

When the wave of excessive fee cases began against retirement plan sponsors, most targeted large or mega plans, based on assets. However, in recent years a number of cases have been filed against so-called “small” plans. For example, the Greystar 401(k) Plan, with less than $250 million in assets, was the target of a complaint filed earlier this year. Similarly, fiduciaries of the approximately $500 million 401(k) program offered by Pioneer Natural Resources USA settled a lawsuit that was filed a year ago.

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Categories: Industry News

Retirement Industry People Moves

Fri, 2019-11-01 07:07

Art by Subin Yang

Amalgamated Life Insurance Company Appoints Sales Exec

Amalgamated Life Insurance Company has appointed Ray Moore as sales executive, voluntary worksite products.

Moore will be marketing Amalgamated Life’s voluntary worksite products across the U.S. Southern Region. Prior to joining Amalgamated Life, Moore served as vice president, field operations and sales at Employee Benefits Systems, Inc.

His career also included roles as regional vice president at Transamerica Worksite Marketing, where he managed operations, served as the liaison between field and administrative staff, and established and maintained broker relationships. He also served as director, employee benefits, with FinCor Solutions and assistant vice president, sales and marketing, with Bankers Security Life.

Cohen & Steers Appoints Global Real Estate Head to CIO

Cohen & Steers has named Jon Cheigh, executive vice president and head of global real estate, as chief investment officer. He succeeds Joseph Harvey, president of Cohen & Steers, who has held the position of CIO since 2003 and was recently appointed to the company’s board of directors.

Cheigh remains head of global real estate and will continue to focus the majority of his time on managing the real estate team, process and portfolios. As CIO, he will provide guidance and oversight to all Cohen & Steers investment teams and facilitate deeper interactions across the department.

Cheigh joined the Cohen & Steers U.S. Real Estate team in 2005 as a research analyst after spending a decade as a real estate analyst and acquisition specialist. He was promoted to portfolio manager in 2008 and was made head of global real estate in 2012.

The Standard Names TPA Sales Director

The Standard announced the hiring of Rita Taylor-Rodriguez as TPA [third-party administrator] sales director for retirement plan services. She will be responsible for growing sales with TPAs around the nation.

Taylor-Rodriguez has more than 30 years of experience in the financial services industry. She has held sales executive positions as well as roles as regional channel manager and brokerage manager. She has a 10-year history with The Standard as a regional director of sales from 2007 to 2017.

Taylor-Rodriguez holds the Certified Plan Fiduciary Advisor and Fi360 Accredited Investment Fiduciary designations, along with FINRA Series 6, 63, 26 and 65 licenses. She is based in Magnolia, Texas. 

“We are thrilled to have Rita’s energy and expertise back at The Standard,” says Joel Mee, senior director, retirement plan sales. “She brings an invaluable level of retirement plan industry experience, along with a keen understanding of third-party administrators and how we can best partner with them.”

PGIM Investments Announces Multiple Hires in Marketing and Tech

PGIM Investments has made senior-level hires across its marketing and technology functions, while expanding the roles of two senior executives.

Ray Ahn, previously of Capital Group/American Funds, joins PGIM Investments as global chief marketing officer, and Indy Reddy, previously of Citi Private Bank, joins PGIM Investments as global chief technology and operations officer.

Ahn will lead the marketing strategy and marketing team expansion for the retail intermediary channels in both the U.S. and internationally. At Capital Group/American Funds, Ahn led the firm’s build-out of its international marketing function, as well as led product marketing teams in the U.S. He previously held marketing roles at ProShares, T. Rowe Price and BlackRock.   

Reddy will lead the build-out of the technology platform to support the firm’s global expansion plans, overseeing teams spanning fund administration, transfer agency and client service. He previously held senior technology roles with Credit Suisse and Deutsche Bank.

Additionally, Jim Devaney, previously head of sales distribution, has assumed the role of U.S. head of distribution, expanding his responsibilities to include both U.S. intermediary sales and U.S. national accounts. Kimberly LaPointe has assumed a newly created role as head of PGIM Investments International. She previously held the position that Devaney has just assumed. In her new role, Kimberly will be based in London and will focus on growing overseas business.

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Categories: Industry News

Barry’s Pickings: Software Eats ERISA Disclosure

Fri, 2019-11-01 06:00
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Art by Joe Ciardiello

On October 22, the Department of Labor (DOL) published its proposal for a “Default Electronic Disclosure by Employee Pension Benefit Plans under ERISA.”

The proposal adopts a “notice and access” approach to disclosure under Title I of the Employee Retirement Income Security Act (ERISA). Basically, all participant communications may be posted to a website, with a notice to the participant’s (email or smartphone) “electronic address,” unless the participant asks for a paper copy or opts for paper “globally.”

Why did this take so long?

To call this proposal much anticipated is a vast understatement. In the preamble to the proposal, the DOL traces the history of calls by sponsors and providers to eliminate or at least reduce the paper required to comply with the agency’s ERISA disclosure rules. That history began (more or less) 17 years ago (in 2002), with the publication of DOL’s original “Electronic Disclosure Safe Harbor,” about which providers and sponsors have been complaining for 17 years.

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The DOL estimates the total cost savings of the new proposed rule to be $2.4 billion over 10 years, although it acknowledges that this figure understates the potential savings somewhat.

The reason given for not making this change sooner has, for some time, been a concern that “some of America’s workers and retirees do not have reasonable access to the internet.” With a smartphone now in nearly everyone’s pocket, this concern has certainly become less acute. Moreover, what has always been at issue is whether an individual can be sent a required disclosure, in effect (and as the title of the proposal indicates), “by default.” No one has suggested that individuals would not be given an opportunity to opt for paper.

The last significant action the DOL itself took on this issue was a 2011 Request for Information. As they say, classic.

Imagine if the agency had adopted this proposal, say, 10 years ago. We would all be $2.4 billion richer. Why didn’t that happen? My assumption—and I’m very open to being proved wrong—is that the bureaucratic incentives in play during that period—right after the Global Financial Crisis—lined up better with “regulating fees” than with “making communications more efficient.”

To give partisans of the fee regulation project their due, maybe the rules the DOL rolled out over this period, regulating provider-to-sponsor and sponsor-to-participant fee disclosure, and even the ultimately vacated Fiduciary Regulation, did more good than making communications cheaper and more efficient would have. I would simply say, why couldn’t it have done both?

New opportunities …

Enough of complaints. This proposal is an excellent first step into the 21st century for ERISA participant communications. Assuming there are no delays in the process, we could have a functioning, internet-based retirement plan communication system up by early 2020.

Now, I think the most interesting question is—for providers, sponsors, and policymakers—just how far can this new, internet-based approach to ERISA-required retirement plan communications be developed to, e.g., improve employee outcomes?

For starters, as the DOL observes, “Online access enables a layered approach to disclosure that can be designed not only to reduce the time and expense of disclosure, but to more effectively communicate information.” Amen.

Think about this: the regulator and policymakers are stuck on the issue of defined contribution (DC) plan “lifetime income disclosure.” The SECURE Act would require DC plan administrators to include a description of the “income stream” a participant’s account balance would produce in the annual statement. There has been a lot of controversy over this—sponsors are particularly concerned that any one-size-fits-all approach to calculating this income stream that the DOL develops won’t be the best for their participants.

Couldn’t an interactive calculator—integrated with the annual statement, say, one hypertext layer down—help here?

Can we do ERISA disclosure better?

The beautiful thing about transforming a process from analog to digital—that is, when a process (like ERISA disclosure) is, channeling Mark Andreesen, eaten by software—is that you can thereafter do things, change things, add things, and improve things, at zero (or close to zero) marginal cost.

The DOL’s proposal closes with an RFI soliciting “ideas on additional measures … the Department could take in the future … to improve the effectiveness of ERISA disclosures,” focusing on some basic—and important—questions:

  • What is the best way to measure the effectiveness of a disclosure?
  • Should DOL consider factors other than design, delivery, and content?
  • Can/should disclosure be personalized more? Focus on life events?
  • And, obviously (and to return to complaining, why can’t we get this done?)—what are the obsolete, duplicative, or simply not-very-useful disclosures currently being required?

Hopefully—in whatever new spirit has moved the DOL, after 17 years, to finally allow providers and sponsors to adopt practices that are widespread in commerce and at other agencies, including the Social Security Administration—the responses to these questions will lead to even more improvements in our current system. One can hope.


Michael Barry is president of O3 Plan Advisory Services LLC. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly about retirement plan and policy issues.

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

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Categories: Industry News

And Now It’s Time for Friday Files

Thu, 2019-10-31 12:48

Just in time for Halloween, NASA shared an image of the sun looking ready for the celebration.

In Sydney, Australia, a 48-year-old man complaining of headaches was referred to doctors at Westmead Hospital. A CT scan showed what looked like a calcified lesion in the nasal passage. When surgeons went in for a closer look, they ended up removing what a study published in BMJ Case Reports described as “a rubber capsule containing degenerate vegetable/plant matter.” The man remembered an incident in which he was about to go to prison and his girlfriend gave him a parting gift of some weed in a rubber balloon. The man inserted the balloon up his right nostril, but ended up inhaling it further than he expected, to the point where he thought he had swallowed it. He forgot about it, despite suffering numerous sinus problems since.

In Lincoln, Nebraska, staff at a Pinnacle Bank branch reported to police that a man tried to open an account with a fake $1 million bill. The Lincoln Journal Star reports that bank employees say the man was adamant that the bill was real despite tellers’ attempts to convince him otherwise. The man eventually left with the bill, but without a new account. Police are reviewing surveillance video to try to identify the man, saying they want to check on his welfare and make sure he was not the victim of a crime.

In South Point, Ohio, a woman driving home from a Halloween event crashed into a deer. When first responders arrived, they found her in a “Carrie” costume, complete with prom dress, tiara and fake blood. “The very first responder was a gentleman that pulled over being a Good Samaritan,” Wolfe told HuffPost. “You could tell he was horrified.” “Next came the police officers who were like ‘oh man’ and kept asking over and over again if I needed medical assistance,” she said. “The second round of cops that came weren’t in on the makeup and said, ‘Are we just gonna ignore that blood is dripping and she needs medical assistance?’”

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Categories: Industry News

Investment Product and Service Launches

Thu, 2019-10-31 11:58
Principal Global Investors Creates Combined Emerging Market Fixed Income Team

Principal Global Investors has announced that it will align market fixed-income capabilities within Finisterre Capital and Principal Global Fixed Income to meet client demand and future product development.

“For investors looking for income, emerging markets represent a critical opportunity across asset classes as these geographies are experiencing significant demographic change and economic growth,” says Pat Halter, president and CEO of Principal Global Investors. “As a combined emerging market fixed income team, we will be set up for greater collaboration between investment teams, leading to more innovative solutions to meet client needs.” 

As part of the alignment, Principal will acquire the remaining stake in Finisterre Capital, of which it has had a majority stake since 2011. The investment process and teams for Finisterre and Principal Global Fixed Income remain unchanged.

“Together, our teams will manage more than $7.6 billion in assets and cover the full spectrum of emerging market fixed income solutions to meet investors’ needs through varying market cycles,” says Halter.

BNY Mellon Presents Japan Womenomics Fund

BNY Mellon Investment Management has launched Dreyfus Japan Womenomics Fund. The fund is sub-advised by BNY Mellon Asset Management Japan Limited (BNYMAM Japan), an affiliate of the fund’s investment adviser, and The Dreyfus Corporation, BNY Mellon’s U.S. Fund Platform.

The fund is expected to invest in Japanese-listed companies that BNYMAM Japan believes will benefit from the Japanese government’s “Womenomics” initiative, which seeks to enhance economic growth in Japan through improved gender parity in the workforce. The Womenomics initiative includes efforts to ease barriers to female employment outside the home, promote women to leadership positions, and close the gender pay gap. Recent government policies to support the initiative have included the labor reform law, expanding day care facilities, and a law requiring action plans from companies of a certain size to increase female employment.

“Dreyfus Japan Womenomics Fund is BNY Mellon’s first U.S. thematic fund offering investors direct exposure to the improving Japanese economy,” says Alicia Levine, chief strategist, BNY Mellon Investment Management. “With the increase in investor demand for strategies tied to unleashing female potential and improved gender diversity, the Dreyfus Japan Womenomics Fund offers a solution for growth-seeking investors in one of the only nations with a sustained program in place to advance the economic opportunity of women in society.”

BNYMAM Japan will use an investment process that combines analysis and security valuation with the Womenomics growth theme. Additionally, the firm plans to invest in Japanese companies that will benefit from the Womenomics initiative, including those that actively hire and promote women, provide products or services which target women, and benefit directly or indirectly from the economic potential of improved gender parity in the workforce.

The fund is managed by five members of the Japan Equity Investment Division at BNYMAM Japan; Makiko Togari, the Fund’s lead portfolio manager, Miyuki Kashima, Masafumi Oshiden, Kazuya Kurosawa, and Takashi Shimoyanagita. The fund is not managed to a benchmark index, nor will the fund’s portfolio have the same characteristics as its designated broad-based securities market index, TOPIX Total Return Index, a market capitalization-weighted index consisting of all stocks traded on the First Section of the Tokyo Stock Exchange.

“Using Womenomics as a filter, the fund seeks to offer investors dual exposure to a measurable secular growth theme and Japan’s economic recovery,” says Kashima. “The fund’s investment criteria are derived from data we believe consistently demonstrate the escalating power of the female consumer as women become a larger percentage of the labor force and the outperformance of companies that employ and promote more women. The fund seeks to offer investors a differentiated way to access the Japanese market through an active, fundamental approach to isolate growth companies.”

The fund offers Class A (DJWAX), Class C (DJWCX), and Class I (DJWIX) shares with a minimum initial investment of $1,000. The fund also offers Class Y (DJWYX) shares generally with a minimum initial investment of $1,000,000.

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Categories: Industry News

Public-Sector Employees Need More Financial Education

Thu, 2019-10-31 11:20

Less than half of public-sector employees (43%) feel very/extremely confident making financial decisions on their own, according to preliminary results of a study by the Center for State and Local Government Excellence (SLGE).

Fifty-four percent worry about finances while at work, and only 29% rate themselves as very/extremely knowledgeable about finances in general.

SLGE found nearly two-thirds (65%) of public-sector employees believe it is important to have a financial literacy program offered by their employer. However, only three in 10 reported being offered one. Seven in 10 said they participate in one if offered.

The study compared topics that are covered by financial literacy programs offered by employers with the topics employees say they want information about. Employees want information about planning for retirement, investments and budgeting and planning, and these topics are being offered by employers that have a financial literacy program. However, employees also want information about estate planning and debt, but SLGE found these are not top of list topics covered in programs currently being offered by employers.

In a report earlier this year, “Financial Literacy Programs for Local Government Employees,” SLGE said employers told them the benefits they witness from financial literacy programs are: workers increase their contributions to supplemental savings plans (51%), workers become more engaged with compensation issues (43%), and cost savings for the jurisdiction that at least partially offsets the expense of offering the program (41%).

SLGE recommends that local governments first conduct a formal, or informal, needs assessment to find out what topics their workers would like to be covered in a financial literacy program, as well as how they would like it to be delivered.

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Categories: Industry News

Greystar ERISA Fee Challenge Will Be Individually Arbitrated

Thu, 2019-10-31 10:33

The U.S. District Court for the Western District of Texas has ruled on the request to compel arbitration in the case of Torres vs. Greystar.

In short, the judge has granted the defense’s motion to compel individual arbitration of the Employee Retirement Income Security Act (ERISA) lawsuit, which had sought class action status on behalf of participants in the Greystar 401(k) Plan.

Without directly citing it, the pro-arbitration decision from the Texas District Court calls to mind a recent and increasingly influential ruling in the 9th U.S. Circuit Court of Appeals, which cited new Supreme Court precedents that seemingly allow for forced arbitration under ERISA. Prior to that ruling by the 9th Circuit, the U.S. District Court for the Northern District of California had ruled in favor of plaintiffs’ proposed class certification. Significantly, the 9th Circuit overturned and remanded the District Court’s decision on the grounds that it is no longer “good law” to conclude that ERISA plaintiffs as a general mater cannot be forced into arbitration.  

Now, courts in other Circuits are seemingly embracing this theory. This case for example is playing out in the 5th Circuit.

Torres vs. Greystar was initially filed by a participant in the Greystar 401(k) Plan against the property management firm, alleging it breached its fiduciary duties ERISA by allowing excessive administrative and investment fees to be charged. According to the complaint, for every year between 2013 and 2017, the administrative fees charged to plan participants were greater than 90% of peer plan fees when fees are calculated as cost per participant. And for every year between 2013 and 2017 but one, the administrative fees charged to plan participants were greater than 90% of peer plan fees when fees are calculated as a percent of total assets. The lawsuit also alleged that as of December 31, 2017, the fees for the investment options then in the plan were up to three-times more expensive than available alternatives in the same investment style.

The new order in the Texas District Court does not address these matters directly. Instead, in two short pages, it summarily grants’ the defense’s motion to compel individual arbitration, while also technically holding in abeyance and staying the defense’s motion to dismiss the case outright.

As detailed in the ruling, this case is referred to arbitration, for determination of the following issues: “(i) Whether any claim in this lawsuit is excluded from the Greystar Mutual Agreement to Arbitrate Claims, because it is based on ‘stock option plans, team member pension and/or welfare benefit plans which contain some form of a grievance, arbitration, or other procedure for the resolution of disputes under the plan,’ as provided in Section A of the Agreement; (ii) whether plaintiff’s individual representative claim on behalf of the Greystar 401 (k) Plan under 29 U.S.C. § 1132(a)(2) is waived under Section B of the Agreement; and (iii) whether waiver of an individual representative claim under Section B is an issue to be determined by the arbitrator, rather than the Court, under section C of the Agreement.”

The court notes this case is also referred to arbitration “for ruling on the individual claim, if any, that plaintiff has raised on her own behalf as a beneficiary of the Greystar 401(k) Plan, separate and apart from her claim on behalf of the plan.” The judge also notes this order “does not prohibit the parties from arguing during arbitration that other issues may, or must, be considered by the arbitrator.”

Further proceedings in the case are stayed pending the outcome of the arbitration process.

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Categories: Industry News

Fixed Income Played Role in Increasing Institutional Investor Returns

Thu, 2019-10-31 09:42

Investment returns stayed in positive territory for institutional plan sponsors in the third quarter of 2019. The median plan in the Northern Trust Universe finished with a 0.8% return.

“Asset class diversification helped institutional investors to generate positive returns in the third quarter, with fixed income playing a key role,” says Mark Bovier, regional head of Investment Risk and Analytical Services at Northern Trust. “U.S. equity programs, the largest allocation in most plans in the Northern Trust Universe, had a median return of 0.7% in the quarter, while the median return for international equity programs was -1.5%. Meanwhile the U.S. fixed income program universe median return was up 2.1% for the quarter.”

Of the three institutional segments tracked by Northern Trust, Corporate Employee Retirement Income Security Act (ERISA) pension plans reported a median return of 2.3%, while Public Funds had a median return of 0.7% and Foundations and Endowments produced a 0.4% median return in the third quarter.

ERISA plans benefited from a median exposure to U.S. fixed income of 38%, the largest allocation to bonds of any segment, Northern Trust notes. The median U.S. equity allocation for ERISA plans in the third quarter was 26.5%, down from 27.5% the previous quarter, and international equity median exposure was 8.8%.

Public Fund plan median U.S. equity allocation for the current quarter was 33.7%. International equity median exposure was 15.7%, while the median exposure to U.S. fixed income came in at 24.2%.

Foundation and Endowment plans had a median U.S. equity allocation of 27.6% in the third quarter. International equity median exposure was 10.1%, while the median exposure to U.S. fixed income was the lowest of the three segments at 11.1%. Alternative assets are widely used in the F&E universe, with private equity and hedge fund median allocations at 12.6% and 11.1%, respectively, as of September 30.

The Northern Trust Universe tracks the performance of approximately 300 large U.S. institutional investment plans, with a combined asset value of approximately $1.08 trillion, which subscribe to performance measurement services as part of Northern Trust’s asset servicing offerings.

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Categories: Industry News

Fidelity’s New Retirement Income Solution Avoids Guarantees

Wed, 2019-10-30 21:01

Fidelity has revealed a new solution set aimed at helping participants effectively spend down their defined contribution (DC) retirement plan assets, both for 401(k) and 403(b) accounts.

The firm says its retirement income solution is designed to help all employees, regardless of their level of savings, and includes three core components. These are a digital user experience that educates and assists plan participants, a customizable cash flow withdrawal strategy, and a suite of dedicated retirement income funds, all of which are being integrated into the Fidelity workplace savings platform.

According to the firm, the digital experience and tools provide individuals with a platform to evaluate and compare various withdrawal strategies and select the option that best suits their needs. The Fidelity Managed Cash Flow withdrawal strategy is designed to complement the Fidelity Managed Retirement Funds and aims to provide a steady income payment strategy for individuals while maintaining a balance throughout their retirement. As a percentage-based withdrawal strategy, payout rates increase over time and are updated annually.

Finally, the Fidelity Managed Retirement Funds are a new set of mutual funds designed to be part of an employer’s 401(k) or 403(b) plan fund line-up for retirees. The funds, which provide an age-appropriate asset allocation mix that becomes more conservative over time, are designed to complement a withdrawal and payment process that help to deliver a sustainable income stream in retirement.

Talking through this development with PLANSPONSOR, Dave Gray, head of workplace retirement offerings and platforms, says the time has come for the DC plan industry to embrace its future role as the main retirement income vehicle for the American workforce. Gray notes that in 2019, more than half (55%) of retirees on Fidelity’s platform are keeping their savings in a plan past the first year of retirement.

“What is most impressive about that number is the fact that it has spiked since 2015,” Gray says. “Just four years ago, the number was closer to 45% of retirees. So clearly, in the past couple years we have seen the beginnings of what we expect will be a big trend of retirees and pre-retirees preferring to leverage their workplace retirement plan as a means for retirement income.”

The causes of this are varied, but one big factor is that employers have grown more comfortable with retired employees staying in the plan. They have increasingly come to understand that serving retirees helps to maintain the benefits of economies of scale for the whole plan population. And there is also the growing idea among employees that help with retirement income should be part of a holistic benefits package.

“We spend quite a bit of time talking these days with plan sponsors about the income challenge,” adds Eric Kaplan, head of target-date and 529 products for Fidelity. “They acknowledge that their workforce is aging and that retirement income has become an important topic of discussion. And for the participants there are also advantages. They keep the fiduciary protections and generally the pricing of their investments is going to be better in the plan context.”

Gray agrees with that assessment, adding that many plan sponsors are proud of the work they have done to build and deliver effective retirement benefits.

“They feel proud and a sense of accomplishment about the work they have done in recent years to get their plans into great shape—all the due diligence and the governance efforts,” Gray explains. “Many of them want to make sure plan participants can continue to benefit from that hard work, even after they have left full time employment at the company.”

The approach being taken here by Fidelity is notable in that it does not include guaranteed income products such as annuities. Gray and Kaplan note that Fidelity acknowledges that annuities can be very effective tools for people entering retirement, and, obviously, for those people who feel they want guaranteed income as part of their retirement spending strategy.

“When it comes to retirement income and annuitization, this is actually a far more complex set of decisions for a given individual than accumulation,” Gray says. “On the savings sides, we know the tried and true formulas. On the spending side, we are not at that point. And so, one of the challenges of annuities in DC plans is the risk of putting in place an attempted one-size-fits-all strategy that is not sufficiently tailored. To the extent that participants want guaranteed income, we think that is best left out of the plan context.”

To be clear, Fidelity believes information about annuities should be linked to the retirement planning conversation in the workplace. In fact, the firm has services that help participants understand and access appropriate annuity options. But Gray and Kaplan say this approach is distinct from trying to create “in-plan guaranteed income.”

Toni Brown, senior defined contribution specialist at Capital Group, home of American Funds, agrees that retirement income is the next frontier of innovation in this space. However, as Brown sees it, so much of the discussion has been centered around guaranteed income and annuities, and while that makes sense to some extent, guaranteed income products are not the only important part of this conversation. In fact, given the various challenges associated with bringing annuities into DC plans, Capital Group’s perspective is also that annuities are better sitting outside of plan.

“Many plan sponsors offer an annuity bidding platform that is linked to their plan, but it technically sits outside of the plan for a number of important reasons,” Brown explains. “Under this approach, in the plan, you then select the TDF be very effective to and through retirement. Sponsors should also then consider adding an option specifically built for those people who will be taking money out regularly.”

Speaking on the same set of topics, Pat Murphy, CEO of John Hancock Retirement Plan Services (JHRPS), says he sees “DC retirement income” as one of the next big collective challenges for the industry to overcome. For its part, Murphy says, JHRPS is driving full steam ahead on creating solutions and services to meet the decumulation challenge. For example, the firm is working on adding a drawdown tool to the adviser managed accounts it creates in partnership with Morningstar.

“We are also starting to change the way that we frame the retirement income discussion in the first place,” Murphy says. “It’s not a question of interest in retirement income solutions. Of course everyone wants to have income in retirement. What it actually takes to make a real retirement income plan is to look at your projected expenses and get more sophisticated about what are the absolutely mandatory expenses versus potentially discretionary expenses, and to understand an individuals’ unique longevity risk profile.”

Murphy goes through a host of questions that must play into building an effective retirement spending strategy: “How do you want to live in retirement? Do you want to travel or do you want to sit on your front porch and watch the world go by? Neither is right or wrong, of course, but it matters a lot for planning purposes. Are you going to retire in downtown New York City? Or are you planning to live in a state that has no income taxes and a relatively low cost of living? What is your health picture? Do you have diabetes? Cancer risk? What about your spouse’s health? All of this goes into a spending road map.”

Murphy also highlights the increasing interest in phased retirements among employees and employers alike as having an impact on retirement spending strategies.

“We serve 150,000 employers and millions of employees globally, and those employers sometimes have a hard time finding talent to replace people leaving their workforce,” Murphy says. “We increasingly see and we advocate for retirees being successful by working part time, both to remain connected and also to meet their expected income needs.”

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Categories: Industry News

California Requires Additional Notices for FSAs

Wed, 2019-10-30 13:04

The California Legislature recently passed a bill that adds to the required notices that employers must deliver to participants in flexible spending account (FSA) plans, including health, dependent care, and adoption assistance plans.

According to a publication by DLA Piper attorneys, the new law, effective January 1, 2020, provides that all employers sponsoring FSA plans must provide notice to participants of deadlines to withdraw funds. Notice must be given to each participant twice prior to the plan year’s end and in different forms.

The law expressly states that the notices may be made in, and are not limited to, any of the following forms:

  • Electronic mail communication;
  • Telephone communication;
  • Text message notification;
  • Postal mail notification; or
  • In-person notification.

The attorneys note that for health FSAs, there is a strong possibility that the new law is preempted by the Employee Retirement Income Security Act (ERISA), rendering the new law inapplicable in that respect.  However, they suggest employers consider complying until the federal courts make a final ruling because the law is relatively easy to comply with and is helpful for employees.

However, dependent care and adoption assistance FSAs likely are subject to the California law because ERISA does not apply to these plans generally. The attorneys recommend employers become familiar with the law and implement administrative processes to deliver notices to participants in 2020.

Participants must use the funds in FSAs by a certain time or their savings will be forfeited.

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Categories: Industry News