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Retirement Industry People Moves

Plansponsor.com - Fri, 2020-02-07 13:50
Alliance for Lifetime Income Announces New Institute

The Alliance for Lifetime Income announced the establishment of the Retirement Income Institute. 

The institute’s leadership includes co-chairs Jon Forman, Leora Friedberg and Barry Stoweand Steve Harris as senior adviser.

“We’re excited and proud to launch this new institute, which brings together some of our country’s leading scholars to collaborate with the Alliance’s member companies to find innovative ways to tackle retirement income security in America today,” says Jean Statler, executive director of the Alliance. “I believe two things will differentiate this institute from many other great retirement research organizations: our specific focus on protected retirement income, and the ability to combine scholarly research and thinking with real-world data and the practical expertise and experience of the retirement industry. Every day, the institute will be focused on overcoming roadblocks to connecting protected lifetime income with the retirement needs, goals and aspirations of consumers.”

“Through the Retirement Income Institute, the Alliance will have the opportunity to identify and address barriers to delivering protected income, and build a foundation for future innovation to help our best thinkers decipher some of the intractable problems in our industry,” says Barry Stowe, co-chair of the Institute’s Retirement Industry Advisory Group. “We want to unearth solutions that help more Americans retire with less risk, more confidence and real financial security to live the life they want in retirement.”

The institute has announced the four topics that will constitute its 2020 research agenda: new approaches to the annuity puzzle; optimizing annuities in a retirement portfolio; private sector solutions for legal and regulatory barriers to annuities in 401(k) plans; and understanding differences in consumer behavior and decision-making.

A Scholars Advisory Group will also be formed and led by co-chairs Friedberg and Forman, and include the following scholars and academic thought leaders:

  • Andrew Biggs, resident scholar, American Enterprise Institute
  • Annamaria Lusardi, Denit Trust Endowed Chair of Economics and Accountancy, George Washington University School of Business;
  • Ben Harris, Alliance fellow; executive director, Kellogg Private-Public Interface, Northwestern University;
  • Bill Gale, Alliance fellow; Arjay and Frances Miller Chair in Federal Economic Policy and senior fellow in the economic studies program, Brookings Institution;
  • Gopi Shah Goda, Alliance fellow; senior fellow and deputy director, Stanford Institute for Economic Policy Research;
  • Jason Fichtner, Alliance fellow; senior lecturer, associate director, Johns Hopkins University School of Advanced International Studies;
  • Julie Agnew, Richard C. Kraemer Term Professor of Business, William & Mary School of Business;
  • Michael Finke, Alliance Fellow; dean and chief academic officer, The American College of Financial Services;
  • Nora Super, senior director, Milken Institute Center for the Future of Aging; and
  • Wade Pfau, Alliance fellow; professor of retirement income, The American College of Financial Services.
Senior Compliance Counsel Joins Hall Benefits Law Legal Team

Senior Compliance Counsel Eric Schillinger has joined the legal team at Hall Benefits Law (HBL).

Schillinger has broad employee benefits legal compliance experience with qualified retirement plans, health and welfare plans, and executive compensation. His resume, built at law firms Trucker Huss and Miller Nash Graham & Dunn, includes drafting required disclosures, handling IRS, Department of Labor (DOL) and other audits, analyzing VEBAs, and other responsibilities. He has written articles and been quoted by Bloomberg Law.

Schillinger has relocated from Denver, Colorado, to join the HBL team.

TRA Hires MEP Specialist

The Retirement Advantage Inc. (TRA) has welcomed Trey Galuppi as TRA’s Multiple Employer Plan (MEP) specialist. He will report to Jeff Schreiber, TRA’s director of sales

Galuppi will primarily be responsible for working with TRA’s Regional Sales Consultants (RSCs), focusing on the overall expansion of the firm’s consulting capabilities in the areas of group sponsored plans. This will include Professional Employer Organizations (PEOs), Pooled Employer Plans (PEPs), Multiple Employer Aggregation Programs (MEAPs), and Producer Group Organizations (i.e. Planner Groups, CPA Firms, P&C Firms, etc.) in an effort to align these plans with recordkeeping partners and distribution organizations that use TRA services.

“We are excited to have someone of Trey’s acumen and experience joining our team,” Schreiber says. “Trey possesses an established track record of working with consultants and plan sponsors who have concentrated in this market. His experience will help us deliver superior services and deepen our relationships with our partners nationwide who are interested in this line of business.”

Galuppi graduated from Florida State University with a bachelor’s in English language and literature. He holds a FINRA Series 6 license as well as his 2-15 Life, Health and Variable Annuities license. 

Spectrum Investment Advisors Announces Multiple Promotions and Hires

Spectrum Investment Advisors Inc. has promoted three employees and added one relationship manager. 

Scott Schwartz has been promoted to senior relationship manager. He joined the firm in 2014 as a relationship manager and has been in the retirement services industry since 1994. Schwartz is responsible for plan investment reviews, employee educational meetings and one-on-one investment consultations. He holds an Investment Adviser Representative license (Series 65) and is a board member of the Wisconsin Retirement Plan Professionals Ltd. and a member of the National Association of Plan Advisors.

Suzanne Weeden was promoted to senior relationship manager. Weeden joined the firm in 2014 as a relationship manager and has been in the retirement services industry since 1999. She is responsible for retirement plan investment reviews, plan design discussions, employee educational meetings and one-on-one investment consultations. Weeden holds an Investment Adviser Representative license (Series 65) as well as the following designations: Accredited Investment Fiduciary, Retirement Plans Associate and Certified Employee Benefit Specialist. She is also a current member and former board member of the Wisconsin Retirement Plan Professionals Ltd. and a member of the National Association of Plan Advisors.

Daniel DeDecker has been hired as relationship manager. He earned a bachelor’s degree in finance and financial management services from the University of Wisconsin-Milwaukee and has had experience in the retirement services industry since 2013. Prior to joining Spectrum, DeDecker was an adviser at Alpha Investment Consulting Group LLC where his role included providing guidance to plan sponsors on fiduciary responsibilities, investment policy statement construction, plan structure, investment manager selection/performance monitoring and recordkeeper selection.

Paul Minick was promoted to full-time account manager, responsible for developing educational plans and providing one-on-one investment consultations to plan participants. He holds an Investment Adviser Representative license (Series 65) as well as the Certified Personal Finance Counselor designation.

Industry Veteran Joins Lockton

Vinny Catalano has joined Lockton Pacific Series.

Catalano’s expertise is grounded in nearly two decades of leadership in the employee benefits industry, where he has maintained long-term relationships with clients in the nonprofit and private sectors, including credit unions, chambers of commerce and professional services firms, as well as construction companies and manufacturers. He served as area senior vice president for Arthur J. Gallagher before joining Lockton, and specializes in total benefits rewards consulting, health care funding, benefits administration, compliance, wellness program development and employee communications.

“As health care costs continue to rise, compliance becomes increasingly complex, and employees look to relocate out of state for more affordable housing, Vinny’s expertise will be a tremendous asset to employers to more effectively manage costs, design plans and communicate the value of those plans to drive employee engagement and retention,” says Alex Michon, executive vice president and head of Lockton’s Sacramento office.

“Considering he has some of the strongest relationships with carriers and health care providers in the region, his access to senior level people also gives Vinny the ability to cut through the challenges employers face in navigating the health care system and solve their problems more effectively,” Michon adds.

Catalano is part of the Lockton’s Pacific region, which encompasses eight offices throughout the western United States including Portland, Oregon; Sonoma, California; San Francisco; Sacramento, California; Encino, California; Los Angeles; Irvine, California; and San Diego.

CBIZ Acquires Assets from Pension Dynamics

CBIZ Inc. has acquired assets from Pension Dynamics (PD), effective February 1.

PD is a full-service retirement and benefits plan adviser providing 401(k), 403(b), 457(b), defined benefit (DB), cash balance, profit sharing, and flex, COBRA, health reimbursement and commuter plans to clients in the San Francisco Bay area. PD has 25 employees and approximately $3.6 million in annual revenue.

Jerry Grisko, president and CEO of CBIZ, states, “The acquisition of Pension Dynamics strengthens our position as one of the nation’s premier retirement planning service providers by expanding our advisory capacity on the West Coast. As the fourth such acquisition in our retirement planning business within the past two years, we continue to invest in and grow this business along with our presence in California. We welcome Melanie and the entire Pension Dynamics team to the CBIZ family and look forward to working with them to provide exceptional services to our clients.”

Melania Budiman of Pension Dynamics says, “We are very excited to join CBIZ. The synergy of our services and culture will significantly enhance our opportunities to serve our clients.”

Morningstar Acquires Hueler’s Stable Value Database and Index

Morningstar, Inc. has acquired Hueler Analytics’ Stable Value Comparative Universe Data and Stable Value Index. Terms of the transaction were not disclosed.

Founded in 1987 in Minneapolis, Minn., Hueler is an independent data and research firm providing reporting and systems designed for the annuity and stable-value marketplace. Hueler Analytics’ distribution encompasses advisers, investment managers, product providers, plan fiduciaries, and consultants. Hueler Analytics’ Stable Value Comparative Universe Data provides broad market coverage of stable-value investments, including stable-value pooled funds, insurance company separate accounts, and general account products.

“Stable-value funds have long played an important role in helping retirement plan participants accumulate ­retirement savings and already account for 10 percent of assets in defined-contribution plans. While largely invested in fixed-income securities, stable-value funds are designed to provide steady, predictable returns that exceed money market investments over time and are protected from any loss of capital or interest through contracts from an insurance company or bank,” says Joscelyn MacKay, director of data products for the Americas at Morningstar. “Investment professionals across all market segments have relied on Hueler Analytics for accurate, detailed, and comprehensive analysis of stable-value data. Its addition to Morningstar will help us to continue illuminating investing across all types of securities and help people achieve a successful retirement.”

Hueler’s founder, Kelli Hueler, and managing director of Operations Kathleen Schillo, will serve in a consulting role to support the transition of Hueler Analytics’ Stable Value Comparative Universe Data and Index to Morningstar.

“We are proud of the reputation Hueler Analytics has built for exceptional data integrity and reporting on stable-value funds. It’s gratifying to see these products we’ve developed with strong industry support over the past 30 years move into the capable hands of the Morningstar team,” says Hueler. “We have the utmost confidence that Morningstar is the best firm to continue this commitment and advance the future of stable-value data and reporting.”

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Categories: Industry News

Don’t Put Your Head in the Sand Because of Cash Balance Liability Complexity

Plansponsor.com - Fri, 2020-02-07 13:50

In its U.S. Pension Market Quarterly Outlook, Insight Investment looks at what it calls generally the most complex pension liabilities of all—cash balance plans—and how they can be managed in practice.

Kevin McLaughlin, head of liability risk management with Insight Investment in New York City, says this matters because most of the firm’s clients are on the path to de-risking their plans, and, as they get farther down the path, managing assets to liabilities gets more important—unhedged liability risks become a bigger component of residual risk. “If they’ve done all the hard work to get their defined benefit plan funded status to 100%, they want to make sure things are locked down to have more certainty of outcomes,” he says. “They may have ignored these risks in the past.”

McLaughlin adds that many plan sponsors, as they’ve reconstructed their benefit plans and frozen their traditional defined benefit (DB) plans in the last couple of decades have, in a number of cases, introduced a cash balance component. “It is quite common to come across a cash balance benefit in DB plans,” he notes.

The way a cash balance plan works is that a defined contribution (DC) type of payment is contributed to employers to cover their benefit balance, an interest crediting rate—chosen by the plan sponsor—is applied to participant account balances, and, at retirement, participants can typically take a lump-sum distribution or select an alternative annuity benefit. According to the Insight Investment report, this creates “three distinct, but interrelated, uncertainty risks in cash balance plans: lump sum optionality, duration risk (including liquidity), and interest crediting.”

Lump Sum Optionality Risk

McLaughlin explains that plan sponsors do not know with any great certainty which form of payment they will have to pay to participants, and they need to be prepared to deliver either a lump-sum distribution or an annuity. This create a hedging and liquidity challenge in managing the asset, as the duration of a lump-sum payment is zero, while the duration of an annuity can be 10 or 15 years; and the amount of the liability itself can change depending on the form of payment, with one benefit cheaper than the other on a present-value basis.

According to the Insight Investment report, the annuity benefit is more valuable if the interest rate used to calculation the annuity conversion is below prevailing market rates; and conversely, the lump sum is the more valuable option when the annuity conversion rate is higher than prevailing market rates. This can certainly influence a participant’s choice between a lump sum and an annuity. In addition, McLaughlin says there is an extra potential cost factor for the plan sponsor: as faced with a choice of benefit form, participants who think their life expectancy is low may consider taking a lump sum, while those who think they will live a long life will typically take an annuity. Hence, the expected duration of annuities may be longer than for a typical retiree pool.

That said, he notes that in practice from year to year, the typical take-up rate for lump sums versus annuities tends to be pretty steady, though the previously mentioned factors can affect that. Plan sponsors should set up their portfolio to prepare for both types of payments.

What this looks like, McLaughlin says, is a portfolio with a high degree of liquidity to be able to pay someone out quickly if needed. “There is no perfect investment or hedge to meet the lump sums or annuity payment option,” he says. “But we would suggest a combination of cash bonds and a derivative overlay strategy to balance the liquidity and potential duration needs. If it turns out more participants take lump sums than expected, plan sponsors can take away some of the duration hedge.”

Duration Risk

“If the interest rate used to calculate the annuity is somehow indexed to current rates, we believe the risk is much less to the plan sponsor. But even when this is the case (it often isn’t), there can still be problems: 1) plans that have converted to cash balance will often have a legacy defined benefit which serves as a minimum that may not be lowered regardless of changes in rates; and 2) hedging the risk means keeping the duration of the portfolio very short, which may cause portfolio earnings to be inadequate,” the report says.

While there are different ways to set the plan’s crediting rate based on the Employee Retirement Income Security Act (ERISA) safe harbor, McLaughlin says a typical scenario is to use the yield on the 30-year Treasury bond, often combined with a floor of 3% or 4%. The problem is, there is “no investment we can find that will give a return like the yield on the 30-year Treasury bond, so the only way to manage the liability risk is dynamic hedging, which changes as the interest rate changes,” he notes.

McLaughlin explains that if the interest rate is low, the investment goal is clear. Plan sponsors should find an investment strategy that delivers a 4% return—with a profile that looks like the liability. If the interest rate rises, there’s a possibility the crediting rate will be greater than 4%. In that case, plan sponsors should find investments that mirror the possibility of the interest rate on the 30-year bond and implement an appropriate investment and hedging strategy.

“Plan sponsors may jump to the conclusion that they should buy a 30-year Treasury bond, but they don’t get the yield unless they hold it for more than 30 years. It won’t produce the annual return needed, so it is not a good hedge,” McLaughlin adds.

Interest Crediting Risk

The report goes on to note that “if the crediting rate is fixed, the plan may invest to lock in earnings to cover that rate to the extent possible (subject to credit quality constraints). If the rate varies, the asset-liability mismatch risk can be addressed by keeping the investment portfolio’s duration very short.”

But, it says, the most difficult situation is for those plans with crediting rates that are the greater of a fixed rate and an indexed rate. “The plan is effectively short an option, which will be difficult and or expensive to hedge—especially in an environment where the fixed and variable rates are close to each other.”

McLaughlin says there are a range of interest crediting rates in cash balance plans. Other than the most common one previously mentioned, some use the yield on the one-year Treasury rate fixed return, and others link to corporate bonds and Treasury bonds. “Our general advice is simple; the first port of call is to understand the materiality of the risk. In some cases, it may be very small. If so, we would advise plan sponsors to monitor the risk and if it grows, take action. There’s no need to complicate things with the investment strategy,” he says.

“If the risk is much bigger, effectively, plan sponsors would need a more dynamic hedging strategy that reflects the yield on the market or interest rates. An ideal portfolio has a combination of bonds and derivative overlays,” McLaughlin adds.

Collaboration Is Necessary

Dealing with liability complexity in cash balance plans does require a closer collaboration between investment managers and actuaries, McLaughlin says. “What you want from the actuary is projected cash flows—just as you’d want for a final-average-pay DB plan. But, for cash balance plans, you want more information—the expected liquidity profile and also a profile of benefit lump sums versus annuities,” he says. “There should be a discussion around the sensitivity of interest rates and how the liability can change or move if the assumed take-up rate for lump sum or annuity distributions changes. The actuary has this data and knows participant behavior well.”

Regarding interest crediting rate risk, McLaughlin says because there is no single agreed-upon way to solve or hedge the problem, the best way forward is to have a discussion between the actuary and investment manager or in- house chief investment officer (CIO) team to make sure everyone understands the risks and the risk tolerance of the plan sponsor, and to find a solution everyone can understand and monitor over time.

“Some plan sponsors may ignore the liability risks in cash balance plans because of the complexity,” McLaughlin says. “Our advice would be that this is not something you should ignore. Invest the time to understand the risks and create a clear strategy. Reach decisions through information and analysis.”

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Categories: Industry News

SECURE Act Demands Updates to Rollover Notices

Plansponsor.com - Fri, 2020-02-07 12:30

As part of its continuing effort to aid industry compliance with the Setting Every Community Up for Retirement Enhancement (SECURE) Act, the SPARK Institute is making available a redraft of its model 402(f) notice.

Under the laws governing tax-qualified retirement plans, the 402(f) notice is required to be given to participants to help them understand their rollover options. Passed late last year, the SECURE Act made a number of changes to federal tax laws that affect the information on the 402(f) notice. 

“We were strong supporters of the SECURE Act, which accomplished a number of key SPARK Institute priorities,” says Tim Rouse, SPARK Institute executive director. “Although the law will require a lot of work, and many of the provisions went into effect almost immediately, we have already rolled up our sleeves to assist the industry and retirement savers.” 

As Rouse explains, retirement plans are required to provide a “rollover notice,” also called a “402(f) notice” or “special tax notice,” whenever a participant in a plan takes a distribution that can be rolled over. The notice explains the options available to the individual, and the tax consequences of not rolling over the distribution into another qualified plan or individual retirement account (IRA). 

The suggested edits, developed by SPARK Institute’s government relations committee, are available on SPARK’s website. The revised document has not been approved by the IRS, but has been sent to regulators as part of the SPARK Institute’s ongoing efforts to provide input as the Department of the Treasury, IRS and the Department of Labor (DOL) develop regulations and guidance under the SECURE Act.

The revised model rollover notice stretches to nearly 20 pages, but only a few edits have been made. In several places, language has been inserted to reflect that the age for taking required minimum distributions (RMDs) has been increased to 72. The revised document also includes newly inserted language explaining in various places that no excise tax will be assessed on payments of up to $5,000 made to an individual from a defined contribution (DC) plan within one year after the birth or adoption of a child.

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Categories: Industry News

EvoShare, intellicents Partner on Cash Back for Retirement Savings Program

Plansponsor.com - Fri, 2020-02-07 09:51

EvoShare, a microsavings oriented FinTech startup based in Berkeley, California, and intellicents, a national independent financial services firm headquartered in Albert Lea, Minnesota, have partnered to launch “myCents, because every cent counts.”

According to the firms, the partnership will provide employers with an entirely new engine for financial wellness, one that automatically puts more money in employees’ pockets; increases plan participation and contributions; and does it all without requiring employees to change their spending habits.

EvoShare’s proprietary system powering myCents turns up to 30% of every dollar spent at over 10,000 partnered local and online stores into additional contributions toward financial savings accounts such as a 401(k) or 403(b) plan, IRA or Roth IRA, and 529 College Savings Plan.

intellicents’ mission with myCents is to make saving for retirement a daily habit. “We are very excited about this,” says Grant Arends, president of intellicents. “Who would’ve thought that shopping online at Macy’s, Target, Walmart, ebay and over 1,300 other online retailers could result in more retirement income for the American worker? Or that going out to eat at a local restaurant with your kids could give you a contribution into their college savings fund for the future? Thanks to our partnership with EvoShare, myCents will be a great value-add that we can bring to our clients as part of our overall financial wellness initiative.”

Last year, EvoShare announced a partnership with Money Intelligence, a 401(k) platform provider located in Santa Clara, California, to allow participants on the Money Intelligence platform to apply their cash-back dollars toward their 401(k) plan.

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Categories: Industry News

The Impact of SECURE Act Lifetime Income Projections

Plansponsor.com - Thu, 2020-02-06 14:31

Commenting on the passage seven weeks ago of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, Geoffrey Dietrich, executive vice president of the eponymous retirement plan insurance firm DIETRICH, says his view on the potential effect of the legislation differs somewhat from that of other analysts.

Many retirement industry observers have opined that the SECURE Act’s in-plan annuity selection safe harbor will have the biggest impact on participants. For his part, Dietrich also says that provision is important and will likely lead to the greater adoption of in-plan lifetime income products. However, he feels the SECURE Act’s related lifetime income disclosure requirement—which will see all plan participants supplied at least once per year with an estimate of what their lump sum balance would generate if converted today into a lifetime annuity—will drive the most significant results.

“The annuity selection safe harbor is significant, but, in my view, the mandatory disclosure of lifetime income projections on participant statements is what is going to shift the needle,” Dietrich says. “In fact, I think this disclosure provision will do potentially a lot more than the safe harbor to inspire use of annuities. I think the projections will wake up participants and cause them to change their mindset about things like annuities—moving from accumulation to decumulation mindsets.”

Simply put, many retirement plan participants think their lump sum savings will go a lot further in retirement than is actually the case. Seeing a paltry “retirement paycheck estimate,” Dietrich says, may shock a lot of participants into making greater contributions to their retirement accounts. 

What Comes Next?

Dietrich notes that the SECURE Act gave the Department of Labor (DOL) 12 months to come up with a model framework that plan sponsors and providers will be able to use to make lifetime income disclosures. Given the inherent complexity of lifetime income projections, Dietrich says, it’s safe to assume the DOL is already hard at work on the project.

“The conversion assumptions are going to be the tricky part in all of this, and there is going to be continued debate and discussion about the best way to generate the projections,” Dietrich says. “Notably, under the law as it was passed, if a plan sponsor is following the projection rules eventually set forth by the DOL, they will not be liable for any differences, questions or changes that may come about based on the projection over time. In other words, they won’t be held liable if the projections turn out to be overly generous, for example. This is important because it’s not going to be immediately easy to get this right.”

Dietrich expects the income projection wrinkles to be smoothed out by 2022, by which time plan participants will start to grow more accustomed to thinking in terms of lifetime income.

A Word on the Annuity Safe Harbor 

Turning to the in-plan annuity selection safe harbor, Dietrich warns that the SECURE Act has by no means created an annuity selection free-for-all. In order to qualify for the safe harbor, plan sponsors still must meet a number of strict criteria.

“The safe harbor requires an objective and careful fiduciary analysis at the time of the annuity product and insurance carrier selection,” he explains. “What the safe harbor does is insulate plan sponsors from liability that could arise down the road if circumstances change and an insurer becomes unable to meet its obligations, leading to losses for participants. In the present, the plan fiduciaries still must make a prudent, reasonable and well-considered decision that states they believe the insurance carrier and product will be able to meet their obligations indefinitely.”

And while the annuity selection safe harbor does not require plan sponsors to choose the cheapest option available, it does require a thorough analysis of the cost of any annuity contract relative to the benefit—to ensure it is priced reasonably.

“There are other obligations that plan fiduciaries should carefully consider,” Dietrich says. “The sponsor must ensure the insurer maintains sufficient reserves, for example, and make sure that the insurer is reviewed regularly by the relevant state regulator.”

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Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 2020-02-06 12:35
IHS Markit Adds MSCI ESG Rating

IHS Markit has collaborated with MSCI to enable MSCI’s environmental, social and governance (ESG) ratings and research data to be applied in the broad range of fixed income and credit indices from IHS Markit.

“Investors have a growing appetite for exposure to ESG funds, creating a need for indices that integrate these principles while accurately representing the underlying market and continuing to deliver strong returns,” says Sophia Dancygier, head of indices at IHS Markit. “In recognizing the importance of sustainable investing and following the successful launch of our Global Carbon Index, we are excited to collaborate with MSCI as we expand our ESG coverage in iBoxx and iTraxx indices.”

“As investors continue to evaluate opportunities to incorporate ESG considerations into their portfolios, we are pleased to be working with IHS Markit to apply MSCI’s ESG ratings and research data to their suite of fixed income and credit indices,” says Eric Moen, head of ESG products for MSCI ESG Research. “MSCI ESG Research covers 650,000 equity and fixed income securities globally, which provides quality insights into ESG risks and opportunities within multi-asset class portfolios.”

As a first phase of the collaboration, IHS Markit has launched sustainability-focused iBoxx MSCI short maturity corporate bond indices in three currencies (EUR, USD, GBP). The new iBoxx MSCI ESG indices exclude issuers in business lines or activities defined by MSCI ESG business involvement screens. Inclusion in the indices is also restricted to issuers with MSCI ESG ratings of BBB and above, and those in compliance with the United Nations Global Compact principles, which demonstrates a quantified commitment to ESG standards in operations, products and services.

HarbourVest Offers Private Equity with Vanguard

Vanguard and HarbourVest have partnered to provide qualified investors with access to private equity.

“We are entering the private equity market the Vanguard way—partnering with a world-class adviser to provide a high-quality offer,” says Vanguard CEO Tim Buckley. “Private equity will complement our leading index and actively-managed funds, as we seek to broaden access to this asset class and improve client outcomes. While this strategy will be initially available to institutional advised clients, we aim to expand access to investors in additional channels over time. For individual investors in particular, this partnership will present an incredible opportunity—access and terms they could not get on their own.”

The new private equity strategy initially will be provided by Vanguard Institutional Advisory Services to pensions, endowments and foundations, as part of an ongoing effort to further expand the suite of products for those clients. In keeping with its enterprise-wide focus on advice, Vanguard has invested considerably in its advisory services for a broad range of investors, including outsourced chief investment officer (OCIO) capabilities. 

“Many institutional clients seek alpha sources not readily available in the public markets,” says Chris Philips, head of Vanguard Institutional Advisory Services.  “While these organizations may want exposure to the opportunities available in the private markets, it can be challenging to access leading private equity managers and invest with discipline and skill. Through this partnership, Vanguard’s portfolio construction and investment committee governance capabilities will be complemented with HarbourVest’s private market expertise, to the ultimate benefit of our clients.”

Transamerica Launches Emerging Markets Opportunities Fund

Transamerica has launched the Transamerica Emerging Markets Opportunities fund, now available to retail and institutional investors.

Transamerica selected Wellington Management Company LLP to sub-advise the fund.

Transamerica Emerging Markets Opportunities (NASDAQ: TEOIX) fund offers investors a diversified approach to investing in a global emerging market portfolio of stocks with market capitalizations in excess of $3.5 billion. Portfolio allocations are generally expected to align closely with the sector weights of the MSCI Emerging Markets Index.

Northern Trust Automates Processing for Bank Loan Trading

Northern Trust has automated processing of the full trade settlement lifecycle for syndicated bank loans through integration with IHS Markit’s ClearPar Custodian Services Messaging capability. Designed to deliver trade data in a standardized format via secured communications, this service increases scalability and efficiency while reducing the risks inherent in a manual trade settlement process.

The new solution enables Northern Trust to map critical trade and funding information seamlessly into its proprietary bank loan servicing platform, thereby providing digital access to all parties in a transaction. Key transaction data, including settlement date, settlement amounts and wire instructions is streamlined and communicated electronically, allowing Northern Trust to seamlessly accommodate the triple digit trade volume increase it has experienced in the last five years.

“Syndicated loans are an increasingly important asset class for our institutional investors and family offices seeking higher yields. Integration with trade platforms such as ClearPar removes the potential for latency in the process and demonstrates our commitment to delivering timely and accurate daily data to our clients across the globe,” says Pete Cherecwich, president of Corporate and Institutional Services, Northern Trust. “Our work with IHS Markit to automate trade and payment information not only drives efficiency but enhances risk management. This integration raises the bar in complex asset processing—it is a major advance for Northern Trust and the syndicated loans market and will deliver tangible benefits to our clients.”

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Categories: Industry News

ERISA Pension Lawsuit Targets UPS

Plansponsor.com - Thu, 2020-02-06 12:00

A new Employee Retirement Income Security Act (ERISA) lawsuit filed in the U.S. District Court for the Northern District of Georgia suggests the United Parcel Service of America (UPS) committed multiple fiduciary breaches while calculating the value of certain pension benefits.

The plaintiffs, calling for class action status, say their suit seeks to remedy failures to pay joint and survivor annuity (JSA) benefits in amounts that are “actuarially equivalent” to a single life annuity (SLA) benefit to pension plan participants and their beneficiaries. Such actuarial equivalence is required by ERISA.

Allegations in the lawsuit closely mirror those in numerous cases that have been filed in the past few years, naming such well-known defendants as MetLife, Pepsi and American Airlines. As in this new lawsuit, the plaintiffs in such cases suggest that, by not offering JSAs that are actuarially equivalent to the single life annuities that participants earn, the defendants are causing retirees to lose part of their vested retirement benefits in violation of ERISA.

The plaintiffs in the new challenge say UPS pension participants earn retirement benefits in the form of an SLA as the default. Participants in the plans may choose, however, to receive their benefits in forms other than an SLA, including a JSA, which provides an annuity during the participant’s life and then a percentage of that amount to the participant’s beneficiary after the participant’s death. In this case, UPS reportedly makes JSAs available in 50%, 75%, or 100% amounts.

“To calculate the amounts of a JSA, actuarial assumptions are applied to determine the present value of the future payments,” the complaint states. “These assumptions are based on a mortality table—to predict how long the participant and beneficiary will live—and interest rates to discount the expected payments. The mortality table and interest rate together are used to calculate a ‘conversion factor’ which determines the benefit amount that would be equivalent to the SLA the participant accrued.”

The complaint stresses that, under ERISA, the “present values” of a JSA and the SLA must be equal for them to be “actuarially equivalent.”

“Mortality rates have generally improved over time with advances in medicine and better collective lifestyle habits,” the complaint continues. “People who retired recently are expected to live longer than those who retired in previous generations. Older morality tables predict that people near (and after) retirement age will die at a faster rate than current mortality tables. As a result, using an older mortality table to calculate a conversion factor decreases the present value of a JSA and—interest rates being equal—the monthly payment retirees receive. The interest rate also affects the calculation. Using lower interest rates—mortality rates being equal—decreases the present value of benefits in forms other than an SLA.”

According to the lawsuit, the UPS defendants calculate the JSA conversion factor (and thus the value of the JSA offered to participants when they retire) using mortality assumptions from the 1980s. The suit further claims the company uses outdated interest rate assumptions that further dampen the present value of the JSA benefit.

“By using outdated mortality rates, defendants depress the present value of the benefits received as a JSA, resulting in monthly payments that are materially lower than they would be if defendants used reasonable, up-to-date actuarial assumptions,” the lawsuit states. “Defendants use outdated mortality assumptions to pay benefits even though they use current, updated assumptions in their audited financial statements to calculate the benefits they expect to pay retirees.”

UPS provided the following statement in response to the lawsuit: “UPS offers competitive compensation packages and uses factors that are common to many similar benefit plans across the country to calculate those benefits. These factors are reasonable and comply with all applicable laws. We will vigorously defend ourselves, and continue to provide industry-leading compensation packages for our employees.”

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Categories: Industry News

Judge Scales Back Claims Against Voya in Excessive Fee Suit

Plansponsor.com - Wed, 2020-02-05 13:35

All but one charge against Voya Financial has been dismissed in a lawsuit alleging that asset-based fees led to a 19-participant retirement plan paying $1,819 per participant for recordkeeping services in 2015.

The decision by U.S. District Judge Colm F. Connolly of the U.S. District Court for the District of Delaware says the Cornerstone Pediatric Profit Sharing Plan retained Voya to provide administrative and recordkeeping services to the plan pursuant to a group annuity contract. The plan sponsor also used Voya to prepare and deliver Rule 404a-5 participant fee disclosures.

For the services it provides the plan, Voya charges a maintenance fee of $15 to $30 per participant per year, as well as an asset-based fee, referred to in the contract as a “Daily Asset Charge.” The Daily Asset Charge varies by the level of plan services provided and the total value of the assets held under the contract and certain other related contracts.

The plaintiff, a participant in the plan, first alleged that Voya breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA) by charging excessive fees. But “a party does not act as a fiduciary with respect to the terms in the service agreement if it does not control the named fiduciary’s negotiation and approval of those terms,” Connolly wrote in his opinion, citing Renfro v. Unisys. He noted that the fees Voya charges the plan and its participants were set in the contract, and at the time the fee schedules were proposed, Voya had no relationship with the plan or its participants and could not have been a fiduciary.

Connolly rejected the plaintiff’s argument that because Voya can charge different Daily Asset Charges over the lifetime of the plan, it has discretion over the plan and is therefore a fiduciary. He pointed out that the Daily Asset Charge is set by a schedule the plan agreed to in the contract, and the only changes to the Daily Asset Charge occur based on the total asset value of the plan. “Because Voya was not a fiduciary of the plan with respect to the fees, it cannot be liable for breach of fiduciary duties for charging excessive fees,” Connolly concluded.

The plaintiff also alleged that Voya is liable for breach of co-fiduciary duties by charging excessive fees and providing “false and misleading” disclosures that violate Rule 404a-5. To be liable for a claim of breach of co-fiduciary duties, one must be a fiduciary, Connolly said. Because Voya was not a fiduciary with respect to the fees charged under the contract, Voya cannot be liable for breach of co-fiduciary duties for excessive fees.

However, the co-fiduciary issue did not need to be decided with regard to Voya providing “false and misleading” Rule 404a-5 disclosures, because the judge found Voya is a fiduciary in that matter. First, Connolly explained that Voya’s Rule 404a-5 disclosures include the “total gross annual operating expenses” and the “total net annual operating expenses” for each fund represented as percentages. For example, the 404a-5 disclosure reproduced in the amended complaint stated that the total net annual operating expenses for Vanguard VIF–Equity Income Port was 2.16%. But this figure did not represent just the operating expenses for the Vanguard VIF–Equity Income Port fund. Instead it represented the combination of the operating expenses for Vanguard VIF–Equity Income Port (which were 0.27%) and Voya’s asset-based fees (which were 1.49%). The plaintiff’s theory is that by combining the funds’ operating expenses with Voya’s fees rather than listing them separately, Voya is misleading the beneficiaries into thinking that the combined number only represents the operating cost of the fund.

Voya argued that it is not a fiduciary because preparing 404a-5 disclosures is a purely ministerial function. But the amended complaint alleges that “VOYA maintains discretion to determine the contents of the disclosures to plan participants required by ERISA, including the fee disclosures required by ERISA, and in fact prepares and distributes the disclosures to plan participants.” Connolly concluded that because the plaintiff alleged that Voya prepares and delivers the disclosures to plan participants and has discretionary authority to determine the contents of the disclosures, the plaintiff has properly alleged that Voya is a fiduciary with respect to the 404a-5 disclosures.

The judge rejected Voya’s argument that even if it is a fiduciary, its disclosures satisfy the requirements of 404a-5 and thus it has satisfied its fiduciary duties pertaining to the 404a-5 disclosures. Connolly said breach of fiduciary duties does not turn on whether the disclosure satisfies rule 404a-5. “The Third Circuit has explained that although ERISA ‘articulates a number of fiduciary duties, it is not exhaustive,’” he noted. “Rather, Congress relied upon the common law of trusts to define the general scope of trustees’ and other fiduciaries’ authority and responsibility.”

Connolly pointed out that among the common-law duties incorporated into ERISA is the duty to disclose material information, which “entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful.”

In addition, he said he is not bound by, and disagrees with, a 7th U.S. Circuit Court of Appeals decision in Hecker v. Deere & Co. quoted by Voya that said, “The total fee, not the internal, post-collection distribution of the fee, is the critical figure for someone interested in the cost of including a certain investment in her portfolio and the net value of that investment.”

Connolly said, “There is a substantial likelihood an employee looking at these disclosures would think the listed fees were paid only to the listed funds as opposed to the listed funds and Voya. If that were the case, then the employee would be unlikely to complain about Voya’s fees to her trustee and advocate for a change in service provider, because she would not realize how much Voya was charging her. Accordingly, plaintiffs have at least established materiality to the degree required to survive a motion to dismiss.”

The plaintiff’s fourth and final claim for relief is that Voya is a party in interest within the meaning of ERISA and violated its prohibited transaction provisions by charging an unreasonable fee for services. Connolly pointed out that the parties agree that to state a claim under those provisions, the plaintiff must first allege that Voya was a party in interest. And, they also agree that Voya was not a party in interest prior to entering the contract. “Because Voya was not a party in interest when it negotiated the contract—including the fee schedules—Voya cannot be held liable under [the prohibited transaction provisions] for charging excessive fees,” Connolly concluded.

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Categories: Industry News

Volatility Prompts 401(k) Investors to Increase Trading

Plansponsor.com - Wed, 2020-02-05 10:41

A volatile January on Wall Street prompted 401(k) investors to increase trading, according to the Alight Solutions 401(k) Index. There were five days of above-normal activity, which was three more than the combined total of the last four months of 2019.

Investors transferred 0.17% of their balances as a percentage of starting balances. They favored fixed income on 12 of the trading days, or 57% of the trading days, and equities on nine, or 43%.

Asset classes with the most trading inflows in January included bond funds, which took in 77% of the inflows, valued at $289 million, followed by target-date funds (TDFs) (12% and $46 million) and international equity funds (7% and $26 million).

Asset classes with the largest trading outflows were stable value funds (39% and $147 million), large U.S. equity funds (26% and $99 million) and small U.S. equity funds (15% and 55%).

Asset classes with the largest percentage of total balances at the end of January were TDFs (29% and $65.27 billion), large U.S. equity funds (26% and $57.72 billion) and stable value funds (9% and $20.81 billion).

Asset classes with the most contributions in January were TDFs (47% and $753 million), large U.S. equity funds (20% and $327 million) and international equity funds (7% and $116 million).

Returns for various asset classes came in either paltry or negative during January. U.S. bonds were up 1.9%, while U.S. large cap equities were flat, with 0% returns. U.S. small cap equities were down 3.2%, and international equities dropped 2.7%.

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Categories: Industry News

Principal Back on the Hook for GIC Challenge

Plansponsor.com - Wed, 2020-02-05 10:20

A federal appellate court has revived a lawsuit accusing Principal Financial Group of violating the Employee Retirement Income Security Act (ERISA) by setting the crediting rate for a guaranteed investment contract (GIC) such that it can “retain unreasonably large and/or excessive profits.”

The 8th U.S. Circuit Court of Appeals reversed a lower court’s decision that Principal is not a fiduciary when it sets the composite crediting rate (CCR) for the GIC, and it is also not a party-in-interest engaging in prohibited transactions. The appellate court says outright, “Principal is a fiduciary when it sets the CCR.”

The court relies on a 10th U.S. Circuit Court of Appeals decision in Teets v. Great-West Life & Annuity Ins. Co., which the 8th Circuit says all parties agree is the decision that should guide the appeal. According to the opinion, Teets determines that a service provider acts as a fiduciary if it (1) “did not merely follow a specific contractual term set in an arm’s-length negotiation,” and (2) “took a unilateral action respecting plan management or assets without the plan or its participants having an opportunity to reject its decision.” In other words, if the provider’s actions (1) conform to specific contract terms or (2) a plan and participant can freely reject it, then the provider is not acting with “authority” or “control” respecting the “disposition of [the plan’s] assets,” per ERISA’s definition of a fiduciary.

For the Principal Fixed Income Option, Principal unilaterally calculates the CCR every six months. Before the CCR takes effect—typically a month in advance—Principal notifies plan sponsors, which alert the participants. If a plan sponsor wants to reject the proposed CCR, it must withdraw its funds, facing two options: (1) pay a surrender charge of 5% or (2) give notice and wait 12 months. If a plan participant wishes to exit, he or she faces an “equity wash.” They can immediately withdraw their funds, but not reinvest in contracts such as the Principal Fixed Income Option for three months.

The 8th Circuit found that Principal’s setting of the CCR does not conform to a specific term of its contract with the plan sponsors. Every six months, Principal sets the CCR with no specific contract terms controlling the rate. Principal calculates the CCR based on past rates in combination with a new rate that it unilaterally inputs.

Citing Teets, the appellate court also found the plan sponsors do not “have the unimpeded ability to reject the service provider’s action or terminate the relationship.” The opinion states, “Charging a 5% fee on a plan’s assets impedes termination. Likewise, holding a plan’s funds for 12 months after it wishes to exit impedes termination.”

Principal argues that the surrender penalty and delay are not impediments because they are in the plan contract, but the appellate court says this argument is misplaced. “Fiduciary status focuses on the act subject to complaint. … Here, Rozo complains about the setting of the CCR. Because plan sponsors do not have an opportunity to agree to the CCR until after it is proposed, the CCR is a new contract term. This court, therefore, must decide if plan sponsors can freely reject the term. … It does not matter that the barriers to rejecting the CCR are in the contract,” the opinion says.

The appellate court also rejected Principal’s argument that a participant’s ability to freely reject the CCR—regardless of the plan sponsor’s ability—negates fiduciary status for the service provider, saying Teets summarizes ERISA case law as finding fiduciary status if either a plan sponsor or a participant is impeded from rejecting the service provider’s act.

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Categories: Industry News

CBIZ Actuarial Error Lawsuit Moves Ahead

Plansponsor.com - Tue, 2020-02-04 12:10

The U.S. District Court for the Western District of Pennsylvania has ruled in the case of UPMC v. CBIZ, determining that the lawsuit should not be dismissed as a matter of summary judgement.

The plaintiffs in the case are UPMC, also known as the University of Pittsburgh Medical Center, as well as a subsidiary operating in the central part of the state known as UPMC Altoona. UPMC operates health care facilities in and around Pittsburgh; the organization is also the parent and supporting organization for numerous other nonprofit health care providers, each existing as a separate and distinct corporate entity. Plaintiff UPMC Altoona is one such subsidiary of UPMC, case documents show, having been acquired in July 2013.

At the core of this litigation are allegations that the defendants—including some named individuals as well as CBIZ Inc. and CBIZ Benefits and Insurance Services Inc.—made critical actuarial errors while conducting certain analyses for UPMC. According to plaintiffs, the errors allegedly cost UPMC more than $100 million dollars in unanticipated pension obligations after the UPMC Altoona acquisition.

According to the plaintiffs, CBIZ was paid substantial fees to perform substantial amounts of actuarial work for UPMC.

“Yet during the course of this engagement, from at least July 1, 2008, through February 2015, defendants failed to adhere to actuarial standards of practice and consequently materially erred in valuing the obligations and liabilities of Altoona’s pension benefit plans for funding, compliance and accounting purposes,” the lawsuit states. “Defendants’ multiple errors caused the Altoona plans’ projected benefit obligation (PBO) to be falsely stated on Altoona’s balance sheet at $240 million. In fact, Altoona’s PBO was then $373 million. Defendants had understated the liability by approximately $132.5 million.”

As noted in the ruling, the defendants moved for summary judgment on the plaintiffs’ malpractice and lost opportunity claims. They asserted that these claims fail because “(1) they are too speculative; (2) Altoona had sufficient funds to meet its increased funding obligation; (3) UPMC Altoona suffered no damages as a result of defendants’ calculations; and (4) the claims are pre-empted by the Employee Retirement Income Security Act [ERISA].”

On the first matter, the court notes that under Pennsylvania law, a plaintiff cannot recover damages that are “too speculative, vague or contingent.” Additionally, a plaintiff cannot recover damages beyond those which can be established with “reasonable certainty.” Some speculation regarding damages is permissible, as evidence of damages may consist of probabilities and inferences and need not be “completely free of all elements of speculation” or proved with “mathematical certainty.”

“Here, plaintiffs have shown that the damages they claim are not speculative and that they can establish them with reasonable certainty,” the ruling states. “Plaintiffs claim that defendants’ errors in reporting its true pension liabilities harmed them because the errors prevented Altoona from seeking and obtaining [available pension funding] relief, which caused plaintiffs to pay off liabilities they could have avoided.”

Moving on the second issue, the District Court holds that numerous factual disputes about Altoona’s financial situation preclude summary judgment on these grounds.

“For example, defendants say that Altoona could have made additional budget cuts to fund its pensions; plaintiffs say this was not feasible,” the ruling states.

The third and fourth claims are similarly allowed to proceed.

“ERISA does not pre-empt professional malpractice actions brought by a plan sponsor because such actions are unlikely to interfere with plan administration and do not implicate the funding, benefits, reporting or administration of an ERISA plan,” the ruling states. “However, ERISA pre-empts malpractice claims brought by plan beneficiaries because ERISA itself contains a civil enforcement scheme for plan beneficiaries. Here, ERISA does not pre-empt plaintiffs’ malpractice and lost opportunity claims because they do not relate to the administration of an ERISA benefit plan. The mere fact that an ERISA plan is a part of plaintiffs’ claim is not enough to trigger ERISA pre-emption.”

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Categories: Industry News

2nd Circuit Again Remands Decade-Old PwC ERISA Litigation

Plansponsor.com - Tue, 2020-02-04 10:32

Plaintiffs filed a lawsuit known as Laurent v. PricewaterhouseCoopers LLP some 15 years ago, claiming PricewaterhouseCoopers’s pension plan distribution formula used an improper “whipsaw calculation” to set payment amounts.

The suit suggests that, under the Employee Retirement Income Security Act (ERISA), a lump sum whipsaw calculation must use a “fair estimate” of the rate of return an average participant would have received had he remained in the plan until normal retirement age. In basic terms, this estimate is used by pension plans to project benefits forward to the normal retirement age, and then to pay out benefits at the “present value” of the projection.

According to the plaintiffs in Laurent, the interest rates used by the PricewaterhouseCoopers pension artificially deflated the present value of certain lump sum benefits being paid to participants. They argue that ERISA requires whipsaw payments to guarantee that plan participants who take distributions in the form of a lump sum when they terminate employment receive the actuarial equivalent of the value of their accounts at retirement.

This week, a new ruling has been filed in the case by the U.S. 2nd Circuit Court of Appeals, which has remanded the matter for still further proceedings in the U.S. District Court for the Southern District of New York.

The text of the new ruling spells out the complex procedural history leading up to this point: “In a prior appeal, we affirmed the District Court’s holding that the plan violated the statute, and we remanded for the District Court to consider the appropriate relief. On remand, however, defendants‐appellees moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), contending that the relief requested by plaintiffs‐appellants—reformation of the plan and the recalculation of benefits in accordance with the reformed plan—was unavailable as a matter of law.”

The District Court agreed with that argument, but now the 2nd Circuit has vacated and remanded that decision.

For context, prior to the recently decided appeal, PwC had moved for judgment “on the pleadings,” arguing that ERISA did not authorize the relief sought by plaintiffs. In agreeing with PwC, the District Court held that ERISA did not authorize the recalculation of benefits in the circumstances here, and so it dismissed the second amended complaint with prejudice on that basis—notwithstanding the violation of ERISA.

“Plaintiffs appealed, contending that the District Court erred in granting PwCʹs motion, because ERISA does in fact authorize the relief they sought,” the new 2nd Circuit decision explains. “We agree, and for the reasons detailed [in this decision], we vacate the judgment and remand for further proceedings consistent with this opinion.”

The Circuit Court’s rationale for ruling against PwC’s arguments is detailed at length in the text of the ruling, but it boils down to the simple conclusion that “in the absence of controlling authority otherwise, we are inclined to follow the Supreme Court’s express preference that violations of ERISA should be remedied.”

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Categories: Industry News

Lively Launches ‘HSA-Compatible FSA’

Plansponsor.com - Tue, 2020-02-04 06:00

Lively Inc., a provider of health savings accounts (HSAs), has announced the launch of a new flexible spending account (FSA) offering that includes medical/health care FSAs, HSA-compatible “limited purpose” FSAs and dependent care FSAs.

The firm says the Lively FSA suite will enable employers to offer a more robust health savings package, allowing employees to maximize their tax-free health care dollars. Alex Cyriac, CEO and co-founder of Lively, says bringing this solution to market is the “obvious next step in helping our customers optimize their overall health care spending.”

Cyriac says many of the issues Lively set out to correct with the traditional HSA experience can also be found with the typical FSA. “Many providers fail to provide adequate education to address employer and employee questions,” Cyriac says. “In fact, the average FSA user forfeited $263 in 2019, up from $159 the previous year.”

The Lively FSA tackles these issues with automated claims substantiation for nearly 90% of all transactions, according to the firm, and it uses “machine learning-driven features” that help employees maximize the utilization of their FSAs year-round.

Lively says the FSA solution dashboard helps employers take timely action and features educational resources to help employees understand how to plan for and take advantage of their FSAs.

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Categories: Industry News

Can Plan Sponsors Limit the Automatic Enrollment Opt-Out Period?

Plansponsor.com - Tue, 2020-02-04 05:00

“We sponsor an ERISA 403(b) plan with an automatic contribution arrangement (ACA). We love auto enrollment and the positive impact it is having on our participation, but still have a number of people that opt out, and would like to improve our participation figures even further. Could we add a provision that only allows participants 90 days to opt-out, otherwise they are in the plan for as long as they are employed? I thought I read something in the regulations about this.”

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 Experts believe you may be confusing a provision under an EACA, or eligible automatic contribution arrangement, which permits employees to withdraw automatic contributions, including earnings, within 90 days of when they were made, with an opt-out restriction. Employees may opt out of an ACA at ANY time, and you cannot place restrictions on how long a period an employee has to opt out. That said, there is a type of contribution for which you can require an employee make a one-time irrevocable election as to whether or not to make the contribution, but in that case, it would NOT be an ACA, but an employee mandatory contribution. For more details on the difference between an ACA and an employee mandatory contribution see this Ask the Experts column.

Having said this, you can work with your plan’s recordkeeper to address solutions regarding the engagement of people who choose to opt out of the ACA. Many such individuals do so because they feel they cannot afford to contribute, and it may be possible to improve the financial wellness of such employees so that they can afford to save. Good luck!


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 Rebecca.Moore@issgovernance.com 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

Barry’s Pickings: The 2020 Retirement Policy Agenda

Plansponsor.com - Mon, 2020-02-03 19:10

Art by Joe Ciardiello

Much of what was in the Setting Every Community Up for Retirement Enhancement (SECURE) Act was, in my view, a medium-sized ball and/or something that non-dysfunctional agencies could have accomplished on their own. Examples of the latter include authorization of defined contribution (DC) open multiple employer plans (MEPs), the DC annuity fiduciary safe harbor, mandatory lifetime income disclosure, and closed group nondiscrimination relief.

More or less as an aside, it is ironic that—while former Employee Benefits Security Administration (EBSA) head Phyllis Borzi famously suggested that there are no longer enough “people of good will” in Congress capable of passing legislation necessary to make needed improvements to the Employee Retirement Income Security Act’s (ERISA)’s fiduciary rules—it took Congress to make the most obvious of these changes—open MEPs, the annuity fiduciary safe harbor, and mandatory lifetime income disclosure. The agencies, bogged down in legacy thinking and an institutional bias against change, were unable to act. I guess it depends on what your definition of “needed change” is.

That agency foot-dragging has got to change. So, as we review what is significant and what is not on the 2020 policy agenda, let’s hope that a now hopefully-less-dysfunctional group of agencies can make progress on some of these issues without having to grind them through the Congressional budget process.

Also—and obviously—2020 is an election year. With a very-divided Congress and what is likely to be a disruptive Presidential campaign, progress on as modest and obscure an issue as retirement policy seems like a long shot.

With all of that in mind, let’s consider some of the more important (in my humble opinion) things that need, or at least “ought,” in the relatively near term, to be done.

Covering the Uncovered

We need to understand this issue better. There is a consensus that “everyone” should be in an automatic savings vehicle, with an option to opt out of it. Our data on who is “uncovered” by these plans is vague—we hear different numbers. And, with the continued emergence and evolution of the gig economy, who is uncovered is constantly changing.

In this regard (see the discussion of student loan debt below), we need to consider that younger workers’ top financial and savings priorities may not be retirement. Rather, it may be starting a family, buying a house, educating their children. Or paying down their student loans. Our retirement policy needs to respect that—generally, I think a default-and-opt-out policy does so.

Frankly, I’m in the mandated-federal-auto-IRA camp. Or something like Congressman Richard Neal’s, D-Massachusetts, Automatic Retirement Plan Act proposal. I think that this approach is a simpler and less expensive solution than, e.g., SECURE’s new $5,000 small plan start-up credit, or for that matter the proposal by Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland, to expand the Saver’s Credit.

We also need to face up to the fact that some American workers don’t make enough to save for retirement. Indeed, it’s generally believed that there is less poverty in old age than before old age. How we deal with this issue is not really a question of retirement policy—it is about social welfare more broadly. And I think it is foolish (and nearly nonsensical) to “try to get these workers to save for retirement.” They can barely make rent. We should be thinking about whether we need to improve or reform Social Security, especially with regard to individuals who for one reason or another don’t have a full career in the current Social Security system.

Bailing Out the Multiemployer System

The SECURE Act included a (somewhat unique) taxpayer bailout of the United Mine Workers pension plan. I personally think we should bail out the whole system, with the proviso that, at a minimum, it is held to much stricter funding rules in the future—rules that will assure that this doesn’t happen again.

There are different proposals for a solution in the House—the Butch Lewis Act—and the Senate—the proposal outlined November 20, 2019, by Senators Chuck Grassley, R-Iowa, and Lamar Alexander, R-Tennessee. The commonplace is, everyone agrees that something has to be done, and no one agrees on what.

It is ironic that a policy challenge that is very important to some critical 2020 swing states, e.g., Ohio and Pennsylvania, may be un-solvable in the current political context. To quote Zach Galifianakis, “Classic!”

Electronic Participant Communication

Hopefully, this very important issue will be handled via the Department of Labor’s current rulemaking project.

Missing Participants/Clearinghouse

It’s my understanding that the White House had to get involved in prying a (in real life pretty ordinary) clearing house advisory opinion out of the DOL. And that the DOL staff is very proud of their efforts in audits getting benefits to missing participants—while not moving any regulation on what to do with missing participants in a non-terminated plan. And that the IRS is waffling on their position on forfeiture/restoration as one solution.

You know, we live in the 21st century. Pretty much every 401(k) participant has a Social Security Number. At least one reason employers are getting dinged on audit on this is that there is no clear, practical, technologically current guidance. I, for one, would be perfectly happy with a Swiss-style central clearinghouse. Or just give missing money to Social Security after, say, three years, using that money to buy the participant additional Social Security benefits. If we start covering more young, low-paid employees, we’re going to generate more small accounts that will get lost at some point. Can we please do something simple and practical about this?

Student Loan Repayment

Portman-Cardin includes a modest improvement over current rules—allowing a plan to treat a student loan repayment (subject to certain limits) as “match-able” pursuant to rules similar to those applicable to regular 401(k) employee contributions. But significant issues remain—critically there’s no proposal to count loan repayments in the ADP test.

There’s a deep problem here that we are not grappling with—and 401(k) student loan repayment policy presents an opportunity to do so.

Borrowing is dis-saving. If you borrow $1 and save $1, you have (net) saved nothing. It makes no sense to (massively) subsidize (via the Tax Code) retirement saving if we are not addressing the issue of borrowing.

A First Step Towards a Financial Wellness Policy

Moreover, focusing only on student debt is … kind of problematic. First, there’s a class issue—why is it that college students get this deal, but non-college educated students don’t? What is so special about student debt, other than that it happens to be a discrete and particularly large and acute version of a wider problem. Second, how does this work? What if a participant pays down college debt but runs up consumer debt—is our 401(k) matching contribution policy accomplishing anything?

I see “financial wellness” as addressing—in a more rigorous and fair way—the three main issues of public financial health: debt, savings, and insurance. The first two are obviously linked—if we actually care about retirement “wellness,” we have to begin—for some workers at least—with paying down debt.

But also: retirement policy has from the beginning focused on income. We know, however—intuitively and from the data—that some of the financial challenges of retirement are insurance issues—long-term care, longevity, health care and life’s random catastrophes. The most sensible solution to these challenges is often the pooling of risk. Thus, while there is still much work to do meeting retirement income challenges, we need to begin thinking about possible insurance-based solutions, for instance, for the health and nursing home care costs related to very-old-age dementia.

* * *

There are many proposals I’ve left out. These are (in my humble opinion) the big ones. If we could just make some progress on one or two of these, 2020 will be a great year.


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 http://moneyvstime.com/  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

Signing and Retaining Plan Documents Is Essential

Plansponsor.com - Mon, 2020-02-03 12:05

The Office of Chief Counsel of the IRS has issued a memorandum concluding that a retirement plan “is considered adopted only if proof of adoption of the plan is provided.”

The IRS adds: “Upon failure to produce an executed plan, the employer has the burden to prove that it executed a plan document as required.”

The agency was asked whether a plan sponsor must retain a validly executed plan document, in light of a tax court decision in Val Lanes Recreation Center Corp. v. Commissioner. In that case, the tax court originally found Val Lanes’ retirement plan to be disqualified because an unsigned plan document was presented on audit. However, after finding additional testimony credible, the court reversed its decision. The individual who served as president, treasurer and sole director of the company testified that the failure of a roof at his facility resulted in extensive water damage that destroyed documents. His accountant testified that “to the best of his knowledge, the restated plan amendments were signed shortly after receipt of the [favorable determination letter] and that petitioner retained the originals.”

The memo from the IRS points out that the Val Lanes situation was “highly factual.” The agency says, in normal circumstances, it’s unlikely a plan sponsor could meet its burden of proof that a plan document had been executed without producing a signed plan document.

“It is appropriate for IRS exam agents and others to pursue plan disqualification if a signed plan document cannot be produced by the taxpayer,” the IRS concludes.

In a blog post from Morgan, Lewis & Bockius LLP, attorneys say plan sponsors should consider implementing the following procedures:

  • Designating a point person, such as an internal benefits administrator or external benefits legal counsel, to coordinate the timely execution of plan documents and amendments and the retention of these documents;
  • Thoroughly documenting corporate action taken to adopt and execute plan documents (e.g., through minutes and/or formal resolutions);
  • Retaining electronic copies of signed plan documents and ensuring that these electronic copies are “backed up”; and
  • Keeping a plan amendment tracking document that includes information such as when the plan amendment was adopted, when it became effective, and when it was added to the plan document and summary plan description.

The post Signing and Retaining Plan Documents Is Essential appeared first on PLANSPONSOR.

Categories: Industry News

MassMutual Offers Student Loan Refinancing Assistance

Plansponsor.com - Mon, 2020-02-03 11:43

Massachusetts Mutual Life Insurance Co. is offering student loan refinancing through the workplace.

The refinancing program is provided through CommonBond, a financial technology company, and is available to 2.6 million people who have access to MassMutual’s retirement plans, voluntary benefits or both. The refinancing program features flexible terms and competitive interest rates to help people take control of their student debt. MassMutual began offering CommonBond’s refinancing through the insurer’s 8,500 plus network of financial advisers last year and is now adding CommonBond to its workplace solutions.

The CommonBond program is available on MassMutual’s MapMyFinances financial wellness tool, which helps users prioritize their personal finance and benefits needs based on their family situations and budgets.

CommonBond’s refinancing program enables people to potentially pay off their loans faster and may save thousands of dollars in interest. And, when someone refinances, CommonBond funds the education of a child in need, through its 1-for-1 social mission, which has provided schools, teachers and technology to thousands of students in the developing world.

MassMutual began tackling student loan debt through the workplace last year by introducing a separate student loan repayment and management program, which lets participants make student loan repayments and also enables employers to help pay down principal.

“Addressing, managing and paying off student loan debts is a huge priority for many Americans,” says Paul Lapiana, head of product at MassMutual. “MassMutual is offering student loan debt management resources to attack the problem as part of our overall objective of helping all Americans achieve financial security.”

The post MassMutual Offers Student Loan Refinancing Assistance appeared first on PLANSPONSOR.

Categories: Industry News
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