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GASB Issues Implementation Guide Answering Questions About Recent Statements

Plansponsor.com - Wed, 05/23/2018 - 11:40
The Governmental Accounting Standards Board (GASB) has issued Implementation Guide No. 2018-01 to provide guidance that clarifies, explains, or elaborates on GASB Statements.Among other things, the Implementation Guide answers questions about Statement No. 68, “Accounting and Financial Reporting for Pensions” and Statement No. 74, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans.”Statement 68 requires governments providing defined benefit (DB) pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also includes revised and new note disclosures and required supplementary information (RSI).Statement 74 replaces GASB Statement No. 43. It addresses the financial reports of defined benefit OPEB plans that are administered through trusts that meet specified criteria. The statement follows the framework for financial reporting of defined benefit OPEB plans in Statement 43 by requiring a statement of fiduciary net position and a statement of changes in fiduciary net position. The statement requires more extensive note disclosures and RSI related to the measurement of the OPEB liabilities for which assets have been accumulated, including information about the annual money-weighted rates of return on plan investments. Statement 74 also sets forth note disclosure requirements for defined contribution OPEB plans.The post GASB Issues Implementation Guide Answering Questions About Recent Statements appeared first on PLANSPONSOR.
Categories: Industry News

Asian Americans More Thoughtful Retirement Investors Than Other Demographics

Plansponsor.com - Wed, 05/23/2018 - 11:24
Asian Americans are more concerned than other demographics about making missteps with their retirement savings in the years just before and just after retirement, research from Massachusetts Mutual Life Insurance Co. finds.According to the MassMutual Asian American Retirement Risk Study, Asian American retirees and pre-retirees worry more than other Americans about taking too much risk (69% vs. 44%) or making a poor investment decision (67% vs. 54%) within 15 years before or after retirement. Asian American pre-retirees (75%) are especially concerned about taking too much investment risk.“While many Americans focus on being ready to retire, no other ethnic group that we’ve surveyed is as focused on their financial goals as Asian Americans,” says Wonhong Lee, head of MassMutual’s Diverse Markets. “And these findings are actually aligned with other studies we have conducted in the past, as the key driver for this community is to attain financial security in every key milestone in life, such as paying for their children’s education or retiring in comfort without being a burden to their children.”More so than others, Asian American retirees and pre-retirees believe workers approaching retirement should reduce their investments in equities (64% vs. 53%). Moreover, Asian Americans are more likely to have more conservative investment goals, aiming for their assets to “match the market” (43% vs. 32% of the general population) rather than outperform the market (55% vs. 65%). Despite those sentiments, the study found little difference between Asian Americans and the general population of retirees and pre-retirees in regard to their overall risk tolerance or their allocation of retirement assets between equities and fixed-income investments.Asian Americans do have a stronger preference to be heavily involved in managing their finances and investments, particularly among retirees. Compared to the general population of retirees, for instance, Asian American retirees are more likely to enjoy managing their own money (80% vs. 59%). When looking only at Asian Americans, only two in five retirees (42%) prefer an investment that allows them “set-it-and-forget-it” compared to nearly three in four pre-retirees (72%).Underscoring their focus on investment goals, Asian Americans are considerably less likely than other Americans to engage in behaviors that reduce retirement savings such as making withdrawals or hardship loans or suspending contributions, according to the study. While one in four American retirees and pre-retirees (25%) report engaging in those behaviors, Asian American respondents are half as likely (11%) to say the same.Despite their hands-on approach to investing, the study findings show there is room for Asian Americans to obtain more education about retirement planning.  Fewer Asian Americans are confident projecting how many years they will spend in retirement and therefore are not planning to meet those needs, the study shows. More than half of Asian Americans (53%) are uncertain about the length of their retirement compared to a little more than one-third of Americans overall (36%). Moreover, fewer Asian American retirees (63%) are confident they know how to claim Social Security at the right time to maximize its benefits, than American retirees overall (75%), according to the study.The post Asian Americans More Thoughtful Retirement Investors Than Other Demographics appeared first on PLANSPONSOR.
Categories: Industry News

SEC Issues Investor Bulletin for HSAs

Plansponsor.com - Wed, 05/23/2018 - 10:38
The Securities and Exchange Commission’s (SEC)’s Office of Investor Education and Advocacy has issued an Investor Bulletin regarding health savings accounts (HSAs).Although the bulletin is directed at employees invested in HSAs, its description of useful HSA features depending on how investors use HSAs can be informative to employers.The SEC says if investors plan to use the money in their HSA soon, different account features may be useful than if they plan to invest the money for the future.According to the bulletin, if employees use their HSA primarily as a spending vehicle for current medical bills, ease of access may be helpful. It notes that some HSAs allow investors to pay for qualifying expenses directly using a linked debit card or online bill payment system. However, others may require investors to pay for eligible expenses out of their own pocket and request reimbursement.In addition, it is important to look at fees. Some HSAs charge a monthly account maintenance fee, while others may have no account maintenance fee, or may waive the fee if the account has a sufficiently high balance. Also, some HSAs pay interest on money investors don’t spend immediately or invest.If employees use their HSA as an investment vehicle for future health care costs, an important feature is the opportunity to invest. The SEC says investment options offered by HSAs may vary widely. Some HSAs offer a large number of varied investment products. Others may offer only a few options.If employees invest their HSA assets, fees typically include underlying fund fees and transaction fees in addition to account maintenance fees. Other fees may apply as well. Over time, fees can impact the performance of the investment portfolio, so it is important to understand the total cost of the HSA and any investments.The post SEC Issues Investor Bulletin for HSAs appeared first on PLANSPONSOR.
Categories: Industry News

Surviving Financially to Age 85 Increases Retirement Confidence

Plansponsor.com - Wed, 05/23/2018 - 09:54
Seventy-eight percent of retirees ages 85 and older say they are at least somewhat secure in their finances, with 33% reporting they are very secure, according to a Society of Actuaries (SOA) survey.By comparison, the SOA’s ninth biennial Risks and Process of Retirement Survey identified an overall increase in the level of concern for finances among respondents ages 40 to 80. A significant number of retirees and pre-retirees reported in that survey that they feel unprepared to navigate financial shocks and unexpected expenses.The new survey suggests that if retirees are able to survive financially to age 85, concerns about finances drop significantly.Most of those ages 85 and over are comfortable with their finances for a couple of reasons: They have a shorter time horizon than at an earlier stage of retirement and no longer think about longevity as a big factor in their finances, and they also tend to be frugal and don’t have a large amount of expense to cover. “These older Americans have learned to balance income and spending in the short run, and this has become integral to their financial management process,” the survey report says.Almost all respondents (96%) receive Social Security income and about half (53%) receive income from a pension. The SOA found that even though most have incomes of less than $2,000 per month, they usually do not spend more than their income. Most report spending less now than they did in the past, especially on travel and entertainment. And, while most have far fewer assets than might be recommended, they use these assets as an emergency fund that they don’t tap often at their current age except to take the required minimum distribution, which they don’t necessarily spend.Those 85 and older do not often report that financial shocks, such as increased utility bills (23%) home repairs (13%), medical expenses (19%), car repairs (5%), or dental bills (13%), have a major impact on their finances.  In comparison, 61% of pre-retirees and 47% of retirees feel unprepared for expenses in retirement that could deplete their assets, based on the previous SOA survey of consumers ages 45 to 80.Eighty-six percent of retirees ages 85 and older report receiving no financial aid support from family, although 32% receive support with physical activities such as transportation, meals or household chores.While the SOA did find greater financial security among older retirees, one thing it found lacking was preparation for long-term care needs. Despite the relatively modest asset levels of the population sampled, a significant number feel that they can save for long-term care by cutting back on spending and putting money away. “Some of the unrealistic financial expectations of this population may stem from a lack of acceptance of what long-term care may involve some day… A significant number of those ages 85 and over receive some type of physical support from their children. The in-depth interviews suggest that many understand that the level of support will have to increase as they age—they simply don’t understand how extensive the help needed would be in the event of a major physical or mental decline. While most people would prefer to be cared for at home, among adult children who have parents requiring care, most of those parents ended up in assisted living or a nursing home. It seems that the care pieced together by aides/home health workers and children eventually falls apart. Thus, while most of those 85 and over can manage financially while healthy, they are not prepared for the financial burden of intensive care,” the SOA says.But, the findings suggest hope for future generations. More than one-quarter of adult children say that caring for a parent has taught them to better prepare financially.The post Surviving Financially to Age 85 Increases Retirement Confidence appeared first on PLANSPONSOR.
Categories: Industry News

Fed Report Offers Picture of Retirement Readiness Situation in America

Plansponsor.com - Tue, 05/22/2018 - 13:09
Less than two-fifths of non-retired adults think their retirement savings is on track, whereas over two-fifths think it is not on track and about one-fifth are not sure, according to The Federal Reserve Board’s latest report on the Economic Well-Being of U.S. Households.One-quarter of the non-retired indicate that they have no retirement savings or pension whatsoever.Older adults are more likely to have retirement savings and to view their savings being on track than younger adults. However, even among non-retirees in their 50s and 60s, one in eight lacks any retirement savings and less than half think their retirement savings is on track. Additionally, retirement savings vary substantially by race and ethnicity. White non-retirees are 14% more likely than black non-retirees to have any retirement savings, and they are 18% more likely to view their retirement savings as on track.According to the report, self-assessments of retirement preparedness vary with the amount of current savings and time remaining until retirement. Among young adults younger than 30, people typically believe that their savings are on track if they have at least $10,000 set aside for retirement. The amount of savings needed for a majority to think they are on track increases as people near retirement, rising to at least $100,000 of retirement savings among those age 40 and older. Approximately nine in 10 people with at least $500,000 of retirement savings think they are on track, regardless of their age.Withdrawing from accounts and discomfort managing investmentsSome people withdraw money from their retirement accounts early for purposes other than retirement, according to the report. Overall, 5% of non-retirees have borrowed money from their retirement accounts in the past year, 4% have permanently withdrawn funds, and 1% have done both. Those who have withdrawn early are less likely to view their retirement savings as on track than those who have not—27% versus 39%, respectively.Among those with self-directed retirement savings, including 401(k)s, IRAs, and savings outside of formal retirement accounts, comfort in managing investments is mixed. Three-fifths of non-retirees with these accounts have little or no comfort managing their investments. On average, women of all education levels and less-educated men are less comfortable managing their retirement investments than other groups.The report says expressed comfort in financial decisionmaking may or may not correlate with actual knowledge about how to do so. To assess actual financial literacy, respondents were asked five basic questions about finances. The average number of correct answers is 2.8 with one-fifth of adults getting all five correct. The average number of correct financial literacy questions was higher for those who are generally comfortable with managing their retirement accounts (3.5 questions) than those who have savings but limited comfort (2.9 questions).When and why people are retiringHalf of retirees in 2017 retired before age 62, and an additional one-fourth retired between the ages of 62 and 64. Average retirement ages differ by race and ethnicity, with black and Hispanic retirees more likely to have retired before age 62 (58% and 55%, respectively) than white retirees (48%).In choosing when to retire, a desire to do other things than work or to spend time with family were the most common factors. Fifty-eight percent of whites cited a desire to do other things, while 63% of Hispanics cited wanting to spend more time with family. In addition, two-fifths of retirements before age 62—and one-third between ages 62 and 64—involved poor health as a contributing factor. About one-fourth of those who retired before age 65 said the lack of available work contributed to their decision.Sources of retirement incomeFor income in retirement, 86% of retirees in 2017 received Social Security benefits, and 56% drew on a defined benefit pension, while 58% used savings from an IRA, 401(k), or other defined contribution plan. The types of retirement savings for current retirees differs substantially from non-retirees, for whom defined contribution (DC) plans are much more common than defined benefit (DB) plans.The sources of retirement income also differ by race and ethnicity. Black and Hispanic retirees are less likely than whites to have self-directed savings. In aggregate, 71% of black retirees and 66% of Hispanic retirees are drawing from at least some private retirement savings (other than employment during retirement and relying on family), compared to 86% of white retirees.The post Fed Report Offers Picture of Retirement Readiness Situation in America appeared first on PLANSPONSOR.
Categories: Industry News

More Employers Looking to Revamp Well-Being Programs

Plansponsor.com - Tue, 05/22/2018 - 11:26
Eighty-four percent of respondents to a survey of 144 benefits brokers by Shortlister, a marketplace for finding and selecting vendors in the wellness, HR technology and benefits space, say employers are moving more to total well-being programs rather than just physical well-being programs.Seventy-nine percent say they are adding more niche point solutions—such as diabetes management, mental well-being and financial wellness. Broadening the focus of traditional, physically focused wellness programs to become more holistic (adding financial, social & mental well-being) is leading more employers to ask about a platform/hub to combine all of their benefits initiatives, 63% of brokers say.A recent HealthAdvocate survey found employers that use multiple providers for health and well-being benefits cited several challenges. At the top of the list at 44% was “disjointed, confusing for employees.” Next, at 43%, was fragmentation of vendor/partner/internally developed tools, with several numbers to call.The Shortlister survey found 73% of brokers say employers are desiring more mobile-first or native mobile application programs for their employees, and 65% say more employers are prioritizing wellness/well-being as a business objective.Forty-six percent of respondents indicated that about the same number of employers as in the past are implementing a wellness program via a third-party vendor. However, the more holistic focus, along with a changing legal landscape, has led to a shift away from outcomes-based wellness programs (47%), and a desire for a broader scope of services and more sophisticated offerings has accelerated the shift away from carrier-based wellness offerings (48%).What employers are really striving for, according to the survey report, is meaningful “engagement” from their employees. While there’s still no universally accepted definition of engagement or how to measure it, employers are actively seeking solutions that improve the probability that their members will access the right resources at the right time.The top three well-being program features growing in demand from employers are financial wellness (cited by 73%) of respondents, mental well-being (50%) and on-site clinics (25%).Among benefits brokers surveyed, 43% see value in financial wellness programs, but say vendors and programs need to improve. More than one-third (35%) say they are important and will continue to grow in popularity. However, 12% see little value thus far, and 4% can’t justify the budget.The post More Employers Looking to Revamp Well-Being Programs appeared first on PLANSPONSOR.
Categories: Industry News

Employees Say Employer Wellness Programs Are Helping

Plansponsor.com - Tue, 05/22/2018 - 10:45
More than half of employees with access to workplace wellness programs say the programs have made a positive impact on their health, including 62% who say the initiatives translated to improved productivity and 30% who report help detecting a disease, according to findings from UnitedHealthcare’s annual “Wellness Check Up Survey.”Fifty-three percent of people with access to wellness programs said the initiatives have made a positive impact on their health. Of these, 88% said they were motivated to pay more attention to their health; 67% said they lost weight; and 56% reported fewer sick days.Among employees without access to wellness programs, 73% say they would be interested in such initiatives if offered, including 42% who are “very interested.” Nearly 85% of Baby Boomers—defined as people between 54 and 72 years old—want wellness programs, more so than any other age group.Just 29% of all respondents said they are willing to devote an hour or more each day on health-related activities, such as consistent exercise, researching healthy recipes or engaging in wellness coaching. Among employees with access to a wellness program, 31% said they are willing to devote that amount of time each day to their health, compared to 26% without access to a wellness program.Nearly three-quarters (74%) of employees claim they meet government recommendations for physical activity, defined as at least 2 hours and 30 minutes per week of moderate-intensity aerobic activity and two days or more per week with moderate- or high-intensity muscle-strengthening activities. However, UnitedHealthcare notes, the Centers for Disease Control & Prevention reports that just 20% of Americans meet those recommended guidelines.“This year’s results underscore the importance of workplace wellness programs, which can encourage well-being, prevent disease before it starts and, as a result, help lower medical costs,” says Rebecca Madsen, UnitedHealthcare chief consumer officer. “By investing in wellness programs, employers are in a unique position to drive engagement and create healthier, happier and more productive workforces.”The UnitedHealthcare “Wellness Check Up Survey” was conducted April 5-8 and April 12-15, 2018, using ORC International’s Telephone CARAVAN omnibus among a landline and cell phone probability sample of 630 adults ages 18 and older and employed full time in the continental United States. Complete survey results are here.The post Employees Say Employer Wellness Programs Are Helping appeared first on PLANSPONSOR.
Categories: Industry News

dailyVest’s Plan Health Tool Gets an Update

Plansponsor.com - Tue, 05/22/2018 - 08:59
dailyVest’s PlanAnalytics plan health dashboard will now utilize retirement readiness data from GuidedChoice, an independent digital investment advisory firm.This will provide plan sponsors, administrators, consultants and advisers with an optimized way to evaluate data, garner insights and pinpoint areas for improvement within defined contribution (DC) plans.Projected retirement income can now be viewed at both the plan and participant level—providing the ability to analyze retirement readiness by demographics such as age, salary, contribution rate, or geography. This helps plan sponsors and administrators achieve a more thorough picture of key successes and issues, identify participants that might be falling behind, provide data-driven advice and ultimately make better plan design decisions. Retirement readiness metrics can be tracked over time and be securely accessed by plan consultants and advisers.The firms note that outcome-oriented data is becoming even more important to plan sponsors as they are charged with understanding where participants stand relative to their individual retirement goals and then developing strategies to help improve that standing.“In order to have a valid projection for a defined contribution account, the projection must include the viability of the marketplace. That’s accomplished through the simulated projection data that GuidedChoice provides.” says Sherrie Grabot, founder and CEO at GuidedChoice. “And providing the right information in the right format is the key.”The platform and retirement readiness metrics will start rolling out to plan sponsors, administrators, consultants and advisers in July.The post dailyVest’s Plan Health Tool Gets an Update appeared first on PLANSPONSOR.
Categories: Industry News

IRS Reminds Plan Sponsors When a Complete Discontinuance of Contributions Occurs

Plansponsor.com - Tue, 05/22/2018 - 08:52
The Internal Revenue Service (IRS) Employee Plans Compliance Unit (EPCU) completed its Complete Discontinuance of Contributions Project, which it used to determine whether profit sharing plans, including Internal Revenue Code (IRC) Section 401(k) plans, had experienced a complete discontinuance of contributions.In its summary of project findings, the IRS reminded plan sponsors that if there is a complete discontinuance of contributions in a profit sharing plan, the plan is treated as terminated for vesting purposes and affected employees must be 100% vested in their accrued benefit. The project found that some plan sponsors did not know that an issue of complete discontinuance arises when the employer has failed to make substantial contributions for at least three years in a five-year period, and complete discontinuance is not an issue if plan participants receive full vesting at all times.In May 2014, the EPCU sent contact letters to plan sponsors who filed Form 5500 or Form 5500-SF returns for the 2012 or 2013 plan years showing zero contributions for five consecutive years, plan participants receiving distributions in the 2012 or 2013 plan year, respectively, and plan participants having terminated with less than 100% vesting. The responses indicated about 10% of plan sponsors had a complete discontinuance of contributions. These sponsors used the IRS self-correction program (SCP) and voluntary correction program (VCP) to correct this error and make the affected participants 100% vested in their accounts.For a majority of the responses, the lack of contributions did not rise to the level of a complete discontinuance.Responses showed that it was easier to determine whether Form 5500 filers were more likely to have experienced a complete discontinuance than Form 5500-SF filers. This was because unlike Form 5500, the Form 5500-SF (prior to 2014) did not contain a line item indicating whether participants terminated employment during the plan year with benefits that were not fully vested. In addition, the IRS said, some plan sponsors made errors in completing their Form 5500 series return because they did not understand the instructions for reporting terminated participants.More information about IRS EPCU projects may be found here.The post IRS Reminds Plan Sponsors When a Complete Discontinuance of Contributions Occurs appeared first on PLANSPONSOR.
Categories: Industry News

Other Financial Issues Impacting Retirement Confidence and Savings

Plansponsor.com - Mon, 05/21/2018 - 22:05
Not having enough emergency savings for unexpected expenses is the most frequently cited financial concern for Millennial (48%) and Generation X (51%) employees, while not being able to retire when they want to is the most frequently cited concern among Baby Boomers (46%), according to the 2018 edition of PwC’s Employee Financial Wellness Survey.Among all respondents, more affordable health care is the top cited factor that would most help them achieve their future financial goals. However, one-quarter of respondents said a financial wellness benefit with access to unbiased counselors is the employer benefit they would most like to see added in the future. Baby Boomers (32%) and Gen X (27%) employees are more likely than Millennials to say they most trust an independent financial planner who does not sell investment or insurance products for their financial advice and education, while Millennials are more likely to say they most trust friends and family (24%)Thirty-five percent say their employer offers services to assist them with personal finances, and nearly two-thirds (65%) say they’ve used the services. Forty-one percent say their employer’s financial wellness program has helped them get their spending under control, while 39% say it has helped them prepare for retirement, and 31% say it has helped them pay off debt.Financial issues impacting retirement savingsThe survey found 42% of employees who have children older than 21 provide financial support to their adult children, and more than half (53%) are willing to sacrifice their own financial well-being for their children. Nearly half (49%) of employees who support adult children say they find it difficult to meet household expenses on time each month. More than one-quarter (27%) have withdrawn money from their retirement plans to pay for expenses other than retirement, and 40% expect they will need to do so.Twenty-three percent are providing financial support for parents or in-laws, and more than half (52%) who do say they find it difficult to meet household expenses on time each month. Forty-five percent who provide financial support for parents or in-laws have withdrawn money from their retirement plan for expenses other than retirement, and 62% expect they will need to do so.Fewer Millennial and Gen X employees are carrying credit card balances, although the number who find it difficult to make their minimum payments has actually increased among Millennials. Fewer employees overall (and Gen Xers in particular) are using credit cards to pay for monthly necessities they can’t otherwise afford.Of the employees consistently carrying balances on their credit cards, 70% have developed a plan to reduce their debt. Nearly three-quarters (72%) say they developed their debt reduction plan on their own, and only 16% used help from a financial professional. Eighty-six percent of those with a debt reduction plan say they have been following their plan on a consistent basis.Overall, less than half (47%) of employees say they would be able to meet their basic expenses if they were out of work for an extended period of time.Thirty-seven percent of Millennials, 22% of Gen Xers and 10% of Baby Boomers have student loans, according to the survey. Around one-third of each generation indicated that student loans have a moderate impact on their ability to reach other financial goals.Among employees with student loans, 43% have saved less than $50,000 for retirement, compared to 36% without student loans. Nearly half (49%) of those with student loans have withdrawn money from retirement plans for expenses other than retirement, compared to 20% without student loans. And, 64% with student loans expect they will need to use retirement plan assets to pay for expenses other than retirement, compared to 36% without student loans.Financial stress affects retirement confidence and savingsNearly half (47%) of employees report that they are stressed dealing with their financial situation, and 41% say that their stress level related to financial issues has increased over the last 12 months.Among those employees stressed about their financial situation, 52% have saved less than $50,000 for retirement, compared to 26% of those not stressed about their finances. Fifty-four percent of stressed employees expect they will need to use money in retirement plans for expenses other than retirement, compared to one-third who are not stressed. Two-thirds of those with financial stress are saving for retirement, compared to 80% of those not stressed.Fewer Gen X employees (41%) are confident in their ability to retire when they want as compared to Baby Boomers (55%) and Millennial employees (50%). Consistent with prior years, running out of money is employees’ biggest concern about retirement (40%), followed by health issues (33%) and health care costs (28%). The survey report notes that even Millennials are concerned about health issues, in line with their older colleagues.Forty-two percent of all employees plan to retire later than they previously expected. Baby Boomers’ most cited issues for delaying retirement are “haven’t saved enough” (47%), “need to keep health care coverage” (32%), and “don’t want to retire yet” (26%).Thirty-seven percent believe their current retirement plans and Social Security will be sufficient to support them in retirement, while 38% do not. Less than half (47%) of employees think Social Security will be available when they retire, while 27% think benefits will be reduced, and 25% think it will not be available.Addressing retirement planning concernsFifty-three percent of employees say they are comfortable selecting investments that are right for them (45% of women versus 62% of men). However, 25% of employees have more than 10% of their investments in one company stock. While 53% of employees have reviewed their investment portfolio within the last 12 months, only 36% of employees have had their asset allocation reviewed by a financial professional within the last 12 months.The PwC survey also found although target-date funds (TDFs) are widely used, employees don’t seem to understand how to invest in them; 61% of employees who are investing in TDFs in their retirement plans say they’re invested in more than one TDF. When asked why, 56% said they are investing in more than one TDF to diversify and reduce risk, 26% say it is to get the allocation they want, and 16% said it is to spread their investments across many funds.In addition, the survey found more than half (52%) of the 88% of employees with health insurance are covered by a high- or mid-deductible health care plan, and while the percentage who contribute to their health savings account (HSA) has increased since 2013, still only 46% are contributing.Asked how they plan to use funds in their HSAs, 52% indicate they will use them for immediate or near-term health care costs, 24% said they will use them both for immediate/near-term health care costs and future retirement health care costs, and only 25% plan to use them for future retirement health care costs.Asked to define financial wellness, only 5% of participants overall cited “Being able to retire when I want to,” and by generation the top answer for Millennials was “being debt free” (26%), by Gen X was “not being stressed about my finances” (22%), and by Baby Boomers was “having enough savings that I’m not worried about unexpected expenses” (24%).The post Other Financial Issues Impacting Retirement Confidence and Savings appeared first on PLANSPONSOR.
Categories: Industry News

Smart Beta Survey Highlights Opportunity, Need for Education

Plansponsor.com - Mon, 05/21/2018 - 12:43
FTSE Russell published its 2018 Global Institutional Smart Beta Survey, marking the fifth annual installment of the smart beta survey.Level-setting the conversation, FTSE Russell’s explains its use of “smart beta,” in the context of indexing, is simply meant as a “generic term for transparent, rules-based indexes that depart from the standard market capitalization weighting method in order to achieve particular objectives.” These objectives could include the generation of long-term excess index returns, the mitigation of volatility or enhanced diversification. FTSE Russell classifies these various approaches into two broad categories; alternatively-weighted (e.g. fundamental, equal or risk-weighted) and factor indexes (e.g. single or multi-factor).According to the 2018 smart beta survey, the vast majority (91%) of institutional asset owners globally have a smart beta investment allocation, have evaluated or are planning to evaluate smart beta in the next 18 months. The survey further shows a 16% increase in implementation or consideration over past five years.Still, there is some lingering uncertainty about the role of smart beta investing, as more than 50% of asset owners in the U.S. and United Kingdom say they remain uncertain on the best approach for their particular purposes. Other survey highlights suggest the use of “multi-factor combination smart beta index-based investment strategies” by institutional investors has more than doubled since first measured in 2015, denoting how quickly this market segment is evolving.According to FTSE Russell, nearly 40% of global institutional asset owners anticipate applying environmental, social and governance (ESG) investing themes to a smart beta strategy in the next 18 months—nearly half for performance reasons.Commenting on these numbers, Rolf Agather, managing director of North America Research, FTSE Russell, predicts that strong growth will drive a greater need for education and sophistication on the topic of smart beta.“The survey shows a 16% increase in smart beta implementation or consideration over the last five years,” Agather observes, “yet it also suggests that asset owners remain uncertain on how to best implement smart beta into their investment strategies.”Among global asset owners surveyed in 2018, multi-factor combination smart beta strategies are used by 49%, a notable rise from 20% when first measured in 2015. Furthermore, 70% of asset owners are currently evaluating multi-factor combination smart beta strategies, far surpassing all other strategies. Important to note, related research shows there is a danger of institutional investors “diluting” their smart-beta portfolio convictions by attempting to implement multiple factors without adequate consideration of the way factors and peripheral risk exposures can interact in unanticipated ways. “Notably, asset owners in the U.S. are showing more interest in multi-factor smart beta index-based strategies yet, again lack of education was cited as a major barrier to implementation,” the survey report states. “However, amid the rapidly growing interest in multi-factor combination smart beta strategies, asset owner interest in fundamentally weighted strategies has declined. In 2018, 19% of global asset owners surveyed with an existing smart beta allocation are using these strategies, down from 41% usage when first measured in 2014.”The full report is available for download here.The post Smart Beta Survey Highlights Opportunity, Need for Education appeared first on PLANSPONSOR.
Categories: Industry News

Think Multiemployer Pension Insolvencies Aren’t Your Problem?

Plansponsor.com - Mon, 05/21/2018 - 10:52
A new report published by the Society of Actuaries (SOA) throws into sharp detail the challenges faced by the U.S. multiemployer pension system.Speaking about the report, Lisa Schilling, retirement research actuary for the SOA, quickly pointed out that there are many multiemployer pensions that are healthy and more or less entirely financially fit. In fact, there are more than 1,200 multiemployer pension plans in the United States today, covering about 10 million participants, including roughly 4 million retirees.However, while most multiemployer plans are financially stable, a growing number have been identified under federal law as “critical and declining.”“Our study identifies more than 100 such plans that are meant to be representative of the larger problem, excluding plans receiving Pension Benefit Guaranty Corporation [PBGC] financial assistance or that have received approval for benefit suspensions under the Kline-Miller Multiemployer Pension Reform Act of 2014,” Schilling explains. “These plans cover roughly 1.4 million participants—about 719,000 of them retired and receiving annual benefits totaling more than $7.4 billion.”As the SOA’s report shows, approximately 11,600 employers contribute to these financially stressed multiemployer pension plans. Broadly speaking, many of these plans are at risk of becoming insolvent within fewer than 10 years, the research warns. Such insolvencies will obviously be harmful to the participants and beneficiaries of the plans in question, but the loss of the significant economic momentum provided by retirees spending their pension plan assets could also harm the wider economy and, by extension, employers that otherwise have little affiliation with the troubled multiemployer pension industry.“The estimated unfunded liability of these plans is $107.4 billion when measured at a 2.90% discount rate,” Schilling observes. “In our sample, there are 21 plans with approximately 95,000 participants that are projected to become insolvent by 2023, and 48 plans with approximately 545,000 participants are projected to become insolvent by 2028. On average, only about two-thirds of the pension benefits are estimated to be guaranteed by the Pension Benefit Guaranty Corporation.”Overall, the authors anticipate that some 107 plans will run out of assets over the next 20 years, affecting over 11,000 contributing employers and roughly 875,000 participants.“These projections assume future annual investment returns of 6%,” Schilling notes. This assumption was developed from several recently published capital market outlook reports and surveys of various investment advisers, and therefore differs from the long-term expected rates of return typically used for minimum funding purposes. Projections that use more detailed plan-specific data may render somewhat different results, although the general outcomes would likely be similar.SOA’s data suggests the estimated 2018 unfunded liability for these 115 plans, as measured on a minimum funding basis, is $57 billion. (When measured at 2.90%, it is $108 billion. The discount rate of 2.90% represents a liability-weighted average of Treasury rates in April 2018.)“When Treasury rates are used to discount only the plan’s unreduced benefit obligations after the point of projected plan insolvency, and the minimum funding basis discount rate is used otherwise, these plans’ total unfunded liability is $76 billion,” the report states. “Note that these liabilities reflect full plan benefits without regard to PBGC guarantee limits.”Some of the conclusions in the report suggest many of these plans are not likely to be able to effect a course correction without outside influence: “Even with extraordinarily optimistic investment returns of 10% per year for 20 years, 68 of the 115 plans would be projected to become insolvent within 20 years.”“Optimistic investment returns have limited impact on insolvency among these plans primarily because their net cash flow positions tend to be severely negative,” Schilling explains. “In 2018, 81 of the plans have annual negative net cash flow that is 10% or more of their assets. In other words, unless these plans’ assets earn at least 10% per year, the assets will decline. Twenty-seven of the plans have negative net cash flow that is 20% or more of their assets.”Schilling further warns this set of plans includes a number that are large enough such that, if and when they run out of money, “they could individually end up sinking the PBGC’s multiemployer insurance program outright.”“What that means is that the PBGC wound no longer be able to pay out even its very modest benefits to the sizable number of multiemployer pension plans that have already gone insolvent in the past,” Schilling explains. “That would represent an even greater economic blow for everyone involved. You could have folks retiring after 30 years of service literally getting a few thousand dollars a year from a pension that should have been worth far, far more. You have to ask, what will happen to food stamps and all the other social programs that are out there to help prop people up when their income falls short? It’s not encouraging.”Thinking about where these issues may lead, Schilling says it seems clear that Congress must act soon and with gusto, or else no real solution will likely be possible. To this end, she is optimistic that U.S. Senators Orrin Hatch and Sherrod Brown are seeking public and industry input on ways to improve the solvency of multiemployer pension plans and the Pension Benefit Guarantee Corporation. However, like many others, she is skeptical that legislative action will be taken prior to the mid-term election. “This is a particular shame because many of these plans are already past the point of no return, and the sooner we can act, the better the outcome is going to be for everyone,” she concludes.The SOA report was advised and reviewed by a team of researchers, including Christian Benjaminson, James Dexter, Cary Franklin, Eli Greenblum and Ellen Kleinstuber. The full text is available for download here.The post Think Multiemployer Pension Insolvencies Aren’t Your Problem? appeared first on PLANSPONSOR.
Categories: Industry News

Plan Sponsor Interpretation Must Be Given Deference in Lawsuits Challenging Plan Terms

Plansponsor.com - Mon, 05/21/2018 - 10:40
In a lawsuit in which the 6th U.S. Circuit Court of Appeals admitted “This is not an easy case,” the appellate court remanded it back to a district court to redefine the class for “damages” and award damages to the newly defined class.The case was brought by retirees of the Norton Healthcare defined benefit (DB) retirement plan, accusing the plan of miscalculating lump-sum distributions. The 6th Circuit first denied Norton’s motion to dismiss the case, saying the fact that the parties could not agree on the recalculation of benefits does not make the district court’s judgment less final. “The district court answered all the parties’ merits questions, and found that Norton had misapplied the terms of the Plan. The district court then told the parties exactly how to recalculate those Retirees’ benefits—by using the Retirees’ proposed formula. Thus, there are no unanswered legal or equitable questions in this case. Norton also does not contend it lacks the data necessary to perform the calculations, or that the parties dispute the accuracy or authenticity of the relevant records, so there are no unanswered factual questions either. It is undoubtedly true that the calculations required here are complex and time-consuming… The need for an advanced understanding of applied mathematics to obey an order of the court does not make that judgment any less final for our purposes, the appellate court stated in its opinion.However, the 6th Circuit noted that Firestone Tire & Rubber Co. v. Bruch, in which an arbitrary-and-capricious standard of review is required by the court if the plan “gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,” should have been used by the district court. The district court had considered the doctrine of contra proferentum—which a standard used to construe ambiguous terms against the drafter of a contract.The appellate court said, “contra proferentum is inherently incompatible with Firestone deference. Thus, we hold that when Firestone applies, a court may not invoke contra proferentum to “temper” arbitrary-and-capricious review.”The 6th Circuit found “tension” in the terms of the plan document, but no ambiguity. However, it noted that the Employee Retirement Income Security Act (ERISA) requires that any lump-sum alternative be the “actuarial equivalent” of the basic-form benefit, and because the district court did not address actuarial equivalence, a remand is necessary to answer this question. In addition, since the district court was obligated to consider the evidence in the light most favorable to Norton, the appellate court said this would “naturally” include Norton’s experts’ explanation of how the actuarial conversions work. “Because there is a genuine issue of material fact, and because we have altered the district court’s interpretation of the plan, neither party is entitled to summary judgment on this question. We therefore vacate the district court’s grant of summary judgment and remand for further examination of the actuarial-equivalence issue,” the 6th Circuit wrote in its opinion.Regarding a statute of limitations issue on the retirees’ claims, the appellate court agreed with the retirees that the district court should have applied a longer limitations period to their underpayment claims. The appellate court noted that “ERISA does not explicitly provide a limitations period for Section 1132(a)(1)(B) claims,” so “courts fill the statutory gap using federal common law.”  In previous cases, it has held that “when a plaintiff seeks benefits under the plan and those claims depend on alleged violations of ERISA’s statutory protections, Kentucky’s five-year limitations period applies.”  However, when a claim is based on the contract alone, then Kentucky’s longer statute of limitations—15 years—for contract claims applies. To the extent that the retirees’ claims are based solely on the improper interpretation of the plan terms, the 6th Circuit said the longer contract limitations period must apply.Regarding the district court’s class certification, the appellate court said it is clear from the record that the amount of any individual class member’s award may vary wildly depending on their circumstances. It said this should have prompted the district court to consider the due-process concerns highlighted by the Supreme Court in Dukes v. Wal-Mart Stores. “On remand, the district court must address this issue prior to certifying a damages class under subrule (b)(2). In sum, to the extent that the district court certified the class for plan-interpretation purposes, that decision is affirmed. To the extent that its certification extended to damages calculations, we vacate the certification and remand for further proceedings consistent with this opinion,” the opinion states.The post Plan Sponsor Interpretation Must Be Given Deference in Lawsuits Challenging Plan Terms appeared first on PLANSPONSOR.
Categories: Industry News

SURVEY SAYS: Most Helpful Underutilized Retirement Plan Features or Other Benefits

Plansponsor.com - Mon, 05/21/2018 - 04:30
Last week, I asked NewsDash readers to put their plan participant “hats” on, and choose from a list which underutilized retirement program feature or other benefits would help them the most in reaching their retirement savings goal? Nearly six in ten (58.8%) of respondents work in a plan sponsor role, while 32.3% are TPAs/recordkeepers/investment managers and 8.8% are advisers/consultants. From the list of underutilized retirement program features or other benefits, the one identified as helpful by the most respondents was auto escalation of deferral rate, cited by 39.4% of responding readers. This was followed closely by a stretched match formula, selected by 33.3% of respondents. More than one-quarter (27.3%) chose personalized retirement communications, while 21.2% selected a student loan repayment benefit. “Raising the automatic enrollment default deferral rate” was chosen by 15.1% of readers as the underutilized retirement program feature that would help them most in reaching their retirement savings goal. “Allowing separated employees to continue to make loan payments after termination” was selected by 12.1%, and 3% each chose “ending automatic cashouts of low balances” and “a high-deductible health plan with a health savings account to save for future health care expenses.” A couple of respondents who chose to leave comments about underutilized retirement program features or other benefits said an overall financial wellness program would help and a defined benefit plan would help. The importance of automatic enrollment was mentioned, though it is no longer considered an underutilized plan feature. And one commenter explained why underutilized plan features are underutilized. Editor’s Choice goes to the reader who said: “I would love to see auto-escalation tied in with timing of wage increases. Timing with raises would make it painless as more money would go to retirement at the same time more money goes into your pocket.” A big thank you to all who participated in the survey! VerbatimAnother item that would greatly and immensely help is if our company had a Defined Benefit Plan, in addition to our 401(k) Plan.We have one extremely anti-auto-anything on our Committee which sets us back. We won the auto enrollment fight years ago but can’t convince him to approve a limit of 6%.Generally speaking, “underutilized” program features are “under” utilized because (a) they are expensive, and/or (b) they are underutilized by workers. And there are few things more aggravating than expensive, underutilized retirement program features…Employees who need to take a loan do so because they do not have any other access to cash. Requiring them to pay back the loan balance upon termination is asking for the impossible. If they had the money sitting around to do this, they wouldn’t have needed the loan in the first place.Put in place a new employee auto enroll voluntary retirement saving plan that auto escalated using 60% of each pay raise until IRS max is reachedHSAs provide great tax treatment, and could provide a nice balance for retirement if one is fortunate in their family’s health, and wise in health care spending. This requirement limits success.I’m not impacted by student loans personally, but I recognize the need for help in this area amongst my younger co-workers. I am interested in hearing what other plan sponsors are doing in this area as well as what legislation is being proposed to help our student debt-burdened population.One not mentioned was personal financial wellness. Our company does not have it, but it would certainly have helped our family.Auto enrollment is the most important, but most controversial. We have a responsibility to get employees to save and inform them. Isn’t it also as much our responsibility to let them know they can lose everything they have saved? That 401K’s can be super risky? I know someone that lost almost everything in 2008 during the crash. They have to continue to work in their 70’s and 80’s because of this. Aren’t we responsible for letting employees know that as well? I think soWe do not allow loans or hardship withdrawals. The intended purpose of a retirement plan is to fund retirement.I would love to see auto-escalation tied in with timing of wage increases. Timing with raises would make it painless as more money would go to retirement at the same time more money goes into your pocket.People just need to save for retirement from the beginning of employment. If we can get them to do that, we wouldn’t have to worry about underutilization.  NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Strategic Insight or its affiliates.The post SURVEY SAYS: Most Helpful Underutilized Retirement Plan Features or Other Benefits appeared first on PLANSPONSOR.
Categories: Industry News

Retirement Industry People Moves

Plansponsor.com - Fri, 05/18/2018 - 11:57
The California Public Employees’ Retirement System announced that Ted Eliopoulos, CalPERS’ chief investment officer (CIO), is leaving the pension fund in order to relocate to the east coast to be closer to family. A search for his permanent replacement will begin immediately.Eliopoulos will remain chief investment officer until a new CIO is named and assist in the transition through the end of 2018. “With two daughters in college, and one with health considerations that require my wife and me to be within reasonable distance, we have decided to relocate to New York City where they both will be in school,” says Eliopoulos. “Due to this fact, I will be stepping away from CalPERS by the beginning of 2019.”“It’s been extremely rewarding to have helped steward an investment institution that serves so many hardworking and deserving California families. I am confident the transition to a new CIO will be seamless as I leave the office in the hands of some of the most skilled investment professionals in the industry,” Eliopoulos continues.“Under Ted’s leadership, the investment office has greatly reduced the cost and complexity of the investment portfolio and increased transparency around fees,” says Marcie Frost, CalPERS CEO. “Because every dollar we save goes back into the fund, our members will directly benefit from those cost savings for years to come. Ted has always been guided by our fiduciary obligation to our members and the fund.”As CIO, Eliopoulos managed an investment portfolio of more than $350 billion, comprising both public and private assets, and a team of nearly 400 investment professionals. During his tenure, Eliopoulos implemented the Vision 2020 Strategic Plan, which sought to reduce the complexity of the portfolio, reduce fees, and better manage risk.Under Eliopoulos’ leadership, CalPERS established its first Emerging Manager Plan in 2012 and the Investment Office’s first Diversity & Inclusion Committee in 2016. He also established CalPERS’ first Governance and Sustainability Plan and the Opportunistic Credit Program in 2016.Eliopoulos joined CalPERS in 2007 as senior investment officer for the Real Estate division and the Real Assets unit. Following the financial crisis, he led the effort to restructure the asset class, refocusing on core investments in real estate and infrastructure that generated stable returns. He continued this work across all asset classes when he was appointed interim CIO in June 2013 and later as the permanent CIO in September 2014.“Ted’s commitment to the long-term health of the Fund has been unwavering,” says Henry Jones, chair of the Investment Committee. “It has been an honor to work with him, and we are incredibly grateful for his service to California over the past decade.” Mesirow Adds U.K. Based SVP Mesirow Financial hired Amy Middleton as senior vice president within its Currency Management business. Based in the U.K., Middleton will be responsible for interaction with the group’s global client base, performing bespoke portfolio research initiatives in partnership with the CEO and advising on investment strategies.Middleton has over 16 years of currency management experience. Prior to joining Mesirow, she was a senior FX portfolio manager and quantitative researcher at SSGA. Previously, she was the founder of FX Analytical Solutions Ltd, an FX consultancy company, senior quantitative currency product strategist at Millennium Global Investments, London, and vice president within the FX quantitative research group at Bank of America, London.“Amy brings quantitative skills and FX knowledge that will be instrumental in enhancing our ability to provide high quality currency risk management solutions to our global client base,” says Currency CEO, Joe Hoffman. “I am pleased she shares our client-centric approach and am confident she will help us continue to add value for our clients now and well into the future.”P-Solve Rebrands to River and Mercantile Solutions P-Solve announced it intends to reposition its brand to River and Mercantile Solutions effective July 1.The alignment of a consistent brand across the River and Mercantile Group reflects the increasing degree to which the macro thinking across the business is used to develop the investment views and advice for all the group’s clients, the firm said.“Re-branding P-Solve to River & Mercantile Solutions defines our identity as investment and actuarial specialists focused on the needs and desired outcomes of our clients. The alignment of a consistent brand across the Group will help us streamline our messaging in the marketplace across all of our divisions going forward,” says Ryan McGlothlin, P-Solve managing director.P-Solve is the division of River and Mercantile Group PLC that provides investment consulting and fiduciary management services to institutional investors including actuarial and annuity placement services in the U.S. The firm provides services to predominantly defined benefit (DB) and defined contribution (DC) retirement plans as well as to insurance companies, insurance captives, endowments, and foundations.River and Mercantile Group PLC operates through four principal divisions: Solutions, including both Advisory (investment, actuarial, annuity placement) and Fiduciary Management (OCIO); Derivative Solutions, providing structured equity and liability driven investing; Equity Solutions, providing both U.K. and global equity strategies; and the Multi Asset division, providing Dynamic Asset Allocation and other multi asset based solutions.FIS Group Hires SVP to Manage Sales and Marketing FIS Group announced that Robert Morier has joined the firm as a senior vice president of sales and marketing. He will oversee FIS Group’s marketing and sales efforts, and will report directly to Tina Byles Williams, CEO and CIO of FIS Group.  “We are delighted to welcome Mr. Morier to the team,” says Byles Williams. “He brings over 18 years of experience in sales and marketing strategies for global and non-U.S. equity and debt investment products, which serves to enhance our continued commitment to meet and exceed our client’s performance objectives.”Morier joins FIS Group from Global Evolution USA, where, as managing director, he directed the launch of its emerging and frontier sovereign debt strategies for North American institutions. He held previous directorships overseeing institutional investments at ClearBridge Investments, Indus Capital and Artio Global Investors. He also served as a vice president of institutional relationship management at Goldman Sachs. Morier has a bachelor’s degree in history from the University of Vermont. He is an advisory board member for the University of Vermont Grossman School of Business, and has been a Toigo Foundation mentor since 2009.  Trinity Pensions Consultants Opens Indianapolis Sales OfficeTrinity Pension Consultants is expanding its presence in Indiana with a new sales office opening in Indianapolis. Retirement Plan Consultant Aaron Stratman will be heading the office. This follows the company’s growth into the Kentucky market in 2014.In preparation, Stratman trained closely with Kevin Bergdorf, Trinity principal and founder. Bergdorf, who spearheaded the Kentucky expansion, said, “Aaron is driven and well-versed in the complexities of qualified retirement plans. More importantly, he’s honest and personable. We feel confident in his ability to build relationships and impact the wealth management space.”An independent, non-producing third-party administrator (TPA) and actuarial firm, Trinity focuses on advanced plan design. The company prides itself on its transparency with financial advisers, plan sponsors and investment providers.PanAgora Selects Past Head to Lead Business Strategy Team PanAgora Asset Management announced that Yosef Zweibach has been appointed as head of Business Strategy & Investor Relations. In this new role, Zweibach will be responsible for helping to enhance and expand the firm’s external exposure with institutional allocators while assisting PanAgora’s distribution team with value-added and solution-oriented initiatives to assist PanAgora’s client base. Prior to joining PanAgora, Zweibach spent more than eight years at Barclays Capital where he served as global head of Quantitative Sales. During his time with the firm, he assembled and led a team of professionals that became one of Wall Street’s most respected quant units. Prior to Barclays, Zweibach served as a paratrooper in the Israeli Defense Forces.“Yosef is a proven investment leader with an extensive background in systematic quant investing that will benefit us as we continue to enhance our platform and meet investors’ needs,” says George Mussalli, chief investment officer, Equities at PanAgora. “We are looking forward to benefiting from his industry relationships and expertise.”Zweibach earned a B.A. in Management from Boston University. He is currently a board member of the Society of Quantitative Analysts and on the membership committee of the Q group, an institution that provides quantitative research from scholars in the field to investment professionals.The post Retirement Industry People Moves appeared first on PLANSPONSOR.
Categories: Industry News

District Court Admits Error in ERISA Lawsuit Ruling

Plansponsor.com - Fri, 05/18/2018 - 09:49
The U.S. District Court for the Middle District of Pennsylvania has ruled in an Employee Retirement Income Security Act (ERISA) lawsuit targeting WellSpan Good Samaritan Hospital, an acute care hospital in Lebanon, Pennsylvania.The district court’s new decision comes after its previous move denying the hospital defendants’ motion for summary judgment to toss plaintiffs’ claims, which cover a variety of fiduciary breach allegations. Specifically, the district court’s new decision says it will fully reconsider its ruling to deny summary judgement on behalf of defendants, essentially because the court confused subtle elements of Third Circuit case law. This is a rare step in ERISA litigation and in the federal district courts in general. As explained in a helpful primer prepared by LexusNexus, the Federal Rules of Civil Procedure do not actually expressly allow motions for reconsideration, but district courts “generally treat them as being filed under Rule 59 or 60.”“Still, reconsideration of a judgment is considered an extraordinary remedy which will be granted only sparingly,” the legal experts note. “Rule 60(b) allows for ‘relief from a final judgment, order, or proceeding’ in certain circumstances. Those circumstances include mistake, excusable neglect, newly discovered evidence, fraud by an opposing party, and ‘any other reason that justifies relief.’”As laid out in the text of the decision, in sum, the plaintiff, Daria Kovarikova, alleged that defendants, through agents and co-fiduciaries, “misrepresented to her that her retirement benefit plan would not change or would only change to her advantage when defendants terminated the residency program of which she was a part.” Plaintiff claimed she relied on the misrepresentation and suspended her search for a new job under the mistaken belief that, in addition to receiving a retention bonus for remaining employed with defendants, her existing benefits would not change.“Defendants ultimately filed a motion for summary judgment, which we denied,” the new decision states. “In the memorandum accompanying our order, we found that the representations plaintiff relied on were not material at the time because changes to the retirement plan were not yet being seriously considered. However, we found that defendants had a duty to correct plaintiff’s misunderstanding once the plan changes were being seriously considered. The defendants now seek reconsideration of our order. The motion has been fully briefed, and is ripe for our review.”The text of the decision first weighs whether the motion for reconsideration should be barred due to the fact that the defendant filed the motion a full week beyond the deadline set by the court and rules of procedure. Weighing the principles of “excusable neglect,” the court sides with defendants and overlooks the timeliness question. The decision adds some context here by noting that pretrial deadlines “had been continued to accommodate medical treatment for plaintiff’s lead counsel.” Furthermore, the delay was “merely one week and has little to no impact on the judicial proceedings.” Finally, “as noted, the delay was due to a careless mistake, not to anything suggesting bad faith.”Getting to the heart of the matter, the defendants argue that the court made clear errors of law in three ways: “First, that the alleged statements do not qualify as material misrepresentations and defendants had no duty to go back and correct plaintiff’s understanding; second, that plaintiff provided no evidence that she relied on the alleged statements; and third, that plaintiff provided no evidence that she suffered damages.”On the first question, the court frankly admits it committed an error: “Defendants first argue that the alleged statements do not qualify as material misrepresentations and that they had no duty under ERISA to correct plaintiff’s understanding about whether her benefits would change. Defendants argue that the court misapplied Third Circuit precedent to create a duty that does not exist: specifically, the duty to go back and correct a statement about future benefits that, while not a material misrepresentation at the time, became misleading once a change in benefits took place. Defendants suggest that the court blended two lines of Third Circuit case law that are consistent but distinct. Upon careful reconsideration, we agree and concede that we erred.”Offering additional detail, the decision points out that the Third Circuit has clarified that “while the two [relevant] lines of cases [i.e., Fischer II and Bixler] are consistent, they do not overlap.”“Bixler applies to existing benefits, Fischer II applies to possible benefits,” the decision explains. “In conducting our analysis, we inadvertently omitted this subtle nuance and fashioned a duty that does not fit established Third Circuit precedent.”Thus the court draws new conclusions about the facts of this case, leading to its decision to reconsider: “Plaintiff’s ERISA claim rested on the statements made to her before the plan changes were under serious consideration. Plaintiff has not alleged that she was given incomplete information about existing benefits. Indeed, the evidence clearly would not support such an allegation. By time the changes to the plan went into effect—that is, became her existing benefits—defendants had provided all employees with information about the change and established information sessions to fully explain the changes. Thus, the evidence does not support any contention that plaintiff was misinformed about existing benefits at any time. Plaintiff’s allegations, rather, focus on statements made about possible benefits. That requires a Fischer II analysis, which we already said could not be sustained by the evidence. Because the plan changes were not under serious consideration when the statements were made, they were not material misrepresentations. Without a material misrepresentation, plaintiff cannot sustain her ERISA claim.”Important to note, this ruling does not settle the case outright, thought it does seem to indicate a motion for summary judgement in favor of defendants could be more likely this time around: “For the reasons stated above, we shall grant defendants’ Motion for Reconsideration. A separate order shall issue in accordance with this ruling.”The post District Court Admits Error in ERISA Lawsuit Ruling appeared first on PLANSPONSOR.
Categories: Industry News

ERISA Excessive Fee Suit Filed Against University of Rochester

Plansponsor.com - Fri, 05/18/2018 - 09:27
A participant in the University of Rochester Retirement Program has filed a lawsuit alleging that plan participants have paid an estimated $72 million in in recordkeeping, distribution, and mortality risk fees to provider TIAA.According to the complaint, TIAA has been able to extract “grossly excessive fees” because its fees are tethered not to any actual services it provides to the plan, but rather, to a percentage of assets in the plan.The complaint notes that this action is similar, but narrower in scope, to 18 separate lawsuits pending in federal district courts around the country which allege a university defendant breached its Employee Retirement Income Security Act (ERISA) fiduciary duties by allowing TIAA to collect excessive fees from the university’s retirement plan. It also notes that it appears TIAA is willing to meaningfully reduce its fees if universities will just ask. As an example, the complaint says, shortly after the University of Chicago was sued, it announced to its plan participants that it renegotiated TIAA’s fees, and successfully reduced fees on an annual basis by several million dollars.In a statement to PLANSPONSOR, TIAA said, “TIAA stands firmly behind its offer of high-quality retirement products and services with strong long-term performance and reasonable costs, which provide lifetime income for millions of customers.”The lawsuit claims that since the University of Rochester’s 403(b) plan has more than $4.2 billion in assets, it has tremendous bargaining power to demand low-cost, high-quality administrative services; however, it instead has failed to adequately take proper measures to understand the real cost to plan participants for TIAA’s services, to properly inform participants of the fees they were paying to TIAA as required by law, and to act prudently with such information.The lawsuit alleges the quarterly account statements that the university provides to plan participants do not disclose any administrative fees paid to TIAA by participants. In addition, the plan’s annual Form 5500 Department of Labor (DOL) disclosures are supposed to identify the administrative fees paid to TIAA, but they do not clearly identify this information either. The plan’s Form 5500 identifies TIAA as receiving “indirect compensation” (revenue sharing) but states the amount TIAA received is “0” or “”none.” The complaint says that is false.The university is also called out for failing to adequately benchmark plan fees. “If a fiduciary decides to use revenue sharing to pay for recordkeeping, it is required that the fiduciary (1) determine and monitor the amount of the revenue sharing and any other sources of compensation that the provider has received, (2) compare that amount to the price that would be available on a flat per-participant basis, or other fee models that are being used in the marketplace, and (3) ensure the plan pays a reasonable amount of fees,” the lawsuit says. The plaintiff argues that determining the price that would be available on a flat per-participant basis, or the price available under other fee models requires soliciting bids from competing providers: “In billion-dollar plans with over 36,000 participants, such as the Plan here, benchmarking based on fee surveys alone is inadequate. Recordkeeping fees for jumbo plans have declined significantly in recent years due to increased technological efficiency, competition, and increased attention to fees by sponsors of other plans such that fees that may have been reasonable at one time may have become excessive based on current market conditions. Accordingly, the only way to determine the true market price at a given time is to obtain competitive bids,” the complaint states.The plaintiff argues that based on information currently available regarding the plan’s features, the nature of the administrative services provided by TIAA, the plan’s participant level, and the recordkeeping market, benchmarking data indicates that a reasonable recordkeeping fee for the plan would have been a fixed amount between $1,500,000 and $1,900,000 per year (approximately $50 per participant with an account balance); however, TIAA is collecting roughly $10,000,000 per year (on average approximately $277 per participant).In addition to the claims regarding excessive fees, the lawsuit says TIAA’s participant loan process violates ERISA self-dealing, or prohibited transaction, rules. It requires a participant to borrow from TIAA’s general account rather than from the participant’s own account. In order to obtain the proceeds to make such a loan, TIAA requires each participant to transfer 110% of the amount of the loan from the participant’s chosen investments to one of TIAA’s general account products as collateral securing repayment of the loan. The general account product pays a fixed rate of interest, currently guaranteed to be 3%. All of the assets held in TIAA’s general account are owned by TIAA. Therefore, TIAA also owns all the assets transferred to its general account to “collateralize” the participant loan.“Because the participant loan is made from TIAA’s general account, the participant is obligated to repay the loan to TIAA’s general account, and the general account earns all of the interest paid on the loan, in contrast to the loan programs for virtually every other retirement plan in the country, where the loan is made from and repaid to the participant’s account and the participant earns all of the interest paid on the loan,” the complaint states.The lawsuit asks that the university make good to the 403(b) plan any losses to participants resulting from the breaches of fiduciary duties alleged and for the court to grant other equitable or remedial relief as appropriate.The post ERISA Excessive Fee Suit Filed Against University of Rochester appeared first on PLANSPONSOR.
Categories: Industry News

Lawsuit Filed Against Plan Sponsor, Aon Hewitt for Untested Funds in 401(k)

Plansponsor.com - Thu, 05/17/2018 - 13:18
Participants in the FirstGroup America, Inc. Retirement Savings Plan have filed a court action under the Employee Retirement Income Security (ERISA), against FirstGroup America, Inc., Aon Hewitt Investment Consulting, Inc. and other fiduciaries of the plan alleging they breached their fiduciary duties by engaging in a radical redesign of the plan’s investment menu that was designed to benefit Hewitt rather than the participants and beneficiaries of the plan, and have adhered to this imprudent menu design in spite of evidence that it has caused significant and ongoing damage to the plan.According to the complaint, the defendants removed a large number of established funds in the plan that were performing well (at Hewitt’s urging), and replaced them with an unproven set of newly launched funds from Hewitt that were inappropriate for the plan and had not been adopted by the fiduciaries of any other retirement plans. In the process, the defendants transferred more than one-quarter billion dollars in plan assets (more than 90% of the plan’s total assets) into these new and untested funds, and left participants with no other meaningful investment options.The plaintiffs say that since these experimental funds were added to the plan in 2013, they have consistently underperformed their benchmarks, and have underperformed the funds they replaced by tens of millions of dollars. In spite of this, the defendants have continued to retain these funds,The plaintiffs cite Tibble v. Edison, which found, “[A] trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.”According to the complaint, when Hewitt initially consulted with FirstGroup, it appears that Hewitt attempted to provide independent advice to the plan, and helped FirstGroup construct and maintain an investment lineup for the plan consisting of a diverse set of investment products from a number of different fund managers. This changed, however, when Hewitt started a new business venture and began offering its own line of investment products (referred to as the Hewitt Funds), which it introduced to the 401(k) plan marketplace on or about September 30, 2013.In connection with the launch of the Hewitt Funds, Hewitt attempted to leverage its existing consulting client base to attract investors. The overwhelming majority of 401(k) plan sponsors that it advised rejected the Hewitt Funds for their plans through their own fiduciary screening process. However, immediately after the Hewitt Funds were launched, FirstGroup became the first employer in the country to include them in its 401(k) plan, and even went so far as to make the Hewitt target-date fund series the plan’s default investment option.Even if certain changes to the plan had been warranted, the complaint states, it was not prudent or in the best interests of plan participants to include Hewitt’s untested funds in the plan investment lineup and invest almost all of the plan’s assets in those funds. “As a general rule, fiduciaries of other retirement plans generally require a performance history of three or more years before considering an investment for a retirement plan,” the complaint says.The plaintiffs seek to remedy this unlawful conduct, recover the plan’s losses, disgorge the profits that Hewitt wrongfully received, prevent further mismanagement of the plan, and obtain other appropriate relief as provided by ERISA.The post Lawsuit Filed Against Plan Sponsor, Aon Hewitt for Untested Funds in 401(k) appeared first on PLANSPONSOR.
Categories: Industry News

First Trust Creates Index-Based ETF

Plansponsor.com - Thu, 05/17/2018 - 11:42
First Trust Advisors L.P. (First Trust) has launched a new index-based exchange-traded fund (ETF), the First Trust Dorsey Wright DALI 1 ETF. The fund seeks investment results that correspond generally to the price and yield (before the fund’s fees and expenses) of an index called the Nasdaq Dorsey Wright DALI 1 Index.The index is designed to evaluate four broad asset classes: Domestic Equity, International Equity, Fixed Income and Commodities. The Dynamic Asset Level Investing process (the DALI process) is used to identify the asset class best positioned to outperform the market generally. The DALI process was designed as a tool to provide guidance for asset allocation decisions among asset classes, as well as within asset classes, steering an investor toward those areas of the market that Nasdaq Dorsey Wright believes may outperform. The DALI process is used to evaluate supply and demand forces of asset classes, and rank them from strongest to weakest based on Nasdaq Dorsey Wright’s proprietary relative strength methodology. The asset class with the highest relative strength score is selected for inclusion in the index and the fund’s assets will be allocated to ETFs that provide exposure to the asset class. The index construction process was developed by Nasdaq Dorsey Wright, a registered investment advisory firm that provides professional management and investment research services for numerous broker/dealers and large institutions around the world. The cornerstone of their approach is technical analysis, and in particular, the law of supply and demand.“In times of increasing volatility, the ability to differentiate between the values of asset classes has never been more important. Our relative strength-based asset class ranking system, DALI, has been a mainstay of our research for over a decade, and we are excited to bring this unique strategy to market with First Trust,” says Jay Gragnani, head of Research and Client Engagement for Nasdaq Dorsey Wright.The post First Trust Creates Index-Based ETF appeared first on PLANSPONSOR.
Categories: Industry News

Hearing Witnesses Urge Passage of Proposed Retirement Plan Legislation

Plansponsor.com - Thu, 05/17/2018 - 11:23
This week, retirement industry sources testified before the House Subcommittee on Health, Employment, Labor, and Pensions, seeking to move forward proposed retirement plan legislation.The hearing focused on four bipartisan proposals that would amend the Employee Retirement Income Security Act (ERISA) to better meet the retirement plan needs of employees and employers with businesses large and small. H.R. 4604, the Increasing Access to a Secure Retirement Act of 2017, reduces the compliance uncertainty that companies face by amending ERISA to clarify existing rules that provide a fiduciary safe harbor when selecting an annuity provider. H.R. 4158, the Retirement Plan Modernization Act, increases the automatic cash-out limit for retirement plans from $5,000 to $7,600, and defrays some of the costs of retirement plan administration for small employers. H.R. 854, the Retirement Security for American Workers Act, eliminates two burdensome requirements affecting multiple employer plans: the “common nexus” requirement that prevents adoption of open multiple-employer plans (MEPS), in which unrelated employers may collectively satisfy plan administration requirements, and the “one bad apple” rule that punishes all employers in a plan for the failure of one employer to meet the plan’s requirements. H.R. 4610, the Receiving Electronic Statements to Improve Retiree Earnings Act, authorizes the electronic disclosure of retirement plan information so that plan participants may access their plan information online.In his testimony, Tim Walsh, senior managing director at TIAA, noted that one of the key characteristics of TIAA’s retirement plans is the ability for individual retirement plan clients to allocate a portion of their retirement savings to a guaranteed annuity product that pays guaranteed interest while employees save for retirement. At retirement, employees have the option, but not the obligation, to seamlessly convert some or all of that balance to a guaranteed income stream that they can never outlive. In part, due to the risk-pooling concept at the center of insurance products like annuities, employees who annuitize assets benefit from competitive guaranteed payment amounts. This contributes to highly successful outcomes for TIAA’s participants, Walsh said, who are able to retire with the comfort of knowing that they will have a stream of income that they, and if so elected, their beneficiaries cannot outlive.“Ensuring that American retirees can count on not only having sufficient assets, but as importantly, income that is guaranteed to last throughout their retirement is among the most critical issues facing our economy over the next generation as Baby Boomer retirements accelerate,” Walsh contended.Walsh offered TIAA’s strong support for the Increasing Access to a Secure Retirement Act (H.R. 4604). He noted that one of the primary reasons employers have been reluctant to offer annuities on their plan investment menus is uncertainty about how to adequately satisfy their fiduciary duties in selecting an annuity provider. He said H.R. 4604 takes a significant step in addressing this by establishing clear and objective guidelines that can help plan fiduciaries choose an annuity provider for their plan with the confidence that they have met the guidelines.The proposal does this by allowing the plan fiduciary to rely on representations that an insurer is licensed to offer guaranteed retirement income contracts and has met certain regulatory requirements under state insurance regulations. “In essence, H.R. 4604 allows fiduciaries to rely on the true experts in evaluating an insurer’s financial strength—the state regulatory bodies. We strongly believe that, as proposed, H.R. 4604 would clear a significant hurdle to the availability of annuity products on employer-provided retirement plan menus,” Walsh said.Speaking about the Receiving Electronic Statements to Improve Retiree Earnings Act (H.R. 4610), Walsh said encouraging the use of electronic delivery of retirement plan documents is another area where Congress can make changes that would improve retirement security by reducing the cost of retirement savings plans and increasing savers’ access to critical information. Walsh’s full testimony is here.Krista D’Aloia, vice president and associate general counsel at Fidelity Investments supporting its Workplace Retirement business, testifying on behalf of the American Benefits Council, focused on H.R. 4158, the Retirement Plan Modernization Act, which would increase the cash-out limit to reflect normal cost of living increases.D’Aloia noted that the bill would not mandate that an employer increase its cash-out threshold, or even have a cash-out rule at all. She said many employers do not have a cash-out rule, although the Council believes most do. “Thus your bill preserves employer choice as to what plan features best serve the needs of their employees. In addition, your bill does not prevent a distribution (when allowed by the plan) if an employee chooses to do so,” she said.D’Aloia pointed out that in many 401(k) plans, departing employees will often roll their account of any size to an IRA or another employer’s plan, and H.R. 4158 preserves the important protections for these employees, including the right to a direct tax-free rollover to an IRA.The Retirement Plan Modernization Act would also provide that, going forward, the cash-out limit would be increased at the same time and in the same manner as under section 415(d) of the Internal Revenue Code (which sets limits on contribution and benefits) in multiples of $50. “This is quintessential good governing,” D’Aloia stated. “The cash-out threshold is one of the few dollar figures applicable to retirement plans that is not currently indexed for inflation. Congress would put this issue on auto-pilot, so Congress would not need to act again every 10 to 20 years. For these reasons, we commend your leadership in introducing this common sense legislation and are pleased to lend our strong support.” D’Aloia’s testimony is here.Legislation improvements and the consideration of RESAIn his testimony, J. Mark Iwry, senior adviser to the secretary and deputy assistant secretary for retirement and health policy at the U.S. Department of Treasury, spoke about the Retirement Security for American Workers Act. “By removing these two barriers to the adoption and use of MEPs, and by seeking to improve the quality of MEP service providers, the bill is intended to make it easier for unaffiliated smaller employers to adopt a plan by joining together to do so. This should provide the opportunity to realize greater efficiencies and economies of scale in investment, plan management, and administration, potentially including lower costs and more attractive plan designs. As a result, smaller employers unprepared to adopt a retirement plan on their own might be encouraged to do so in cooperation with others and with the assistance of a professional administrator that assumes many ERISA and Code compliance responsibilities, he said.“From a policy standpoint, if the Subcommittee wishes to consider possible improvements to the bill, I would raise several possibilities—but only if adding them to the bill during the legislative process would not have the effect of jeopardizing or unduly delaying potential passage of the Retirement Enhancement and Savings Act of 2018 (RESA) legislation that includes this bill,” Iwry added. He noted that the bill’s ERISA and Code provisions mirror one another to a considerable extent, and it would be helpful for the legislation to better coordinate and allocate the Labor Department and the Treasury Department’s responsibilities and activities, requiring them to maintain consistency in order that the regulatory arrangements be workable and not unnecessarily burdensome for participants, employers, and providers.Another potential improvement Iwry mentioned would be language making clear that the open MEPs could include not only multiple IRAs but also multiple unaffiliated self-employed individuals sponsoring qualified plans that might be exempt from ERISA if no employees were covered and that might require the Treasury Department to clarify how the tax qualification rules would apply in such a case.Additional provisions also might be considered to more carefully target the open MEP provisions to encourage new coverage among small employers that do not sponsor a plan—rather than replacing current plans. Iwry also suggested issues to consider for H.R. 4610, “Receiving Electronic Statements to Improve Retiree Earnings Act.” His full testimony is here.Paul Schott Stevens, president and CEO of the Investment Company Institute, focused on proposals that would facilitate the use of so-called “open MEPs” and enhance the effectiveness of retirement plan communications by expanding the use of electronic delivery. “For its part, the Institute has been vocal in its support for policies that would improve access to retirement savings opportunities and make retirement plans more efficient and effective—including permitting open multiple employer plans and greater use of electronic delivery. Reforms like these will build upon the strengths of the current system and recognize the important role that the private marketplace plays in its support,” he said.“Open MEP” arrangements will reduce administrative and compliance costs and burdens for employers, and ultimately improve the availability of retirement plans to employees of small employers, Stevens pointed out. He also said that allowing plan sponsors to make e-delivery the default method for communicating with participants (but allowing participants to opt for paper), will enhance the effectiveness of ERISA communications, maintain security of information, and produce cost savings for the economy and plans that decide to opt for e-delivery. Stevens’ full testimony is here.In a letter to committee members, the Insured Retirement Institute (IRI) supported the legislation discussed during the hearing, but also noted that two of these legislative initiatives are included in H.R. 5282, RESA. IRI said it believes the enactment of RESA will help Americans by expanding opportunities to save for retirement; increasing access to lifetime income products; helping savers make more-informed decisions about their finances for retirement; and enhancing features of workplace retirement plans.A recent study suggests Americans are in support of the bill’s provisions as well.The post Hearing Witnesses Urge Passage of Proposed Retirement Plan Legislation appeared first on PLANSPONSOR.
Categories: Industry News
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