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Will Regulation About Association Health Plans Satisfy the Intent?

Plansponsor.com - Thu, 07/19/2018 - 11:56
The Department of Labor (DOL) has received 722 comment letters thus far about its regulations for Association Health Plans (AHPs).Some have expressed concern that it will take health employees out of the Affordable Care Act (ACA) health exchange, and that it will drive up costs for health benefits for larger employers. Still others say the regulations will not be workable or helpful unless certain changes are made.In its comment letter, Gravie, Inc. addresses two aspects of the Proposed Rule: The nondiscrimination protection that would prohibit an AHP from developing different premium rates for different employer members, and a class exemption that would exempt self-insured AHPs from non-solvency requirements of a state laws regulating these arrangements.Gravie explains that each participating employer in an AHP represents a distinct group of similarly situated employees that may be rated separately based on aggregate claims experience. The Health Insurance Portability and Accountability Act (HIPAA) does not restrict a health insurance issuer from charging a higher rate to one group health plan (or employer) over another. An issuer may take health factors of individuals into account when establishing blended, aggregate rates for group health plans (or employers). This may result in one health plan (or employer) being charged a higher premium than another for the same coverage through the same issuer.Gravie suggests the regulations should allow AHPs to separately rate groups of similarly situated employees, which it says is consistent with HIPAA and other existing federal law. Rating employers separately improves the solvency of AHPs, will improve competition and choices in the market, and will permit AHPs to act in the “best interest” of participants, Gravie says.The company explains that Employee Retirement Income Security Act (ERISA) section 514(b)(6)(A)(ii) provides that states may regulate self-funded multiple employer welfare arrangement (MEWAs) to the extent “not inconsistent” with ERISA. According to the DOL’s MEWA Guide, this means that states may:Require self-funded AHPs to meet more stringent standards of conduct;Require self-funded AHPs to provide state mandated benefits; andRequire self-funded AHPs to obtain a license or certificate of authority—which may ultimately be at the discretion of state insurance regulators—or face taxation, fines and other civil penalties, including injunctive relief.Gravie notes that the Executive Order issued by President Donald Trump says the goal of AHP reform is to permit small employers to overcome the “competitive disadvantage” with large employers and “allow more small businesses to avoid many of the [ACA]’s costly requirements.” But as of 2014, at least 46 states have enacted and signed more than 175 laws specific to ACA health insurance implementation, including mandated “essential health benefits.” And nearly all states have existing “anti-MEWA” statutes on the books.“Without an exemption from non-solvency rules, self-funded AHPs based on geography will be limited to a handful of states without restrictive anti-MEWA laws, and it may be unfeasible for those AHPs to provide coverage for metropolitan areas that cross state lines. And due to the patchwork of state laws and regulations throughout the United States, it will be virtually impossible to establish self-funded AHPs that cross state lines for workers in the same industry, line of business or profession,” Gravie says. “The Department should issue a class exemption for self-insured MEWAs under Section 514(b)(6)(B) of ERISA.”The National Federation of Independent Business (NFIB) says, “Small business employers, in particular, would benefit from expanded availability under ERISA of multiple employer Association Health Plans, as small businesses may not have any other means to gain access to large group insurance contracts.” However, the group expresses concerns about the definition of employer under ERISA for the AHP regulations.According to the NFIB, Section 3(5) of ERISA defines the term “employer” to mean “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” The DOL’s proposed definition of the statutory term “group or association of employers,” modifies the statutory phrase with the term “bona fide.” NFIB says that term was initiated by the DOL in its advisory opinions to distinguish between associations that met the requirements to establish a multiemployer employee welfare benefit plan (which the DOL labeled “bona fide” associations) and associations that did not meet those requirements, which the DOL viewed as akin to private commercial insurance marketers. The NFIB suggests the DOL remove the term “bona fide” from its AHP proposed regulations.In addition, the NFIB suggests the DOL include small business size as a “commonality-of-interest” The DOL has advised that “[t]he representational link between employees and an association of employers in the same industry who establish a trust for the benefit of those employees” supplies the “requisite connection” to meet the commonality-of-interest requirement. The DOL would find the requisite connection if employer members are in the same trade, industry, line of business, profession, state or metropolitan area, whether in a single state or not. NFIB wants this to include “employers being small in size, as measured by the number of their employees.”In its comment letter, the NFIB also recommends expanding governance alternatives and allowing demonstration in other ways than “control” that an association acts “in the interest of” employer members.All comment letters sent to the DOL may be viewed here.The post Will Regulation About Association Health Plans Satisfy the Intent? appeared first on PLANSPONSOR.
Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 07/19/2018 - 11:49
ProShares has created its Online Retail exchange-traded fund (ETF), an effort to invest in larger retailers selling through online or other non-store channels, from Amazon to Alibaba. “Retail shopping is increasingly moving away from bricks-and-mortar stores and going digital, and the companies driving sales in this rapidly growing marketplace present an opportunity for investors,” says Michael Sapir, co-founder and CEO of ProShare Advisors, LLC, the adviser to ProShares. “Rather than investing in an individual company, investors can now get exposure to Amazon, Alibaba and other global leaders in online retail with a single ticker: ONLN,” Sapir said. ONLN expands ProShares’ lineup of Retail Disruption ETFs, including ProShares Decline of the Retail Store (EMTY) and ProShares Long Online/Short Stores ETF (CLIX).  ONLN tracks the ProShares Online Retail Index, designed to measure the performance of publicly traded companies that principally sell online or through other non-store channels, such as mobile or app purchases, rather than through brick-and-mortar store locations. The index uses a modified market-capitalization weighting approach. The ProShares Online Retail Index’s constituents may include U.S. and non-U.S. companies listed on a U.S. stock exchange. Companies in the index must: be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems; have a market capitalization of at least $500 million; and have a six-month daily average value traded of at least $1 million and meet other requirements.  Northern Trust Creates Private Equity and Hedge Fund Service Group Northern Trust has launched North America Alternative Fund Services, a new group establishing private equity and hedge fund service businesses to address complex operational and strategic needs of the alternative asset management industry. North America Alternative Fund Services provides fund administration, accounting and data solutions to hedge funds, private equity managers and managed account platforms. It offers specialized expertise in complex valuations, cash, collateral and liquidity management, as well as analytics and transparency into portfolios that increasingly combine hedge fund strategies with fund structures traditionally used by private equity firms. The group will be led by Peter Sanchez, head of Northern Trust Hedge Fund Services since 2011. Jeff Boyd has been promoted to lead Hedge Fund Services in North America, reporting to Sanchez. “Investment managers face new operational challenges as they move across asset classes to more complex portfolio construction approaches – incorporating private equity, real estate, infrastructure as well as hedging strategies in the search for yield,” says Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust. “Under Peter’s proven leadership, our North America Alternative Fund Services group provides a sophisticated technology platform, operational expertise and service model that delivers unrivalled support to the most innovative asset managers and their clients.”Impax Introduces ESG-Focused Fund  Impax Asset Management LLC, investment adviser to Pax World Funds, has launched Pax Global Opportunities Fund (PXGOX), sub-advised by its London affiliate, Impax Asset Management Ltd. This is the first product introduction since Pax World Management was acquired by Impax Asset Management Group plc in January. The Pax Global Opportunities Fund seeks to deliver capital growth by investing in companies positioned to benefit from the transition to a more sustainable global economy. Impax believes that demographic change, resource scarcity, inadequate infrastructure and environmental constraints will disrupt private-sector markets profoundly in the coming years, creating opportunities for well-positioned companies and increased risk for companies unable or unwilling to adapt. The fund aims to identify and invest in companies that possess sustainable competitive advantages and track records of consistent returns on investment. Environmental, social and governance (ESG) analysis is an integral part of Impax’s investment research and process, providing risk mitigation and important insight into the character of a company. “We have two proprietary tools to help us identify companies well positioned to benefit from the transition to a more sustainable economy. A series of financial tests helps us find companies that we believe offer consistent, predictable returns, while the Impax Sustainability Lens provides us with unique insights into evolving trends and involves deep analysis of the risks involved in the transition to a more sustainable economy. It is a framework that facilitates the discovery of the best growth companies where the opportunities outweigh the risks,” says Kirsteen Morrison, co-portfolio manager for the Pax Global Opportunities Fund. The investment managers intend to take a five-year view of a company’s prospects before investing, hold a concentrated portfolio of 35 to 45 companies, and run the fund with a low level of turnover. The portfolio has broad geographic and sector exposure and is overweight to mid-cap companies relative to the MSCI ACWI benchmark. In addition to the U.S. mutual fund, Impax Asset Management Ltd. has begun offering the strategy to European institutional and wholesale investors. OneAmerica to Offer Russell Investments Managed Accounts Global asset manager Russell Investments has reached an agreement with OneAmerica to distribute Russell Investments’ Adaptive Retirement Accounts (ARA) on behalf of defined contribution (DC) plan clients. The managed account option will be available to the OneAmerica open architecture trust business, which includes U.S. corporations, nonprofit organizations and public-sector entities.  “This alliance with Russell Investments to bring ARA to the OneAmerica platform means a customized solution for individual retirement plan participants and more options for retirement plan sponsors,” says Terry Burns, assistant vice president of Products and Investments for OneAmerica Retirement Services. “It’s a new option to help participants optimize their pursuit of retirement income.”  According to Andrew Scherer, senior director, defined contribution at Russell Investments, the tool may work for those benefiting of customized investment strategies geared towards future targeted replacement income, as ARA considers retirement accounts and assets outside of the plan sponsor’s retirement plan, along with factors catered to participants.  Each participant’s customized asset allocation is assessed quarterly and adjusted as needed based on progress toward his or her targeted retirement income goal. The ARA option is scheduled to be available in the fourth quarter 2018 to new and existing clients. The post Investment Product and Service Launches appeared first on PLANSPONSOR.
Categories: Industry News

Independent Contractors’ ERISA Lawsuit Fails to State Actionable Claim

Plansponsor.com - Thu, 07/19/2018 - 09:59
The United States District Court for the Northern District of Georgia has ruled in favor of defendants’ motion to dismiss an Employee Retirement Income Security Act (ERISA) lawsuit filed against Flowers Foods, Inc., and Flowers Baking Co. of Villa Rica (FBC).The plaintiffs are or were distributors for FBC, which utilizes distributors to sell and distribute its fresh baked goods. According to the text of the decision, FBC enters into a Distributor Agreement with each of its distributors, which outlines the terms of their relationship. In this Distributor Agreement, FBC’s distributors are labeled as independent contractors, which the plaintiffs contend is an “intentional misclassification for the purpose of avoiding overtime compensation obligations under the FLSA [Fair Labor Standards Act].”The text of the decision shows Flowers Foods sponsors various benefits plans for eligible employees. One such benefits plan is its 401(k) Retirement Savings Plan, which is administered and maintained as an employee welfare benefit plan subject to ERISA. Important to the course of this litigation, Flowers Foods is the plan sponsor of the 401(k) plan, while FBC does not offer any 401(k) plans. The plan contains various requirements to be eligible for participation. For example, to be able to participate, an individual must be considered an “Eligible Employee,” as defined by the terms of the plan. The plaintiffs have not been permitted to participate in the plan.On March 6, 2017, the plaintiffs filed a proposed class and collective action complaint, asserting the following claims: (1) violation of the FLSA due to the defendants’ failure to provide proper overtime compensation; and (2) violation of ERISA based upon the defendants’ failure to provide the plaintiffs benefits that they are entitled to under the terms of the plan. On July 19, 2017, the parties stipulated to the dismissal without prejudice of the plaintiffs’ FLSA claim due to the pendency of a similar, earlier-filed FLSA action in the U.S. District Court for the Middle District of Florida.Leading to this decision, the defendants successfully moved for summary judgment as to the sole remaining claim for violation of ERISA—arguing their case on two grounds. First, they argued that the plaintiffs are expressly ineligible for benefits under the terms of the plan, even if they are ultimately deemed to be common law employees. Second, the defendants argued that even if the plaintiffs are eligible for benefits under the plan, they nonetheless failed to exhaust administrative remedies under the plan.Weighing these arguments, the court concludes that the plaintiffs’ ERISA claim in fact fails because they have not shown that they are eligible for benefits under the plan.“Therefore, it is unnecessary to address whether the plaintiffs were required to exhaust their administrative remedies,” the decision explains.The text of the decision points out that, to assert a claim under ERISA, a plaintiff must be either a “participant” or a “beneficiary” of an ERISA plan. A participant is defined as “any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from the ERISA plan.” Thus, ERISA requires a plaintiff to satisfy two requirements to establish participant status, the decision explains. First, the plaintiff must be a common law employee. Second, the plaintiff must be, according to the language of the plan itself, eligible to receive a benefit under the plan.“An individual who fails on either prong lacks standing to bring a claim for benefits under a plan established pursuant to ERISA,” the court concludes.The first requirement, whether the plaintiff is a common law employee, requires an independent review by the court of the employment relationship. Relevant here, the Supreme Court has instructed “that the term ‘employee’ as used in the ERISA statute refers to the common law analysis, which distinguishes between employees and independent contractors by examining at least 14 factors.”“With this analysis, the parties’ description of their employment relationship is one consideration in determining whether a plaintiff is an employee, but it is not dispositive,” the decision states. “However, even assuming that the plaintiffs prove that they are common law employees, their ERISA claim nonetheless still fails because they cannot meet the second requirement that they are eligible for benefits under the terms of the plan. The second prong—whether the plaintiff is eligible for benefits—is an examination of the terms of the company’s ERISA plan. This requirement is necessary because companies are not required by ERISA to make their ERISA plans available to all common law employees.”As highlighted in the decision, in fact, nothing in ERISA requires employers to establish employee benefits plans. Instead, the plaintiff in this situation must show that he or she is eligible for benefits under the terms of the plan.“ERISA’s limitations on who employers can exclude from ERISA plans are very narrow,” the decision states. “The law prohibits an employer from denying participation in an ERISA plan on the basis of age or length of service. Other than that, any bases for exclusion from a plan are permissible. Here, even if the plaintiffs have a plausible argument that they are common law employees of the defendants, their ERISA claim nonetheless fails because they have not shown that they are eligible for benefits under the terms of the plan. The dispositive question is not whether the claimants were employees but whether, considering them as employees, they were eligible to participate in an ERISA plan according to the specific terms of the plan under consideration. There is no dispute of fact that the plan language explicitly excludes the plaintiffs from coverage.”The full text of the lawsuit, which includes substantially detailed argumentation on the conclusions drawn above, as well as an informative discussion by the court of the different classifications of employment that plaintiffs have brought to bear, is available here.The post Independent Contractors’ ERISA Lawsuit Fails to State Actionable Claim appeared first on PLANSPONSOR.
Categories: Industry News

Millennials Need Urging to Invest in the Market

Plansponsor.com - Thu, 07/19/2018 - 09:49
Millennials feel overwhelmingly confident in their own ability to use financial products—including common investment vehicles, such as stocks (66% say they’re confident) and even some more complex options, like private equity (47%), according to the Bank of the West 2018 Millennial Study.Millennials also have age-appropriate attitudes towards asset allocation, with 66% agreeing that the more time they have until retirement, the more aggressive they can be with their investing strategy. However, they are reluctant to actually invest, saying they feel safest keeping most of their savings out of the market (66%). They are spooked by the financial crisis, with 65% saying living through that period has made them a more conservative investor. This reluctance to invest is demonstrated by their under-utilization of investing accounts that could help them build wealth and prepare for retirement: just 40% have taken advantage of common workplace retirement accounts like 401(k)s or 403(b)s; only 23% have opened an IRA or Roth IRA; 14% have a managed account; and just 12% have a brokerage account.“Many Millennials suffered in the wake of the financial crisis. They were the victims of poor timing—graduating into an extremely difficult job market, with many missing the past decade of the market rally and buying homes only after the housing market bounced back,” says Ryan Bailey, head of the Retail Banking Group, Bank of the West. “But Millennials have time on their side. With a long time-horizon to retirement, Millennials can afford to ride out market volatility.”Bailey tells PLANSPONSOR that plan sponsors and advisers can help educate Millennials about the importance of investing in order to combat inflation, starting with:Educating Millennials about why time is on their side: bring in a financial professional to demonstrate the time-value of money and how getting in the market can speed up their timeline to reaching their financial goals. Illustrate through financial models how important the early years of their career are for savers—since that cash, once invested, has the longest timeline to exponentially grow. To allay concerns, explain how portfolio diversification can help Millennial investors manage risk.Bringing in a pro for onsite 1:1s: Onsite one-on-one financial consultations are a great way to encourage Millennial workers to evaluate their investing strategy. Bring in a financial professional around open enrollment season so employees can plan out retirement plan and health savings account (HSA) contributions, as well as their investment strategy.Incentivizing investing: Often Millennials’ first foray into investing begins with their workplace retirement plan. Offer an employer match stretched to incentivize higher savings levels. Also think about how to beat inertia through automatic enrollment, automatic annual increases, and setting up default investment allocations.Home ownership and debtThe study also found these equities-shy Millennials have turned to real estate as the cornerstone of their investment portfolio, with homeownership emerging as the most popular ingredient of their American Dream (56%). Following homeownership, half cited paying off debt (51%) and having the financial means to retire comfortably (49%) as the second and third most critical components.And yet, their desire to own a home is pushing some Millennials to risk their other goals by taking on mortgages and even borrowing against their retirement savings. In fact, one in four say that they are willing to withdraw or borrow against retirement funds to finance down payments for a home.Sixty-nine percent of Millennials in the study believe you have really only made it when you are debt-free. Many (58%) even say they pay off their credit card balances in full each month. And when it comes to paying for everyday purchases, they are a mixed bag. When paying for items in-person, they avoid credit cards and are most likely to use cash, checks, or debit cards (59%).Yet, on some level Millennials are comfortable with leveraging themselves for certain express purposes (like homeownership—a purchase that puts most people into debt for decades). Over four in 10 Millennials don’t pay their credit card balances off in full each month. Most of this group says they feel comfortable carrying this revolving debt (59%)—particularly those who are already homeowners (66%). And when making online purchases, they’re more inclined to use credit cards or credit card rewards, such as cash back or points (52%).“Debt doesn’t have to be a dirty word,” says Bailey. “By responsibly borrowing the amount that is just right for their individual financial situation, Millennials can fund their homeownership dreams, while freeing up capital to invest in the markets today when they still have a long time-horizon on their side.”More about the survey results may be found here.The post Millennials Need Urging to Invest in the Market appeared first on PLANSPONSOR.
Categories: Industry News

SEC Seeks Employer Input on Equity Compensation Arrangements

Plansponsor.com - Thu, 07/19/2018 - 04:30
The Securities and Exchange Commission (SEC) has issued final rules to amend Securities Act Rule 701, which provides an exemption from registration for securities issued by non-reporting companies pursuant to equity compensation arrangements. As mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, the amendment increases from $5 million to $10 million the threshold in excess of which the issuer is required to deliver additional disclosures to investors, the SEC explains.In addition, the SEC is soliciting comment on “possible ways to modernize rules related to compensatory arrangements in light of the significant evolution in both the types of compensatory offerings and the composition of the workforce since the Commission last substantively amended these rules in 1999.”“The rule as amended, and the concept release, are responsive to the fact that the American economy is rapidly evolving, including through the development of both new compensatory instruments and novel worker relationships, often referred to as the ‘gig economy,’” observed SEC Chairman Jay Clayton. “We must do all we can to ensure our regulatory framework reflects changes in our marketplace, including our labor markets.”The public comment period will remain open for 60 days following publication of the imminent concept release in the Federal Register.Explaining the thinking behind its call for commentary, SEC highlights that equity compensation can be an important component of the employment relationship. In addition to preserving cash for the company’s operations, equity compensation can align the incentives of employees with the success of the enterprise and facilitate recruitment and retention.“Securities Act Rule 701 allows non-reporting companies to sell securities to their employees without the need to register the offer and sale of such securities,” the SEC explains. “Securities Act Form S-8 provides a simplified registration form for companies to use to issue securities pursuant to employee stock purchase plans. The Commission is soliciting comment on possible ways to update the requirements of Rule 701 and Form S-8, consistent with investor protection.”Specifically, the Concept Release solicits comment on the following:“Gig economy” relationships, in light of issuers using internet platforms to provide workers the opportunity to sell goods and services, to better understand how they work and determine what attributes of these relationships potentially may provide a basis for extending eligibility for the Rule 701 exemption.Whether the Commission should further revise the disclosure content and timing requirements of Rule 701(e).Whether the use of Form S-8 to register the offering of securities pursuant to employee benefit plans should be further streamlined.More information about submitting comments, along with statements issued by various SEC commissioners on this action, is available here.The post SEC Seeks Employer Input on Equity Compensation Arrangements appeared first on PLANSPONSOR.
Categories: Industry News

Proposed Bill Would Allow Employers to Provide Side-Car Emergency Savings Accounts

Plansponsor.com - Wed, 07/18/2018 - 12:21
A package of bills sponsored by Senators Cory Booker (D-New Jersey), Tom Cotton (R-Alaska), Heidi Heitkamp (D-North Dakota), and Todd Young (R-Indiana) would increase access to workplace retirement savings accounts, help workers who already have retirement accounts save more, and prevent leakage from retirement accounts by making it easier for people to save for short-term needs.Specifically, the four bills would:Increase access to workplace retirement plans by allowing for pooled employer plans (PEPs), which will make it easier for small business owners to offer retirement benefits to their employees;Boost retirement savings by incentivizing employers to adopt plans with automatic enrollment;Reduce emergency withdrawals from retirement accounts and increase short-term savings by allowing employers to automatically enroll their workers in emergency savings accounts (also called sidecar accounts);Make it easier for individuals to automatically save their tax refunds.The Bipartisan Policy Center (BPC) says these bills tackle several ongoing and serious challenges for the country. One-third of private-sector workers lack access to any workplace retirement plan, according to Bureau of Labor Statistics data; more than 40% of Americans say they could not cover a $400 emergency expense, according to a Federal Reserve report; and more than 40% of Baby Boomers and Gen Xers are projected to run short on funds in retirement, according to the Employee Benefit Research Institute’s proprietary Retirement Security Projection Model.“It is important that retirement security doesn’t get lost in the shuffle of our national debate,” Shai Akabas, BPC economic policy director, said. “With nearly half of working-age Americans concerned about their financial prospects in retirement, this legislation is a significant bipartisan opportunity to help allay those fears.”More information about the bills is here.The post Proposed Bill Would Allow Employers to Provide Side-Car Emergency Savings Accounts appeared first on PLANSPONSOR.
Categories: Industry News

‘Low-Cost’ Does Not Always Mean ‘Better’ TDFs

Plansponsor.com - Wed, 07/18/2018 - 10:19
All-time high flows, paired with positive returns, lifted assets in target-date funds (TDFs) above $1 trillion in 2017, a sizable increase from just $158 billion at year-end 2008, according to Morningstar’s 2018 Target-Date Fund Landscape report.The report says many TDF providers have adapted to meet the burgeoning demand for low-cost options.In 2017, passive TDF series—ones that invest predominantly in index funds—attracted nearly 95% of the $70 billion in estimated net flows to TDFs. This preference appears to be driven by retirement plan sponsors’ demand for low costs, Morningstar says. Fees for TDFs continued their multiyear downward trend in 2017. The average asset-weighted expense ratio fell to 0.66% at the end of 2017, from 0.91% just five years earlier. Morningstar says the injection of more passive exposure within historically active target-date series and the launch of series that blend active and passive funds has contributed to that trend.When TDF providers have launched additional lower-cost series to meet demand, those series generally have been the most popular. However, Morningstar finds not all have produced better performance results than older, more-costly ones.Not only do TDF providers offer variations of their strategies, they also commonly make their strategies available in a different vehicle, via a collective investment trust (CIT). CITs, which are designed for qualified institutional investors, typically cost less than mutual funds.Low costs allow investors to reap more of their investment gains, but investors in TDFs need to look beyond price tags to investment strategy to determine the appropriateness of the fees. Morningstar warns that the distinction between “active” and “passive” target-date series has become more muddled in recent years. Several target-date series that have historically held actively managed strategies have inserted or relied more heavily on passive funds. Meanwhile, other series explicitly aim to blend active and passive funds. “Some target-date series may appear competitively priced on the surface, but less so when considering their passive exposure,” the Morningstar report says.Before drawing conclusions about the performance rankings of various TDFs, investors should be mindful of the relatively tight dispersion of returns within TDF categories, Morningstar also warns. Despite TDFs’ significant exposure to equities, their return dispersion is more like the intermediate-term bond category than the U.S. large-blend category. According to the report, excluding major outliers, the 2050 TDF category saw returns range from 17.4% to 24.0% in 2017, and that 6.6 percentage point dispersion in returns was much tighter than the U.S. large-blend’s 20.5 percentage points and even tighter than the intermediate-term bond’s 8.8 percentage points.While still not a majority, the S&P Target-Date Indexes have emerged as the most popular benchmark among TDF providers, with 24 of 60 series listing them as the primary benchmark. Single asset-class benchmarks, such as the S&P 500, tied for second with custom indexes, and while they may be effective in some instances, they are difficult for the end investor to use as a yardstick, Morningstar says. Plus, custom indexes vary by target-date series depending on the asset-allocation approach, and they rely on the TDF provider to build the benchmark judiciously.The report highlights noteworthy considerations for TDF investors in five areas: Price, Performance, Parent, People, and Process. The report may be request here.The post ‘Low-Cost’ Does Not Always Mean ‘Better’ TDFs appeared first on PLANSPONSOR.
Categories: Industry News

Shifting Yield Curve Presents Institutional Investing Opportunities

Plansponsor.com - Wed, 07/18/2018 - 10:06
Winthrop Capital Management was founded in 2007 by Greg Hahn, president and chief investment officer.Recalling the process of launching an independent advisory shop, Hahn tells PLANSPONSOR that his timing probably could have been better, given that Winthrop launched less than a year before the collapse of Lehman Brothers. But after navigating a few tough years for the industry, growth has been strong, and a steady stream of clients have come on board.Winthrop offers multiple income-oriented strategies, managing taxable and tax-exempt strategies as well as portfolios customized to meet specific client liabilities or unique circumstances. The firm “builds these portfolios from the bottom up, starting at the security level,” Hahn explains. The portfolios are managed to maximize income and generate strong risk-adjusted returns within the context of the firm’s proprietary macroeconomic and interest rate outlook.“It has been an interesting time to be focused on the fixed-income side of the portfolio,” Hahn observes. “We are just now, finally, getting back towards what people would generally consider a normal interest rate environment. It’s been some time since we have been in this situation.”One broad message Hahn has for institutional investors, especially pension plans that are facing a difficult funding picture, is that there is “so much opportunity emerging out there that people are not pursuing as the fixed-income environment evolves.”“For starters, the flattening of the yield curve is something we are discussing a lot with our institutional clients,” Hahn says. “We have seen an increase in short term interest rates and some widening in the spreads available. For us, as we build fixed-income portfolios, this means we don’t have to go as far out on the curve to capture some of the potential benefit of actively taking on interest rate risk. You can capture the exposures you need while staying within the one-year to five-year part of the curve. This has not been the case for some time.”Stepping back, Hahn comments that the way fixed-income ideally works in a broader institutional asset allocation is to generate substantial coupon income. And then this coupon cash flow is what allows the investor to respond to shifting rates and reallocate the portfolio over time, capturing greater returns. This is a process that involves a lot of nuance and which deserves a lot of attention—as much as is paid to the equity side of the portfolio.“For our clients and your readers, while they are sophisticated institutional investors, even they can struggle with all the challenges and opportunities, with the nuance,” Hahn observes. “It has been a while since we have been in this type of an environment, so they may not be thinking about the fixed-income side of the picture as closely or carefully as they should. That can present risks and opportunities.”Hahn suggests he is “old enough to remember how the market was behaving in the 1980s and 1990s, when you could get 5.5% or 6.5% on the fixed income portfolio, and that was just the coupon.”Institutional investors, at that point, did not really have to take on significant equity asset risk in order to grow their assets over time and meeting increasing liabilities.“Today the picture is quite different, though we are slowly seeing rates increase,” Hahn says. “Today you have to use substantially lower fixed-income allocations to achieve the same kind of a reasonable return. Part of the broader challenge is that expected returns on equity assets are being compressed, which means that returns are depressed on the total portfolio.”This will obviously be a big challenge in the decades ahead for pension funds, endowments, etc. It’s especially tough for pension plans and individual retirement savers given the countercurrent of peoples’ lifespans growing longer and the need to have more money to pay for health care in retirement.Investment policies and separate accountsSwitching gears, Hahn points out that his firm these days does a lot of work on investment policy statement development. He says this is interesting work given how much it can vary from client to client. The policies his clients adopt range from the most simple to the most complex, depending on the size and maturity of the pension fund or endowment.“When we start conversations about the investment policy, there is a natural focus on the equity side of the portfolio—clients often assume that is the more complicated part of the portfolio,” Hahn says. “After 2008, I understand why they would feel that way, but there is so much complexity and opportunity that is being overlooked.”Among the biggest opportunities, Hahn says, is the growing availability of professionally managed separate accounts on the fixed-income side. These accounts allow Winthrop to take a custom tailored active management approach for each client.“It can be advantageous to use this structure because you don’t run into some of the same liquidity issues that are present in a large pooled vehicle, which has implications for performance,” he says. “There are three areas where we believe active management can outperform dependably, and that is in small cap equity, international equity, and short-duration fixed income.”This is particularly true in the short-duration fixed income arena, Hahn explains.“An active manager in short duration fixed income can beat their benchmark pretty consistently,” he suggests. “We work with advisers and consultants to provide separately managed accounts [SMAs] across multiple custodial platforms. Each SMA holds individual securities that are for that specific client alone.”The post Shifting Yield Curve Presents Institutional Investing Opportunities appeared first on PLANSPONSOR.
Categories: Industry News

Employees Want Financial Education and Employers Are Stepping Up

Plansponsor.com - Wed, 07/18/2018 - 09:27
According to employers, the number one financial challenge facing employees is credit card and other debt (reported by 70% of employers).The International Foundation of Employee Benefit Plans’ “Financial Education for Today’s Workforce: 2018 Survey Results” report says other top issues worrying employees are saving for retirement, paying for their children’s education expenses and covering basic living expenses. The survey finds these factors are taking a toll on the workplace in the form of stress (79%), the inability to focus on work (64%), physical health concerns (36%) and absenteeism (34%).When asked to rate the financial status of their employees, 40% of employers report their employees as being only a little bit or not at all financially savvy, and 36% of employers say employees are only a little bit or not at all prepared for retirement once they reach retirement age.More than two in five employers report an increased demand for financial education among employees in the past two years.Employers are answering the call. The report says 63% of employers currently provide financial education for their workforce, and an additional 19% are considering such education for the future.Among the employers that offer financial education programs, 24% report they have a financial education budget in 2018, which is significantly higher than the 14% of employers that had such a budget in 2016. An additional 20% of employers are considering adding a financial education budget. More than half of employers with budgets are planning to increase their budget in the next two years. Of employers with a financial education budget, 20% are measuring the return on investment (ROI) of their initiatives, and another 29% are considering measuring ROI in the future.The most popular education methods used by employers offering financial education include voluntary classes or workshops (90%), free personal consultation services (63%), retirement income calculators (59%), internet links to informational sites (58%), and projected account balance statements and/or pension benefit statements (53%).The survey found that employers offer financial education on a wide variety of topics, from life insurance and identify theft to student loan debt and end-of-life planning. However, the top five most common topics covered include retirement plan benefits, pre-retirement financial planning, budgeting, investment management and retiree health care.Employers are making sure their education is impactful to their workforce by taking steps such as:Providing financial education to employees’ spouses (39%);Asking their workforce which areas they are most interested in (35%);Providing education in other languages (30%); andProviding education by generation (25%).Additionally, employers are beginning to target education for life events; 17% are currently doing this, and 23% are considering doing so. Among employers offering life-event education, the most common events highlighted include approaching retirement, funding an education, getting married, purchasing a home, getting divorced or having a child.“Employers are stepping up their commitment to providing financial education to their employees,” says Julie Stich, CEBS, associate vice president of content at the International Foundation of Employee Benefit Plans. “More employers are devoting a budget for this type of education. They’re also going the extra mile to assess the concerns and needs of their unique workforce and the type of education that would be effective.”Of employers offering financial education, 57% report their program is successful—just 6% say their program is unsuccessful. Most commonly, employers are measuring success through increased participant deferral rates in defined contribution (DC) plans, overall participation rates in DC plans, and participation in specific initiatives such as in-house seminars.Financial Education for Today’s Workforce: 2018 Survey Results contains data from 448 organizations representing corporations, multiemployer trust funds and public employers across the United States and Canada. Data was collected in April 2018.For more information or to view the entire survey results, visit www.ifebp.org/financialed2018.The post Employees Want Financial Education and Employers Are Stepping Up appeared first on PLANSPONSOR.
Categories: Industry News

Financial Advisers Key to Spending and Saving Confidence

Plansponsor.com - Wed, 07/18/2018 - 08:45
Northwestern Mutual’s 2018 Planning & Progress Study found that 67% of Americans who work with a financial adviser believe they know how much to spend now and to save for the future. By comparison, this is true for only 44% of those without an adviser. Thirty-four percent of those without an adviser say they are “not at all confident” they have the balance between spending and saving correct. This is true for only 13% of those with an adviser. Sixty percent of those without an adviser say debt reduction is a top priority, while 37% of those with an adviser say the same.“Financial decision-making can be overwhelming, especially when juggling a number of competing priorities,” says Sandy Botcher, vice president of distribution at Northwestern Mutual. “A financial adviser has the expertise and objectivity to see the whole picture and develop a strategy that’s flexible enough to enjoy life today while securing tomorrow.” The study also found that 54% of those with an adviser say they feel very financially secure. By comparison, this is true for only 21% of those without an adviser. Seventy-five percent of those with advisers say they are disciplined or very disciplined financial planners, relative to just 37% of those without an adviser. Additionally, 59% of those with an adviser believe that if they work past traditional retirement age, it will be by choice rather than necessity. By comparison, 61% of those without an adviser think they will work past retirement age due to necessity.Seventy percent of those with an adviser think their plan can endure market cycles, whereas only 29% of those without an adviser share the same opinion. Harris Poll conducted the online survey of 2,003 adults for Northwestern Mutual in March.The post Financial Advisers Key to Spending and Saving Confidence appeared first on PLANSPONSOR.
Categories: Industry News

Former State Street Executive Convicted of Defrauding Transition Management Customers

Plansponsor.com - Wed, 07/18/2018 - 08:12
A jury in the U.S. District Court for the District of Massachusetts convicted Ross McLellan, a former State Street Corp. executive, of engaging in a scheme to defraud customers of State Street’s Transition Management line of business.McLellan was found guilty of applying secret commissions to billions of dollars of securities trades executed on behalf of these customers, the Securities and Exchange Commission (SEC) announced.In a statement to PLANSPONSOR, a State Street spokesperson said: “We entered into settlements in 2014 with the UK Financial Conduct Authority and in 2017 with the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) relating to the overcharging of transition management clients in 2010 and 2011. We deeply regret that this occurred, accept responsibility for the actions of our former employees, and since the overcharging was discovered have substantially enhanced our controls. We are fully cooperating with the United States Attorney’s Office for the District of Massachusetts and the Department of Justice in connection with this matter.”The SEC’s complaint alleges that between February 2010 and September 2011 McLellan led a scheme to add secret commissions to securities trades performed for at least six clients of State Street’s transition management business, which helps institutional clients move their investments between asset managers or otherwise restructure large investment portfolios. The complaint further alleges that these commissions were charged in addition to fees the clients had expressly agreed to pay the bank, and that McLellan took steps to conceal the commissions from the clients and others within State Street.More information about the litigation is here.The post Former State Street Executive Convicted of Defrauding Transition Management Customers appeared first on PLANSPONSOR.
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Just One Above-Normal Trading Day in 401(k)s in June

Plansponsor.com - Tue, 07/17/2018 - 11:11
The June 2018 update of the Alight Solutions 401(k) Index shows just one day of above-normal trading activity during the month.As June progressed, 401(k) investors continued movement away from equities, the index shows, with 13 of 21 days favoring fixed income funds. On average, a modest 0.013% of balances were traded daily.Year-to-date there have been 29 days with above-normal trading activity, suggesting that the month of June brought back a bit of a sense of tranquility for investors after a difficult start to the year. Other index data shows trading inflows mainly went to small U.S. equity, mid U.S. equity, and stable value funds, while outflows were primarily from target-date funds (TDFs), emerging markets, and international funds.By asset class, small U.S. equity funds received the most inflows, netting 41% of the monthly inflow volume to the tune of $153 million. Midsized U.S. equity funds garnered 21% of the inflows ($78 million), and stable value funds received 17% of the flow ($64 million). On the flip side, 36% of the outflows ($133 million) came from target-date funds, 23% from emerging markets ($84 million), and 14% from international funds ($53 million). Important to note, target-date funds remain the most prevalent asset class in 401(k) plans, with 27% of the total market volume, according to the index.At the end of June, asset allocation in equities were in line with May, with 68.5% of assets in equities. At the same time, 68.1% of new contributions were invested in equities at the end of June, up slightly from 68% in May.The index update explains that domestic equities experienced slightly positive market returns for the month, with both large U.S. equities (represented by the S&P 500 Index) and small U.S. equities (represented by the Russell 2000 Index) up over 1%. U.S. bonds (represented by the Bloomberg Barclays U.S. Aggregate Index) fell -0.1%, while the International equities (represented by the MSCI All Country World ex-U.S. Index) fell close to -2%.Additional findings are available here.The post Just One Above-Normal Trading Day in 401(k)s in June appeared first on PLANSPONSOR.
Categories: Industry News

HSA Owners Are Better Health Care Savers than the Average Consumer

Plansponsor.com - Tue, 07/17/2018 - 11:07
A new Alegeus study identifies health savings account (HSA) owners as the savviest health care consumers. The study, which surveyed over 1,400 U.S. health care users, finds HSA participants are more well-versed in health care concepts compared to the general population. From interpreting specialized documents to understanding term language, these users are more likely to feel confident navigating throughout the system, with 39% suggesting they feel confident while deciphering health insurance details. Additionally, 34% say they feel confident examining plan details to determine health plan costs, 38% feel confident when reading terms for plan coverage, and 51% feel confident while analyzing important documents.  Twenty-five percent of HSA participants place an increased emphasis on cost reduction, 23% say they are likely to base decisions on costs, and 44% hold a confident attitude overall when anticipating out-of-pocket costs.Concerning spending behavior, HSA participants are more practical than those not contributing to an HSA. These participants are more likely to research and compare costs before making a purchase (46%), determine prices before receiving services (43%), research the quality and effectiveness in a product or service (42%), and seek respective alternatives (37%).The survey reveals only 13% of HSA participants have invested their account assets, and overall, accumulated account balances are relatively low, with only 11% of participants maxing out their HSA contributions. However, the survey shows 38% of participants recognize the need to contribute more, and therefore many say they plan to do so in the future. Even so, these consumers place larger emphasis in their savings, with 80% revealing they would save aggressively for health care costs. Sixty-eight percent have prepared a savings goal and 57% would likely allocate any unexpected extra funds towards health care savings. More information on the study can be found here.The post HSA Owners Are Better Health Care Savers than the Average Consumer appeared first on PLANSPONSOR.
Categories: Industry News

Mercer Health Advantage Aims to Drive Down Employer Health Benefit Costs

Plansponsor.com - Tue, 07/17/2018 - 10:25
“Managing and monitoring high cost claimants” is the top health benefits strategy that U.S. employers will be focusing on for the next five years.More than three quarters (77%) of U.S. employers with 500 or more employees said this strategy was “very important” or “important,” according to a recent analysis of responses to the Mercer National Survey of Employer-Sponsored Health Plans, 2017.Generally, a relatively small number of plan members drive a large majority of the cost. According to Mercer’s database containing approximately 1.6 million members, on average the sickest 6% of an employer’s population represent 47% of the total allowed medical and pharmacy spend. Mercer says high touch, nurse-centered care coordination can often produce the best possible health outcomes and as cost-efficiently as possible.A study of carrier claims data from Mercer Health Advantage (MHA), a program offered through select insurance carriers that features high-intensity care management for the sickest employees, revealed a rapidly growing percentage of claims classified as “high cost” by the participating carriers (>$50,000/claimant). “The important difference between standard health advocacy programs and high-intensity care management programs such as MHA is that the care manager works directly with the care team as well as the patient and family, stays in contact after discharge to provide support, and provides a supportive role in improving compliance with treatment plans,” Mercer says.Companies using MHA experienced qualified participant engagement as high as 65.2% and high-cost claimant engagement up to 78%. “Employers can help workers most at risk better manage their care—and save an average $430 annually per employee,” Mercer says.More about Mercer Health Advantage is here. More about Mercer’s National Survey of Employer-Sponsored Health Plans, 2017, is here.The post Mercer Health Advantage Aims to Drive Down Employer Health Benefit Costs appeared first on PLANSPONSOR.
Categories: Industry News

Rainbow ESOP Lawsuit Easily Clears Early Motions

Plansponsor.com - Tue, 07/17/2018 - 09:32
The U.S. District Court for the Central District of California has denied defendants’ motions to dismiss a complex lawsuit involving the allegedly imprudent and disloyal sale of employee stock ownership plan (ESOP) assets.Several corporate entities are involved in the matter, including Rainbow Disposal Co., Southeastern Renewables, West Florida Recycling and Republic Services. In reaching this decision, the court considered five distinct motions to dismiss filed by defendants, which the plaintiffs opposed in a single omnibus brief—in response to which defendants filed separate replies. After reviewing the extensive written arguments, the court denies all the motions to dismiss.Plaintiffs in the lawsuit are participants and beneficiaries of the Rainbow Disposal Co., Inc. Employee Stock Ownership Plan, who seek to restore losses to the plan and to otherwise remedy a complicated series of alleged breaches of fiduciary duty under the Employee Retirement Income Security Act (ERISA). In all, some 14 counts are included in the underlying complaint.The text of the decision shows that on July 1, 1995, the plan was first created and held 100% of Rainbow’s stock. The plan is governed by a plan document, which was restated most recently in 2004. As noted in the text of the decision, the plan document includes a number of original provisions and ad hoc amendments made over a series of years which are relevant to court’s thinking.The lawsuit alleges a long and complicated series of alleged bad-faith dealings made by the executive leadership of Rainbow, through which they funded the creation of new companies and otherwise redirected ESOP assets. Apart from allegedly violating the plan document, these investments caused losses to the Raindbow ESOP while benefiting the executives, according to plaintiffs. Eventually the entire amount of Rainbow stock was unilaterally sold to a third party, triggering the filing of the lawsuit.In the decision, there is a section that describes the alleged role played by a fake attorney who, according to plaintiffs, basically attempted to intimidate or misdirect potential plaintiffs. There is a lengthy discussion of all 14 counts and why each is capable of surviving the defendant’s motions to dismiss. Generally, the court concludes there is ample evidence to suggest that plaintiffs indeed may have been harmed by disloyal or imprudent behavior on the part of the defendants, making an examination of the facts at trial appropriate.Ultimately, after all distributions had been made, plaintiffs received approximately $15 per share, which is less than the $16.67 per share as set forth in a June 2014 valuation and less than the $17.66 per share as set forth in an October 17, 2014, letter to plan participants. Even these amounts are less than what the stock would have been worth had the defendants acted more prudently and loyally, the plaintiffs argue.The full text of the decision is available here. The post Rainbow ESOP Lawsuit Easily Clears Early Motions appeared first on PLANSPONSOR.
Categories: Industry News

Brown University 403(b) Plans Suit Moves Forward

Plansponsor.com - Tue, 07/17/2018 - 09:21
While many claims in a lawsuit challenging administration and fees for Brown University’s 403(b) plans were dismissed, a federal district court judge allowed several claims to move forward.The lawsuit alleges fiduciaries approved a TIAA loan program that required collateral as security for repayment of the loan, charged “grossly excessive” fees for administration of the loan, and violated U.S. Department of Labor (DOL) rules for participant loan programs. The plaintiffs in the case conceded lack of standing on counts related to the loan program because they are not borrowers under the program; therefore, Chief Judge William E. Smith of the U.S. District Court for the District of Rhode Island dismissed these counts.Smith also found that the plaintiffs’ complaint does not provide sufficient factual allegations to state a claim for breach of the duty of loyalty. Citing a decision in the Cassell v. Vanderbilt University case, Smith said, “Because these claims do not support an inference that defendants’ actions were for the purpose of providing benefits to themselves or someone else and did not simply have that incidental effect, the loyalty claims are dismissed.”In Count I of their complaint, the plaintiffs suggest that Brown did not engage in a prudent process for evaluating and monitoring fees and expenses that TIAA and Fidelity charged to the plans in breach of its duty of prudence under the Employee Retirement Income Security Act (ERISA). They fault Brown for: offering too many investment options, including duplicative options, rather than a “core” lineup; using more than one recordkeeper; failing to employ a competitive bidding process with respect to recordkeeping; offering investment options that charged “multiple layers of expense charges;” and offering investment options that charged asset-based fees and used revenue sharing, instead of a per-participant rate.Smith found the plaintiffs’ failure to rebut certain of Brown’s arguments with respect to the duty of prudence claims was enough to support dismissal. “First, by offering not one word in response to Brown’s Motion with respect to their allegations that the Plans offered investments with multiple layers of fees, Plaintiffs waive this aspect of their imprudence claim, he wrote in his opinion. “Likewise, Plaintiffs fail to respond and therefore abandon their claim that it was imprudent for Brown to use asset-based fees and revenue sharing.”For a different reason, Smith dismissed the allegation that Brown was imprudent in offering a surplus of investment options and failing to feature a set of “core” investment options. He noted that courts have repeatedly rejected, as a matter of law, identical claims in factually analogous cases, and ERISA does not impose that fiduciaries limit plan participants’ investment options. Agreeing with decisions in the Henderson v. Emory University and Sacerdote v. New York University cases, Smith said offering too many investment options for participants does not suffice for a breach of ERISA’s duty of prudence.Some duty of prudence claims surviveHowever, Smith found the plaintiffs’ allegation that a prudent fiduciary would have chosen one—rather than two—recordkeepers suffices to state a plausible claim. In addition, he said the plaintiffs’ claim that a prudent fiduciary in like circumstances would have solicited competitive bids plausibly alleges a breach of the duty of prudence. “Like courts that have considered analogous arguments by defendant-universities, the Court deems unpersuasive Brown’s point that ERISA does not per se require competitive bidding,” Smith wrote in his opinion. He also found that the plaintiffs allege specific facts to support their claim regarding recordkeeping fees, including identifying what, based on various factors including the recordkeeping market, “the outside limit of a reasonable recordkeeping fee for the Plan[s] would be . . .” Again citing other court decisions, Smith said that in any event, the question whether it was imprudent to pay a particular amount of recordkeeping fees generally involves questions of fact that cannot be resolved on a motion to dismiss.In Count II of their complaint, the plaintiffs allege that rather than “engage in a prudent process for the selection and retention of plan investment options,” Brown selected “more expensive funds with inferior historical performance.” Specifically, the plaintiffs challenge Brown’s process with respect to the CREF Stock Account, the TIAA Real Estate Account, and the TIAA Traditional Annuity. Brown argues that because “hindsight and allegations of poor performance are all that Plaintiffs offer on their claim that Brown was imprudent in the selection and retention of the three TIAA annuity investment options about which Plaintiffs complain,” that their claim should be dismissed. In addition, Brown argues that underperforming funds is alone insufficient to allege that no prudent fiduciary would have made the same choices.Smith found that to the extent Brown suggests otherwise, or presents different benchmarks to measure the plans’ investment performance, the claim raises factual issues that cannot be decided at the pleading stage. “Brown’s argument has been considered—and rejected—by courts considering near-identical circumstances,” Smith wrote, considering the Sacerdote case.Finally, Smith concluded that a fuller record is necessary to resolve any statute-of-limitations problems Brown University raised in its motion to dismiss.The post Brown University 403(b) Plans Suit Moves Forward appeared first on PLANSPONSOR.
Categories: Industry News

Personalized Planning & Advice Managed Account Solution Launched by Fidelity

Plansponsor.com - Mon, 07/16/2018 - 22:01
Fidelity Investments today announced the availability of Fidelity Personalized Planning & Advice, an enhanced workplace advice and managed account offering designed to help individuals implement a holistic financial plan.According to Fidelity, the solution combines a personalized digital experience, discretionary investment management, ongoing support and access to a team of professional planning consultants. Talking about the rollout of the new solution with PLANSPONSOR, Sangeeta Moorjani, Fidelity’s head of workplace investing product, marketing and advice, pointed to recent research conducted by the firm, showing that even as workers’ financial lives become more complex, four out of five do not have a financial plan.Even among workers who do have a plan, 80% still lack confidence in their financial situation, Moorjani explained. For this group, gaining access to personalized guidance and support goes a long way towards boosting confidence and engagement.To that end, the new managed account offering features ongoing support and help from Fidelity planning consultants that will give employees more confidence in their financial plan and overall financial situation. Participant support, Moorjani observed, will expand beyond investment advice provided to individuals in their retirement accounts to include expert help in creating a plan that includes other personal financial goals and proactive, ongoing support.“While many employees understand the importance of having a financial plan, many lack the knowledge and confidence to create a plan of their own,” Moorjani added. “With Fidelity Personalized Planning & Advice, individuals will get help crafting a holistic, personalized plan that extends beyond saving for retirement and integrates other investment goals and objectives, such as building an emergency fund or saving for a down payment on a house.”Employees will continue to receive investment advice and management of their savings from a team of professionals and have access to a visual summary of their investments, according to Fidelity. This will make it easier to see and understand any changes or updates to their overall financial strategy. Through the program, employees will benefit from “ongoing, proactive engagement, including expanded annual checkups, reminders, and information that addresses their specific investment needs, to help them stay on track toward their financial goals.”“Over three quarters of our clients have indicated they would like a financial expert to weigh in on their financial decisions,” Moorjani said. “Regardless of their financial situation or level of affluence, Fidelity recognizes that investors across the board are looking for more help.”Employers who already offer Fidelity’s managed account offering will automatically have access to Fidelity Personalized Planning & Advice. The upgrade to Fidelity Personalized Planning & Advice will be automatic and will not require any action on behalf of employers.More information is available here.The post Personalized Planning & Advice Managed Account Solution Launched by Fidelity appeared first on PLANSPONSOR.
Categories: Industry News

MetLife Suggests Four Core Principles for Creating a Financial Wellness Program

Plansponsor.com - Mon, 07/16/2018 - 12:35
Given the diversity of the modern workforce, customizing financial wellness benefits is essential for strategically aligning interests across demographics and driving business goals, according to the latest in MetLife’s “Financial Wellness: Creating a More Productive and Engaged Workforce” white paper series.The second whitepaper, “Tailoring the Program,” says financial wellness is centered around four core principles: financial awareness, financial health, financial security and financial inclusion. While a comprehensive financial wellness assessment can help employers determine which program elements take priority, an effective financial wellness program should strive to meet all four core principles.Regarding financial awareness, the paper explains that just as demographics impact the type of information and services needed, demographics also determine the best communication methods. Online learning tools might work better with some employees while others might prefer one-on-one counseling or classes. Flexibility in the way information is delivered can be crucial to employee experience and overall success of the program.As for financial health, the paper says budgeting and financial planning tools can help employees manage day-to-day finances and protect against unplanned expenses.According to the paper, the ability to plan and protect for milestones such as buying a home or retiring is the lynchpin of financial security. A successful financial wellness program helps employees achieve financial security by bridging short-term needs with long-term goals.In addition, it says most employees have a deep-rooted desire to take ownership of their financial situations and feel they are making wise choices. For this reason, a financial wellness platform that makes it possible for all employees—from entry-level to high-ranking executives—to access employer-sponsored benefits is most effective because it facilitates financial inclusion.The first and second paper in MetLife’s series may be downloaded from here.The post MetLife Suggests Four Core Principles for Creating a Financial Wellness Program appeared first on PLANSPONSOR.
Categories: Industry News

ERISA Excessive Fee Claims Against Checksmart Time-Barred by District Court

Plansponsor.com - Mon, 07/16/2018 - 11:24
The U.S. District Court for the Southern District of Ohio has ruled in favor of the defense in an Employee Retirement Income Security Act (ERISA) excessive fee lawsuit targeting Checksmart Financial’s defined contribution (DC) plan and Cetera Advisors.  The original lawsuit was filed by a participant in the Checksmart Financial 401(k) Plan, contending in various ways that fees for funds offered in the plan are excessive. The plaintiff accused Checksmart, its plan committee, and the plan’s investment adviser, Cetera Advisor Network, of only offering expensive and unsuitable actively managed mutual funds, without an adequate or appropriate number of passively managed and less expensive mutual fund investment options. According to the complaint, most investment options in the plan had expense ratios of 88 bps to 111 bps, which the complaint says are four or more times greater than retail passively-managed funds—which were not made available to the plan and its participants during the class period. In addition, the average expense of all funds was 104 bps, according to the complaint.As stated in the decision, the alleged actionable violation in all of this is a breach of fiduciary duty, because ERISA fiduciaries have specific duties of loyalty and prudence to plan participants. As a secondary matter, the plaintiff asserted a claim for “liability for knowing breach of trust,” which he argued could extend liability to defendants even if they weren’t found to be fiduciaries of the Checksmart plan.Simply put, the decision states that the plaintiff’s claims “are foreclosed by ERISA’s statute of limitations.” The court explains that it has applied the shorter of ERISA’s statute of limitations period, based on the issue of when the plaintiff gained “actual knowledge” of the alleged breaches of fiduciary duty. Two issues orbit around this question, the decision explains. These are, one, the nature of the alleged breaches of fiduciary duty, and two, the definition of “actual knowledge.”The text of the decision includes substantially detailed consideration of these matters, but the court boils its ruling down as follows. “Synthesizing the two important issues, here’s the question: did defendants disclose how much each investment option charged in fees before July 14, 2016, three years before [plaintiff] filed this lawsuit? Answering this question required facts, not just the pleadings. So, the court converted part of defendants’ motions to dismiss into motions for summary judgment by permitting limited discovery on one issue: whether the expense ratios for the various investment options offered by the Checksmart plan were disclosed to plaintiff before 2015. As it turns out, defendants did disclose the expense ratios for the various investment options offered by the Checksmart Plan in 2012. Several pieces of evidence support this conclusion.”The decision points to mailings and various other disclosures sent by Checksmart to the defendant over the years leading up to this litigation. It also highlights that, as courts have applied the “actual knowledge” standard, “actual knowledge” really means “knowledge of the underlying conduct giving rise to the alleged violation,” rather than “knowledge that the underlying conduct violates ERISA.” A related and equally important distinction: “Actual knowledge does not require proof that the individual plaintiffs actually saw or read the documents that disclosed the allegedly harmful investments.”“Here, the Checksmart plan disclosed to plaintiff the expense ratios for all the investment options by August 28, 2012,” the decision notes. “At that point, plaintiff had actual knowledge of the underlying conduct that gave rise to his alleged violations. That means that the three-year statute of limitations on any potential excessive-fee claims ran by August 28, 2015, but plaintiff didn’t file his claim until July 14, 2016. Plaintiff’s claim is late, and it’s foreclosed by the statute of limitations.”According to the district court, the plaintiff “offers little resistance to this analysis, but he makes three arguments that his claim is not time barred.” First, the plaintiff argued this is a “process-based” claim, and since he had no actual knowledge of the process the Checksmart Plan used to select the investment options, his claim is not time barred. Second, he argued actual knowledge of the imprudence of an investment is impossible to have until after the investment underperforms. And finally, he argued, even if he did have actual knowledge of a breach of fiduciary duty in 2012, ERISA imposes an ongoing duty to monitor, “which means the Checksmart Plan was engaged in an ongoing breach of fiduciary duty until plaintiff filed the complaint.”Ruling on the first argument, the court dives into some complex legal precedents that are fully detailed in the text of the decision, but it comes to the conclusion it “cannot recognize plaintiff’s claim as a process-based claim,” because doing so would “essentially erase the statute of limitations for all breach-of-fiduciary-duty plaintiffs.” This is so because “none would be likely to have insider knowledge of their plan’s decision-making process.”On the second argument the court is also skeptical: “Second, plaintiff argues that even if his claim is not a ‘process-based claim,’ he could not have actual knowledge of defendants’ underlying conduct until 2016, when it became clear to him that certain funds had underperformed and overcharged. Put another way, plaintiff couldn’t predict the future in 2010, so he couldn’t have had actual knowledge that the funds would underperform and thus charge fees outpacing their performance. Plaintiff is right. He can’t be expected to predict the future. But the same goes for defendants, and that’s why this argument fails.”The court’s consideration of the final argument points back to the crucial Supreme Court case of Tibble vs. Edison. The district court here points out that Tibble analyzed ERISA’s six-year statute of repose under Section 1113(1), not the three-year statute of limitation that applies in the current matter, under ERISA Section 1113(2).“The distinction between the two matters,” the court concludes.The full text of the lawsuit is available here. The post ERISA Excessive Fee Claims Against Checksmart Time-Barred by District Court appeared first on PLANSPONSOR.
Categories: Industry News

Workers Urge Committee to Fix Multiemployer Pension Crisis Now

Plansponsor.com - Mon, 07/16/2018 - 10:34
The Joint Select Committee on the Solvency of Multiemployer Pension Plans held a hearing in Ohio last week to gather testimony from employees affected by the multiemployer pension plan crisis.In his opening remarks, Senator Sherrod Brown, D-Ohio, co-chair of the committee, noted that the crisis threatens the pensions of more than 1.3 million Americans. He pointed out that he has put out a proposal—the Butch Lewis Act—which  “establishes a legacy fund within the Pension Benefit Guaranty Corporation to ensure that multiemployer pension plans can continue to provide pension benefits to every eligible American for decades to come.” This legislation is paid for by closing “two tax loopholes that allow the wealthiest Americans to avoid paying their fair share of taxes.”However, Brown said he is open to any solution that protects workers, retirees and businesses.The committee heard testimony from workers such as Larry Ward, a retiree and member of the United Mine Workers of America multiemployer plan, who stated that it has been said that the average mine worker pension is $582.00 per month, but explained that many fall short of that and one pensioner receives only $252.97 per month. “I sit here before you today and tell you that for most of the retirees I know, any reduction to their pensions will make paying their bills very difficult, if not impossible,” Ward said.Since the enactment of the Kline-Miller Multiemployer Pension Reform Act (MPRA) in December 2014, some 15 plans have filed MPRA benefit suspension applications, and the Treasury Department has approved several. The committee heard testimony from two members of the Central States, Southeast and Southwest Areas Pension Plan, for which the Treasury Department rejected a suspension of benefits proposal under the MPRA.In his testimony, David A. Gardner, chief executive officer of Alfred Nickles Bakery made recommendations:All multi-employer pension plans with a certain level of under-funding must be immediately frozen.Companies must have the right to help fund 401(k) plans for their employees and be able to withdraw from multi-employer pension funds without liability.The contributions made by a participant to multiemployer pension plans must go back to the participant. Based on the contributions, the participants and the unions will determine pension amounts for retirees, for current employees and for employees who left but who were vested.The government must decide how to fund the pensions of “orphans,” the employees in companies that went out of business.On the issue of withdrawal liability, Mike Walden, president, National United Committee to Protect Pensions, said the matter needs to be addressed and revamped. He suggested putting a cap on withdrawal liability not to exceed the worth of the company, and possibly doing away with withdrawal liability in the future in exchange for contracts to stay in the fund or enter a fund for a certain length of time. “Withdrawal liability is one of the biggest concerns of employers that I have met with,” Walden said.In its last hearing, the committee heard a suggestion that a long-term, low-interest-rate loan program would help solve the multiemployer pension crisis.Text of testimony during the hearing last week can be found here.The post Workers Urge Committee to Fix Multiemployer Pension Crisis Now appeared first on PLANSPONSOR.
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