Skip to Content

Industry News

PBGC Fiscal Year 2018 Report Highlights

Plansponsor.com - Fri, 11/16/2018 - 13:42
The Pension Benefit Guaranty Corporation (PBGC) Fiscal Year 2018 Annual Report shows improvement in the financial condition of the agency’s single employer insurance and multiemployer insurance programs.  According to PBGC, the single employer program showed a positive net position of $2.4 billion as of September 30, 2018, emerging from a negative net position or “deficit” of $10.9 billion at the end of 2017 and continuing a trend of improving results. The multiemployer program showed a deficit of $53.9 billion, reduced from $65.0 billion at the end of 2017.“Despite this improvement, the multiemployer program unfortunately continues on the path toward insolvency, likely by the end of FY 2025,” the report says.PBGC says the primary driver of the financial improvement in both programs was higher interest rate factors, which reduced the value of PBGC’s benefit liabilities. A strong economy and the absence of new large claims also contributed to the financial improvement, according to the report.PBGC Director Tom Reeder says the continued improvement in the financial condition of the single employer insurance program is a welcome result.“The multiemployer insurance program deficit has narrowed, but it clearly won’t keep the program from running out of money,” he warns. “PBGC continues to work with Congress and the multiemployer plan community to preserve the solvency of multiemployer plans and the multiemployer program.”The PBGC report points out that the single and multiemployer programs differ significantly in the level of benefits guaranteed, the insurable event that triggers the guarantee, and the premiums paid by insured plans. By law, the two programs are operated and financed separately. Assets of one program may not be used to pay obligations of the other.Greater single employer stability According to PBGC, the single employer program had assets of $109.9 billion and liabilities of $107.5 billion as of September 30, 2018. The positive net position of $2.4 billion reflects an improvement of $13.4 billion during fiscal year 2018.During the year, the agency paid $5.8 billion in benefits to more than 861,000 retirees, about the same as last year. Also during 2018, the agency became responsible for 58 single-employer plans that terminated without enough money to provide all promised benefits. These plans cover 28,000 current and future retirees.As the report explains, PBGC works collaboratively with plan sponsors to negotiate agreements that protect pensions and premium payers. PBGC says it protected the pension benefits of about 52,000 people by working with eight companies to maintain their pension plans as the companies emerged from bankruptcy. Additionally, through the Early Warning Program, the agency negotiated over $550 million in financial protection, for about 100,000 people in plans put at risk by certain corporate events and transactions.Multiemployer stress According to PBGC, the multiemployer program had liabilities of $56.2 billion and assets of $2.3 billion as of September 30, 2018. This resulted in a deficit of $53.9 billion, down from $65.1 billion last year. The $11 billion decrease in the deficit stems mostly from higher interest rate factors used to measure the value of PBGC’s future payments to insolvent plans, the report says.During FY 2018, the agency provided $153 million in financial assistance to 81 insolvent multiemployer plans, up from the previous year’s payments of $141 million to 72 plans. In the coming years, the demand for financial assistance from PBGC will increase rapidly as more and larger multiemployer plans run out of money and need help to provide benefits at the guarantee levels set by law, PBGC says.“Absent a change in law, the assets and future income of PBGC’s multiemployer program are only a small fraction of the amounts PBGC will need to support the guaranteed benefits of participants in plans that are currently insolvent as well as those expected to become insolvent during the next decade,” Reeder says.The post PBGC Fiscal Year 2018 Report Highlights appeared first on PLANSPONSOR.
Categories: Industry News

Retirement Industry People Moves

Plansponsor.com - Fri, 11/16/2018 - 13:15
Northern Trust Asset Management has added Sandy Sinor as director of public funds and Taft-Hartley plans. In this role, Sinor will develop new businesses nationally while working with existing clients.Sinor comes from Voya Asset Management, where she was an institutional client adviser responsible for new business development and relationship management across a group of corporate, public and Taft-Hartley defined benefit (DB) and defined contribution (DC) retirement plans. She earned a bachelor’s of business administration in management degree from University of Texas and a master’s degree from Amber University in Garland, Texas.Edelman Financial Engines appoints past EBSA Assistant Secretary to board of directorsPhyllis Borzi has joined Edelman Financial Engines’ board of directors. Borzi was the assistant secretary of the Department of Labor for the Employee Benefits Security Administration (EBSA) from 2009 to 2017.Today, Borzi serves on the Institute for the Fiduciary Standard board of advisers and is a chartered member and former president of The American College of Employee Benefits Counsel. She has also held positions on the advisory board of the BNA Pension & Benefits Reporter, the advisory committee of the Pension Benefit Guaranty Corporation, and the advisory board of the Pension Research Council. Borzi also serves on the board of the Women’s Institute for a Secure Retirement.Prior to Borzi’s role as assistant secretary, she was a research professor at George Washington University Medical Center’s School of Public Health and Health Services. She was also counsel to the law firm of O’Donoghue & O’Donoghue LLP on Employee Retirement Income Security Act and legal issues affecting employee benefit plans.Investment strategist joins FIAFiduciary Investment Advisors (FIA) has hired Kate Pizzi, as a senior consultant. She has more than 19 years of experience serving the investment advisory and actuarial needs of both public and private clients.Prior to joining FIA, Pizzi was a managing director with the Hooker & Holcombe investment advisory group. She was also previously employed by Prime Advisors Inc. as senior investment strategist and fixed-income portfolio manager.MassMutual names workplace distribution head Bob Carroll has been appointed as head of workplace distribution for Massachusetts Mutual Life Insurance Co. (MassMutual).Carroll, who reports to Teresa Hassara, head of workplace solutions for MassMutual, is responsible for executing the workplace distribution strategy, continuing to develop sales talent, driving revenue and growing MassMutual’s share of the retirement and workplace markets. Additionally, Carroll will represent MassMutual as a thought leader in the retirement and voluntary benefits markets, and partner with key accounts and relationship management teams to drive business growth and retention.Carroll comes to MassMutual from John Hancock Financial Services, where he was most recently vice president of national sales.  He has a bachelor’s degree in finance and business administration from Illinois State University and Series 7, 24 and 63 licenses.Alegeus adds SVP of corporate development and strategy Alegeus has named Brian Colburn as SVP of corporate development and strategy. This newly created position comes on the heels of the recent Vista Equity Partners acquisition of Alegeus in early September.Previously, Colburn led initiatives such as the joint purchasing venture between CVS Health and Cardinal Health, and spent spent seven years at Bain & Company in the healthcare and results delivery practice.Colburn received a master’s degree in finance and strategic management from the University of Chicago Booth School of Business, and he received his bachelor’s from Northeastern University. Colburn currently resides in Massachusetts and will be operating out of Alegeus Headquarters in Waltham.Morningstar shuffles CIOs in America and Australia regionsMorningstar has appointed Andrew Lill as chief investment officer for Morningstar Investment Management, Americas. Lill currently serves as chief investment officer for Morningstar Investment Management’s Asia-Pacific operations, and as part of a transition plan, will continue to lead this area until Matt Wacher—the newly appointed chief investment officer, Asia-Pacific—joins Morningstar Australia in late January 2019. Lill brings more than two decades of experience in investment management, investment consulting and advice, asset allocation, portfolio construction, and related fields to the U.S. and Canadian investment management groups. Moving forward, he will be responsible for leading Morningstar Investment Management’s investment strategies and teams throughout the United States and Canada, and for contributing to Morningstar’s global investment management committees, policies, capabilities, and thought leadership.Lill will be based in Chicago, while Wacher will be based in Sydney. Prior to joining Morningstar, Lill worked for AMP Capital Investors as head of investment solutions in the multi-asset group. Previously, he spent seven years with Russell Investment Group as director of consulting, Asia-Pacific, and ultimately as director of investment strategy. Lill holds a master’s degree in economics from Cambridge University, England, and is a fellow of the UK Institute of Actuaries.PCS Hires marketing and communications VP Professional Capital Services LLC (PCS) has added a new member to its executive leadership team—Vice President of Marketing and Communications Michael Kazanjian. Kazanjian brings 15 years of experience in the financial services industry. Most recently, he served as vice president, annuity solutions and retirement plan services for Lincoln Financial Group, where he led marketing strategies. The post Retirement Industry People Moves appeared first on PLANSPONSOR.
Categories: Industry News

Fund Menus, Fee Structures Still Trending Toward Simplification

Plansponsor.com - Fri, 11/16/2018 - 11:21
According to Jason Brafman, director at John Hancock Investments, defined contribution (DC) retirement plan sponsors continue to pare back their investment menus in the interest of making it easier for participants to build rational allocations.Brafman spoke on a panel with Vincent Smith, partner and senior consultant at Fiduciary Investment Advisors, during the Best of PSNC 2018 event in Boston. Kerrie Casey, retirement plan consultant with SageView, moderated the discussion.“The pendulum is still swinging back toward smaller fund lineups,” Brafman said. “The reason is because we know much more about analysis paralysis these days, and the popularity of offering an asset-allocation solution as the qualified default investment alternative [QDIAs] makes having a large number of funds unnecessary, frankly, and even potentially harmful for participant performance.”Smith agreed, but noted that the core menu remains an important part of the retirement plan investment lineup. He said plan sponsors are learning to do more with less.“We see plan sponsors transitioning away from, say, offering multiple dedicated mid-cap and small-cap managers,” Smith said. “Instead plans will offer a consolidated fund with both of these in one package. The same is true for emerging markets, large-cap U.S. equities, and several other asset classes.”As Brafman and Smith pointed out, diversification remains incredibly important, but simplifying the fund menu is a win-win for participants and sponsors. Participants can more easily build effective portfolios, while sponsors reduce their reporting and monitoring burden.Active versus passive debate, recordkeeping feesBrafman next addressed the “chicken and egg” argument surrounding the use of active versus passive funds, noting that he personally sees a place for both investment approaches on the same plan menu.“Today many experts will tell you that it is about using active management where the opportunities are greater than the additional cost, and then using passive management where markets are more efficient and alpha is harder to achieve,” Brafman said. “So, for example, large-cap U.S. equity may not make sense for active management on a long-term DC plan menu. But it could make sense to offer a dedicated emerging market fund; that’s one place where active managers can shine.”Smith said another important point is to make sure plan participants don’t think their funds or account administration is free, whether they are using active or passive management.“It is the responsibility of providers and sponsors to be transparent about how fees are being assessed, why they are being assessed this way, and what the exact terms of that structure are,” Smith said.Both panelists agreed there is still a debate going on about the use of revenue sharing. In particular, plan sponsors are debating whether simply declaring no revenue sharing is better in the name of simplicity and transparency, or whether it is still worthwhile to work with a recordkeeper and create efficiencies through proprietary investment revenue sharing on a net cost basis.“Often you can get a cheaper all-in cost by using revenue sharing, but the other side of the coin is that this can be very confusing for participants, and for that reason alone it may be better to go with zero revenue sharing, unless you can really educate the plan population and get everyone to realize what is really going on,” Brafman said. “That’s where the trend away from revenue sharing is coming from.”According to the panel, most plan sponsors today are favoring paying up front a flat dollar fee for recordkeeping, but both agreed this is also not always the best way to pay, especially for smaller plans.“Plan sponsors want to know how they should address the ‘fee-leveling’ conversation with participants,” Smith said. “This will remain an important conversation to have with advisers and providers.”The post Fund Menus, Fee Structures Still Trending Toward Simplification appeared first on PLANSPONSOR.
Categories: Industry News

Half of Americans Think Market Volatility Has Increased

Plansponsor.com - Fri, 11/16/2018 - 10:55
Nearly half (48%) of Americans believe they are exposed to greater market risk today than they were before the 2008 financial crisis, Natixis Investment Managers learned in a survey of 750 investors. Sixty-five percent say it is tougher now to get ahead financially.Nonetheless, Americans expect annual returns of 9.8%, which advisers say is significantly higher than what is realistic. Those who entered the financial markets think their returns should be 11.3% above inflation.Eighty-two percent say they understand the risks of the current market environment, but 38% are not willing to take on any additional risk. Rather, 85% say they prefer safety over performance. Fifty-three percent say market volatility is undermining their ability to reach their retirement goals.Asked for their views on market volatility, 47% say it is something they simply endure, 28% say it creates investment opportunities, and 15% say they do not understand its effects. Sixty-seven percent say they are prepared for a market downturn.“A decade of rising markets, low interest rates and subdued volatility may have given investors unreasonable expectations and a false sense of security,” says David Giunta, CEO for U.S. and Canada for Natixis Investment Managers. “Our research suggests many investors’ instincts could undermine their financial success as volatility returns to the markets, but their continued trust in their financial advisers should help them remain disciplined as market become more turbulent.”Seventy-one percent of investors feel financially secure—for now. Fifty-two percent say the bull market of the past 10 years has bolstered their confidence that they are on track to reach long-term goals.Seventy-eight percent are confident that their portfolio is properly diversified. This is true for 86% of those who started investing after the financial crisis. However, 51% do not know what the underlying investments are in the funds they own. Only 53% have rebalanced their portfolio in the past year.While 92% think it is more important for their investments to deliver long-term results than short-term gains, 28% are focused on short-term performance, and 26% say they tend to sell their investments during periods of volatility. The latter is true for 40% of those who started investing after the financial crisis.Natixis says that investors need to learn how to balance risk and return. They also need to be educated about the benefits of active versus passive investments, and their trust in the markets needs to be rebuilt.Among those who lived through the financial crisis, 31% sold some—or all—of their assets. Twenty-two percent later regretted that decision. Thirty-one percent wish they had gotten back into the market sooner, and 22% still are not invested, or reinvested, at the level they were before the crisis hit.Eighty-eight percent of investors say that fees are an important consideration when selecting an investment, and 53% realize that passive investments tend to have lower fees.When it comes to making financial decisions, 70% trust financial institutions, and 75% trust financial advisers. Ninety percent working with a financial adviser say that he or she is trustworthy.“Investors’ misconceptions about risk and volatility may be clouded by their unrealistic return targets,” says Dave Goodsell, executive director of the Natixis Center for Investor Insight.CoreData Research conducted the survey for Natixis in September.The post Half of Americans Think Market Volatility Has Increased appeared first on PLANSPONSOR.
Categories: Industry News

Vanguard Partners on Offering HSAs to DC Plans

Plansponsor.com - Thu, 11/15/2018 - 13:59
Vanguard announced a partnership with HealthEquity, an independent health savings account (HSA) custodian, to provide defined contribution (DC) plan sponsors and their participants a new service integrating health and wealth planning for retirement. Vanguard will offer plan sponsors the ability to provide an HSA solution to their employees that features low-cost Vanguard funds or the same investment options as their DC plan line-up. HSAs can be an effective, highly tax-efficient means to save for health care expenses in retirement. For Vanguard participants who elect to save in a HealthEquity HSA, Vanguard’s Retirement Readiness Tool technology will integrate their HSA information with their DC plan balance and other assets to give them a comprehensive view of their current and future retirement savings. Participants will also benefit from highly personalized communications that are rooted in behavioral finance and proven to successfully encourage their next best action. “Consumers who learn to use HSAs and DC plans together are on the fast track to retirement readiness. Our partnership with Vanguard offers plan sponsors a powerful solution to connect health and wealth,” says Jon Kessler, president and CEO at HealthEquity. As a supplement to its new HSA solution, Vanguard plans to introduce a new proprietary health care cost calculator that will help participants to better plan and save for health care expenses in retirement.The post Vanguard Partners on Offering HSAs to DC Plans appeared first on PLANSPONSOR.
Categories: Industry News

Square, Inc. Adds Benefit Offerings for Small Businesses

Plansponsor.com - Thu, 11/15/2018 - 13:11
Square, Inc. has launched employee benefit offerings within Square Payroll, providing small businesses who use Square Payroll access to affordable benefits like health insurance and retirement savings. The benefit can also save businesses money by reducing payroll tax burdens, without any added cost.   “With today’s launch, Square Payroll is giving small businesses access to ‘big company’ benefits,” says Caroline Hollis, head of Square Payroll. “We’re empowering businesses to provide their employees a comprehensive set of benefits and the financial security that comes with having them.” Benefits available through Square Payroll include health insurance, retirement savings, pre-tax spending, and workers’ compensation, says Square, Inc. To provide these benefits to businesses and their employees, Square Payroll has partnered with technology-focused companies including SimplyInsured, Guideline 401(k), Alice, and AP Intego Insurance Group. Through Square Payroll, business owners can select the specific benefits that fit their business and their budget, and after completing the benefits enrollment, those benefits will automatically sync with Square Payroll. “With Square Payroll we are able to simply and affordably provide employees with the benefits they need and reduce administrative time in the process,” says Shatisha Wilson, LPC, RPT, the owner of Wilson’s Garden of Hope, a play therapy & counseling center in Augusta, Georgia that serves active duty, retired, and reserve members of the military and their families. “Options we looked at before had employee minimums that prevented us from qualifying, but with Square Payroll the benefit plans are designed to meet the needs of businesses my size.”The post Square, Inc. Adds Benefit Offerings for Small Businesses appeared first on PLANSPONSOR.
Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 11/15/2018 - 12:13
Hand Benefits & Trust (HB&T), a BPAS company, has been selected by ABG Consultants, LLC to establish a series of risk‐based collective investment funds (CIFs) effective February 1, 2019. HB&T is a national provider of employee benefit trust services. The HB&T CIFs will provide ABG Consultants with a new alternative to handling risk‐based models on a recordkeeping system.“Creating ABG risk‐based collective funds opens up a world of opportunity for ABG Consultants to support our clients and their employees,” says Larry Solomon, president of ABG Consultants. “We will use collectives to create a robust managed solution where we consider both age and risk tolerance,” he added. “It will put employees on a customized glide path where they can be confident that their investments will change as they get older. This solution combines the best of risk‐based models and target‐date funds.”“As trustee, administrator, and transfer agent, we are looking forward to working with the ABG team,” says Stephen Hand, HB&T president. “CIFs generally provide for lower expense ratios, flexibility with underlying securities, and simplified 404(a)(5) compliance, which will make it easier for ABG clients to achieve their retirement goals.” As You Sow Launches Pro Gender Equality FeatureAs You Sow has released its fifth Invest Your Values screening tool, Gender Equality Funds. Gender Equality Funds is a free, online tool that enables individual and institutional investors to apply a gender lens to mutual fund and exchange-traded fund (ETF) investments.Gender Equality Funds screens the specific holdings of about 5,000 of the most commonly-held U.S. mutual funds—including Vanguard, BlackRock, and State Street—against a database detailing individual company performance on 12 key gender equality performance indicators. These 12 indicators measure policies that demonstrate a commitment to gender diversity and gender balance in the overall leadership, management, and workforce of companies, combining into an overall gender equality portfolio score for each mutual fund.This transparency gives investors the ability to apply a gender lens in evaluating mutual funds. It encourages fund managers to construct and offer investment vehicles that are sympathetic to gender parity, ultimately exerting market pressure on companies to improve their performance on gender issues.“This tool could not be coming out at a better time,” Andrew Behar, CEO of As You Sow, says. “Women comprise 47% of the workforce, but only 4.8% of S&P 500 companies have female CEOs. The new tool empowers investors to see what is hidden within the mutual funds that comprise the bulk of their retirement savings and 401(k) plans. The first step is to know what you own—then you can use the power of your capital to invest in companies that have policies and practices that promote gender equality. We expect this tool to unleash a tsunami of change in the way women are treated in the workforce.”“Impact investing should not be limited to private deals or customized public portfolios,” Ruth Shaber, founder and president of Tara Health Foundation, says. “The bulk of the wealth in this country is invested in mutual funds. If we want to democratize access to impact investing, we need to create tools for everyone, from individuals with 401(k)s to institutional investors with billions of dollars under management. The Gender Equality Funds tool allows anyone to apply a gender lens to their investments.” Archer and Wilshire Analytics Partner to Add Analysis Archer announced an alliance with Wilshire Analytics, the investment technology division of Wilshire Associates, to integrate attribution analysis into its platform.Wilshire’s multi-asset class attribution includes Brinson-style analysis, often used for equities, as well as factor-based analysis appropriate for fixed-income portfolios. Managers can leverage the strength of either approach as best suits their portfolios and investment strategies. Through seamless integration with Archer’s total solution for middle and back office investment approaches, asset managers can gain insight and data to help to inform a performance narrative with end clients.“While access to analytics has existed in different forms, providing it alongside account overview information, composite performance, trade flow and reconciliation detail provides managers investment performance intelligence in context to support their clients,” saysJason Schwarz, president of Wilshire Analytics and Wilshire Fund Management. “Aligning with a growing provider of outsourced middle and back-office solutions expands institutional asset managers’ access to our best-of-breed attribution analysis.” Russell Investments Creates Income Model Portfolio Strategies Financial advisers and their clients now have access to the Russell Investments’ two new income model portfolio strategies, the Target Income Model Strategy and the Target Income Plus Model Strategy, through Envestnet’s third-party fund strategist platform. This follows other recent launches on both Robert W. Baird & Co.’s platform for financial advisers and TD Ameritrade’s Institutional Model Market Center.“We see significant potential and demand from advisers for these new multi-asset solutions as attractive sources of yield-based income amid today’s challenging capital markets landscape,” says Mark Spina, head of North America Advisor & Intermediary Solutions at Russell Investments. “These new income model strategies are another example of our ongoing efforts to help advisers gain efficiency and scale in their practice, so they can help clients meet investment goals while building sustainable businesses. Our model portfolios help advisers to streamline the amount of time required for product research, trading, rebalancing and preparation for client reviews.”Russell Investments’ income model strategies are designed to deliver yield-based income at an attractive cost to income-seeking investors. The portfolios are comprised of active and passive investment vehicles including Russell Investments’ funds, third-party mutual funds and ETFs, all strategically assembled to offer global, multi-asset diversification that includes exposure to equities, fixed income and alternatives.The Target Income Model Strategy targets an after-fee yield of approximately 4%, while the Target Income Plus Model Strategy targets an after-fee yield of approximately 4.5%. The weighted average net expense ratio for the model portfolios ranges from 0.67% to 0.73% for Class S shares.“Yield-seeking investors have faced a challenging environment and increased risk for some time now,” says Rob Balkema, senior portfolio manager on the multi-asset solutions team at Russell Investments. “Such an environment requires constant vigilance and the ability to react quickly. We’re on the lookout for new opportunities—whether it’s asset classes, managers or strategies—and ready to nimbly integrate them into our income model strategies as appropriate.” Vanguard Increases Active Fixed Income Offerings Vanguard has grown its roster of active fixed income offerings with the launch of Vanguard Global Credit Bond Fund. The new actively managed fund will provide investors with diversified exposure to the U.S. and international investment-grade credit markets.The fund is actively managed to represent the global credit universe, which is comprised of U.S.D.-denominated (~65%) and non-U.S.D.-denominated (~35%, developed and emerging markets) investment grade securities, including those issued by corporate and non-corporate credit entities. The majority of the non-U.S.D.-denominated portfolio is hedged to the U.S. dollar to preserve the fund’s credit focus.“Vanguard has long been recognized as a fixed income leader, offering investors a comprehensive range of bond funds and ETFs covering corporate, government, and municipal markets of varying maturities,” says John Hollyer, global head of Vanguard Fixed Income Group. “The new Global Credit Bond Fund is an attractive option for investors seeking an active core holding with diversified, global exposure to credit.”The Global Credit Bond Fund, in keeping with all Vanguard actively managed fixed income funds, seeks to deliver consistent outperformance at a lower cost than most competing funds, thereby offering investors the potential for higher value over time. Broadridge Aligns with Tableau Software to Deliver Investment AnalyticsBroadridge Financial Solutions has partnered with Tableau Software to deliver analytics and visualization capabilities to Broadridge’s investment management clients. Clients will have seamless integration between the Broadridge Investment Management Data Warehouse and Tableau to provide self-service access to individualized analytics, customizable digital reports and interactive dashboards.By integrating Broadridge’s solutions with Tableau, Broadridge clients can explore trading and portfolio data, while intuitive, visual analytics enables them to seamlessly showcase their findings and empower more people with data-driven results.“Actionable data is at the forefront of everything today. Data aggregation and normalization is a constant pain point for the industry and getting it right for our buy-side clients is one of Broadridge’s competitive advantages,” says Eric Bernstein, Broadridge’s head of asset management solutions. “Tableau’s visual analytics platform, combined with our best-in-suite software, will provide insights and analytics into trading, portfolio and operations data at the speed of thought.”“As an organization’s needs rapidly evolve, the effective use of data is more critical than ever to ensuring success,” says Kim Minor, financial services market director at Tableau. “We’re thrilled to see Broadridge take advantage of Tableau’s open, flexible platform with the creation of this new offering that will help customers gain a competitive advantage with data. This is a powerful example of how embedded analytics can help deliver unique, mission-critical insights to customers quickly and easily.”Tableau’s visual analytics capabilities are available immediately for existing and prospective Broadridge investment management clients, including hedge funds, hedge fund administrators, asset managers, banks and prime brokers. The post Investment Product and Service Launches appeared first on PLANSPONSOR.
Categories: Industry News

Despite Improved Economy, Americans Still Feel Unprepared for Retirement

Plansponsor.com - Thu, 11/15/2018 - 12:02
Even with the economy faring well, a majority of American voters are less confident about their retirement prospects than they were five years ago, a survey by the Certified Financial Planner Board of Standards (CFP Board) and Heart + Mind Strategies found.More than 60% say it is harder to retire on time now than it was in 2013. Fifty-eight percent say it will be harder to retire on time in 2023. Sixty-two percent are confident they will be able to maintain their savings as they transition into retirement, but only 45% think their savings will last throughout their retirement.“By 2060, there will be more than 98 million Americans who are 65 or older,” says CFP Board CEO Kevin Keller. “People are also living longer than ever before. In many cases, retired Americans will need to support themselves for 10, 15, 20 or even 30 years, meaning people need to save earlier, save more and be better prepared for the financial challenges of retirement.”The survey found that 66% have less than $100,000 in household financial assets outside of their primary residence. Nonetheless, 33% say they have become more proactive about setting and following a financial plan, and 60% say they are likely to work with an adviser to determine a retirement plan.However, 23% are waiting three to five years before retirement to start working with an adviser. Among the group looking to work with an adviser, 82% want them to take their entire financial situation into consideration, and 79% say the adviser should work in their best interest all of the time.“As Americans start planning for retirement, they want to work with financial professionals who are competent in financial planning and who are required to work in their best interest to ensure they are set up for a secure, comfortable future,” Keller says. “CFP certification is the best-in-class standard for financial planning and requires all financial planners to always act as a fiduciary.”The CFP Board and Heart + Mind Strategies conducted the survey of 1,000 voters on election night.The post Despite Improved Economy, Americans Still Feel Unprepared for Retirement appeared first on PLANSPONSOR.
Categories: Industry News

Retirement Plan ERISA Litigation Trends Still Heating Up

Plansponsor.com - Thu, 11/15/2018 - 11:43
According to Jamie Fleckner, partner with Goodwin Procter, and Jodi Epstein, partner with Ivins Phillips & Barker, there is unlikely to be anything like a slowdown in the pace of Employee Retirement Income Security Act (ERISA) lawsuits filed against retirement plan sponsors and providers.The pair of ERISA attorneys spoke during the “Best of PSNC 2018” event in Boston. While both agreed there has been a lot of important progress made in ERISA lawsuits this year, they pushed back on the sentiment that the litigation landscape is at an “inflection point.”“Unfortunately, I don’t think we’re at an inflection point yet, because we are still right in the middle of this trend of expanding litigation,” Fleckner said. “There continues to be more and more litigation, and the signs are that this will continue to be the case, certainly through 2019 and likely beyond.”Fleckner pointed out that it has only been about a year and a half since large U.S. universities became the target of ERISA lawsuits, making for a fresh crop of claims and defense strategies. As Fleckner pointed out, these cases are generally filed against 403(b) plans, but given the focus on ERISA, the lessons learned are applicable for 401(k)s and other defined contribution plans.“At the same time, more plaintiffs’ lawyers are joining in,” Fleckner said. “It’s no longer just a small handful of high-powered litigation firms that are driving these lawsuits. A whole ecosystem of different types of litigators, claims and defendants has developed.”According to Fleckner and Epstein, much of the litigation rush can be tied to the fact that ERISA’s key concepts of “prudence” and “loyalty” are not set in stone.“The law is designed to give plan sponsors discretion, but by the same token, this also gives plaintiffs’ attorneys more latitude to file claims,” Fleckner said. “Ultimately, it’s left to judges to decide. Frankly, as a general matter, judges tend to know little about retirement plans or ERISA. These judges have diverse backgrounds, and that has led to diverse decisions.”Turning to some specific cases, Fleckner said the recent appellate court decision in a lawsuit alleging self-dealing Wells Fargo should be instructive for plan sponsors and consultants. In that case, the 8th U.S. Circuit Court of Appeals confirmed a lower court’s dismissal of claims alleging Wells Fargo engaged in self-dealing and imprudent investing of its own 401(k) plan’s assets by offering its own proprietary target-date funds (TDFs) to participants. In short, the appellate court agreed that allegations that the bank breached its fiduciary duty simply by continuing to invest in its own TDFs when potentially better-performing funds were available at a lower cost are insufficient to plausibly allege a breach of fiduciary duty. Specifically, the 8th U.S. Circuit Court of Appeals said the plaintiff did not plead facts showing that the Wells Fargo TDFs were underperforming funds. “This case shows the importance of motions to dismiss, from my perspective as a defense attorney,” Fleckner said. “It’s an important tool that plan sponsor defendants have to try and get a meritless case thrown out before going through an expensive discovery process. Unfortunately, because of judges’ lack of familiarity with these types of cases, most motions to dismiss in this area have been unsuccessful. Judges frequently decide that they can’t tell up front whether the fiduciary process was good or not without the discovery.”Still, Fleckner said it is important that a circuit court has now affirmed a motion to dismiss of this type, as it sets a precedent for all the trial courts in that circuit.“The trial judge said just showing that there was a cheaper alternative in hindsight is not enough to force discovery, and the circuit court agreed,” Fleckner said. “This is an important step, because district courts are bound to what the appellate court establishes. And disagreements among appellate courts could lead to the Supreme Court weighing in.”Fleckner noted that the 9th Circuit has also recently affirmed dismissal in a similar case involving Chevron.“These are hopeful signs, but we’re not necessarily at an inflection point yet,” Fleckner said. “What I can say is that judges are slowly getting a little more subtle in their understanding of ERISA issues, which may lead to fewer direct attacks on the use of proprietary funds and use of revenue sharing arrangements.”One area where judges have had less sympathy, Fleckner said, is where plan sponsors are offering more expensive share classes of a given fund when cheaper share classes of the same fund are available. If the plan sponsor cannot point to added value being derived from the extra fee—say, defrayal of recordkeeping fees via revenue sharing—this is a real issue from the perspective of the courts.  Another case plan sponsors and consultants can learn from is the recent litigation involving the University of Southern California (USC).“USC’s first defense was to argue that arbitration agreements should be enforced in this case, rather than allowing for a full ERISA class action trial,” Fleckner said. “This argument went up to 9th Circuit and was dismissed, with the court saying these agreements cannot preclude ERISA litigation. A Supreme Court review may be possible here, in my estimation. Important to note, the problem USC had in the 9th Circuit was more about the terms of the arbitration agreement, rather than about the general merits of this defense approach. Here, the agreement did not seem to cover the fact that participants would sue on behalf of the plan for a harm to the plan. The arbitration agreements at USC only covered individual claims. So, plan sponsors may reconsider these agreements and consider having an arbitration agreement created by the plan itself, in plan documents. Of course, there are pros and cons to arbitration. There is no appellate review and it’s not always cheaper or less risky.”Turning to the regulation front, Epstein encouraged plan sponsors and advisers to review recent actions having to do with automatic portability. She said regulators are “coming to realize that small-balance auto-rollover individual retirement accounts are languishing once they leave ERISA plans.” As such, providers are creating solutions to help connect participants with assets that may have been left behind.“These solutions are just coming online, and they present opportunities and challenges for plan sponsors and their consultants,” Epstein said.Next, Epstein urged attendees to review recently proposed IRS regulations pertaining to hardship withdrawal restrictions and requirements. As she explained, both the 2017 tax cuts and the 2018 Bipartisan Budget Act made changes to this area of the law, some of them potentially confusing for plan sponsors to address from a plan design perspective.Finally, Epstein encouraged attendees to review a recent favorable IRS determination letter issued to an employer that directs an employer contribution into its 401(k) plan to recognize employees’ repaying of student loan debt.The post Retirement Plan ERISA Litigation Trends Still Heating Up appeared first on PLANSPONSOR.
Categories: Industry News

Institutional Investors Set Principles for Firearms Industry

Plansponsor.com - Thu, 11/15/2018 - 11:04
A coalition of global institutional and private investors, including the $35 billion Connecticut Retirement Plans and Trust Funds (CRPTF), has released a set of principles for a responsible civilian firearms industry as part of their fiduciary responsibility to encourage the firearms industry to address gun safety issues.According to an announcement from Connecticut State Treasurer Denise L. Nappier, the five principles include:Principle 1: Manufacturers should support, advance and integrate the development of technology designed to make civilian firearms safer, more secure, and easier to trace.Principle 2: Manufacturers should adopt and follow responsible business practices that establish and enforce responsible dealer standards and promote training and education programs for owners designed around firearms safety.Principle 3: Civilian firearms distributors, dealers, and retailers should establish, promote and follow best practices to ensure that no firearm is sold without a completed background check in order to prevent sales to persons prohibited from buying firearms or those too dangerous to possess firearms.Principle 4: Civilian firearms distributors, dealers, and retailers should educate and train their employees to better recognize and effectively monitor irregularities at the point of sale, to record all firearm sales, to audit firearms inventory on a regular basis, and to proactively assist law enforcement.Principle 5: Participants in the civilian firearms industry should work collaboratively, communicate, and engage with the signatories of these principles to design, adopt, and disclose measures and metrics demonstrating both best practices and their commitment to promoting these principles.The principles would apply to public and private companies that are involved in the manufacture, sale and distribution of civilian firearms. They are focused on reducing risk, which Nappier says is a priority for institutional investors who have a fiduciary obligation to invest pension assets prudently and to monitor and manage risks. The five principles serve as a conversation starter for investors to use when engaging companies to be active participants in protecting and enhancing long-term portfolio values by ensuring risks are being appropriately monitored and addressed.The principles were conceived earlier this year when Harvard University Advanced Leadership Fellow Christianna Wood and Christopher J. Ailman, chief investment officer of the California State Teachers’ Retirement System (CalSTRS), convened a group of asset owners, asset managers, and financial institutions to design pragmatic principles for portfolio company engagement in the firearms industry that both gun manufacturers and retailers could embrace.Signatories, besides the CRPTF, include: the California Public Employees Retirement System; the California State Teachers’ Retirement System; the Florida State Board of Administration; the Maine Public Employees Retirement System; the Maryland State Retirement and Pension System; Nuveen, the asset manager of TIAA; OIP Investment Trust; the Oregon Public Employees Retirement Fund; Rockefeller Asset Management; the San Francisco Employees’ Retirement System; State Street Global Advisors; and Wespath Investment Management.The post Institutional Investors Set Principles for Firearms Industry appeared first on PLANSPONSOR.
Categories: Industry News

New Risk Assessment Required for DB Plans

Plansponsor.com - Thu, 11/15/2018 - 10:16
Actuarial Standard of Practice No. 51, Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and Determining Pension Plan Contributions, went into effect on November 1.The Actuarial Standards Board explains that “This actuarial standard of practice (ASOP) provides guidance to actuaries when performing certain actuarial services with respect to measuring obligations under a defined benefit pension plan and calculating actuarially determined contributions for such plans, with regard to the assessment and disclosure of the risk that actual future measurements may differ significantly from expected future measurements. Examples of future measurements include pension obligations, actuarially determined contributions, and funded status.”According to Eric Keener, senior partner and chief actuary of Aon’s U.S. Retirement practice in Norwalk, Connecticut, ASOP 51 applies when actuaries are performing what is referred to as a funding valuation, in which the actuary calculates the actuarially required contribution (ARC) for a defined benefit (DB) plan. He says these valuations are typically performed annually for private-sector DB plan sponsors. ASOP 51 also applies to projections of cash flows—for example, contributions that may be required several years in the future.Risks to be assessedASOP 51 says the actuary should identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition. Examples of risks include the following:investment risk (i.e., the potential that investment returns will be different than expected);asset/liability mismatch risk (i.e., the potential that changes in asset values are not matched by changes in the value of liabilities);interest rate risk (i.e., the potential that interest rates will be different than expected);longevity and other demographic risks (i.e., the potential that mortality or other demographic experience will be different than expected); andcontribution risk.“At the most basic level, the ASOP is asking actuaries to identify particular risks that could affect a plan’s funded status in the future, such as not meeting market assumptions,” Keener says. “The ASOP is not very prescriptive, so there is a fair amount of judgment the actuary may take. He may use a qualitative analysis and description or, on the other hand, he could do something more numerical, such as projections about how much the funded status could change depending on market and interest rate movements.” He adds that plan sponsors could have different views about how the actuary should carry out the assessment—whether they want a full asset/liability study or a more qualitative assessment.Keener says he thinks some actuaries are doing some of these things already. “Very often they are doing projections of funding contributions over several years using different scenarios—that can be part of ASOP 51,” he says. “There’s a bit of change in practice across the board, but how much change depends on how sophisticated an analysis an actuary was already doing.”According to Keener, right now, there is no requirement that the risk assessment be filed or reported to anyone but plan sponsors. However, he says that usually an auditor prepares financial statements annually for DB plan sponsors, and it might be that he would ask for this information, but that remains to be seen over time as things develop.A best practiceKeener says an actuary who is a member of an actuarial organization, for example, the American Academy of Actuaries, is bound by the codes of conduct of the Actuarial Standards Board and will have to perform the risk assessments required by ASOP 51. This is the majority of actuaries that are performing funding valuations.But, he thinks this will be considered a best practice for every actuary even if not a member of one of the actuarial organizations. Sometimes an enrolled actuary performs the funding valuation for a DB plan. Keener says he believes all will be somewhat following best practices.“Hopefully, what the ASOP will do is enable plan fiduciaries to understand the risks their plans may face and what those will mean for future contribution scenarios. The more informed plan sponsors are, the more they can avoid adverse actions,” Keener concludes.The post New Risk Assessment Required for DB Plans appeared first on PLANSPONSOR.
Categories: Industry News

SRI Holdings in ERISA Plans Gaining Ground, but Concerns Remain

Plansponsor.com - Wed, 11/14/2018 - 14:41
The U.S. Sustainable Investment Forum (U.S. SIF) recently published the “Report on U.S. Sustainable, Responsible and Impact Investing Trends 2018” that includes data indicating growth in the use of what it calls sustainable, responsible and impact (SRI) investment options in Employee Retirement Income Security Act (ERISA) retirement plans.The organization reports an uptick in SRI holdings from 2014 to 2016. The data was evaluated in light of Department of Labor (DOL) guidance on what it called economically targeted investments (ETIs). In October 2015 the DOL rescinded its 2008 bulletin on ETIs, which had discouraged some plan fiduciaries from considering what the industry calls environmental, social and governance (ESG) investments. But Interpretive Bulletin 2015-1 said “fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social or other such factors.” It went on to say that ESG funds can be proper components of a fiduciary’s financial analysis. A Field Assistance Bulletin in 2018 about environmental, social and governance ESG investing did not technically alter any previous DOL guidance related to ESG funds.The latest data available indicates that the number of plans investing in SRI funds grew 70% and assets in SRI plans grew 71% from $2.70 billion to $4.61 billion from 2014 to 2016. Meg Voorhes, director of research at US SIF says, “We have specialized research in the report but unfortunately it is a lagging indicator. We have 2016 year-end data for direct-filing entities that submit Form 5500 to the DOL and that report their underlying holdings.”What would encourage more ESG offerings in retirement plans? Despite the uptick in ERISA plans using ESG investment options, some are still wary of doing so.There are two ways of encouraging more ESG offerings in retirement plans, according to Lisa Woll, CEO of US SIF and the US SIF Foundation. “From the bottom up or the top down. You can talk to the corporate plans, the plan sponsors and the participants—I think [doing so] important. We’ve spent more time talking to members of businesses for social responsibilities for them to drive adoption in their own companies; we’ve put out numerous “how-to” guides for plans to add these options, but I also think that you have to drive knowledge for the participants themselves and have them ask [retirement plan sponsors] to add ESG options.”Jonathan Bailey, managing director and head of ESG Investing at Neuberger Berman, an investment management firm, says it has seen significant growth and interest in ESG investing by corporate plans that are not necessarily companies that are leaders in sustainability because their participants want to have these choices. Proving performanceAccording to Cerulli researchers, one of the biggest hurdles in turning ESG interest into actual investment, both by current users of ESG portfolios and non-users, is the perceived impact on investment performance.However, Calvert Investments analyzed data on ESG investing in various ways between June 2000 and December 2014, starting with ESG screens, then moving to stand-alone ESG investing and finishing by looking at a combination of traditional and ESG investing. “We find empirical evidence across each of these approaches that incorporating ESG factors into investment decisions improves the investment selection process and enhances risk-adjusted returns,” Calvert says. From December 31, 2008, through December 31, 2014, the Calvert Social Index (CSI) outperformed the Russell 1000 Index by 142 basis points on an annualized basis, Calvert says.More recently, Arnerich Massena said, “Businesses that incorporate sustainable practices are stronger and better prepared for the future, as well as more attractive to consumers.”RBC Global Asset Management’s third annual Responsible Investing Survey found a dramatic shift in attitudes toward ESG investing is visible among U.S. institutional investors, as 24% said they believe an ESG-integrated portfolio would outperform its counterpart, nearly five times the percentage in last year’s survey.Eliminating confusion from DOL guidanceGiven some of the strong language used to warn retirement plan fiduciaries against placing other interests ahead of the financial benefit of their participants, the latest DOL bulletin on the topic of ESG investing created some confusion. According to the DOL, the “sub-regulatory action” was not meant to substantially change the status quo with respect to ESG investing under ERISA, but instead merely to clarify how the new administration views existing regulations in this area.An analysis of the most recent DOL bulletin shared by Northern Trust Asset Management says the DOL has confirmed once again that pension managers can and should feel comfortable using ESG factors as an input in evaluating potential risk and financial return. According to Northern Trust, the most recent DOL bulletin is “meant to clarify and reinforce the prudent fiduciary investment process that must always take place,” rather than to say that ESG investing rules are reverting to the stricter standards that existed prior to the 2015 reforms.In a report, the Government Accountability Office (GAO) says in other cases where plans may face complexity, such as selecting a target-date fund or monitoring pension consultants, the DOL has provided general information, including items to consider and questions to ask. It suggests that the DOL do the same with ESG investing.ESG screening in more asset classes and more reliable dataMy-Linh Ngo, ESG investment specialist for RBC Global Asset Management’s London-based BlueBay Asset Management division, points out that equities have long been the primary focus of ESG analysis and investing, but these days ESG analysis is quickly moving beyond equities. Thirty-percent of respondents in the U.S. to RBC Global Asset Management’s third annual Responsible Investing Survey said it is important to incorporate ESG into fixed-income considerations.“Our company has a core belief that ESG considerations are investment additives, not a hindrance to performance,” Ngo says. “Thinking about ESG helps us to generate a more holistic and informed view of how companies are performing, or are likely to perform in the future. So, we are applying an ESG risk overlay across all of the fixed-income assets we manage. It is not something that we limit to niche funds.”Data shared by Natixis Investment Managers shows managers of corporate and public pension funds, foundations, endowments, insurance funds and sovereign wealth funds are embracing greater use of ESG investing programs. However, the research shows 45% of institutional investors feel it is difficult to measure and understand financial versus non-financial performance considerations when establishing ESG programs.Shared by fewer investors but perhaps even more concerning is the fear that publicly owned companies may be “greenwashing” reported data to enhance their image from the ESG investing perspective, cited by 37% in the survey pool. This is the same number that cited concern about a general lack of transparency and standardization by companies when it comes to reporting ESG-related information for the purposes of securities disclosures.“As industry acceptance of ESG integration has accelerated and becomes mainstream, there will be greater focus on ESG-related investment research and its application in the portfolio management process,” says Habib Subjally, senior portfolio manager and head global equities at RBC Global Asset Management (UK) Limited. “And as the demand for responsible investment solutions grows, asset managers and consultants will increasingly be called upon to offer guidance to their clients about responsible investing options that support their long-term financial goals.”See information about the use of ESG funds in retirement plans from U.S. SIF.The post SRI Holdings in ERISA Plans Gaining Ground, but Concerns Remain appeared first on PLANSPONSOR.
Categories: Industry News

Analysis Shows Impact of Financial Wellness Programs on Retirement Readiness

Plansponsor.com - Wed, 11/14/2018 - 11:58
Financial Finesse’s “Special Report: The ROI of Improving Employee Retirement Readiness” found that financial wellness programs are succeeding in helping people prepare for retirement. When workers are continuously engaged in a financial wellness program, their financial health moves from 4.0 to 6.0 on a 10-point scale. Additionally, they increase their retirement contribution rates by 38%.The average age at which workers could retire and replace 80% of their income moves from 68.5 to 66.96. For a company with 50,000 employees, that could lead to annual savings of $65 million to $97 million a year. Citing a 2017 study by Prudential, Financial Finesse says that each employee who does not retire costs a company more than $50,000 a year.Reduction in retirement age occurs across all ages, with employees younger than 35 seeing a reduction of 2.67 years, and older employees seeing a reduction of one year. Even modest improvements in employee financial wellness generate meaningful savings. For instance, if their financial health moves from 4.0 to 5.0, they tend to increase their retirement savings by 17.85%—and this could result in their being able to retire a year earlier. For a company with 50,000 employees, this could result in annual savings of $33 million to $49 million.“Repeat engagement in financial wellness programs drives improvement in overall financial health, so this isn’t a one-and-done process,” Financial Finesse says. “Improvements are incremental and increase with the number of interactions. Companies that offer financial wellness benefits should focus on creating multiple channels to reach employees and develop techniques that encourage continuing engagement in the program. Retirement plan design practices, such as auto-enrollment and auto-escalation, are foundational, and should be incorporated with an easy-to-use retirement calculator and unlimited access to financial coaching.”At the current median contribution rates, Financial Finesse estimates that the average age Americans can retire is 68 years and 11 months.When people engage with a financial wellness coach more than five times, they are more confident about their retirement outlook, with 47% of these people saying that they know they are on target to replace 80% of their income in retirement.  By comparison, only 26% of those who only used an online financial wellness program share this confidence. “For those companies whose employees have predictable day time work schedules, coaching can be offered in person at the worksite,” Financial Finesse says. “In industries with 24-hour work schedules, financial wellness programs will reach more employees if financial coaching is offered by telephone or computer screen-sharing.”Financial Finesse’s findings are based on an analysis of 18,148 employees who participated in their workplace financial wellness program between 2011 and 2018.The post Analysis Shows Impact of Financial Wellness Programs on Retirement Readiness appeared first on PLANSPONSOR.
Categories: Industry News

Boost in Balances Giving Retirement Savers False Sense of Security About Retiring Early

Plansponsor.com - Wed, 11/14/2018 - 10:31
The average age that Americans plan to retire is 62, down from 64, when MassMutual conducted its last State of the American Family Study. Forty percent of Americans plan to retire before the age of 60, up from 32% five years ago. Only 22% plan to retire after age 65, down from 30% in 2013.However, only 56% of people have calculated how much income they need to retire. In 2013, that figure was 61%.“There is greater optimism about retirement and people’s ability to retire sooner rather than later, which may be attributed to the growth in the financial markets and a spike in Americans’ retirement savings during the past five years,” says Tom Foster, national spokesperson for MassMutual’s Workplace Solutions unit. “However, many Americans may have a false sense of security when it comes to being ready to retire.”Eighty-four percent of those surveyed own a retirement product, such as a 401(k), 403(b) or individual retirement account (IRA). Five years ago, only 82% owned such a product.Forty-seven percent of those surveyed said they were confident about being able to retire, up from 45% in 2013. However, 35% worry about outliving their retirement savings, up from 33% five years ago.Citing data from the Employee Benefit Research Institute, MassMutual says the average 401(k) balance in 2016 was $75,384, up from $72,383 in 2013. Among those who saved consistently during those years, the average balance was $167,330 in 2016, up from $121,152 in 2013.“We urge pre-retirees to calculate their projected income and expenses in retirement before taking the plunge, to ensure they are financially prepared for retirement,” Foster says. “While 401(k) balances are healthier than they were five years ago, they may not necessarily be sufficient to support the income needed for so many early retirements. Look before you leap.”Isobar conducted the online survey of 3,235 Americans with household incomes of more than $75,000 for MassMutual in January and February.The post Boost in Balances Giving Retirement Savers False Sense of Security About Retiring Early appeared first on PLANSPONSOR.
Categories: Industry News

Regulators Release Informational Copies of 2018 Form 5500

Plansponsor.com - Wed, 11/14/2018 - 09:59
The Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA), the IRS and the Pension Benefit Guaranty Corporation (PBGC) released advance informational copies of the 2018 Form 5500 Annual Return/Report and related instructions.The advance copies of the 2018 Form 5500 are for informational purposes only and cannot be used to file a 2018 Form 5500 Annual Return/Report.The “Changes to Note” section of the 2018 instructions highlights important modifications to the Form 5500 and Form 5500-SF and their schedules and instructions, including:Principal Business Activity Codes. Principal Business Codes have been updated to reflect certain updates to the North American Industry Classification System (NAICS);Administrative Penalties. The instructions have been updated to reflect an increase to $2,140 per day in the maximum civil penalty amount assessable under Employee Retirement Income Security Act (ERISA) Section 502(c)(2), as required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.  The increased penalty under section 502(c)(2) is applicable for civil penalties assessed after January 2, 2018, whose associated violation(s) occurred after November 2, 2015;Form 5500-Participant Count. The instructions for Lines 5 and 6 have been enhanced to make clearer that welfare plans complete only Line 5 and elements 6a(1), 6a(2), 6b, 6c, and 6d in Line 6;List of Plan Characteristics Codes for Lines 8a and 8b (Lines 9a and 9b for SF filers). Plan characteristic code 3D, has been updated to reflect the IRS changes on the pre-approved plans as prescribed in Revenue Procedure 2017-41;Schedule MB-Contributions. The instructions for Line 3 have been modified to require an attachment in situations where a reported contribution to a multiemployer plan includes a withdrawal liability payment;Schedule MB-Plan in Critical Status or Critical and Declining Status. The instructions for Line 4f (where multiemployer plans expected to become insolvent or emerge from troubled status report the year in which such insolvency or emergence is expected to occur) have been modified to require an attachment providing additional information about how that year was determined. In addition, the instructions now include guidance about what to report if a troubled plan is neither projected to emerge from critical status nor become insolvent within 30 years;Schedule SB-Mortality Tables. Line 23, where filers check a box to indicate which set of mortality tables is used, has been updated to provide additional options available under Treas. Reg. Section 1.430(h)(3). The instructions for Line 23 have been modified to reflect this change;Schedule SB.  Schedule SB has been updated to reflect the issuance of Revenue Procedure 2017-56 with respect to change in funding methods. Line 23 has been updated to reflect final regulations prescribing mortality tables to be used by most defined benefit (DB) plans. Line 27, Codes 5 and 8 are no longer applicable and should not be used. Lines 42 and 43 have been removed; pursuant to the Pension Relief Act of 2010, there are no installment acceleration amounts or installment acceleration amount carryovers after the 2017 plan year; andSchedule R. Schedule R has been updated to reflect the issuance of Revenue Procedure 2017-56, 2017-44, with respect to the change in funding methods. Also, the Schedule R instructions under “Who Must File” have been updated to reflect the removal from Schedule R of certain IRS compliance questions.Information copies of the forms, schedules and instructions are available online here.The post Regulators Release Informational Copies of 2018 Form 5500 appeared first on PLANSPONSOR.
Categories: Industry News

Eighty Percent of Employers Focusing on Reducing Health Benefit Costs

Plansponsor.com - Wed, 11/14/2018 - 09:29
Eight in 10 employers surveyed by the Transamerica Center for Health Studies (TCHS) say they are doing something to manage health benefit costs.Among the 1,350 employers surveyed, about three in 10 (29%) say they are offering a variety of preferred provider organization (PPO) plans, encouraging use of generic medications (28%), and offering a health maintenance organization (HMO) plan (28%). More than one-quarter (27%) are providing incentives or rewards for making changes to improve employee health and wellness, and 24% say they are creating an organizational culture that promotes health and wellness.Only 21% are offering consumer-directed health plans that use health savings plans (e.g., health reimbursement arrangements or health savings accounts).Most employers, regardless of size, are as concerned about the affordability of health insurance for their employees (73%) as they are about employees being able to afford their out of pocket health care expenses (72%). The majority that are concerned about affordability (89%) are taking some action to combat cost, most commonly looking into finding ways to reduce premiums (36%), comparison shopping for the best health insurance options across carriers (36%), and educating employees about how to reduce their out-of-pocket health care costs (35%).Despite concerns about costs for employees, 40% of employers surveyed say they are at least somewhat likely to reduce their contribution to health benefits.About four in five employers believe their wellness programs have had a positive impact on workers’ health (79%), productivity and performance (77%), and about seven in 10 (71%) see a positive impact on company health benefit costs. However, more than one-third of employers (36%) say they do not offer these types of programs to their employees.The survey report is here.The post Eighty Percent of Employers Focusing on Reducing Health Benefit Costs appeared first on PLANSPONSOR.
Categories: Industry News

Having a ‘Planning Mindset’ Associated With Positive Retirement Outcomes

Plansponsor.com - Wed, 11/14/2018 - 08:37
Wells Fargo Institutional Retirement and Trust has published its ninth annual Retirement Study, finding once again that employees are being asked to shoulder more responsibility for directing their own retirement savings effort.Lori Lucas, president and CEO of the Employee Benefit Research Institute, helped Wells Fargo leaders Joe Ready, head of Wells Fargo Institutional Retirement and Trust; and Fredrik Axsater, executive vice president and head of strategic business segments for Wells Fargo Asset Management, contextualize the findings. She added insight from EBRI’s own independent research, which harmonizes with many of the finding established by Wells Fargo’s analysis.According to Ready and Axsater, probably the most important overall finding in this year’s analysis is the strong positive impact on participant outcomes associated with having “a planning mindset.” This is to say that Wells Fargo uncovered four specific participant characteristics that correlate with a significantly better financial life—including lower levels of reported financial stress and greater reported financial outcomes. These characteristics include having set a specific money-related goal in the preceding six months; having previously set a specific long-term financial goal, such as a retirement age or savings level; feeling good about planning financial matters in general over the next one or two years; and preferring to save for retirement now rather than waiting until later.“Employees just starting out in the workforce today face a retirement savings and spending journey of 60 to 70 years, and they are being made responsible for managing more of this effort on an individual basis,” Ready said. “Those closer to retirement still have a savings and investing horizon that is 25 or 30 years, or longer. Regardless of income, establishing a financial plan today and maintaining a focused set of financial goals can deliver many benefits.”  Ready and Axsater observed how the planning mindset cuts across household income levels, with some evidence to suggest those with higher incomes are somewhat likelier to have a planning mindset. In particular, Wells Fargo finds 33% of workers with a planning mindset have household incomes below $75,000.Across all workers surveyed, 84% of those with a planning mindset say they regularly contribute to retirement savings, versus 66% who do not report having this mindset. At the same time, fewer people with the planning mindset envision living to age 85 or longer as being likely to cause financial hardship.Spending down of DC assets remains a big challengeReady and Axsater pointed to various findings showing employees are eager to receive more guidance and support when it comes to spending down DC plan assets.Lucas here offered insight from EBRI’s research efforts, including a recent Issue Brief, “Asset Decumulation or Asset Preservation? What Guides Retirement Spending?”As Lucas explained, the data shows retirees are actually not spending down their accumulated assets to fund their retirement needs—even when assets are plentiful or when there is guaranteed income available to ensure that retirees will not run out of money. EBRI’s analysis found that regardless of pre-retirement asset size, rates of decumulation are low. Over an 18-year period following retirement, median assets declined only 24% for the low asset group of retirees—from $31,740 immediately after retirement to $24,000 eighteen years later. Lucas said this is was surprising to learn, but also somewhat intuitive.“It is not ‘irrational’ for lower-asset households to hold on to their assets as long as possible,” she said.EBRI found similar patterns when assets are greater. For the moderate asset group, median non-housing assets declined 27% (from $333,940 immediately after retirement to $243,070 18 years later). For those with the most substantial assets—starting with a median of $857,450 immediately after retirement, the decumulation rate was less than 11% (to $763,900 18 years later).Lucas pointed out how having guaranteed income for life, such as a pension, didn’t make retirees more likely to spend down their assets. The study found that of all the subgroups studied, pensioners had the lowest asset spend-down rates.“This suggests that if the goal is to avoid spending down assets, pensioners are best suited to achieve it. In other words, if retirees seek to limit their spending to their regular flow of income, such as pension, Social Security income, or other annuity income, then pensioners are indeed best suited to avoid asset decumulation, as they have more regular income than others,” EBRI found.Asked for her personal take on this situation, Lucas said it also shows that retirees, unlike on the accumulation side of things, lack a framework for guiding their retirement spending decisions. And so, many of them revert to cautious attitudes, “and there is the fact that saving and frugality are generally considered to be virtuous behavior.”“I would also point out that most individuals say they are happy in retirement and do not need to spend a lot to be happy,” Lucas said. “They say that having their nest egg intact, as a form of independence and security, makes them happier than anything material or discretionary they may be able to buy with the money.”Additional findingsReady and Axsater observed that users of 401(k)s do not see them as strictly a means for accumulating lump-sum savings. Eighty-six percent of workers agree that it would be valuable if their plan provided a statement on how much they could spend each month in retirement, based on their current and projected savings.According to the survey, younger workers would like to see their employer provide more help with their long-term retirement planning choices. Seventy-three percent of Millennial workers and 63% of Generation X workers say they would like more help from employers, compared with 50% of Baby Boomers.In closing the presentation, the trio of speakers voiced optimism about the prospects for continued progress on solving retirement issues here in the U.S.—both from a public policy and private industry perspective. Ready said providers and plan sponsors can be proud of the fact that employees generally perceive their retirement plan offerings as being high quality and as having a strong positive impact on their financial lives. As the survey shows, 92% of workers say they feel more secure about retirement because they have contributed to a 401(k), and 82% of those with access to a 401(k) say they would not have saved as much for retirement at this stage if not for the 401(k).The post Having a ‘Planning Mindset’ Associated With Positive Retirement Outcomes appeared first on PLANSPONSOR.
Categories: Industry News

ERISA Litigation Landscape Mapped by LexisNexis

Plansponsor.com - Wed, 11/14/2018 - 06:00
Lex Machina, a LexisNexis company, announced the latest expansion of its legal analytics platform, featuring the addition of Employee Retirement Income Security Act (ERISA) litigation cases.The firm offered PLANSPONSOR a sneak peek at some of the first findings generated by the ERISA analytics platform. According to the firm, the module encompasses nearly 83,000 cases filed in federal district court since 2009.Carla Rydholm, director of product at Lex Machina, says cases initiated by plan participants or beneficiaries involve alleged disputes over the administration or funding of various types of ERISA-protected employee benefits plans, including life, health, retirement, pension, profit-sharing, health care savings accounts and more.With the launch of its latest module, she says Lex Machina already uncovered a variety of trends across all the flavors of ERISA litigation. Notably, the vast majority of ERISA cases are either settled pre-trial or were dismissed via summary judgment or contested dismissals. According to the analytics platform, fewer than 2% of cases proceed to trial.“ERISA cases resolve with a default judgment about 11% of the time,” the firm says. “This is a large percentage of default judgments compared to other practice areas. A sizeable amount of these defaults are probably delinquent contribution claims, because employers who are unable to pay their contributions likely are unable to pay to defend a lawsuit.”As the firm explains, a delinquent contribution case “usually involves a union or employee suing an employer for failure to pay contractually obligated contributions into a pension.” In looking at cases based on a delinquent contribution claim, defendants are receiving favorable judgment on the pleadings nearly six-times more often than claimants. However, if the case gets to summary judgment, claimants win about 58% the time. The firm finds more than $4 billion in damages have been awarded in ERISA cases since 2009.“On the other hand, cases involving a claim denial are rarely resolved with a default judgment and have a significant number of summary judgment case resolutions,” the firm finds. “This may affect the length of a case, as the median time to summary judgment in a claim denial case is 471 days.”According to the new analytics platform, the U.S. Department of Labor (DOL) is very active in the filing of enforcement actions on behalf of employees; these cases result in a consent judgment 60% of the time.In running this analysis, Lex Machina found the Northern District of Illinois is the top venue for ERISA cases with 10% of all ERISA cases.“This can be attributed to external factors such as region’s heavy union presence and having the large metropolitan area of Chicago as part of the federal district,” Rydholm says.ERISA industry contextThe move to do more ERISA analysis at LexisNexis comes after years of increased concern about litigation from retirement plan fiduciaries and their service providers. ERISA litigation experts agree the glut of lawsuits has been a long time coming and is the result of several concurrent trends—and steam has clearly picked up in recent years thanks to a highly active plaintiffs’ bar.Emily Costin, partner at Alston & Bird, says the roots of current litigation trends go back to at least 2005 and the start of a new regulatory focus on fee and conflict of interest disclosures.“Then came the financial crisis of 2008, which ushered in a wave of stock drop litigation,” she explains. “At this stage, those early stock drop cases have largely been litigated or settled and have faded as we get further away from 2008. In addition, the Supreme Court’s influential decision in Fifth-Third Bank vs. Dudenhoeffer has made it a lot more difficult for plaintiffs in stock drop cases to prove standing.”With stock drop cases fading somewhat to the background, the new hot topic for litigators has become self-dealing by providers and conflicts of interest in recordkeeping and investment management arrangements. All of the cases center on the deceptively simple question of whether a tax-qualified retirement plan is profiting the plan sponsor (directly or indirectly) to the expense of participants.Attorneys and insurance experts like Costin say that federal court judges have tended to allow more of these self-dealing type cases to move forward compared with the earlier stock drop wave, and plaintiffs have also had some success getting beyond the summary pleading and dismissal stage in cases focused on reasonableness of fees for recordkeepers.According to Rydholm, ERISA litigation will remain one of the most complex and intricate areas of the law, with the majority of cases decided pre-trial or on bench decisions. As with all the firm’s legal analytics practice areas, the ERISA module spotlights the track records of opposing counsel and parties, the experience and behaviors of judges, case outcomes by federal district, and other critical factors, such as case timing, findings, and damages, which play a critical role in determining case strategy.For more information, visit www.lexmachina.com.The post ERISA Litigation Landscape Mapped by LexisNexis appeared first on PLANSPONSOR.
Categories: Industry News

Fidelity Publishes Global Retirement Guidelines

Plansponsor.com - Wed, 11/14/2018 - 00:30
Just like in the United States, workers around the globe are being asked to assume greater responsibility for their retirement savings.To recognize this trend, Fidelity has introduced a set of international retirement savings guidelines to help multinational companies and their employees. The first set of guidelines is tailored to help international employers identify the unique financial hurdles faced by workers in the U.K., Germany, Japan, Hong Kong and Canada.Jeanne Thompson, senior vice president and head of workplace solutions thought leadership for Fidelity, tells PLANSPONSOR the new guidelines should offer a practical framework to help global employers begin to understand how much money different workers need to save for a stable retirement. And even for U.S.-only employers, the guidelines will help demonstrate how assumed difference in longevity, access to private/public pension funds and various other factors impact a given working population’s retirement prospects.“These guidelines can be part of an innovative international benefits program and can help employers monitor and encourage good retirement savings habits in a consistent manner across their regional workforces,” Thompson says. “The global retirement savings guidelines, which leverage a U.S. framework also known as ‘10X’ or age-based savings guidelines, are based on two metrics every worker knows—their age and salary.”This provides workers and employers with a straightforward approach to understanding how much they should have in savings, as a multiple of their salary at specific age milestones. The projections become even more helpful when combined with locally relevant financial and demographic assumptions.How much to save across geographies As Thompson explains, Fidelity’s global retirement savings guidelines are based on several key assumptions and calculate a suggested annual savings rate and age-based savings milestones for each country. The guidelines also include a target income replacement rate and a “probable sustainable withdrawal rate,” which helps workers understand how much they will be able to withdraw from their savings each year without running out of money in retirement. In the United Kingdom, the guidelines for workers are to save a total 13% of their annual salary each year and aim to have saved seven-times their salary by retirement.“This will put them on track to replace 35% of their pre-retirement income, which we estimate, when combined with their government pension, may enable them to maintain a pre-retirement lifestyle throughout retirement,” Thompson says, noting that Fidelity’s guidelines for U.K. workers are based on a 5% sustainable withdrawal rate in retirement.Fidelity finds certain savings guidelines for workers in Germany are similar to those for U.S. workers. Notably, workers in Germany are encouraged to aim to have saved 10-times their final salary upon retirement, which will replace 45% of their pre-retirement income.“The 4.6% withdrawal rate is consistent with the 4.5% withdrawal rate for U.S. workers,” Thompson says. “However, German workers are encouraged to save 21% of their salary each year.”Facing an even more challenging savings picture, workers in Hong Kong are encouraged to save 12-times their final salary and have a suggested savings rate of 20%, which will put them on track to replace nearly half (48%) of their pre-retirement income. According to Fidelity, Hong Kong workers’ 4.1% sustainable withdrawal rate is the second lowest, only higher than Japan’s.“The savings milestones are higher than the U.S. guidelines for several reasons, including the assumed retirement age in Hong Kong is earlier, the expected lifespan is longer and the assumed investment returns are on the lower end of the spectrum,” Thompson says.Workers in Japan have a suggested savings rate of 16% of their annual salary, which is similar to the savings rate for U.S. workers, but Japanese workers are estimated to only need to aim to save seven-times their ending salary and replace 36% of their pre-retirement income. Workers in Japan have the lowest probable sustainable withdrawal rate (3.9%) due to the lowest expected long-term investment returns among the regions.In Canada, the retirement savings rate for workers is only slightly higher than the rate for their counterparts in the U.S. The suggested savings rate for Canadian workers is 16% and with a target of saving 10-times their final salary, which will replace nearly half (45%) of their pre-retirement income. The suggested withdrawal rate of 4.5% is in line with the U.S.Interpreting the findings for U.S. employersThe guidelines show broadly how having an employer based pension plan reduces the amount a person has to save, as well as the “X factor” at retirement, as they would be receiving income from their pension, so would therefore have to save less.According to Fidelity, for every 1% of projected retirement income replacement from a pension, the required personal income replacement rate naturally declines by 1%, which has the effect of lowering savings rates and savings milestones. For example, in Germany where the state/government pension is estimated to replace approximately 41% of pre-retirement income and the suggested personal income replacement rate is 45%, Fidelity suggests a 21% savings rate and a savings milestone of 10-times.However if the person had 10% of their retirement income coming from a pension plan, they could reduce the savings rate from 21% to 16% and X factor would drop from 10-times to seven-times. By the same token, if a person expects 20% of their retirement income to come from a pension plan, they could reduce the savings rate from 21% to 12% and X factor would drop from 10-times to 5-times.The post Fidelity Publishes Global Retirement Guidelines appeared first on PLANSPONSOR.
Categories: Industry News

DOL Clarifies Fiduciary Roles in Auto-Portability Solution

Plansponsor.com - Tue, 11/13/2018 - 13:14
The Department of Labor (DOL) has issued an advisory opinion letter in response to a request by J. Spencer Williams, founder, president and CEO of Retirement Clearinghouse (RCH), for the Department’s opinion on the status of certain parties as “fiduciaries” within the meaning of Section 3(21)(A) of the Employee Retirement Income Security Act (ERISA) and Section 4975(e)(3) of the Internal Revenue Code (Code) as a result of actions undertaken as part of RCH’s Auto-Portability Program.The letter provides details of the program, but basically, the RCH Program portability services related to the request involve automatic rollovers of mandatory distributions and account balances from terminated defined contribution plans into default IRAs and the subsequent automatic roll-in of funds in the default IRAs to an individual account plan maintained by a new employer when the IRA owner changes jobs.Plan sponsor responsibilitiesAccording to the DOL, when plan sponsors or other responsible fiduciaries choose to have a plan participate in the RCH Program, they are acting in a fiduciary capacity, and would be subject to the general fiduciary standards and prohibited transaction provisions of ERISA in selecting and monitoring the RCH Program. “Fiduciaries must act prudently and solely in the interest of the plan’s participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable plan administration expenses, and must comply with the documents and instruments governing the plan to the extent consistent with the provisions of Titles I and IV of ERISA,” the letter says.In addition, the DOL says, plan fiduciaries considering the RCH Program are responsible for ensuring that the RCH Program is a necessary service, a reasonable arrangement, and the compensation received is no more than reasonable within the meaning of ERISA Section 408(b)(2) and Code section 4975(d)(2) (including the Department’s implementing regulations). “Thus, the responsible plan fiduciaries must evaluate the package of services and separate service providers that are part of the RCH Program and conclude that the services, including the portability services, are appropriate and helpful to carrying out the purposes of the plan, and that the compensation paid or received by the service providers is no more than reasonable taking into account the services provided and available alternatives,” according to the letter.The Department adds that the responsible plan fiduciaries must also monitor the arrangement and periodically ensure that the plan’s continued participation in the program is consistent with ERISA’s standards.However, the DOL notes that a plan sponsor that may be a fiduciary with respect to certain activities regarding the RCH program are not necessarily fiduciaries with respect to all aspects of the program.With the RCH program, once the assets are transferred to the default IRA, the plan sponsor of the former employer’s plan has no discretion or authority over the decisions of the IRA owner or RCH related to any future transfer of the default IRA assets. “It is the view of the Department that the plan sponsors of the former and new plans would not be acting as a fiduciary with respect to the decision to transfer the individual’s default IRA into the new employer’s plan. Once a plan fiduciary properly distributes the entire benefit to which a plan participant is entitled, the distribution ends the individual’s status as a participant covered under the plan and the distributed assets are no longer plan assets under ERISA,” the letter says.RCH’s fiduciary responsibilitiesUnder the Auto-Portability Program, before RCH transfers default IRA funds to a new employer’s plan, the new employer’s plan must adopt the RCH Program under which it will acknowledge that the transfer of IRA funds is consistent with the plan’s terms and that it will accept the roll-in. RCH will notify the participant and seek affirmative consent to the transfer. But, if the participant does not affirmatively consent after receiving the notices, RCH will assume responsibility to direct the roll-in from the default IRA or RCH IRA acting as a conduit into the individual’s current employer plan.The DOL says that absent affirmative consent of the IRA owner/participant, RCH acts as a fiduciary within the meaning of Section 4975(e)(3) of the Code in deciding to transfer the individual’s RCH default IRA to the individual’s new employer plan. The individual’s failure to respond to the RCH Program communications about default transfers is not tantamount to affirmative consent by the participant/IRA owner to default transfers to the new employer’s plan, and does not relieve RCH from fiduciary status and responsibilities.The DOL notes that unlike regulations with respect to the default transfer of a participant’s account into an IRA, no similar statutory or regulatory provision provides relief from fiduciary responsibility for “default” transfers of the IRA funds to the new employer’s plan.The letter does not address the prohibited transaction implications of RCH receiving additional fees as a result of exercising fiduciary discretion in the transfers. It has applied for an individual exemption under ERISA Section 408(a) and Code section 4975(c)(2) for certain transactions involved in its program, and the DOL has requested comments about the proposed exemption.The post DOL Clarifies Fiduciary Roles in Auto-Portability Solution appeared first on PLANSPONSOR.
Categories: Industry News
Syndicate content