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Westwood Looks to Disrupt Active Management with More ‘Sensible Fees’

Plansponsor.com - Tue, 11/19/2019 - 13:51
Investment manager Westwood Holdings Group Inc., in an effort to further innovate and align with investors, has launched its “Sensible Fees” pricing model for three mutual funds operating within its newly-formed Multi-Asset franchise.The new performance fee structure is available in Westwood’s Alternative Income, High Income and Total Return Funds. The firm suggests its Alternative Income Fund will be the first of its kind to incorporate a performance fee in its corresponding Morningstar Market Neutral category.Westwood contends that in the aftermath of the 2008 financial crisis, alternative mutual funds have failed to align expense ratios with the risk and return potential of underlying investment strategies and have often been overpriced. “Over the last five years, expenses in most major alternative liquid categories have average fees that range from nearly 40% to 63% of gross returns, which hurts conservative investors looking for low, single-digit returns to diversify bond portfolios. Sensible Fees help mitigate this disconnect, better aligning with the investor by not charging high fees when a fund fails to generate excess returns and only having the investor pay a proportionate fee as a share of valued-added performance,” the company says.“We believe this new model serves as a catalyst for mutual fund investors at a time when [exchange-traded funds] and index funds may likely disappoint investors due simply to potentially lower market returns over the next 10 years. Sensible Fees funds will enable investors to pay a low index or ETF-like fee while only charging a higher active management fee when fund performance objectives exceed the benchmark,” said Phil DeSantis, head of product management at Westwood in Dallas, Texas, when the new approach was initially offered in conjunction with Westwood’s “best ideas” high-conviction LargeCap Select strategy back in March.Sensible Fees and aligning with investor goalsSensible Fees combine a zero or passive-like base fee plus a linear fee directly linked to risk-adjusted outperformance only when it is earned.In an interview with PLANSPONSOR, DeSantis says there is a disconnect between what asset owners and asset managers are trying to solve for. Getting this in alignment transcends fees; it’s aimed at changing the probability of winning for investors.“With U.S. Large Cap, the cost of beta sets the base fee. ETFs charge seven to nine basis points on average, but we use a zero-based fee. Then we use alpha to measure outperformance. We wanted to get hyper-specific around that measurement because we want to get paid on real skill, not on taking excessive beta or market risk,” he says. “We charge 30% of alpha, and the client retains 70% of outperformance. We do this over a 1- or 3-year rolling period, with built in clawbacks based on negative performance experiences.”DeSantis explains that in one of the mutual funds converted from a fixed fee to a performance-based fee—the Alternative Income Fund—the base fee is 35 basis points (bps), “as close as we come to cost of beta.” When solving for the potential of the asset class, Westwood determined that a return 3% or 4% higher than cash would qualify as top percentile outperformance. “We don’t start earning an active fee until we start outperforming the benchmark, up to 4%. We earn 0.67% if we outperform by 2% and 0.99% if we outperform by 4%,” he says. DeSantis notes that the Alternative Income Fund is designed to complement bond funds, which generally have expense ratios of 2.5%.Bringing investors back to active investingIn August, Morningstar reported that preliminary numbers showed passive U.S. equity assets passed active U.S. equity assets by about $25 billion.DeSantis comments that in the institutional investment space, business has been done a certain way for a long time, and Westwood’s Sensible Fees construct is new. “Nothing is going to change on a dime. There is an educational process that needs to take place,” he says.Steve Paddon, head of Distribution at Westwood in Dallas, Texas, says, “I don’t think [our model] is a replacement for passive investing, it’s an alternative. If investors want alpha, our approach aligns with that proposition better. I don’t know that investors that have given up on active will revisit it, but it is a great way for those who want active to get better outcomes.”According to DeSantis, the alignment of investor and manager interests is a big topic in the institutional market, and he contends that fixed fees in some ways prohibit the pure alignment of interests. “One of the problems in active management is there’s a cyclicality—some years managers outperform, some years they underperform. The mathematical and psychological disconnect has sort of forced institutional investors to take the path of least resistance. The thought is that it’s easier to go passive and not take the risk of active, because fees are an important topic,” he says.Westwood believes its Sensible Fees model can change the conversation. “We’re active managers whose job is to deliver alpha. All else equal, we can change the probability of outperformance. The investment strategy is the most important thing; our fee model allows us to manage the cyclicality of active management. It sort of levels the playing field with indexing by only paying for the cost of beta and only paying for alpha when it’s occurring. It’s different from paying a fixed fee when the outcome is uncertain,” DeSantis says.He points to Japan’s Government Pension Investment Fund (GPIF)—the largest in the world—and more recently the University of California moving their portfolios towards the active side as being indicative of the future. “They are asking asset managers to create constructs similar to ours. This is important because the largest pensions in the marketplace can negotiate any fixed fee they want, but see these constructs as a better alignment with their goals,” DeSantis says.“From a bigger picture, we want to deliver our investment services in the most flexible way to investors—competitive fixed fees and the Sensible Fee model. It is part of our value proposition to offer world-class investment management with fees aligned with investor’s outcomes,” Paddon concludes.More information is available here.The post Westwood Looks to Disrupt Active Management with More ‘Sensible Fees’ appeared first on PLANSPONSOR.
Categories: Industry News

Information Copies of 2019 Form 5500 Published by DOL

Plansponsor.com - Tue, 11/19/2019 - 13:00
In concert with the IRS and the Pension Benefit Guaranty Corporation (PBGC), the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) has released advance informational copies of the 2019 Form 5500 Annual Return/Report and related instructions.The “Changes to Note” section of the 2019 instructions highlights important modifications to the Form 5500 and Form 5500-SF, as well as to their schedules and instructions.As required by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the instructions have been updated to reflect an increase to $2,194 per day in the maximum civil penalty amount assessable under Employee Retirement Income Security Act (ERISA) Section 502(c)(2). Technically, the increased penalty under section 502(c)(2) is applicable for civil penalties assessed after January 23, 2019, whose associated violations occurred after November 2, 2015.The advance copies of the 2019 Form 5500 are for informational purposes only and cannot be used to file a 2019 Form 5500 Annual Return/Report.Other notable changes include the following:Form 5500, Line 2d – The instructions to line 2d of the Form 5500 have been clarified on how to report the plan sponsor’s business code for multiemployer plans.Schedule H Part III / Accountant’s Opinion – The instructions for lines 3a(1), 3a(2), 3a(3), and 3a(4) have been revised to align with the language in the clarified generally accepted auditing standards, AU-C 700, “Forming an Opinion and Reporting on Financial Statements,” and AU-C 705, “Modifications to the Opinion in the Independent Auditor’s Report.”Schedule SB Mortality Tables – Line 23 has been revised to eliminate mortality table options that are not available after 2018.Schedule R – A new line 20 has been added to obtain information related to PBGC reporting requirements resulting from unpaid minimum required contributions. Only PBGC-insured single-employer plans are required to provide this additional information.Form 5500-SF – A new line 11b has been added to the Form 5500-SF that parallels the new Schedule R, line 20 for PBGC-insured, single-employer plans that file the Form 5500-SF instead of the Form 5500.The regulators say filers should monitor the EFAST website for the availability of the official electronic versions for filing using EFAST-approved software or directly through the EFAST website.The post Information Copies of 2019 Form 5500 Published by DOL appeared first on PLANSPONSOR.
Categories: Industry News

Why Americans Need the SECURE Act

Plansponsor.com - Tue, 11/19/2019 - 09:17
In an increasingly competitive economy, it’s time for Congress to pass the SECURE [Setting Every Community Up for Retirement Enhancement] Act to help small businesses provide their millions of employees a workplace retirement plan. Small-business employees are the backbone of our communities and the American economy. Comprising over 40% of the American workforce, small businesses face challenges, such as retaining top talent in an ever-tightening labor market.When it comes to recruiting and talent retention, 88% of small-business owners that offer a 401(k) plan to their employees say being able to do so is beneficial, and 84% say their employees view it as a necessary benefit, according to a recent Nationwide business-owner survey1. More importantly, 51% of workers over the age of 50 say an employer-sponsored retirement plan will be their main source of income in retirement2.However, many small-business owners can’t provide a retirement plan due to costs, management requirements and complexity. This means the financial futures of almost half of the American workforce could be at risk because they lack access to these critical saving tools. We must do more to remove barriers for small-business owners who want to provide a plan to their employees.Earlier this year, the Department of Labor (DOL) issued a rule to allow “association retirement plans (ARPs)”—a type of multiple employer plan (MEP). However, the rule’s narrow scope and limits on employer eligibility make it unlikely for ARPs to have any significant impact for most small businesses. Fortunately, the SECURE Act contains a provision that would eliminate the remaining barriers to open MEPs and provides a clear path for small businesses to pool their resources and offer retirement plans that are cost-effective and administratively simpler.This is why Congress must pass the SECURE Act. The SECURE Act moves past the DOL’s rule to remove the association requirements, broadening the options for which employers can band together in a MEP. With fewer restrictions and more choices, employers will be able to find the MEP that best suits them and their business.The SECURE Act levels the playing field between large and small employers when it comes to offering a workplace retirement plan, creating increased competition. In fact, a recent Nationwide business-owner survey3 shows that 59% of business owners think the SECURE Act will have a positive impact on their ability to offer a 401(k), and 80% say passage of the act will let them offer a 401(k) plan that rivals those at large corporations.To help ensure small-businesses’ needs are addressed and their employees are supported, Nationwide has been engaged with lawmakers on open MEPs, and other legislative reforms to the U.S. retirement system, for the past decade. We also advanced another provision to increase access to workplace retirement plans by providing small-business owners a financial incentive to offer their employees a plan. The SECURE Act provides for an annual tax credit, which covers up to $5,000 of plan costs for the first three years an employer makes a plan available. Small-business owners are looking to Washington to ensure they—and their employees—can balance their financial needs of today while preparing for the future. Now is the time for the Senate to pass the SECURE Act and help small businesses offer the workplace retirement plans that are critical to their employees’ retirement security. 1 Nationwide Business Owners Survey, 2019 Survey Report/September 12, 20192 Nationwide Retirement Institute Consumer Social Security Public Relations Study, March 20193 Nationwide Business Owners Survey, 2019 Survey Report/September 12, 2019 John Carter is president and chief operating officer of Nationwide Financial.The post Why Americans Need the SECURE Act appeared first on PLANSPONSOR.
Categories: Industry News

Ask the Experts – Turning After-Tax Account to Emergency Savings in 403(b) Plans

Plansponsor.com - Tue, 11/19/2019 - 06:00
<?xml encoding="UTF-8">“We sponsor an ERISA 403(b) plan that has historically allowed for after-tax contributions, but that feature has been largely dormant. However, I read a recent PLANSPONSOR article about how a 401(k) plan sponsor was able to successfully utilize its after-tax source as an emergency savings account within the retirement plan. Can this be done in a 403(b) plan as well? If so, are there any drawbacks to this solution? We have been investigating automated emergency savings account options as part of a strategy to promote the overall financial wellness of our employees?” Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:Thank you for your question! It is indeed possible for a 403(b) plan’s after-tax contribution source to be designed as an in-plan emergency savings account, though you should consult with your retirement plan counsel to determine whether such a design would work in your particular plan. Note that contributions to such an after-tax emergency savings account, would NOT be subject to the 402(g) limit on elective deferrals, so these contributions could be made in addition to such deferrals.However, as we discussed in our Ask the Experts column on after-tax rollover strategies, there are some potential hurdles to the effectiveness of this approach, as follows:Get the latest news daily directly in your mailbox. subscribe 1)         After-tax contributions to most retirement plans (with the exception of governmental and non-electing “steeple” church plans/QCCOs) are subject to the same actual contribution percentage (ACP) testing as employer matching contributions. This form of nondiscrimination testing is less likely to pass if individuals who are highly compensated employees (defined in 2020 as those who earned more than $125,000 in 2019) contribute large after-tax amounts, which are permitted since after-tax contributions are not constrained by the 402(g) elective deferral limit (but see item 2) on the 415 limit, below). Thus, even if a plan permits after-tax contributions for an emergency savings fund or other purposes, higher earners may be restricted by such testing from contributing significant amounts.2)         If a participant already receives a large employer contribution to the plan in question (or any other plan that would be subject to the same 415 limit) that contribution could impact the participant’s ability to make after-tax contributions.3)         Though a plan may be designed to permit withdrawals of after-tax contributions, earnings on such contributions would be subject to taxation when withdrawn, as well as a 10% penalty if the participant is younger than 59 ½, (note that there are exceptions to the penalty; for example, if a participant terminates employment on or after the calendar year in which he/she turns age 55). NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column. The post Ask the Experts – Turning After-Tax Account to Emergency Savings in 403(b) Plans appeared first on PLANSPONSOR.
Categories: Industry News

TRIVIAL PURSUITS: From Where Does the Word ‘Vaccine’ Originate?

Plansponsor.com - Mon, 11/18/2019 - 14:36
From where does the word “vaccine” originate?“Vaccine’ is derived from Latin vaccina, feminine of vaccinus, meaning “pertaining to a cow.”The word “vaccination” was used by British physician Edward Jenner (1749-1823) for the technique he devised of preventing smallpox by injecting people with the cowpox virus.The post TRIVIAL PURSUITS: From Where Does the Word ‘Vaccine’ Originate? appeared first on PLANSPONSOR.
Categories: Industry News

Participants Say Sutherland’s 401(k) Fees Aren’t Reasonable

Plansponsor.com - Mon, 11/18/2019 - 13:24
A group of participants in the Sutherland Global Services Inc. 401(k) Plan has filed a proposed class action Employee Retirement Income Security Act (ERISA) lawsuit against their employer in the U.S. District Court for the Western District of New York.The lawsuit names as defendants Sutherland Global Services Inc. and CVGAS LLC, doing business as Clearview Group. The complaint also directly names as defendants several Sutherland’s senior leaders who are plan fiduciaries, along with some 20 John and Jane Doe defendants.For its part, CVGAS LLC is an investment manager of the plan as defined by 29 U.S.C. 1002(38). According to the complaint, “certain responsibilities in connection with the plan” were delegated to CVGAS LLC during the proposed class period, including the responsibility to select and monitor the array of investment options to be included in the plan.Among other issues, the plaintiffs allege the defendants “failed to properly minimize the reasonable fees and expenses of the plan.”“Defendants instead incurred expenses that were excessive, unreasonable and/or unnecessary,” the complaint states. “Defendants failed to take advantage of the plan’s bargaining power to reduce fees and expenses. Defendants failed to offer a prudent mix of investment options. Defendants impaired participants’ returns by offering actively managed retail class mutual funds as investment options instead of identical investor class mutual funds with lower operating expenses.”According to the complaint, to the extent any fiduciary responsibilities were properly delegated, the defendants “failed to ensure that any delegated tasks were being performed prudently and loyally in accordance with ERISA.”The complaint continues: “Defendants failed to properly undertake the requisite monitoring and supervision of fiduciaries to whom they had delegated fiduciary responsibilities. Defendants failed to discharge their fiduciary duties with the requisite expert care, skill, prudence and diligence. Defendants enabled other fiduciaries to commit breaches of fiduciary duties for which Defendants are liable.”The plaintiffs allege that, through this conduct, the defendants violated their fiduciary obligations under ERISA and caused damages to the plan and its participants.“Based on defendants’ publicly available statements and representations, it appears that the total administrative expenses, not including indirect compensation, incurred by the plan in 2018 exceeded $695,000 and represented expenses of more than approximately $120 per participant,” the complaint states. “In or about mid-2019, the 13 T. Rowe Price mutual funds offered by the plan were all adviser or retail class funds, as opposed to investor or institutional class funds. The adviser or retail class T. Rowe Price funds offered by the plan charge a 12b-1 fee of .25% of the fund’s net assets. A 12b-1 fee is an annual charge for marketing or distribution. Participants of the plan derive no benefit from the 12b-1 fee. … A prudent fiduciary would have selected the investor or institutional class of the mutual funds instead of the retail class of funds with the 12b-1 fee.”In closing, the complaint demands a jury trial, rather than the typical bench trail associated with ERISA lawsuits. The full text of the complaint is here.Sutherland Global and Clearview Group have not yet responded to requests for comment.The post Participants Say Sutherland’s 401(k) Fees Aren’t Reasonable appeared first on PLANSPONSOR.
Categories: Industry News

The Evolving Nature of TDFs

Plansponsor.com - Mon, 11/18/2019 - 11:55
Today, millions of workers invest their retirement savings in target-date funds (TDFs).TDFs came to shape in the 1990s as an alternative to money market funds (MMFs), often the then default retirement vehicle. When the Pension Protection Act (PPA) was passed in 2006, it was TDFs that investors latched onto.“The PPA was a big motivator for TDFs, but [qualified default investment alternative (QDIA) regulations] also listed managed accounts and balanced accounts as well,” says Rich Weiss, multi-asset strategies CIO at American Century Investments. “And so, it begs the questions, why did TDFs take off as opposed to those other two?”While traditionally, MMFs reigned as default investments, it was soon understood that these funds were not appropriate for those who were relatively unsophisticated or had little time and experience to work on their own investing. While MMFs offer less risk, there is little chance for an investor’s money to grow.“You were almost guaranteed to not have a successful or wealthy nest egg if you left your money in an MMF, because it would lag everything else,” explains Weiss. “The government realized this and then stepped in to move the needle towards something that made more sense.”  When TDFs, balanced funds and managed accounts were presented after the PPA, TDFs were seen as the more sophisticated option out of the three, says Weiss. It’s one-size-fits all structure attracted investors, especially those who had no interest in personalizing or tailoring their investments like a managed account would. Managed accounts were pricier and required more intervention and involvement from the participant themselves. TDFs however, were a balanced, diversified fund that presumed asset allocation is right for every type of investor, at every aspect of their life. They were easy to understand by workers, made sense to financial professionals, and were seen as an advancement over basic balanced funds.“Historically, a participant that would be invested in a 401(k) would be inappropriately allocated to all-cash or too much equity,” says Armen Apelian, director of Target-Date Strategies at Fidelity Investments. “[The passage of PPA] allowed for our target-date offering to be the default option, with appropriate risk characteristics for age cohorts. This better prepares the participant for retirement.”The evolution of TDFs from its introduction to today, more than 20 years later, is largely thanks to its big adoption by providers. Fidelity launched its Freedom Funds in 1996, while American Century launched its TDF suite in 2004. Most retirement plan sponsors began utilizing the funds in the early 2000s and TDF usage grew, and for participants involved in those plans, many were opted into TDFs.“Over the years, TDFs exploded in assets and now you barely find a plan sponsor that doesn’t have a TDF as a QDIA, now it’s more of an opt-out,” says Weiss. “It’s truly a default.”Apelian adds that while TDFs have become very simple for participants, its construction has been highly complicated. Depending on the provider and plan, each asset allocation is different. The mix of stocks, bonds and cash is a main driver in the investment outcome, so there are a diverse amount of investment vehicles or target-date providers with active building blocks, blend building blocks, and ones that may just be active and passive index funds. In thinking through this, it’s imperative to consider a TDF’s glide path, he says.“What we’ve learned over the years is, not only is it very important to get this right, but plan sponsors should evaluate the glide path construction process when looking at target-date funds,” Apelian explains.Looking ahead, Apelian anticipates a continued interest in target-date funds. In the past five years, he’s noticed a move from more active funds, to a mix of active and blend implemented products, as well as TDFs using collective investment trusts (CITs). CITs are priced more competitively at a larger scale.As managed accounts increase in interest among investors, Weiss does not foresee a dip in TDF investing. While managed accounts allow for better personalization tailored to the investor, he argues that TDFs can also accommodate a worker’s unique situation and risk. As most providers have 10-, 15- or 20-year track records with TDFs, Weiss expects to see more maturity and complexity in the future of TDFs. With multiple years of experience comes two separate economic periods: the bear market in 2008, and the 10-year bull run after the recession. Therefore, it’s not really 15 years of experience. Rather, it’s two separate episodes. This means that the industry is still fairly young. As it matures, Weiss foresees the adviser community, sponsors and providers transitioning to a more refined outlook when choosing TDF providers. Rather than looking at fees, he expects the industry will lean towards pertinence.“The metrics for determining which TDF is most appropriate for a sponsor has yet to really evolve, and you’re going to see a lot more of that in the next couple of years,” he concludes. “It’s turning into the concept of appropriateness or suitability, as opposed to just picking a fund based on its five-year performance in fees.”The post The Evolving Nature of TDFs appeared first on PLANSPONSOR.
Categories: Industry News

Equity Compensation Plays a Role in Employee Retirement Strategies

Plansponsor.com - Mon, 11/18/2019 - 11:10
Sixty percent of workers who have an equity compensation plan intend to use the money to help fund retirement, according to a survey of 1,000 equity compensation plan participants who currently receive incentive stock options or restricted stock awards and/or participate in employee stock purchase plans (ESPPs). Their average vested balance is $97,711 and the average total value of their equity compensation is $149,835, according to Schwab Stock Plan Services.Retirement savings is, by far, the most common goal for those building equity compensation wealth. Amy Reback, vice president of Schwab Stock Plan Services, tells PLANSPONSOR that having a diversified portfolio of both taxed and tax-deferred savings is a good strategy: “People who enter retirement with the appropriate amount of taxed and tax-deferred savings are more likely to have an enjoyable retirement. If you only have tax-deferred savings, you are still taxed when you draw down those assets, and you could have a pretty large tax bill. It could be as much as 20% or 25% of your assets.”Schwab’s survey also found that among those with an equity compensation plan, it makes up 27% of their net worth on average. Sixty-eight percent also hold company stock outside of their equity compensation plan, primarily in their 401(k) plan. Sixty-five percent are very or extremely confident their equity compensation plan will help them meet their financial goals, and 28% are somewhat confident.Equity compensation plans are not just for the highly compensated, says Aaron Shapiro, founder and CEO of Carver Edison. Options and restricted stock units are generally granted to highly compensated employees, but employee stock ownership plans and employee stock purchase plans are designed for broad-based employees, he says.“The availability of equity compensation plans is out there, but the challenge is that most people who are eligible to participate in them cannot afford to see their paychecks get smaller,” Shapiro says. Workers want help from their employer to understand their equity compensation program, according to the Schwab survey. The specific areas they want help with are planning for retirement (68%), meeting their financial goals (55%), developing a financial plan (52%) and balancing equity compensation with other investments (51%).A survey by E*Trade found that when it comes to their company’s stock plan benefits, only 71% of employees said they understand how to access their account. Only 59% understand how their vesting schedule works. Just over half, 53%, said they understand the benefit, and only 46% know how to find information about their stock plan benefit.The post Equity Compensation Plays a Role in Employee Retirement Strategies appeared first on PLANSPONSOR.
Categories: Industry News

SURVEY SAYS Workplace Holiday Parties

Plansponsor.com - Mon, 11/18/2019 - 04:30
Last week, I asked NewsDash readers, “What do you think of workplace holiday parties?” I also asked, “Is there something else you’d rather your employer do instead?”Nearly six in 10 responding (57.9%) readers said their company hosts a holiday party every year, while 42.1% said their company does not.More than one-third indicated they feel holiday parties are a somewhat of a reward and morale booster, while 10.5% said they definitely are, and 21% said they are not. Twenty-nine percent indicated company holiday parties are a morale booster but not a reward, and 2.6% said they are a reward but not a morale booster.Asked what they would rather their employer do for the holidays, other than a holiday party, 43.2% chose “give employees bonuses,” while 32.4% selected “give an extra day off.” Only 5.4% said give employees gifts, and 8.1% said they’d rather their company host an employee gift exchange. Nearly two in 10 (18.9%) chose “bring in food to the office,” and 13.5% indicated there’s nothing they’d rather their employer do. Several responding readers who chose “other” said companies should offer a budget for separate departments or teams to do their own activity. Donate funds to charity and “almost anything” were also listed.In verbatim comments, a few responding readers shared what their company does for its holiday party; several expressed how much they enjoy it. Others said the socializing is awkward for them, or warned about how certain behavior can get out of hand. There’s no Editor’s Choice this week.A big thank you to all who participated in our survey!VerbatimWe’re a large company but still have a holiday party at a large hotel, with a program where significant promotions are announced and there’s a buffet dinner. We also receive a gift from the president & CEO. It’s great!It is always difficult to reach all employees for a specific holiday event when the organization is open 24/7. Someone will always feel left out.Just give me the money instead of the forced socializingNo holiday party where I work now. I’m just as happy without it. I feel that most employees would prefer some additional time off—even an afternoon—to help them find time for all the things that need to be done during this busy time of year. Also cheaper for the employer and avoids liability issues associated with excessive alcohol consumption.Just be careful you don’t do something stupid that could damage your career.They are dull beyond words, because people are “networking” and brown nosing rather than relaxing and having a good time. Need to keep up their personal brands. Yawn.I’m an introvert who would rather have dentistry without Novocaine than go to a company-sponsored holiday party.We have offices all over the U.S., so one holiday party is not practical. Each office can do as they wish, and ours generally does a lunch on a Friday and take the rest of the day off.The larger the party, the more political it becomes between cliques, power-plays, and similar social constructs. Having smaller (department-sized or smaller) parties are far more effective and actually give co-workers a better chance to gel outside of the office.No. Just say “No.”I have attended lavish and expensive parties and the cheapest (sharing a ham). And extra day or even a couple of hours off would be most appreciated.Should be used to celebrate the diversity of the holiday season and not be limited to Christmas celebrations.We use to have a holiday party, but as we grew it became too difficult and the stories of the inappropriate behavior at said parties are the reasons we don’t have one anymore. Now each department does their own thing, but it would be nice if the company actually gave us a budget to fund it, instead of everyone chipping in.Holiday parties are a great time to socialize with co-workers outside of work. For large organizations, it is also an opportunity to get to know employees who you do not work directly with. Lastly, it is nice to get to know the spouses too. We look forward to our holiday party every year.Our holiday party comes at the end of a busy season. Everyone is ready to eat well, have a few drinks, dance and blow off some steam! It always feels like a great celebration.While it is an extremely nice gesture for the company to provide a holiday party (they could just as easily eliminate it and save several thousand dollars), it is during the week and employees only attend and can cause more stress than necessary. I guess it is all in how you view it. NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.The post SURVEY SAYS Workplace Holiday Parties appeared first on PLANSPONSOR.
Categories: Industry News

Retirement Industry People Moves

Plansponsor.com - Fri, 11/15/2019 - 13:56
Art by Subin YangGallagher Promotes Consultant to Retirement Plan LeaderGallagher has promoted John Jurik to the role of retirement plan consulting practice leader for the U.S. region within the company’s benefits and HR consulting division. Jurik began his career with Gallagher as part of an internship program and before developing into a consultant within the retirement plan consulting practice. As a consultant in the mid to large market, his objective was to guide Gallagher’s U.S. clients in reviewing and managing their retirement programs from both an employee benefit and risk management perspective.“Employers are increasingly aware of the stress caused by financial insecurity and its negative effects on employee and organizational wellbeing. John’s plan governance knowledge and determination to help his clients understand a multigenerational workforce and the appropriate investment and plan design to drive better participant outcomes make him a terrific fit as leader of the retirement plan consulting practice,” says Jeff Leonard, financial and retirement services practice leader at Gallagher.“I am incredibly honored to be tapped to lead the talented team of people who work hard every day to help employers offer innovative and sustainable retirement solutions to their employees, empowering them to pursue better financial wellbeing and retirement success,” Jurik says.Hall Benefits Law Adds ERISA Attorney to Compliance Counsel Hall Benefits Law has hired attorney Scott Santerre.Santerre joined the legal team in late October as senior ERISA compliance counsel. For the previous four years, he provided in-house guidance to a large insurance company as their lead privacy attorney, spearheading multiple projects across a variety of disciplines.Firm Manager David Hall comments on the hire, stating, “Scott brings experience as a retirement plan specialist, tax manager, and in-house counsel to bear when working with our corporate clients. His knowledge of pensions and DC plans rivals that of our most senior team members, and his exposure to the other areas in which we provide counsel is impressive.”Santerre graduated from Boston University with a degree in psychology and received his Juris Doctor from Suffolk University Law School. In his years as an attorney, he has worked in the Employee Retirement Income Security Act (ERISA) retirement space to help clients maintain compliance with IRS and Department of Labor (DOL) regulations, and drafting and maintaining retirement plan documents and amendments. He worked as lead attorney preparing submissions to the DOL for correcting late remittance of deferrals and loan repayments. Santerre maintains the designation of qualified pension administrator (QPA) and is an active member of the American Society for Pension Professionals and Actuaries.Prudential Retirement Announces New Customer Solutions HeadPrudential Retirement has hired Christine Lange as head of customer solutions for institutional retirement plan services.Lange will report to Harry Dalessio, head of institutional plan solutions for Prudential Retirement.Lange’s immediate focus will be on product development, engagement and pricing. She will also assume responsibility for underwriting and P&L for the defined contribution (DC), defined benefit (DB) and nonqualified businesses of Prudential Retirement.“I am happy to be joining Prudential Retirement at such an exciting time for both the company and our industry,” says Lange. “I look forward to continuing to position Prudential Retirement’s full service businesses for growth and profitability through engagement with our customers in the right ways at the right times through their preferred channels.”Most recently, Lange served as head of retirement digital solutions for Voya Financial. Prior to Voya, she led product innovation teams for both Putnam Investments and Fidelity Investments. Lange holds degrees from Northeastern University and Boston College. She is a member of the Council for Women at Boston College and a member of Boston College Connections, a mentoring program for undergraduates.Lange will split her time between Connecticut and New Jersey, with Hartford as her home base.The post Retirement Industry People Moves appeared first on PLANSPONSOR.
Categories: Industry News

Mediation May Resolve SunTrust Bank ERISA Challenge

Plansponsor.com - Fri, 11/15/2019 - 10:17
A new joint motion has been filed in the Employee Retirement Income Security Act (ERISA) lawsuit targeting the retirement plan of SunTrust Bank, which could bring years of litigation to an end. The underlying lawsuit alleges that SunTrust Bank’s 401(k) plan engaged in corporate self-dealing at the expense of plan participants. The lead plaintiff suggests that plan officials violated their fiduciary duties of loyalty and prudence by selecting a series of proprietary funds (referred to as the STI Classic Funds) that were more expensive and performed worse than other funds they could have included in the plan—and by repeatedly failing to remove or replace the funds.Back in early October, the U.S. District Court for the Northern District of Georgia’s Atlanta Division issued a lengthy order in the long-running ERISA lawsuit. In the October ruling, the District Court granted the defendants’ motion seeking to discredit certain expert testimony generated by the plaintiffs. At the same time, the ruling denied the plaintiffs’ motion to reject the expert reporting of two pro-defense witnesses. Finally, defendants’ motion for summary judgment was granted in part and denied in part. It was granted to the extent plaintiffs’ claims are premised on defendants’ conduct regarding the Short Term Bond Fund, Investment Grade Bond Fund, Small Cap Growth Fund, Capital Appreciation Fund, and Prime Quality Money Market Fund. It was denied to the extent plaintiffs’ claims are premised on defendants’ conduct regarding the Mid-Cap Equity Fund, Growth and Income Fund, and International Equity Index Fund.Now, the plaintiffs and defendants have jointly moved under Local Rule 16.7 for entry of an order referring the case to mediation before Robert A. Meyer, Esq., of the JAMS organization. The parties have also moved for a stay of all proceedings to permit them time to pursue the resolution of this dispute, including at the mediation conference tentatively scheduled with Meyer on January 7, 2020, subject to the Court’s approval.“The parties respectfully request that the Court refer this case to mediation and appoint Robert A. Meyer as neutral third-party mediator,” the joint remediation motion states. “The parties further respectfully request that the Court stay all proceedings and deadlines in this case pending mediation before Mr. Meyer and remove the case from the Court’s January 6, 2020 trial calendar. The parties will report to the Court on the status of the January 7 mediation and the case no later than January 31, 2020.”In the report, the parties anticipate stating either that (i) a settlement agreement has been reached and proposing deadlines for subsequent filings seeking Court approval of the proposed settlement, or (ii) that no settlement agreement could be reached and proposing deadlines that will enable the parties to move promptly to trial, including deadlines for remaining briefing on plaintiffs’ motion for reconsideration and submission of a joint consolidated pretrial order.The full text of the remediation motion is available here.The post Mediation May Resolve SunTrust Bank ERISA Challenge appeared first on PLANSPONSOR.
Categories: Industry News

Year-End Planning Help Offered for NQDC and Executive Comp Plan Participants

Plansponsor.com - Fri, 11/15/2019 - 07:00
Year-end is a key time for financial and tax planning, especially for employees who have stock compensation or holdings of company shares.Tax changes introduced in 2018 by the Tax Cuts & Jobs Act continue to affect their year-end-planning decisions. Meanwhile, the election year ahead in 2020 presents uncertainty about the future of tax laws that affect financial- and tax-planning strategies.To help, myStockOptions.com provides education and guidance on major issues, choices, and financial-planning strategies for the end of 2019 and the start of 2020. This content is available in the website’s section Financial Planning: Year-End Planning and through content licensing. The section Year-End Planning has been fully updated for 2019, including revisions for what’s different after the tax cuts.In addition, the calculators and modeling tools at myStockOptions.com allow users to play out various “what if” scenarios with different tax rates and stock prices.For similar education and guidance on year-end planning for nonqualified deferred compensation (NQDC), employees can turn to myNQDC.com, a separate sibling publication of myStockOptions.com.The post Year-End Planning Help Offered for NQDC and Executive Comp Plan Participants appeared first on PLANSPONSOR.
Categories: Industry News

FRIDAY FILES – November 15, 2019

Plansponsor.com - Thu, 11/14/2019 - 15:34
A dancing Nana, problems on the road in Thailand, and more.In Ottawa, Canada, a Canadian teacher has successfully claimed a canoe trip as a moving expense, public broadcaster CBC reported. The Canada Revenue Agency (CRA) allows Canadians who move more than 40 kilometers (25 miles) for work or school to deduct eligible expenses from their taxable income. The teacher taught in his hometown of Whitby, Ontario, during the regular academic year and for decades made the annual trip to Ottawa by train, plane or automobile for the July job. But his moving expenses were suddenly rejected by CRA in 2011. The decision was upheld by a tax court that ruled his Ottawa stays did “not constitute a change in ordinary residence,” but rather working vacations. So, in June 2018, he loaded up a battered fiberglass canoe and set out for Ottawa, he told the CBC. The move took him through five provincial parks and up the Rideau Canal. He collected receipts for park admission fees, campfire wood and ice and submitted a claim for almost Can$1,000. Last week, he learned that the CRA had accepted his expenses.In Singapore, an airport baggage handler has been jailed for 20 days for swapping tags on nearly 300 suitcases at the city-state’s airport, causing them to end up at wrong destinations around the world. The court was told he made the swaps between November 2016 and February 2017 out of “frustration and anger” after his request for additional staff at his work section was ignored. It was also told he was suffering from major depressive disorder when he committed the offences. But state prosecutors said evidence presented at a hearing showed his condition “did not contribute significantly to his commission of the offences” as he continued to have control over his actions.In Iowa, an inmate serving life for murder offered a novel legal appeal, saying he should be released because he “died” four years ago. He became gravely ill in March 2015 when large kidney stones led to septic poisoning. After he was rushed unconscious to a hospital, doctors had to revive the “dead” man five times. They then operated to repair damage done by the kidney stones. He was eventually returned to prison. According to the AFP, in a court filing in April 2018, the man claimed that because he had momentarily died, his life sentence had technically been completed. His lawyer argued that the inmate had been sentenced to life without parole “but not to life plus one day.” The Iowa Court of Appeals found the argument “unpersuasive.”Love this dancing Nana.If you can’t see the below video, try https://youtu.be/sCq2KZULNI8.A problem we thankfully don’t have while driving in the U.S.If you can’t see the below video, try https://youtu.be/4ZSSMsy3ztE.The post FRIDAY FILES – November 15, 2019 appeared first on PLANSPONSOR.
Categories: Industry News

Plaintiffs Say AutoZone Breached ERISA Through Prudential’s GoalMaker

Plansponsor.com - Thu, 11/14/2019 - 14:14
AutoZone Inc. is the latest national employer to face an Employee Retirement Income Security Act (ERISA) fiduciary breach lawsuit alleging imprudence and disloyalty in the operation of the company’s retirement plan.Plaintiffs filed their proposed class action in the U.S. District Court for the Western District of Tennessee. While the complaint does not name Prudential as a defendant, the fiduciary breach allegations discuss Prudential’s GoalMaker investment solution, which was offered by AutoZone to its employees during the period at question in the lawsuit.“Plaintiffs bring this action because of AutoZone’s extraordinary breaches of its fiduciary duties under ERISA, including the approval, maintenance and recommendation of an abusive ‘GoalMaker’ asset allocation service furnished by Prudential Insurance Company that served Prudential’s interests,” the lawsuit states.According to the complaint, AutoZone described GoalMaker to participants as a service that would “guide you to a model portfolio of investments available, then rebalance your account quarterly to ensure your portfolio stays on target.” AutoZone also represented, according to plaintiffs, that GoalMaker’s allocations “are based on generally accepted financial theories that take into account the historic returns of different asset classes.”“The representations were and remain false,” the lawsuit states. “Here, GoalMaker served Prudential’s interests by funneling participants’ retirement savings into Prudential’s own shamelessly overpriced proprietary investment products and into investments that paid kickbacks to Prudential. GoalMaker brazenly excluded the reliable, low-cost index funds in the plan’s investment menu available from reputable providers that did not pay kickbacks to Prudential. This resulted in the participants paying excessive investment management fees, administrative expenses, and other costs, which over the class period cost participants more than $60 million in retirement savings.”Plaintiffs suggest that AutoZone “could have easily stopped these abuses at any time,” by replacing the “high-fee, chronically underperforming GoalMaker funds with reliable, low-fee Vanguard index funds already in the plan’s investment menu.”“Year after year, AutoZone chose to retain GoalMaker, ignoring the abusive fees and costs of the GoalMaker funds, the conflicts of interest inherent in Prudential’s asset allocation scheme, and the misrepresentations repeatedly made to participants on behalf of the plan,” the complaint states. “From a fiduciary standpoint, AutoZone’s GoalMaker was not a model of asset allocation but a model of plan mismanagement.”The complaint goes on to suggest that, although AutoZone “cloaked GoalMaker in Morningstar’s credibility in recommending the service,” Morningstar itself did not assume any responsibility for Prudential’s GoalMaker service.“In fact, Morningstar specifically disclaimed any responsibility for the review or approval of the information provided to the participants in the AutoZone plan,” the complaint says. “Participants enrolled in Prudential’s GoalMaker service were told they could not change the recommended allocations without being dis-enrolled in the service. Moreover, AutoZone made GoalMaker the plan’s default investment option. This combined with AutoZone’s touting of the service resulted in a large portion of participants’ retirement savings being allocated by GoalMaker.”Plaintiffs conclude that AutoZone “did not have the competence, exercise the diligence, or have in place a viable methodology to monitor the GoalMaker allocation service and investment options. AutoZone knew, or would have known had AutoZone implemented a prudent investment methodology, that GoalMaker was designed to steer plan participants’ retirement savings to investment options that paid investment management fees and kickbacks to Prudential. AutoZone did not need to scour the marketplace to find prudent investments. AutoZone needed only to look to the Vanguard funds included in the Plan’s investment menu that did not pay kickbacks or investment management fees to Prudential and were therefore excluded from GoalMaker.”The full text of the complaint is available here.The post Plaintiffs Say AutoZone Breached ERISA Through Prudential’s GoalMaker appeared first on PLANSPONSOR.
Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 11/14/2019 - 14:03
Art by Jackson EpsteinInvestment Metrics Releases Institutional Portfolio Data ToolInvestment Metrics (IM) has launched Fee Analyzer. The tool provides post-negotiated fee data sourced and aggregated from live institutional portfolios housed on the IM performance reporting platform, used by leading institutional asset allocators.“Increasingly, institutional asset owners are scrutinizing net of fees performance, and asset managers must be competitive with fees to win new mandates, validating the need for a robust fee benchmarking tool. Fee Analyzer is the first solution that drives competitive insights by bringing together a broad and reliable data source of actual fees in an online, interactive environment,” says Sanjoy Chatterjee, chief strategy officer of Investment Metrics.With Fee Analyzer, users can create custom fee universes across asset class hierarchies, compare multiple asset classes by investment vehicle, and view fee distribution across many dimensions including mandate size, plan type, and plan size. Additionally, the solution allows users to compare and correlate fees with actual performance and various modern portfolio theory statistics.Vantagepoint Implements Private Alternative AssetsVantagepoint has added private alternative assets in its target-date and target-risk funds.“We are taking the first steps to provide access to a diversified portfolio of private alternatives for people who otherwise would not be able to benefit from these investments. We’re doing it in a daily valued fund, so we’re not restricting liquidity,” says Wayne Wicker, CIO of Vantagepoint Investment Advisers, LLC. “It will be a multi-year process to build our target exposure. We believe that adding alternatives to our target-date and target-risk funds will offer significant value over the long term, because alternative assets like private equity and real estate have different characteristics than traditional assets. By including them in our funds, over time we can potentially help increase risk-adjusted returns and aid participants’ efforts to enhance their retirement security,” he adds.Alternatives often have different properties than traditional stocks and bonds, enhancing portfolio diversification and potentially improving risk-adjusted returns. As the allocation to diversified alternatives in Vantagepoint’s Milestone Funds and Model Portfolio Funds are built over a multi-year implementation schedule, investors will be able to take advantage of the potential benefits of private alternative asset classes, such as illiquidity premiums and an expanded investment opportunity set. Vantagepoint’s approach to introducing the asset class to its target-date and target-risk funds will occur over several years. The firm expects that private alternative investments will comprise less than 5% of the total assets of any single target-date or target-risk fund.Avantis Selects State Street as ETF Service ProviderState Street Corporation has been appointed by Avantis Investors, a new unit within American Century Investments, to provide exchange-traded fund (ETF) services for its five newly launched low-cost funds. Services will include basket creation, custody, accounting, transfer agency and fund administration. Avantis Investors offers active investment strategies for investors in mutual fund and ETF formats. The five funds, launched in late September on NYSE Arca, are: Avantis U.S. Equity ETF (AVUS); Avantis International Equity ETF (AVDE); Avantis Emerging Markets Equity ETF (AVEM); Avantis U.S. Small Cap Value ETF (AVUV); and Avantis International Small Cap Value ETF (AVDV).“Our agreement with Avantis Investors underscores the scale and expertise of our ETF team and the power of our ETF servicing technology,” says Frank Koudelka, senior vice president and global ETF product specialist at State Street. “Our top priority is to provide strategic advice and partnership to our clients and we couldn’t be more excited to work with Avantis on their suite of low-cost ETFs.” “Our goal is to provide investors with active, transparent ETFs that are low cost and can help an individual meet their financial goals,” says Eduardo Repetto, chief investment officer of Avantis Investors. Crow Point Partners and Midwood Capital to Launch Open-End Fund Crow Point Partners LLC and Midwood Capital Management LLC have announced the pending launch of the Midwood Long/Short Equity Fund, a new open-end fund on the 360 Funds Trust.The new fund is a conversion of an existing limited partnership, will retain its focus on small cap stocks, and is expected to launch on December 31. Crow Point will serve as adviser and Midwood will serve as sub-adviser with primary portfolio management responsibilities. M3Sixty Administration LLC will be handling administration of the new fund with its affiliate, M360 Distributors LLC, performing distribution. “We are very happy to partner with Crow Point and now be part of Crow Point’s public alternative fund line-up,” says David E. Cohen, Midwood’s founder and CIO. “They are an experienced alternatives adviser and they have built out a high quality and robust fund infrastructure that allows us to focus on our core competency, which is investment management.”The Midwood Long/Short Fund, which will have an institutional and investor share class, will have a total expense cap of 2.25% on the institutional share class. The fund will be available on most major platforms.The post Investment Product and Service Launches appeared first on PLANSPONSOR.
Categories: Industry News

Strategies for Small Employers to Hold Down Health Benefit Costs

Plansponsor.com - Thu, 11/14/2019 - 12:30
A survey from Mercer found midsize and large employers are having some success in finding health benefit cost-management strategies that do not shift cost to employees.However, it noted that the average deductible rose by more than $250 among small employers (10 to 499 employees), which typically have less ability to absorb high cost increases and fewer resources to devote to plan management.Michael Thompson, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, based in Washington, D.C., says, “We’re seeing for small employers is average deductibles over $1,000 and out-of-pocket cost that can range up to $10,000 for families. If we keep doing what we’ve been doing, employers can’t keep absorbing costs, and at some point, employees can’t.”According to Mercer Partner and Senior Consultant Susan Klinefelter, based in Tampa, Florida, larger plan sponsors are focusing on high cost claims, but small employers have a hard time insuring them, and they generally won’t switch to self-funding health benefits. However, small employers are asking for more claims detail from insurance companies to understand what ails employees and what the employers and their partners can do to address this. “The number-one thing small employers are doing is getting more information to be a greater part of the action,” she says.Mercer found that, among employers with 10 to 499 employees, 80% use fully insured plans. But, among employers with 200 to 499 employees, only 51% are fully insured. Those who self-fund want access to all same reports and options larger employers have.“Even with limited resources, what is emerging is that small employers are diving into employee demographics, focusing on turnover and tenure. They are finding ways to keep older employers healthier. And, if they find turnover among younger employers, they may not offer cash as a wellness program incentive, Klinefelter explains. She adds that almost all small employers are asking for insurance credits for wellness programs, and this offers them more money to put into what employees need—massage chairs, a quiet room to relieve stress, among other things.”Carriers are offering wellness solutions that can improve employee wellness in general, according to Klinefelter. Small companies ask insurance companies for point solutions to address diabetes, musculoskeletal ailments and cancer. For example, Omada, based on national suggestions for reducing the chance of becoming diabetic, helps employees and also helps with presenteeism and absenteeism. Livongo, if an employee is already diabetic, will make sure the employee is taking medication timely and managing his diabetes. “Small employers are looking to stave off large claims and asking carriers to include such things. The carriers are responding to keep business and reduce their own risk as insurers,” Klinefelter says.Beyond wellness effortsKlinefelter notes that midsize and large employers are sending employees to specialty pharmacies—something smaller employers may not have the option of carving out. However, they are educating employees about resources such as GoodRx to help employees get medications at a reduced cost.Small employers are also asking insurers to be a part of a level-funding contract, a contract by which they will pay a set amount of premium and if the plan does better it can get a dividend back. Klinefelter explains that with a level-funding contract, the insurance provider estimates an employer’s expected cost per employee per month and charges the employer 90% or 100% of that. It then assesses how claims actually tracked, and if they come in less, the employer gets a dividend reimbursement in the upcoming year. She says insurance carriers are using it partially in a way to give employees connectivity to data and to keep employer groups renewing with them.Mercer has seen spousal surcharges or no coverage for spouses double among small employers. And, telemedicine is offered in every market—often with no cost sharing in the small employer market.According to Thompson, small employers are using centers of excellence in communities where employees live and work. And, he says, a lot more focus is needed on primary care. It can save on overall costs because it leads to less hospital admissions, emergency room visits and specialty care. Preventive care is covered at no cost to employees. “We need to figure out approaches to provide affordable access to everyday care,” Thomspon says.The National Alliance has also seen some coalitions that have captive insurers with which small employers can pool together and self-insure. “There is an opportunity for small employers to play together and act like large employers to mitigate costs,” according to Thomspon.He says there are bills in Congress that are very much focused on improving health care costs, especially drug costs. The big topic that hasn’t gotten to the bill stage but is in public discussion is a public option for health care. “We think it’s quite unlikely that the country is ready for or willing to accept Medicare for All, but a public option would potentially create competition in the health system where there is none,” Thomspon says. “Also, there has been no constraint on hospital costs, so if there is any way to constrain or limit these costs, it could play out better for employers of all sizes over time.”Thompson speaks about how the burden of health costs is affecting employees’ future financial security. In the National Alliance’s most recent conference, one employer said it is seeing increases in 401(k) plan loans due to health care expenses.He adds that the industry is looking at health savings accounts (HSAs) as retirement supplements, but they haven’t proven to be so because employees spend for current expenses. “Deductibles and out-of-pocket costs have increased so much it is encroaching on retirement savings,” Thompson says.The post Strategies for Small Employers to Hold Down Health Benefit Costs appeared first on PLANSPONSOR.
Categories: Industry News

AB Closing Mutual Fund TDF Series

Plansponsor.com - Thu, 11/14/2019 - 10:39
AllianceBernstein (AB) has decided to close its mutual fund target-date series, the AB Multi-Manager Select Retirement Funds, due to the growing popularity and lower costs of its collective investment trust (CIT) target-date series, the AB Multi-Manager Retirement Trust, Jennifer Delong, head of defined contribution at AllianceBernstein, tells PLANSPONSOR.The funds will be closed as of June 25, 2020, Delong says. Investors may continue to make contributions to them up until that time, she says. “We are giving a long lead time to plan sponsors and advisers so that they can think about what they want to do. We will be reaching out to plan sponsors about our target-date CIT series.”Both the mutual fund and CIT target-date series “are the same design, with a 60/40 mix of active and passive funds and Morningstar as the subadviser,” Delong says. She says that CITs’ market share of target-date fund assets has grown from 19% in 2012 to 39% in 2018. Because of the tremendous growth in CITs in target-date funds and their lower costs, “we believe the focus should be on CITs,” Delong says. “We really have seen a tremendous growth in CITs as retirement plan advisers learn about their benefits.”Delong points out that AB’s CIT target-date series is now available to plan sponsors of all sizes, through a partnership with Wilmington Trust. The firm has also eliminated asset minimums for the funds.The post AB Closing Mutual Fund TDF Series appeared first on PLANSPONSOR.
Categories: Industry News

The Role DC Plan Investment Menus Play in Participant Savings

Plansponsor.com - Thu, 11/14/2019 - 08:24
A recent analysis by Alight Solutions found retirement plan participants invested in target-date funds (TDFs) are contributing less than those who don’t utilize TDFs.However, a Vanguard report highlighted the extreme growth among these investment funds—93% of plans associated with the advisory firm have adopted TDFs as of 2018. That same year, TDFs accounted for more than one-third of total Vanguard defined contribution (DC) plan assets and over half of total DC plan contributions.TDFs’ domination of the total fund landscape lends itself two questions: 1. As the fund increases in popularity, why are more participants contributing less to their retirement, and 2. Are there other funds that, while not as popular, incentivize participants to save more?Sarah Holden, senior director of retirement and investor research at the Investment Company Institute (ICI), believes one cause linking to a savings shortage is automatic enrollment. As participants are automatically enrolled into their workplace’s 401(k) upon hiring, some will stick to the default rate, in the classic “set-it-and-forget-it” type of approach.  “Nine out of 10 participants are in a plan where their employers put money in their account for them, but that depends on how much money [participants are] looking to put in,” Holden explains. “It’s the impact of auto-enrollment design and employer match.”According to the Alight report, other causes for reduced savings include the belief that TDF returns will boost savings accumulation related to age among investors. Younger investors are likelier to save less (even if they’re likelier to meet their retirement goals), due to the notion that they will save more as they age. Others who remain full TDF investors may automatically think their returns will heighten their savings.“People have been told not to pull all their eggs in one basket, and that’s what a TDF looks like to them,” said Rob Austin, head of Research at Alight Solutions, at the time the report was released. “They don’t understand that there’s diversification in underlying funds.”Unlike TDFs, managed accounts are not diversified investment options. Instead, they allow participants to take the wheel on their own investments and are widely catered to the “do-it-yourself” investor. As participants are furthering their engagement with retirement accounts and investment options, can managed accounts persuade participants to save more?It’s possible. A 2018 Alight Solutions analysis found employees who had consistently utilized managed accounts were more regularly adding contributions. The average contribution rate for managed accounts was 8.5% while TDFs only accounted for 6.1%, with 75% of managed account users consistently making contributions over a five-year horizon. Sixty-one percent of TDF users had continuously made active contributions.At least one study has shown that a bigger core investment lineup is favored among DC plan participants. A new Morningstar study finds that participants in plans with larger core menus and who built their own lineups had more effective portfolios. Those participating in plans with 30 funds invested in an average number of 8.6 holdings.“Large core investment menus appear to have the dual benefit of nudging more participants to use the default-investment option while getting self-directed participants to build more-efficient portfolios. When it comes to core menus, bigger is better,” the report says.The Morningstar survey suggests that to raise savings, employers and advisers will need to reevaluate their core menu design, as well encourage participants to make better investment decisions. Holden echoed the same sentiment. Whatever investment path participants decide on—depending on what is offered as well— plan sponsors can maximize savings through their offerings.“Ask yourselves what retirement savers are looking at in terms of their range of choices, and then what choices they are making,” she says.The post The Role DC Plan Investment Menus Play in Participant Savings appeared first on PLANSPONSOR.
Categories: Industry News

DIETRICH Talks Annuity Payout Features

Plansponsor.com - Thu, 11/14/2019 - 08:00
A webinar hosted by DIETRICH discussed the demand behind guaranteed income features in defined contribution (DC) plans, and how plan sponsors can offer latest tools to their participants.“We really see that plans need to start offering easy access for the employees of the plan and help them manage those risks,” says Mark Doloughty, senior client relationship account manager at DIETRICH. “The way to do that is looking at single premium annuity payout features within the plan or options coming out of the plan.”Ahead of potential passage of the SECURE Act, DIETRICH had announced its new DC retirement income annuity practice, ANNUA, back in June. During the recent webcast, the firm spoke about how incorporating a guaranteed lifetime income option for participants allows employees to manage financial risks throughout a lengthier retirement cycle, given the rise of longevity risk.“The SECURE Act has put this idea at the forefront, explains Doloughty. “If it goes through, it’s going to be mandated that participants will see what their balance equals per month or year, and they’re going to want to know how they can get that.”The firm noted a disconnect among plan sponsors, administrators and plan advisers who lack a large working relationship with annuity providers. With ADQ, the firm’s newest feature, plan sponsors can receive instant quotes from highly rated companies. Other offerings include institutional pricing, retirement account balance models and customizable integration.In order to utilize ANNUA and its features, employers will need to input whether their plan identifies as qualified or nonqualified, whether it is a defined benefit (DB) or DC plan, the general demographic of the participant population, and whether certain participants are adding a spouse or survivor. Upon entering this information to DIETRICH’s system, employers should receive quotes from options in the marketplace, according to Doloughty.“From there, we have a monthly benefit number, who the provider is, the annuity form, the guaranteed period and then the quote amount. We provide you an initial look from the marketplace with all this information,” he adds.And while applying lifetime-income products such as annuities can be helpful to preserving retirement income, Doloughty concluded the webinar by stating the importance of maximization.  “Participants have to look at what their preferences are. Are they looking at protecting longevity?” he asks. “So the annuity is a tool inside of this. In this case, the participant looks at their preference and says they’d like to have a piece disconnected. An ADQ could be the bridge to that.”The post DIETRICH Talks Annuity Payout Features appeared first on PLANSPONSOR.
Categories: Industry News

DB Plan Sponsors Focused on Cost and Funded Status Concerns

Plansponsor.com - Wed, 11/13/2019 - 14:33
Since 2010, the S&P 500 increased by over 200% but barely kept pace with defined benefit (DB) plan liability growth due to discount rates falling more than 250 basis points and longer life spans as reflected in a new mortality table, Vanguard notes in a report about its 2019 survey of pension sponsors.It points out that pension plan sponsors also faced three revisions to the funding regulations introduced by the Pension Protection Act of 2006 (PPA), a quadrupling of Pension Benefit Guaranty Corporation (PBGC) premiums, and the growth of the pension risk-transfer business from approximately $1 billion per year to $25 billion per year. “These changes have caused plan sponsors to rethink the way they operate their pension plans, especially in the areas of plan design, asset allocation, investment policy, risk management and fiduciary partnerships, Vanguard says.About one-third of plans are open and active (33%), frozen with no future benefit accruals (34%) and closed to new entrants (32%). Compared with 2010, significantly more pension plans are closed to new entrants and frozen to future benefit accruals in 2019, Vanguard found. However, the percentage of closed and frozen plans in 2019 is similar to that of 2015. The firm says this leveling off of the closing and freezing of pension plans shows that those plans that remained open and active following the global financial crisis, through the introduction of the more stringent funding and marked-to-market reporting requirements, and despite the increases in PBGC premiums are more likely to be dedicated to keeping that plan open in the future.Nearly two-thirds of respondents stated they intend to make a change to their pension plan, but only 15% expect to make a plan design change where they would either close or freeze their pension plans. Nearly half of those surveyed are expected to execute a risk transfer, meaning they expect to purchase annuities for retirees, offer lump sums to terminated vested participants or terminate the plan. Reducing plan costs (68%), reducing the plan’s impact to the company’s financials (55%) and reducing cost volatility (52%) are the top reasons cited.Thirty five percent of DB plan sponsors surveyed said their primary financial objective is minimizing volatility in plan contributions and funding ratio, while 30% said it is minimizing the long-term cost of the pension plan, and one-quarter reported it is obtaining full funding.Investing to meet objectivesGiven their concerns and objectives, Vanguard expected somewhat of a shift in their portfolios’ asset allocations from 2015, but this was not the case. The overall average asset allocation reported nearly mirrored that reported in Vanguard’s 2015 survey: 48% invested in equities, 39% in fixed income, 2% in cash, and 11% in alternatives such as hedge funds, private equities, and commodities. In the 2019 survey this shifted slightly to: 43% invested in equities, 38% in fixed income, 4% in cash, and 16% in alternatives.In response to risk, Vanguard found DB plans are lengthening bond durations. The reported long-term bond allocation increased from 38% in 2015 to 44%, while the allocation to short- and intermediate-term bonds decreased by a similar percentage. Also, with respect to the fixed income sub-allocation, the corporate to Treasury allocation reported showed a slightly higher allocation to Treasury bonds than in 2015 (38% compared to 35%). Other Vanguard research has found that a long Treasury allocation of 20% to 35% combined with a long corporate allocation of 65% to 80% has the highest historical correlation and regression fit to the FTSE Pension Liability Index (FPLI).The most common planned investment policy change was continuing to decrease the allocation to return-seeking assets, such as equity, and the increase of liability-hedging fixed income allocations.However, some providers in the DB plan market believe allocations to return-seeking assets should not be decreased but rather more diversified.The post DB Plan Sponsors Focused on Cost and Funded Status Concerns appeared first on PLANSPONSOR.
Categories: Industry News
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