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TRIVIAL PURSUITS: From Where Does the Word Trivia Come?

Plansponsor.com - Mon, 01/13/2020 - 14:12
From where does the word trivia come?“Trivia” was introduced in the early 20th century as the noun form of the word “trivial” which comes from the Latin “trivialis.”“Trivialis” means “that which is in, or belongs to, the crossroads or public streets; hence, that may be found everywhere, common.“ It is derived from “trivium,” which means a place where three roads meet.The post TRIVIAL PURSUITS: From Where Does the Word Trivia Come? appeared first on PLANSPONSOR.
Categories: Industry News

Health Care Organizations Focused on Improving Retirement Plan Participant Savings

Plansponsor.com - Mon, 01/13/2020 - 13:48
Top priorities over the next two years for sponsors of health care organization defined contribution (DC) plans are increasing employee savings/contribution levels (96% say this is very important or important), increasing plan participation (89%) and helping employees with holistic financial wellness (81%), according to the 2019 Voya health care report.“Motivating employees to save adequately” is the top plan management challenge selected by 81% of the plan sponsors surveyed. “Perhaps one reason many health care organizations struggle with motivation is that they have yet to implement lessons learned from behavioral finance: techniques to overcome participant inertia and indecisiveness,” says Brodie Wood, national practice leader, health care, Voya Financial. “By changing the plan design and enrolling participants in the plan by default at a level that will bring them closer to retirement readiness, even those employees not motivated to save adequately will be on track to achieve retirement success.”He adds, “Again, it is plan design changes—automatic enrollment at a high deferral rate, automatic deferral increases and stretch the match strategies—that can bring about progress beyond the incremental changes achieved with additional employee education and counseling.”Wood notes that many health care organizations continue to measure plan success by the participation rate rather than by a retirement readiness score or average deferral rate. “Adopting automatic plan features makes ‘participation rate’ a moot point and leads organizations to adopt retirement readiness as the preferred gauge of success,” he says.To make employees more retirement ready, some health care employers rely on on-site representatives of their service providers to do more—principally in the area of education. Nearly 60% say they would like to see more one-on-one and group education meetings. More than half (52%) say they would like to see on-site representatives do more to discuss topics beyond the retirement plan with participants.Only 12% find plan service providers very effective at motivating employees to increase their contribution to an appropriate level, and another 12% find their plan service provider very effective at supporting participants with their overall financial well-being. Nearly six in 10 (59%) health care organizations depend on their plan advisers and consultants to meet with employees to provide retirement plan guidance or advice.However, Voya finds DC plans in the health care sector are showing stats in line with those of DC plans in the corporate sector. On average, 67% of employees participate in their plan and contributions average 8% of pay.The 2019 Voya health care report—Prescription for Retirement Plans in the Health Care Sector—presents findings and implications from a survey of 95 health care organizations. The survey was conducted during a three-week period in July 2019. Nearly two-thirds of all respondent health care organizations offer a 403(b) plan, nearly two-thirds offer a 457(b) plan, and nearly half (47%) offer both. Besides these plan types specific to tax-exempt organizations, 44% offer a 401(k) plan.The post Health Care Organizations Focused on Improving Retirement Plan Participant Savings appeared first on PLANSPONSOR.
Categories: Industry News

PBGC Issues Premium Filing Instructions for 2020 Plan Years

Plansponsor.com - Mon, 01/13/2020 - 11:14
The Pension Benefit Guaranty Corporation (PBGC) has issued Comprehensive Premium Filing Instructions for 2020 Plan Years.Changes to note for 2020 include:Changes in premium rates:Single-employer plans: The Flat-rate Premium is $83 per-participant, up from $80; the Variable-rate Premium is $45 per $1,000 of unfunded vested benefits capped at $561 times the number of participants, up from $43 per $1,000 of unfunded vested benefits capped at $541 times the number of participants.Multiemployer plans: The Flat-rate Premium is $30 per-participant, up from $29.  Multiemployer plans do not pay Variable-rate Premiums.Risk transfer activity: The agency has simplified the reporting requirements with respect to lump-sum windows and annuity purchases and reinstated the question about lump-sum windows for retirees. See item 18 of the “Description of Data Elements” section.The agency revised its premium filing procedures in 2015 to require reporting of pension risk transfer actions.The PBGC reminds defined benefit (DB) plan sponsors that electronic filing is mandatory for all plans.The post PBGC Issues Premium Filing Instructions for 2020 Plan Years appeared first on PLANSPONSOR.
Categories: Industry News

DC Plans Moving to Become Decumulation Vehicles

Plansponsor.com - Mon, 01/13/2020 - 10:54
The percentage of defined contribution (DC) plan sponsors with a policy for retaining the assets of terminated and retired participants in their plans has increased steadily since 2015, according to the Callan 2020 DC Trends Survey.More than six in 10 (62.7%) had such a policy in 2019, up from 58.1% in 2018. The percentage that had a policy for retaining assets in the plan in 2015 was 43.5%. Specifically, 72.3% with a policy seek to retain retiree assets, and 61.7% seek to retain assets of terminated participants.An Alight Solutions study last year found DC plan participants who have small balances when they terminate employment are more likely to cash out than those with higher balances. Alight recommends that plan sponsors educate participants about their retirement plan choices, particularly discouraging younger workers who leave for other jobs from cashing out.Employees who keep their assets in their DC plans after terminating or retiring from employment benefit from lower fees and having balances available for retirement income. According to the Callan survey, many of the plans seeking to retain assets offer an institutional structure that is more cost effective than what is available in the retail market. For plan sponsors, if they retain terminated and retired participant assets, the size of the plan is higher and, thus, they have more bargaining power with respect to service providers’ fees.The Alight study found DC plan participants who were age 60 or older when they retired were more likely to keep assets in the plan if it permitted installment payments. Plan sponsors can also help participants in retirement stay properly invested while decumulating their assets by offering an in-retirement investment tier.According to the Callan 2020 DC Trends Survey, one-third (32.5%) of plan sponsors offered a drawdown solution or calculator in 2019, up from 10.8% in 2018. One-quarter (24.7%) offered managed accounts/income drawdown modeling services, compared to 17.6% in 2018.Callan conducted its 13th annual Defined Contribution (DC) Trends Survey online in September and October of 2019. The survey incorporates responses from 114 DC plan sponsors, including both Callan clients and other organizations. The full survey report is here.The post DC Plans Moving to Become Decumulation Vehicles appeared first on PLANSPONSOR.
Categories: Industry News

SURVEY SAYS: 2020 Financial New Year’s Resolutions

Plansponsor.com - Mon, 01/13/2020 - 04:30
Last week, I asked NewsDash readers, which, if any, financial resolutions they made for 2020.The most common financial resolution selected by responding readers was to spend less (31.2%). One-quarter each selected “save more for retirement” and “give more to charity.” Nearly 19% said one of their financial resolutions is to reduce or get out of debt.Other selections were as follows:Create a budget and stick to it – 6.2%;Spend more/stop being so frugal – 6.2%;Save for emergencies – 12.5%;Invest more in the stock market – 12.5%;Get better financially educated – 0%;Stop financially supporting family members – 12.5%;Establish my plan for retirement – 12.5%; andEngage with a financial adviser – 6.2%.One-quarter of responding readers selected “None of the above.”Those readers who chose to leave comments revealed other non-financial resolutions they’ve made. One said, “I am always successful with my resolutions. I always resolve to not smoke. I’ve never been a smoker, so it is quite easy! :)” Another reader wished everyone good luck with their resolutions. Editor’s Choice goes to the reader who said: “None of the above are New Year’s resolutions for me. They’re just things I know I need to tackle if retirement is going to be as enjoyable as I hope it will be.”A big thank you to everyone who participated in our survey!VerbatimMore chocolate!Every January I increase my 401(k) Contributions by 1%. So much less painful this way. Once I max out my contribution, it’s like getting a raise!I just retired so my resolution is to figure out how to enjoy life now that I do not have to go to work every day!My resolution is to track my spending as I am within 3-5 years of retirement.Good luck to everyone!Since I consistently overspend at the holidays, I have established a good old fashioned Christmas Club for myself in 2020.Mortgage payoff is number one on my list for this year!None of the above are New Year’s resolutions for me. They’re just things I know I need to tackle if retirement is going to be as enjoyable as I hope it will be.I try to set a goal each month of the year to accomplish something I’ve been “meaning to get to”. I’m a procrastinator by trade and this helps me accomplish more and feel better about myself.I’m not likely to meet my resolution of spending less unless I delete my Amazon app. I think they’re going to start leaving random packages for me with a note saying they knew I probably meant to order it…and they’d be right.I am always successful with my resolutions. I always resolve to not smoke. I’ve never been a smoker, so it is quite easy! The post SURVEY SAYS: 2020 Financial New Year’s Resolutions appeared first on PLANSPONSOR.
Categories: Industry News

Assumptions for Withdrawal Liability Cannot Be Changed and Applied Retroactively

Plansponsor.com - Fri, 01/10/2020 - 15:10
The 2nd U.S. Circuit Court of Appeals has vacated a lower court’s ruling that allowed for the change of the interest rate assumption used for calculating Metz Culinary Management, Inc.’s withdrawal liability for exiting The National Retirement Fund.According to the court opinion, Buck Consultants utilized a 7.25% interest rate assumption to determine the retirement fund’s unfunded, vested benefits (UVBs). In October 2013, the multiemployer plan replaced Buck with Horizon Actuarial Services, LLC beginning in 2014. The plan’s 2013 Form 5500 Schedule MB, states that a 7.25% interest rate assumption remained in place in 2013 for purposes of determining UVBs. At a 7.25% interest rate, appellant’s withdrawal liability would have been $254,644In June 2014, however, Horizon informed the plan’s trustees that the interest rate assumption for purposes of withdrawal liability was reduced from 7.25% to approximately 3.25%. At a 3.25% interest rate, appellant’s withdrawal liability was calculated to be $997,734.The court first determined that because Metz’s withdrew from the plan on May 16, 2014, the applicable Measurement Date is December 31, 2013, per the Employee Retirement Income Security Act (ERISA).The plan’s assertion that its actuary had not made any interest rate assumption determination as of December 31, 2013, for purposes of calculating the fund’s UVBs for withdrawal liability was rejected by the appellate court. And the court said that the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) requires that the assumptions and methods in effect on December 31, 2013, be used for calculating the employer’s withdrawal liability. Absent some change by the fund actuaries, the existing assumptions and methods remained in place as of December 31, 2013.On May 4, 2016, Metz sought enforcement of the final award determined by an arbitrator. On March 27, 2017, the district court vacated the final award, holding that “ERISA does not require actuaries to make withdrawal liability assumptions by the Measurement Date.” According to the district court, “the withdrawal liability interest rate assumption in effect on the Measurement Date is not applicable to the upcoming plan year unless the actuary affirmatively determines that the assumption . . . is reasonable and her best estimate of anticipated experience under the plan as of the Measurement Date.”The 2nd Circuit said factual findings made by an arbitrator enjoy a “presumption of correctness” under ERISA Section 4221(c). The arbitrator stated that the fund’s “decision to apply a changed assumption [rate] retroactively so as to increase the withdrawal liability assessed to [Metz] and other employers who withdrew from the fund after December 31, 2013, was violative of MPPAA.”The appellate court stated that in the context of multiemployer pension plans, interest rate assumptions cannot be altered daily and must have a degree of stability. Nor, in that context, do interest rate assumptions remain open forever and subject to retroactive changes in later years. In addition, the court said, “certain provisions of ERISA allow employers to request and receive notice of their estimated withdrawal liability prior to actually withdrawing from a fund… Such provisions are of no value if retroactive changes in interest rates assumptions may be made at any time.”In considering the retroactive selection of interest rate assumptions, the 2nd Circuit concluded that the assumptions and methods used to calculate the interest rate assumption for purposes of withdrawal liability must be those in effect as of the Measurement Date, and absent a change by a fund’s actuary before the Measurement Date, the existing assumptions and methods remain in effect. “Were it otherwise, the selection of an interest rate assumption after the Measurement Date would create significant opportunity for manipulation and bias. Nothing would prevent trustees from attempting to pressure actuaries to assess greater withdrawal liability on recently withdrawn employers than would have been the case if the prior assumptions and methods actually in place on the Measurement Date were used,” the appellate court concluded.In addition to vacating the judgment of the district court, the 2nd Circuit remanded the case to the district court with directions to enter judgment for the appellant and to remand any remaining issues to the arbitrator.The post Assumptions for Withdrawal Liability Cannot Be Changed and Applied Retroactively appeared first on PLANSPONSOR.
Categories: Industry News

Retirement Industry People Moves

Plansponsor.com - Fri, 01/10/2020 - 14:34
Academic Consultant to Support American Century ETF PlatformAmerican Century Investments has hired Sunil Wahal, Ph.D., as an academic consultant supporting Avantis Investors.Wahal will contribute to many areas of Avantis Investors’ offering, including research that can inform investment strategy design and execution. “I have always been very interested in applying state-of-the-art technology and financial science for the benefit of end investors,” says Wahal. “That is why I’m so excited to join Avantis Investors. The mission to provide sound investment solutions at attractive expense ratios should benefit long-term investors.”Wahal is the Jack D. Furst professor of finance and director of the Center for Investment Engineering at the W.P. Carey School of Business of Arizona State University. Before joining the ASU faculty in 2005, Wahal was on the faculty at Emory University and Purdue University.  His research focuses on short- and long-horizon investment strategies (momentum, profitability, and others), trading issues (trading algorithm design, trading costs and high frequency trading), and delegated portfolio management and asset allocation for large institutional investors. His work covers public equities, fixed income and private equity.  He has published in the Journal of Finance, the Journal of Financial Economics and the Review of Financial Studies, among others.Prior to joining Avantis Investors, he served as a consultant to Dimensional Fund Advisors (2005-2019), and AJO Partners.  He sits on the investment committees for several registered investment advisers (RIAs). He regularly speaks at academic and practitioner conferences and has given numerous presentations to sovereign wealth funds, endowments, foundations, family offices, defined benefit (DB) plans, defined contribution (DC) plans and RIAs. Wahal holds a doctorate from the University of North Carolina at Chapel Hill, a master’s from Wake Forest University and a bachelor’s degree in economics from the University of Delhi, India.Multnomah Group Brings In Senior ConsultantMultnomah Group has hired Greg Johnson as a senior consultant for the firm as well as its director of ERISA [Employee Retirement Income Security Act] technical services.Johnson’s background includes more than two decades of work in the retirement plan space. Most recently, he held the position of senior director, institutional relationships at TIAA. “We’re excited to have Greg join our team as we support our continued growth at Multnomah Group,” says Erik Daley, Multnomah Group’s managing principal. “I’ve had the opportunity to work collaboratively with Greg over the last decade, and he has demonstrated himself as an accomplished problem solver and creative thinker.  His experience and approach will yield significant benefits to our firm and the clients we work with.”MassMutual Adds Several Relationship ManagersMassachusetts Mutual Life Insurance Company has appointed several new relationship managers to support retirement plans.Lisa Burks-Wilson will now support retirement plans in Michigan. She has 30 years’ experience in financial services and previously served as a relationship manager for retirement plans at ICMA-RC and TIAA.  Burks-Wilson has a bachelor’s degree from Howard University, FINRA Series 6, 24, 26, 51, 65 licenses as well as state insurance licenses in Michigan, Ohio, Indiana, Minnesota, Pennsylvania, New Jersey and Delaware.Kevin Catineau is a relationship manager for Massachusetts. With more than 25 years’ experience in financial services, Catineau was most recently a financial adviser for Citizens Investment Services. Earlier, he worked at MassMutual as a market director for third-party administrators.  He has a bachelor’s degree from St. Michael’s College as well as FINRA Series 6, 7, 26, 63 and 65 licenses and a Chartered Retirement Plan Specialist (CRPS) designation.Mark Goerg supports retirement plans in New Jersey. Goerg most recently was a financial services representative for MassMutual after more than 20 years’ experience as a relationship manager for Capital Market Solutions and BNY Mellon Capital Markets. He has a master’s from Fordham University and a bachelor’s from Stonehill College. In addition, Goerg has FINRA Series 7, 55, 63 and 79 licenses.John Harris is a relationship manager in Georgia. Harris was previously a retirement consultant for 403(b) plans at Lincoln Financial Group. In addition, he also worked as a financial adviser at VALIC and Northwestern Mutual. He earned a bachelor’s degree at Kennesaw State University and has FINRA Series 6, 63 and variable securities licenses as well as life, health and sickness insurance licenses.Kathy Jackson is a relationship manager in Tennessee after serving MassMutual retirement plan clients as an educational specialist and previously as a senior relationship manager for Fidelity Investments.  She has more than 30 years’ experience in financial services, including the retirement and employee benefits markets. She earned a bachelor’s degree at the University of Notre Dame and has a FINRA Series 6 license and a CEBS designation.Prabhjeet Kaur supports retirement plans in Maryland.  Kaur has more than 20 years’ experience in the retirement plans and employee benefits industries. Most recently, she was vice president of relationship management for government plans for IMCA-RC and was a senior account executive for institutional markets at Transamerica. Kaur has bachelor’s degrees from the University of North Carolina and a CEBS from the University of Pennsylvania.Richard Luerra supports retirement plans in Southern California. He has more than two decades’ experience managing relationships for retirement plans and most recently served as a retirement plans specialist for ICMA-RC. He has a bachelor’s degree from San Jose State University, has FINRA Series 6, 63 and 65 licenses, and a life insurance license.Matthew Marty is a relationship manager in Ohio. With more than 25 years’ experience in financial services, Marty most recently served as a managing director at Charles Schwab Corp. He has a bachelor’s degree from Bowling Green State University and holds FINRA Series 7 and 66 licenses. In addition, Marty earned Qualified 401(k) Administrator (QKA) and a Qualified Pension Administrator (QPA) certifications from the American Society of Pension Professionals & Actuaries (ASPPA).Richard May is a relationship manager for New York State. With more than two decades’ experience in the retirement plans marketplace, May previously served as senior director for relationship management at TIAA.  He has FINRA Series 6, 7, 24, 63 and 65 licenses, is a Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Accredited Investment Fiduciary Analyst (AIFA) and a Certified Investment Management Analyst (CIMA).Jose Mireles specializes in supporting government retirement plans in California. Mireles previously served as a financial consultant for TIAA. He has a bachelor’s degree from Pepperdine University as well as FINRA 7, 24 and 66 licenses as well as accident, health, life, variable life and variable annuities licenses.David Stone supports retirement plans in Colorado.  He has more than 15 years’ experience in financial services, most recently as an associate for business development at Nuveen and a client services manager at TIAA.  Stone earned MBA and bachelor’s degrees at the University of Colorado, has FINRA Series 7 and 63 licenses, as well as life, health and variable annuities insurance licenses.Alston & Bird Announces Partner PromotionAlston & Bird has elected a partner in the Employee Benefits & Executive Compensation GroupKyle Woods (Atlanta) is partner in the Employee Benefits & Executive Compensation Group. He assists both domestic and international clients in providing competitive and attractive benefit programs to all levels of employees. Focusing on both qualified and nonqualified benefit plans, he guides employers through design, implementation, and ongoing compliance. He also advises and trains plan fiduciaries in matters of plan governance, interpretation, and administration.The post Retirement Industry People Moves appeared first on PLANSPONSOR.
Categories: Industry News

What States Are Doing to Offset Lower Assumed Returns

Plansponsor.com - Fri, 01/10/2020 - 14:13
The Pew Charitable Trusts, in a new paper, says that “financial analysts now expect public pension fund returns over the next two decades to be more than a full percentage point lower than those of the past, based on forecasts for lower-than-historical interest rates and economic growth.”In fact, Pew says, ever since the Great Recession of 2008, public pension plans have reduced their return targets due to changes in the long-term outlook for financial markets. “More than half of the funds in Pew’s database lowered their assumed rates of return in 2017,” Pew says, calling this type of tempered outlook the “new normal.”As a result, this “increases the actuarially required employer contributions,” Pew says. “Some state pension finds have phased in discount rate reductions—effectively altering how they compute future liabilities. That allows them to spread out increases in contributions over time.”Pew notes that the Congressional Budget Office (CBO) reports that the U.S. annual gross domestic product (GDP) growth averaged more than 5.5% between 1988 and 2007, but the CBO now projects only 4% growth over the next decade. “As economic growth is expected to perform more modestly, the long-term outlook for stocks and other investments that pension funds hold will be similar,” Pew says.Likewise, investment-grade bond yields averaged 6.5% a year between 1988 and 2007, according to the CBO, but it projects that will be a mere 3.7% over the next decade.Pew forecasts that pension fund portfolios will experience a median return of only 6.4% a year for the next decade, taking into consideration GDP growth and interest rates.To combat this trend, Joshua Franzel, president and CEO of the Center for State and Local Government Excellence, tells PLANSPONSOR, public pension sponsors have been reducing the amount of equities and bonds in their portfolios and increasing their exposure to alternatives. Additionally, he says, “the lower the return assumptions, the more contributions that are going to be required to be made,” Franzel says.“Part of the reason why we are seeing shifts in investments is not just to chase returns but to manage risk and diversify,” Franzel says. “It is also important to understand that all pension plans are doing experience studies, typically every five years, to see how their expectations are playing out. As to the extent to which sponsors are paying their contributions to the plan, they should be as close to 100% of their required contributions as possible, and they should be closely meeting their investment assumptions related to inflation and mortality.”The Pew report agrees with the need for public pension plans’ assumptions to be as accurate as possible: “Funds need accurate return assumptions to ensure fiscal responsibility.”Pew then points to actions by a number of states to counteract lower returns. Connecticut, for example, reduced its discount rate to “help mitigate long-term risks and avoid short-term spikes in contribution requirements.” It reduced its pension plan’s discount rate from 8% in 2017 to 6.9% in 2019 and “adopted a funding policy that would bring down the unfunded liability and stabilize long-term contribution rates. Finally, it extended the time period for the state to pay down the more than $30 billion in pension debt to 30 years and added a five-year phase-in of the new funding policies.”In California, CalPERs has shifted its investment mix to less risky assets. Wisconsin had a return assumption of 7.2% in 2017 but used a lower discount rate of 5% to calculate the cost of benefits paid to retirees. Any earning above that amount is invested in an annuity.“Finally, North Carolina effectively uses two discount rates to set contribution policy. The state determines a contribution floor based on the plan’s investment return assumption of 7%, as well as a ceiling using yields on U.S. Treasury bonds as a proxy for what a risk-free investment could return. Any year in which the contribution rate is between the floor and the ceiling, employers will put in an additional 0.35% of pay above the prior year’s rate.”Above and beyond this, pension plans are carefully examining the fees they are paying to investment managers, and some funds have managed significant reductions. Pennsylvania reports that its fees have gone from 81 basis points in 2015 to 74 basis points in 2017—saving more than $57 million a year in reduced fees.The post What States Are Doing to Offset Lower Assumed Returns appeared first on PLANSPONSOR.
Categories: Industry News

Initial CalSavers Data Shows an Issue With ‘Stickiness’ of the Program

Plansponsor.com - Fri, 01/10/2020 - 13:38
CalSavers, the automatic-enrollment state-run retirement plan for people who do not have an employer-sponsored retirement plan, has issued a participation and funding snapshot report as of 12/31/19.SB 1234 created CalSavers and requires that all employers with five or more employees who don’t already offer a retirement plan to either begin offering a qualified plan from the private market or register for CalSavers in accordance with a series of staggered deadlines rolling out over the next three years. The registration deadline for employers with more than 100 employees is June 30, 2020; those with more than 50 to 100 employees must register by June 30, 2021; and employers with 5 to 50 employees must register by June 30, 2022. All eligible employers are encouraged to join at any time prior to their registration deadline.The program went live July 1, 2019, and as of 12/31/2019, 628 employers have registered and 142 are submitting payroll deductions for employees. The data shows 3,762 accounts are funded and 4,033 accounts are pending their first contribution.Total assets in the program as of 12/31 are $1,421,847.18, with a $377.95 average account balance. The average contribution rate of employees with funded accounts is 5%.However, data on opt-outs and distributions shows the “stickiness” of the program is less than supporters would like to see. The effective opt-out rate is 30.07% so far, and 258 account holders have made full withdrawals within 120 days of the initial contribution. In total, 382 participants have made full withdrawals and 60 have made partial withdrawals.The program has only just begun, and with deadlines extending into 2022 for employers to register, it is too early to tell if this initial data shows whether employees will stick to the program going forward. Two years after its launch, OregonSaves, a state-run retirement program for private-sector employees, reported $25 million saved for retirement.OregonSaves is demonstrating success by a number of measures, with workers saving at a higher percentage of pay than anticipated (an average of $117 per month), and millions of dollars saved by workers who were not saving before. The data released in August 2019 showed program assets climbing by more than $2.5 million a month, and most of those contributing are first-time savers.The post Initial CalSavers Data Shows an Issue With ‘Stickiness’ of the Program appeared first on PLANSPONSOR.
Categories: Industry News

Chemical Distributor’s U.S. DC Plan Subject of Excessive Fee Suit

Plansponsor.com - Fri, 01/10/2020 - 13:31
An Employee Retirement Income Security Act (ERISA) lawsuit has been filed against chemical distributor Brenntag North America Inc. alleging the company and other fiduciaries of the Brenntag USA Profit Sharing Plan failed to take measures to ensure reasonable investment and recordkeeping fees.According to the complaint, the plan has nearly half a billion dollars in assets that are entrusted to the care of the plan’s fiduciaries, qualifying it as a large plan in the defined contribution (DC) plan marketplace. The lawsuit says Brenntag, as sponsor of a large plan, failed to use its bargaining power to reduce plan expenses and also failed to scrutinize each investment option to make sure it was prudent.The plaintiffs allege that from January 8, 2014, to the present, the defendants breached their fiduciary duties to the plan and its participants by “failing to objectively and adequately review the plan’s investment portfolio with due care to ensure that each investment option was prudent, in terms of cost; and maintaining certain funds in the plan despite the availability of identical or similar investment options with lower costs and/or better performance histories.”The plaintiffs say defendants failed to utilize the lowest cost share class for many of the mutual funds within the plan, and failed to consider collective trusts, commingled accounts, or separate accounts (at least for the majority of the class period) as alternatives to the mutual funds in the plan, despite their lower fees.The complaint suggests that the fiduciary task of evaluating investments and investigating comparable alternatives in the marketplace is made much simpler by the advent of independent research from companies like Morningstar. It also notes that ERISA-mandated monitoring of investments leads prudent and impartial plan sponsors to continually evaluate performance and fees, resulting in great competition among mutual funds in the marketplace. “This has led to falling mutual fund expense ratios for 401(k) plan participants since 2000. In fact, these expense ratios fell 31% from 2000 to 2015 for equity funds, 25% for hybrid funds, and 38% for bond funds,” the lawsuit states. It cites data from the Investment Company Institute (ICI) that illustrates 401(k) plans on average pay far lower fees than individual retail investors.The plaintiffs argue that passively managed funds, because they are simply a mirror of an index, offer both diversity of investment and comparatively low fees. By contrast, they say, actively managed funds, which have a mix of securities selected in the belief they will beat the market, have higher fees, to account for the work of the investment managers of such funds and their associates. They cite data that supports their argument that while higher-cost mutual funds may outperform a less-expensive option, such as a passively-managed index fund, over the short term, they rarely do so over a longer term.The lawsuit also says more expensive share classes are targeted at smaller investors with less bargaining power, while lower cost shares are targeted at institutional investors with more assets, generally $1 million or more, and therefore greater bargaining power. “Large defined contribution plans such as the [Brentagg] plan have sufficient assets to qualify for the lowest cost share class available,” the complaint states. The plaintiffs argue that “a fiduciary to a large defined contribution plan such as the plan can use its asset size and negotiating power to invest in the cheapest share class available. For this reason, prudent retirement plan fiduciaries will search for and select the lowest-priced share class available.”The lawsuit points out that throughout the class period, the investment options available to participants were almost exclusively mutual funds. The plaintiffs argue that plan fiduciaries such as the defendants must be continually mindful of investment options to ensure they do not unduly risk plan participants’ savings and do not charge unreasonable fees. They say some of the best investment vehicles for these goals are collective trusts, which pool plan participants’ investments further and provide lower fee alternatives to even institutional and 401(k) plan specific shares of mutual funds.In addition, they say separate accounts are another type of investment vehicle similar to collective trusts, which retain their ability to assemble a mix of stocks, bonds, real property and cash, and their lower administrative costs. “Separate accounts are widely available to large plans such as the plan, and offer a number of advantages over mutual funds, including the ability to negotiate fees. Costs within separate accounts are typically much lower than even the lowest-cost share class of a particular mutual fund,” the complaint states. “By using separate accounts, total investment management expenses can commonly be reduced to one-fourth of the expenses incurred through retail mutual funds,” it adds, citing the U.S. Department of Labor’s Study of 401(k) Plan Fees and Expenses.Using 2018 as an example year, the lawsuit says 20 out of 23 funds in the Brenntag plan—87% of funds—were much more expensive than comparable funds found in similarly sized plans. It alleges that the expense ratios for funds in the plan in some cases were up to 91% above the median expense ratios in the same category. Additionally, the lawsuit alleges that expense ratios for the American Funds target-date funds were in the bottom quartile—meaning they were the most expensive for all American target-date funds.The plaintiffs also accuse the defendants of failing to monitor or control the plan’s recordkeeping expenses. They say the market for recordkeeping is highly competitive, with many providers equally capable of providing a high-level service, so they vigorously compete for business by offering the best price. The defendants are accused of failing to prudently manage and control the plan’s recordkeeping costs by failing to track the recordkeeper’s expenses by demanding documents that summarize and contextualize the recordkeeper’s compensation, such as fee transparencies, fee analyses, fee summaries, relationship pricing analyses, cost-competitiveness analyses, and multi-practice and standalone pricing reports; identify all fees, including direct compensation and revenue sharing being paid to the plan’s recordkeeper; and conduct a request for proposal (RFP) process at reasonable intervals, and immediately if the plan’s recordkeeping expenses have grown significantly or appear high in relation to the general marketplace.The plaintiffs argue that to the extent that a plan’s investments pay asset-based revenue sharing to the recordkeeper, prudent fiduciaries monitor the amount of the payments to ensure that the recordkeeper’s total compensation from all sources does not exceed reasonable levels, and require that any revenue sharing payments that exceed a reasonable level be returned to the plan and its participants.They also argue that an RFP should happen at least every three to five years as a matter of course, and more frequently if the plans experience an increase in recordkeeping costs or fee benchmarking reveals the recordkeeper’s compensation to exceed levels found in other, similar plans.According to the lawsuit, the increase in recordkeeping costs (as measured on a per participant basis) for the Brenntag plan far outpaced the modest growth in the number of participants from the start of the class period until the present, indicating the plan’s fiduciaries failed to leverage the growing size of the plan (by both participants and assets) to achieve lower per-participant costs.The post Chemical Distributor’s U.S. DC Plan Subject of Excessive Fee Suit appeared first on PLANSPONSOR.
Categories: Industry News

SECURE Act Resources Library Published by Groom

Plansponsor.com - Thu, 01/09/2020 - 15:11
Groom Law Group announced the launch of its SECURE Act Resource Library website: www.secureretirementact.com.The launch comes a few weeks after the passage of the Setting Every Community Up for Retirement Enhancement Act, also known as the “SECURE Act.”In order to provide a clearer understanding of the Act’s nearly 30 retirement provisions, the resource library was designed to provide employers and retirement plan service providers with easy access to the legislation and related regulatory guidance, key deadlines, necessary compliance measures, and insights from Groom legal professionals.The firm says the SECURE Act Resource Library features relevant insights and important takeaways on key provisions that impact the establishment of multiple employer plans or pooled employer plans; the offering of in-plan lifetime income options; distributions from plans and individual retirement accounts (IRAs); and other facets of plan recordkeeping and administration.“The passage of the SECURE Act has been a long time in the making and will have a profound impact on the retirement system,” says Michael Kreps, a principal at Groom.The post SECURE Act Resources Library Published by Groom appeared first on PLANSPONSOR.
Categories: Industry News

Friday Files – January 10, 2020

Plansponsor.com - Thu, 01/09/2020 - 14:32
A record-breaking toilet paper pyramid, instant karma for a package thief, the Mario Brothers theme like you’ve never hear it before.In Palm Beach County, Florida, Sheriff’s deputies responded to a call about sounds of a woman in distress. Responding to the scene, they found a man working on a car with his pet parrot Rambo on an outside perch. Apparently, Rambo’s cries of “Let me out! Let me out! Ohhh! Ohhh! Ohhh!” were so lifelike that a neighbor called the police.In Midland, Michigan, students at Bullock Creek High School set a new world record for the tallest toilet paper pyramid. It took 16 hours and 27,434 rolls to make the 16-feet, 3-inch pyramid.Instant karma for a package thief. If you can’t view the below video, try https://youtu.be/Y-b-1B6tNdc.The Mario Brothers theme like you’ve never heard it before. If you can’t view the below video, try https://youtu.be/2NCviYMdV1I.The post Friday Files – January 10, 2020 appeared first on PLANSPONSOR.
Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 01/09/2020 - 13:40
CUNA Mutual Adds Stadion Managed Account Service to PlatformCUNA Mutual Retirement Solutions has added Stadion Money Management’s StoryLine managed account service to its retirement recordkeeping platform. The service will provide CUNA Mutual Retirement Solutions’ adviser partners, plan sponsors and third-party administrators (TPAs) additional investment flexibility while helping plan participants save for their future. StoryLine is a professionally managed investment service that provides customization at the plan level based on employee demographics and a personalized investment allocation tailored to participants based on their individual characteristics and risk tolerance. StoryLine offers participants an easy-to-use experience, including enrollment support and ongoing communications.“More plan sponsors today are offering managed account services to help participants achieve retirement readiness, and we are pleased to add StoryLine to our firm’s offering,” says Paul Chong, Senior Vice President of CUNA Mutual Retirement Solutions. “Our mission is to help people achieve retirement on their terms. This new service allows us to create a customer experience that differentiates us in the market, while delivering innovative solutions to help participants make the right investment decisions for their personal situation,”MSCI Creates New Fixed Income IndexesMSCI Inc. has launched the MSCI Fixed Income ESG Indexes and the MSCI Fixed Income Factor Indexes.Jana Haines, head of Index Products, Americas, at MSCI comments, “We are pleased to bring next generation fixed income indexes to market. Investors are increasingly demanding ESG integration across all asset classes and looking to Factors—such as Carry, Quality, Value, Size and Risk—to more precisely define how they can better identify, measure and manage risk and return in their portfolios.”The MSCI Fixed Income ESG Indexes and Factor Indexes include: Issuance Weighted—MSCI USD Investment Grade Corporate Bond Index; ESG—MSCI USD IG ESG Universal Corporate Bond Index and MSCI USD IG ESG Leaders Corporate Bond Index; and multiple Factor indexes including MSCI USD IG Carry High Exposure Corporate Bond Index; MSCI USD IG Low Risk High Exposure Corporate Bond Index; MSCI USD IG Quality High Exposure Corporate Bond Index; and more.Transamerica Decreases Fees on Two High Yield BondsTransamerica has reduced fees on two of its bond funds, effective as of January 6. The reductions on the Transamerica High Yield Bond fund and Transamerica Aegon High Yield Bond VP total up to 12 basis points annually and impact $1.8 billion in combined assets.“These latest fee reductions can help our mutual fund, variable annuity, and retirement investors put more of their money to work as they plan for the future,” says Tom Wald, chief investment officer for Transamerica Asset Management, Inc. “We’re pleased that these new fee structures can help investors best achieve their goals.”The funds and share classes experiencing the fee reduction include: Transamerica High Yield Bond – Class A (IHIYX); Transamerica High Yield Bond – Class C (INCLX); Transamerica High Yield Bond – Class I (TDHIX); Transamerica High Yield Bond – Class R (TAHRX); Transamerica High Yield Bond – Class R4 (TAHFX); Transamerica High Yield Bond – Class R6 (TAHBX); Transamerica High Yield Bond – Class I3 (TAHTX); Transamerica Aegon High Yield Bond VP – Initial Class; and Transamerica Aegon High Yield Bond VP – Service Class.Pacific Global Adds Floating-Rate Loan ETFPacific Global ETFs, one of Pacific Life’s family of funds, announced the addition of a floating-rate loan exchanged-traded fund (ETF) to its lineup.Pacific Global Senior Loan ETF (NYSE: FLRT) is an actively managed fund designed to produce income from floating-rate loans (also known as senior loans) and floating-rate debt securities.“We believe that passive management is an inefficient strategy for floating-rate loan funds,” says Anthony J. Dufault, managing director of Pacific Global ETFs. “Our experienced team of fixed-income professionals seeks to add value by carefully selecting highly liquid, floating-rate loans of non-investment-grade companies.”Pacific Global ETFs recently completed the adoption of AdvisorShares’ Pacific Asset Enhanced Floating Rate ETF. Shareholders voted to approve its merger and reorganization into Pacific Global Senior Loan ETF at the end of 2019. The fund’s existing assets and its nearly four-year track record have transitioned to Pacific Global Senior Loan ETF. Pacific Asset Management, which manages over $4.5 billion in floating-rate loan strategies, continues to manage the ETF as its sub-advisor.For more information about Pacific Global ETFs, visit www.pacificglobaletfs.com. The post Investment Product and Service Launches appeared first on PLANSPONSOR.
Categories: Industry News

Longer-Term HSA Holders Maximize Benefits for the Future

Plansponsor.com - Thu, 01/09/2020 - 13:36
The longer an employee has a health savings account (HSA), the more likely he is to invest and save funds in the account for future expenses, according to an analysis from the Employee Benefit Research Institute (EBRI).On average, EBRI says, account holders appear to be using HSAs as specialized checking accounts rather than investment accounts, but this behavior appears to change the longer an HSA owner holds an account. In other words, EBRI’s longitudinal analysis shows that the more owners have experience with HSAs, the greater the likelihood their usage becomes more investment-like.The analysis found that accounts open for one year had an average $1,018 year-end account balance, while accounts open for 10 years had an average $7,589 year-end account balance. This demonstrates that the propensity to save in an HSA increases over time, EBRI says.In 2018, individual contributions averaged $1,166 among those accounts open for one year but averaged $3,355 among those accounts open for 10 years. In addition, 2% of accounts open for one year had investments other than cash, compared with 10% among those open for 10 years.EBRI notes it is possible that rules requiring minimum balances before investing may have prevented owners of relatively new accounts from doing so, as the accounts would not have reached the minimum balance requirement. Regardless, over time, account owners appear to see the value in investing their HSA balances.“Such analysis can help not only plan sponsors but providers and policymakers better understand strategies that can help improve employee financial wellness,” EBRI says.Educating employees about health savings accounts can help them maximize their benefit. “The best time to engage with employees and educate them about health savings accounts is after open enrollment,” says Steve Neeleman, founder and vice chairman of HealthEquity in Draper, Utah.“Start with three basic messages: HSAs are not use it or lose it accounts, they can be invested and employees can increase how much they put into the account during the year. Light bulbs will go on,” Neeleman says.Devenir has reported that HSA investment accounts have an average total balance of $15,982—six times larger than a non-investment holder’s average account balance.In order to educate participants about HSAs, plan sponsors must understand the accounts themselves. And to get employees thinking about HSAs as long-term savings vehicles, Sara Caddy, benefits manager at Dimensional Fund Advisors, says employers should highlight what the ‘S’ stands for—“savings,” versus “spending” in flexible spending accounts (FSAs). She also recommended employers reiterate to employees that the primary expense that increases after retirement is health care. Remind employees that HSA assets left in the account will be rolled over from year-to-year.A report from Cerulli Associates suggests that pairing HSA and defined contribution (DC) plan communication and administration and modernizing HSA investment menus can help to position HSAs as retirement savings vehicles.“As individuals become more familiar with HSAs, they are more likely to take advantage of the benefits of the accounts,” says Paul Fronstin, director of EBRI’s Health Research and Education Program.The post Longer-Term HSA Holders Maximize Benefits for the Future appeared first on PLANSPONSOR.
Categories: Industry News

Most DB Plans Saw Little Funded Improvement in 2019

Plansponsor.com - Thu, 01/09/2020 - 12:57
Despite strong equity returns during 2019, most defined benefit (DB) plan sponsors likely saw only a small improvement to their plan’s funded status over the year.The funded status of the nation’s largest corporate pension plans edged up slightly in 2019 as historically low interest rate levels mostly offset the strongest investments gains witnessed by plan sponsors since 2003, according to an analysis by Willis Towers WatsonIn DecemberAccording to River and Mercantile, discount rates ended December up slightly from November. Equity markets posted a solid month, and fixed income investments were generally flat or down for the month. Funded status improvements were likely small, but would depend on equity allocations.During December, both model plans October Three tracks gained ground for the fourth consecutive month. Plan A improved 2% and finished 2019 even, while Plan B gained less than 1%, ending 2019 up less than 1%. Plan A is a traditional plan (duration 12 at 5.5%) with a 60/40 asset allocation, while Plan B is a largely retired plan (duration 9 at 5.5%) with a 20/80 allocation with a greater emphasis on corporate and long-duration bonds.Pension funding ratios increased throughout the month of December, driven primarily by global equity performance, according to Legal & General Investment Management America (LGIMA). It estimates that the average plan’s funding ratio increased 2.1% to 83.2% through December.S&P 500 aggregate pension funded status increased in December from 85.8% to 86.6%, according to Aon’s Pension Risk Tracker. Pension asset returns were slow at the beginning of December before ending the month with a 1% return. The month-end 10-year Treasury rate increased by 14 bps relative to the November month-end rate and credit spreads narrowed by 11 bps. This combination resulted in an increase in the interest rates used to value pension liabilities from 2.83% to 2.86%.Northern Trust Asset Management (NTAM) says the average funded ratio of S&P 500 plans improved in December from 85.7% to 87.3%. But, Wilshire Associates estimates the aggregate funded ratio for S&P 500 plans increased by 1.6 percentage points in December to end the month at 88.2%.During Q4 2019The fourth quarter was also a good month for DB plan funded status. Barrow, Hanley, Mewhinney & Strauss, LLC estimated that the funded ratio for plans in the Russell 3000 rose to 88.7% as of December 31, 2019 from 85% as of September 30, 2019.LGIMA estimates the average funding ratio increased from 79.2% to 83.2% over the quarter based on market movements.According to Aon, pension liabilities decreased as interest rates were up in Q4 2019. Ten-year Treasury rates increased by 24 bps and credit spreads narrowed by 21 bps, resulting in a 3 bps increase in the discount rate during the quarter for an average pension plan.  Return-seeking assets rose during the fourth quarter, with the Russell 3000 Index returning 9.1%. Bond performance was weak, with the Barclay’s Long Government /Credit Index decreasing -1.1%. Overall pension assets were up 3.4% in the quarter.For the yearHowever, 2019 overall was full of ups and downs for corporate DB plans. “While the financial headlines were all about the strong stock market in 2019, the decline in discount rates was just as significant,” River and Mercantile says.Willis Towers Watson examined pension plan data for 376 Fortune 1000 companies that sponsor U.S. DB plans and have a December fiscal-year-end date and found the aggregate funded status is estimated to be 87% at the end of 2019, compared with 86% at the end of 2018.“Significant gains experienced in both the stock and bond markets should have bolstered the financial health of corporate pension plans in 2019,” says Joseph Gamzon, senior director, Retirement, Willis Towers Watson. “However, interest rates were at historically low levels and experienced the largest one-year drop in two decades, resulting in a huge increase in plan obligations and little overall change in the plans’ funded status.”“The roller coaster ride continued during 2019 as we saw funded status drop as low as 81% but fortunately equities had a strong end to the year leading to an increase in funded status year over year,” says Matt McDaniel, a partner in Mercer’s wealth business.During 2019, the aggregate funded ratio for U.S. pension plans in the S&P 500 increased from 86% to 86.6%, according to the Aon Pension Risk Tracker. The funded status deficit increased by $19 billion, which was driven by liability increases of $230 billion and offset by asset increases of $211 billion year-to-date.“Funded ratios increased in 2019 from 86.3% to 87.3%. This is a remarkable improvement considering that the discount rates dropped by more than 100 bps from 3.85% to 2.77% during the year. The exceptional performance from equity has more than made up for the headwinds from rising liabilities,” says Jessica Hart, head of OCIO Retirement Practice at NTAM.While most estimates of funded status improvements in 2019 were small, some plans fared better than others. According to Barrow Hanley, which estimates funded status for the Russell 3000, “As of year-end, plans achieved a funded ratio greater than any other year-end level since 2007. Many plans likely achieved their highest funded ratio since adopting liability driven investing.”The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies increased to 88% as of December 31, 2019, from 85% as of December 31, 2018, according to Mercer.Looking ahead“Pension funding relief has reduced required plan funding since 2012, but under current law, this relief will gradually sunset. Given the current level of market interest rates, it is possible that relief reduces the funding burden through 2028, but the rates used to measure liabilities will move significantly lower over the next few years, increasing funding requirements for pension sponsors that have only made required contributions,” says Brian Donohue, partner at October Three Consulting. “Discount rates edged up a bit last month. We expect most pension sponsors will use effective discount rates in the 3% to 3.4% range to measure pension liabilities right now, a full percent lower than rates at the end of 2018.”Willis Towers Watson’s analysis estimates Fortune 1000 companies contributed $26.3 billion to their plans in 2019—roughly half of what they contributed in 2018, when many plan sponsors took advantage of the higher tax deductions for pension contributions that existed before the Tax Cuts and Jobs Act of 2017. The larger deduction is no longer available to plan sponsors.Michael Clark, managing director at River and Mercantile, says, “The big question going into 2020 for pension plan sponsors will be around how to manage funded status risk if rates don’t rise and equity markets experience a downturn.” And, McDaniel says, “As we start a new year, plan sponsors should review their pension risk management strategy to consider whether it is prudent to lock in gains as opportunities arise in this unpredictable market.”Speaking to DB plan sponsors that may be considering pension risk transfer action in 2020, River and Mercantile says, “Generally, we expect that plans with plan years starting on January 1 would have been better off doing a lump-sum cash out window in 2019 than in 2020. With the large drop in interest rates that occurred during 2019, there were significant opportunities for savings in 2019 that we do not expect to repeat in 2020. However, certain plans will still benefit from such a program. For example, plans with liability-hedging investments supporting their terminated vested liability could “lock in” their high asset values now by cashing out participants and liquidating this part of the portfolio to pay benefits.”The post Most DB Plans Saw Little Funded Improvement in 2019 appeared first on PLANSPONSOR.
Categories: Industry News

Judge Tosses Church Plan Lawsuit Against Adventist Health System

Plansponsor.com - Wed, 01/08/2020 - 14:53
Adventist Health System Sunbelt Healthcare Corporation has been relieved of a lawsuit challenging its defined benefit (DB) plan administration as a church plan exempt from provisions of the Employee Retirement Income Security Act (ERISA).The lawsuit, amended three times, accused fiduciaries of the DB plan of failing to fund the plan and provide reporting per ERISA rules. As with the dismissal of previous iterations of the complaint, U.S. District Judge Gregory A. Presnell of the U.S. District Court for the Middle District of Florida found that in many counts, the plaintiff did not sufficiently allege an injury or did not specify which defendant to which the count applied.For example, Count I seeks declaratory relief that the plan is subject to ERISA and an order directing the defendants to bring the hospital plan into compliance with ERISA. But, Presnell noted that the plaintiff does not allege any concrete or particularized injury to the plan or herself from the plan not being subject to ERISA. He also found that no injury was alleged in other counts against the defendants for failing to file annual reports, failing to provide participants with ERISA notices, and failing to provide annual funding notices. “Plaintiff contends that the deprivation of ERISA safeguards itself constitutes an injury-in-fact. Perhaps so under certain circumstances, but the Court will not presume that any time there is a procedural violation of ERISA, there is a corresponding concrete injury,” Presnell wrote in his order.In Count V, the plaintiff alleges that the health system, the retirement board, and the administrative committee failed to provide minimum funding in violation of ERISA. Presnell found the plaintiff has not adequately pleaded that the plan was underfunded for purposes of ERISA requirements. She conceded that a plan is considered “at risk” if the funded status is below 80%, and the health system’s DB plan is 81% funded.The plaintiff alleged that the church plan exemption from ERISA as applied to the defendants violated the Establishment Clause of the U.S. Constitution. Presnell said the plaintiff does not allege any concrete or particularized injury to the plan or herself, so, as with other counts, he dismissed this one for lack of standing.Given it was her third try at making the lawsuit stick, Presnell decided “the time has come to dismiss this suit with prejudice.”The post Judge Tosses Church Plan Lawsuit Against Adventist Health System appeared first on PLANSPONSOR.
Categories: Industry News

Lawsuit Against Trade Association’s 401(k) Plan Moves Forward

Plansponsor.com - Wed, 01/08/2020 - 13:15
U.S. District Judge Liam O’Grady of the U.S. District Court for the Eastern District of Virginia has found that a lawsuit alleging prohibited transactions against fiduciaries of a trade association’s 401(k) plan “contains sufficient well-pleaded facts to survive a motion to dismiss.”National Rural Electric Cooperative Association (NRECA) is a national service organization that represents more than 1,000 rural electric cooperatives around the United States. One of NRECA’s primary functions is to administer three Employee Retirement Income Security Act (ERISA) plans covering member cooperatives’ employees—a health and welfare plan, a traditional pension plan, and a 401(k) plan. Participants in the 401(k) plan are accusing the association and the Insurance and Financial Services Committee of engaging in prohibited transactions with respect to the plan in violation of ERISA, to the detriment of the plan and its participants.The complaint says the defendants failed to prudently monitor and control plan administrative costs in the interests of plan participants; appropriated the extra fees from the plan for their own benefit; and diverted monies from the plan to subsidize other expenses of NRECA and its member employers.The complaint alleges the plan’s administrative costs are grossly excessive. It notes that the plan is one of the 75 largest defined contribution plans in the United States out of more than 650,000. As a result, it says, the defendants have access to the most competitive pricing and services in the marketplace. “While fiduciaries of similarly-sized plans typically incur administrative expenses well under $100 per participant, the plan’s administrative costs are wildly out of scale at more than $400 per participant,” the complaint states.And the plaintiffs say the problem is also getting worse. According to the complaint, the plan’s administrative costs have increased each year since 2013, and the 2017 rate of $404 per participant is a 50% surge from the 2013 rate. They argue that based on trends in the overall marketplace, the plan’s administrative costs should have decreased on a per-participant basis during this time. Further, they say, the growth within the plan provided significant opportunities for the defendants to reduce the plan’s administrative expenses. Yet, the defendants failed to take measures to do so.According to the complaint, the primary beneficiary of the plan’s exorbitant administrative costs is NRECA. It says the defendants have extracted an increasing amount of revenue for NRECA from the plan each year since 2013. NRECA took in $14.2 million from the plan in 2013, $15.8 million in 2014, $17.0 million in 2015, $19.0 million in 2016, and $20.9 million in 2017. “Defendants’ incentive to increase revenue for NRECA is at odds with their duty to administer the Plan in a loyal and cost-conscious manner,” the complaint states.The plaintiffs also accuse the defendants of improperly using the plan to subsidize costs of NRECA’s overall benefits program. They say that since 2013, the revenue NRECA extracted from the plan increased by at least 32%, whereas NRECA’s in-house charges to other plans decreased or remained around the same. As a result, around half of the fees that NRECA withdrew from its benefits program in 2017 came from the 401(k) plan, up from only 36% in 2013. Likewise, the plaintiffs say, the defendants have increasingly allocated outside vendor charges to the plan. The plan paid $4.3 million to outside vendors that also served other NRECA benefit plans in 2017, up from $1.8 million in 2013.In his opinion denying the defendants’ motion to dismiss the suit for failure to state a claim, O’Grady found the plaintiffs’ allegation that the plan’s increasing administrative costs in a marketplace which is exhibiting a down trend shows imprudent administration is plausible. He said the comparison showing a similarly situated plan incurs 25% of the administrative expenses, per participant, than their 401(k) “nudges the claim over the line from merely possible to plausible.”In addition, O’Grady found the pleaded facts in the case support the inference that unreasonable and improper transactions with NRECA, a party in interest, were self-interested, or made on behalf of a party with interests adverse to the plan and/or participants. “The pleaded facts show that over recent years, while NRECA was able to charge other plans a constant or decreasing amount, NRECA allegedly unreasonably and improperly charge [the 401(k) plan] more,” he wrote in the opinion.Interestingly, in 2012, NRECA agreed to restore $27,272,727 to the three plans after an investigation by the Department of Labor’s Employee Benefits Security Administration (EBSA) found the association selected itself as a service provider to the plans, determined its own compensation and made payments to itself that exceeded NRECA’s direct expenses in providing services to the plans, in violation of ERISA.The post Lawsuit Against Trade Association’s 401(k) Plan Moves Forward appeared first on PLANSPONSOR.
Categories: Industry News

Actions to Comply With SECURE Act Should Already Be Underway

Plansponsor.com - Wed, 01/08/2020 - 12:15
The SECURE Act was passed into law on December 20, 2019.David Whaley, partner at Thompson Hine LLP in Cincinnati, Ohio, explains that the law is a collection of singular ideas that have been floating around for a long time that have been consolidated into one act. While there have been some who have likened it to the passage of the Pension Protection Act (PPA) of 2006, Whaley says the SECURE Act is not a full modification of retirement programs. For example, the acceptance of open multiple employer plans (MEPs) is unrelated to the change in required minimum distributions (RMDs), which is unrelated to the ability to adopt a retirement plan by the time of filing the employer’s tax return.Whaley notes that the majority of the law’s provisions are effective for plan years beginning after 12/31/2019. So, preparations should already be underway.There are three provisions plan sponsors should get a handle on immediately, according to Barb van Zomeren, senior vice president of ERISA [Employee Retirement Income Security Act] at Ascensus in Brainerd, Minnesota. “The increase in the age for RMDs, the elimination of the ability of certain beneficiaries to stretch IRA payments over their lifetime, and the exception to the 10% early distribution penalty for distributions for birth or adoption of a child are the most urgent for plan sponsors to address,” she says.Van Zomeren explains that if an individual is born on or after July 1, 1949, he will turn 70 ½ in 2020, so he won’t have to take an RMD until he turns age 72. However, those who turned 70 ½ in 2019 will fall under old rules; they will get their initial RMD April 1, 2020, and will continue to get distributions each year.She says plan sponsors should be aware of how the provision applies to those in RMD status and those who will have to wait, and they need to explain it to participants. Plan sponsors likely rely on their service providers for help in processing distributions, and many service providers are asking the IRS for relief on RMDs because they have to program their systems for rolling over RMDs and taking taxes, according to van Zomeren.As for the elimination of the stretch IRA, van Zomeren says it is important for participants and beneficiaries to understand the change to a 10-year payout period. She notes there are exceptions in the law for chronically ill and disabled participants. Plan service providers will need to be able to handle payouts in the near-term as beneficiary payouts actually occur.The SECURE Act permits participants in qualified defined contribution (DC) plans and IRAs to elect a penalty-free in-service withdrawal of up to $5,000 within one year following the birth or adoption of a child and allows later repayment of such withdrawals (effective for distributions made after December 31, 2019). “At this point, I understand the elimination of the distribution penalty for birth or adoption to be optional, but we need clarification on this,” van Zomeren says. “Also, clarification is needed on the open-ended repayment period.” She also says plan sponsors and service providers need to understand whether the 20% withholding on distributions applies. “This is one of the provisions for which more guidance is needed before plan sponsors want to let participants take advantage of the feature.”Other provisions effective in 2020According to attorneys at Sidley Austin LLP, other provisions of the SECURE Act that are effective in 2020 include:permanent nondiscrimination testing relief with respect to benefit accruals and benefits, rights and features provided to a closed class of participants in defined benefit (DB) plans that have been closed to new participants and the ability of closed DB plans to aggregate testing with DC plans;a fiduciary safe harbor with respect to the selection of an insurer to provide a guaranteed retirement income contract under which a fiduciary is deemed to have satisfied its prudence requirement regarding selection of an insurer if a plan fiduciary satisfies certain specified conditions in selecting an insurer. The SECURE Act expressly notes that, to satisfy this safe harbor, a fiduciary is not required to select the lowest cost contract. This provision does not have a stated effective date.;participants are permitted to transfer annuities that are no longer authorized to be held as investment options under a qualified DC plan to another eligible employer plan or IRA;the annual notice requirement for nonelective 401(k) safe harbor plans—those plans that provide a nonelective employer contribution of at least 3% of each eligible employee’s compensation—is eliminated;plans are allowed to be amended to become nonelective 401(k) safe harbor plans at any time before the 30th day before the close of the plan year; also they are allowed to be amended to become nonelective 401(k) safe harbor plans after that date if the plan is amended to provide a nonelective employer contribution of at least 4% of each eligible employee’s compensation and the amendment is made by the last day for distributing excess contributions for the plan year (generally, the last day of the next plan year);qualified automatic contribution arrangement (QACA) safe harbor plans are allowed to increase the cap on automatically raising payroll contributions from 10% to 15% of an employee’s paycheck, with the option to opt out;the deadline for employers to adopt new retirement plans for the preceding taxable year is extended until the due date of the employer’s tax return;the distribution of qualified plan loans through credit cards or similar arrangements is prohibited;the maximum age permitted for making contributions to a traditional IRA is repealed, thus permitting individuals to make IRA contributions after age 70-1/2;temporary tax relief for certain qualified disaster distributions from retirement plans; andan increase in the penalties for failure to file Form 5500, withholding notices and annual registration of certain plans.Van Zomeren says there are other provisions of the SECURE Act that encourage retirement plan access and additional participation. For one, there is a new start up credit for the adoption of an automatic enrollment feature in DC plans for first three years it’s maintained. There is also a credit for adopting a retirement plan, from $500 to $5000 depending on the number of employees and number of non-highly compensated employees (NHCEs).She adds that, the provision of being able to adopt a new plan as late as the employer’s tax filing deadline, including extension, would allow an employer, for example, to adopt a profit sharing plan and make it a 401(k) at a later time once it sees how profits are doing.Plan amendmentsAccording to van Zomeren, one section included in the SECURE offers a remedial amendment period. It allows plan sponsors to make changes immediately, but they have until the end of the 2022 plan year to adopt an amendment. This will mostly apply to those provisions that are optional and not required.Whaley explains that amendments for any required modifications are not required to be incorporated into the plan document until the modification shows on the cumulative list from the IRS, at which time the agency will provide the date by which amendments have to be adopted.Van Zomeren says as recordkeepers address any changes to their systems to comply with the law, plan sponsors can expect education from them about the provisions of the SECURE Act and how they will impact sponsors’ plans. Plan sponsors will be informed of additional features they may consider for plan design, as well as what kind of documentation and amendments need to be made.“Right now, plan sponsors should educate themselves [about SECURE Act provisions], prioritize which are impactful immediately and consider others for plan design,” van Zomeren says. “Considering the law was enacted late in last year with a January 1, 2020, effective date, there will be additional guidance and relief [the retirement plan industry] should watch for.”The post Actions to Comply With SECURE Act Should Already Be Underway appeared first on PLANSPONSOR.
Categories: Industry News

Are You Investing With the Right Objective in Mind?

Plansponsor.com - Wed, 01/08/2020 - 08:45
Fundamental to investment success is a clear objective. In many cases, institutional investors articulate this objective as a fixed investment rate of return (ROR), for instance 7%. But such an approach can overlook a fundamental aspect of institutional investing: Investment returns will ultimately be distributed as cash flows. Focusing on only the ultimate targeted return is insufficient if the investor wants to achieve its goals, as level of return is just one component. In this article, we look at the considerations an institutional investor should keep in mind and how a targeted return approach falls short.There are many types of institutional investors, and each has different objectives to consider. On one end of the spectrum are frozen defined benefit (DB) pension plans, where there is a great deal of certainty as to when cash will be distributed. On the other end are endowments with a mission to support an organization long into the future but with an increasing cash payment requirement along the way. Ideally, the investment objective of an institution will reflect where that investor falls on the spectrum; it will also depend on the nature and timing of the payments that need to be made in the future and the ability of the institution to handle any shortfall.Unfortunately, many institutions don’t seem to make this observation as part of their investment objective and, thus, their asset allocation process. For example, the vast majority of vested U.S. pension liabilities, both corporate and public, are not inflation-linked. Almost no corporate pension plans have cost of living adjustments (COLAs). The picture is more complex for public pension plans, but the majority do not have automatic COLAs. Because these liabilities are not inflation-linked, it can be counterproductive to invest in assets designed to respond well to inflation, such as bonds with relatively short maturities.In fact, higher inflation would likely lead to higher interest rates. Higher interest rates, all else equal, should lead to higher future investment returns, making it easier to fund expected future cash flows. For most pension plans, inflation is an opportunity not a risk. It is deflation, coupled with lower nominal interest rates, that’s the key risk for most DB plans.Conversely, endowments and foundations, as well as individuals, have a great deal of sensitivity to inflation, as their expected future cash outflows need to increase in real—i.e., after inflation—terms. Rising inflation is therefore an appropriate key risk for an endowment to try and mitigate. Therefore, it could be practical to see investments whose objective is to keep pace with inflation as part of an endowment fund’s strategy.This one example demonstrates how there is no one-size-fits-all approach for institutional investors. Yet, when we look at the institutional investment landscape, we see, for example, many defined benefit pension plans, particularly in the public sector, that seem to invest with little or no regard to the fundamental nature of their liabilities.The simplest example of apparent misallocation by pension plans is how they treat fixed income. Most institutional investors view fixed income as an “off-risk” or “low-risk” asset class that provides diversification from equity returns. Many public DB plans use relatively short maturity bonds for their off-risk fixed-income allocations, but is this really the most appropriate off-risk asset?As we mentioned before, it’s imperative to first understand the nature of future cash requirements to be able to hone in on the type of investment risk that should be in a given portfolio. As an example, pension plan cash flows will be paid many years in the future. These future cash flows can be met, in part, by investing in bonds that will mature when the cash is required. This means the true off-risk asset for a pension plan, so long as the future cash flow is not subject to changes due to inflation, is a portfolio of bonds invested to match a portion of a plan’s future expected cash outflows.The shorter-maturity bonds that most public pension plans, and many corporate pension plans, invest in provide a reasonable amount of asset value stability as part of a diversified portfolio and won’t suffer too badly in an inflationary environment. But they provide a poor hedge against deflation, or even just “low-flation,” which leads to lower future expected investment returns—actually the key risk for most pension plans.Many pension plan sponsors and their advisers have fallen into the trap of looking at traditional portfolio diversification metrics and have, in fact, failed to consider the investment problem they are trying to solve. Or, even worse, they may look to peers who may have very different liability profiles, to gauge whether they are investing properly.This also can be clearly seen with regards to alternative asset classes such as hedge funds. Absolute return hedge funds typically target returns of cash plus 2% to 3%. When cash yields were 3% to 5%, these funds could produce decent top-line performance with low correlation to equities and bonds. However, when cash yields are below 2%, as they have been for most of the past 10 years, then these investments are challenged to be able to meet the investment return that most pension plans need—a requirement driven by how the value of pension liabilities will grow. Many plan sponsors were sold on these investments because of their seeming ability to provide diversification as well as positive returns, especially if interest rates rise. But most pension plans don’t need more return when rates rise—they need it when rates fall. Again, sponsors have been misled by portfolio allocation strategies that neglect to account for the fundamental nature of what the institution is trying to achieve.It is no secret that investing well over the long term can be a difficult task. Unforeseen events will inevitably blow an institutional investor off track. However, the task is made easier when the correct path is taken at the outset. That path will largely be driven by having a thorough understanding of the cash flows to be paid in the future as well as how those cash flows may change in different economic environments. Some liability/cash flow risks such as inflation/deflation can be mitigated through the investment strategy, and some such as mortality cannot. Knowing the difference and the sensitivity to getting things right or wrong will go a long way to producing a better investment process—one that has a higher likelihood of producing a successful outcome. If institutional investors separate their stated investment objective from their future cash requirements—i.e., their liability profile—they do so at their own peril.Ryan McGlothlin is a managing director in River and Mercantile (R&M)’s Boston office and leads the U.S. investment business. Michael Clark is a managing director in R&M’s Denver office and is the 2019/2020 president of the Conference of Consulting Actuaries. This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services (ISS) or its affiliates.The post Are You Investing With the Right Objective in Mind? appeared first on PLANSPONSOR.
Categories: Industry News

Association Modified Rules for Multiemployer Plan Withdrawal Liability Arbitration

Plansponsor.com - Tue, 01/07/2020 - 14:18
Withdrawal liabilities are a contentious issue for multiemployer plans and have led to many lawsuits.And, the liability for withdrawing employers can be extremely burdensome considering they are likely withdrawing from the plan due to financial constraints they already have. The fees to arbitrate multiemployer plan withdrawal liability have added to the problem.But, attorneys with Drinker Biddle & Reath LLP have revealed that the American Arbitration Association (AAA) significantly altered its rules for multiemployer pension plan arbitrations, and the Pension Benefit Guaranty Corporation (PBGC) has approved the changes.For one thing, the AAA lowered the fees required to initiate arbitration by tens of thousands of dollars. The attorneys explain that in 2013, the AAA implemented a new fee structure for withdrawal liability arbitrations that set fees based on the amount in dispute. Fees ranged from a minimum of $1,550 to $11,200 for cases with less than $1 million in dispute to a maximum $77,500 for disputes above $5 million. In contrast, the previous filing fee was $650 for most arbitrations. Now, the AAA has responded to a PBGC request for more reasonable fees with initiation fees that range from $2,500 to $5,000, depending on the amount in dispute. Additional fees may apply as well, such as fees for matters that are held in abeyance over one year ($300) and if hearings are rescheduled ($150).Also, under the old rules, the initiating party had to bear the full cost of initiating the arbitration and associated fees imposed by the AAA without the opportunity for reimbursement. Under the new rules, the employer must pay the fees to initiate arbitration, but arbitrators are directed to apportion fees evenly in awards (unless the arbitrator determines otherwise). “This not only follows the ‘pay first, dispute later’ scheme set forth for withdrawal liability in [the Employee Retirement Income Security Act] but also reflects the requirement that arbitration costs be borne equally,” the attorneys say.Finally, the PBGC raised concerns with the old rule that the AAA would unilaterally select an arbitrator if the parties could not agree on one. The PBGC believed this compromises the mutual selection required by its regulations. In response, the AAA amended the rules to allow either party to challenge the selection of an arbitrator within 10 days of his or her appointment.The post Association Modified Rules for Multiemployer Plan Withdrawal Liability Arbitration appeared first on PLANSPONSOR.
Categories: Industry News
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