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Insight on Plan Design & Investment Strategy
Updated: 7 hours 42 min ago

Retirement Industry People Moves

Fri, 08/23/2019 - 13:26
Art by Subin YangMorgan Stanley Makes Changes to Wealth Management Division  Morgan Stanley has implemented changes to its wealth management team.Anthony Bunnell will be joining as head of Retirement. Most recently, Bunnell led the digital efforts in Private Wealth Management at Goldman Sachs following the firm’s acquisition of Honest Dollar, a retirement savings platform Bunnell co-founded in 2014. Previously, he spent 12 years in consultative service, sales and business development roles at firms with strong retirement offerings including Prudential, Mercer, and J.P. Morgan.Other changes within the company include a combination of the firm’s Corporate Retirement team with members of the Institutional Sales and Distribution division. Maura Coolican, previously a leader in Morgan Stanley’s Retirement Plan Solutions team, will direct the new team and will report to Bunnell. According to Morgan Stanley, Bunnell, Coolican and the team will be focusing on a new digital experience for their retirement model in an effort to build brand awareness for Morgan Stanley, and will be evolving their rollover strategy.Mercer Hires Wealth Leader for Philadelphia OfficeMercer has appointed Michael Cianciulli as Philadelphia office business leader, Wealth. His responsibilities include driving growth across Mercer’s retirement and investment offering and advising clients on the design and management of their retirement plans. Cianciulli will report to Marc Cordover, east market business leader, Wealth. “We’re thrilled to name Mike to this role,” says Cordover. “His proven track record of success will aid us in providing exceptional service and solutions to our clients and enable the office to build upon past success, ensuring continued growth in the Philadelphia market.”Prior to joining Mercer, Cianciulli spent 20 years at Vanguard, most recently serving as the regional director of defined contribution (DC) retirement solutions. He has achieved the qualified 401(k) administrator (QKA) designation with the American Society of Pension Professionals & Actuaries. He is a CFA charterholder and a member of the CFA Society of Philadelphia. Cianciulli earned his bachelor’s from the Fox School of Business at Temple University and his master’s from The Pennsylvania State University.Nationwide Selects Retirement Plan Distribution LeaderNationwide’s Scott Ramey will be the new leader of retirement plans distribution, reporting to Eric Stevenson, president-elect of Nationwide’s retirement plans business.Ramey has most recently served as the vice president of Growth and Retention for Public Sector Distribution. In his new role, he’ll oversee retirement plans distribution for both public and private sectors.“Throughout his career, Scott has demonstrated the ability to execute strategies and build deep relationships that open new distribution opportunities, improve retention and produce top- and bottom-line results,” says Stevenson. “Scott’s depth of leadership and business results proves his aptitude to successfully oversee our sales operation and continuous delivery of solutions that help our partners and participants grow their retirement savings and protect their financial legacies.”Ramey has 25 years of experience in the financial services and retirement planning industries. Before joining Nationwide, he served as senior vice president of Workplace Solutions at Transamerica, offering retirement and employee benefits through an integrated digital platform.Prior to that, he led institutional sales comprised of Stable Value Solutions, Transamerica Employee Benefits, Institutional Annuity and Institutional Mutual Funds. He also was executive vice president for Institutional and Retail Business Development where he drove consistent sales growth, led several marquee acquisitions and expanded relationships with many of the same firms that Nationwide partners with today.Ramey received his bachelor’s degree from John Carroll University.The post Retirement Industry People Moves appeared first on PLANSPONSOR.
Categories: Industry News

Newly Sanctioned Auto Portability Solution Could Boost Retirement Savings by Trillions

Fri, 08/23/2019 - 12:12
An advisory opinion and prohibited transaction exemption from the Department of Labor (DOL) has cleared the way for automatic portability programs in which retirement savings accounts can be automatically rolled from one plan to another for participants who terminate employment. The actions were specific to Retirement Clearinghouse’s system.In an analysis of legislative proposals, the Employee Benefit Research Institute (EBRI) provided stats that showed auto portability would decrease retirement savings shortfalls for all age cohorts or plan participants.According to a recent Issue Brief from EBRI, each year approximately 40% of terminated participants elect to prematurely cash out 15% of plan assets.  For 2015, EBRI estimates that $92.4 billion was lost due to leakages from cashouts.Considering auto portability as a standalone policy initiative, EBRI projects the present value of additional accumulations over 40 years resulting from “partial” auto portability (small balance cashouts of participant balances less than $5,000 adjusted for inflation) would be $1.5 trillion, and the value would be nearly $2 trillion under “full” auto portability (all terminated participant balances regardless of asset level). Under partial auto portability, those currently 25 to 34 are projected to have an additional $659 billion, increasing to $847 billion for full auto portability.EBRI says the impact of full auto portability would be significantly larger for younger cohorts who would have more time to benefit from the cessation of cashouts. Focusing on participants ages 35 to 39, the size of their deficit would decline by 17% for those with one to nine years of future eligibility in a defined contribution (DC) plan, 19% for those with 10 to 19 years of future eligibility, and 23% for those with 20 or more years of future eligibilityAlthough those closest to retirement would see a smaller impact, it is not small change. EBRI says participants currently 55 to 64 are projected to have an additional $41 billion under the partial auto portability scenario. Under the full auto portability scenario, they would have an additional $74 billion.The post Newly Sanctioned Auto Portability Solution Could Boost Retirement Savings by Trillions appeared first on PLANSPONSOR.
Categories: Industry News

Debt, Homeownership Driving Participants to Withdraw Retirement Funds

Fri, 08/23/2019 - 08:49
Approximately 52% of respondents admit to tapping their retirement savings account early for a purpose other than retiring, according to a survey by MagnifyMoney.The MagnifyMoney survey was fielded among 1,029 Americans. The Investment Company Institute’s (ICI’s) larger database shows around 1% of participants taking withdrawals quarterly and around 15% taking loans quarterly. The percentage can be higher or lower depending on the quarter.No matter what percentage are withdrawing money through their retirement savings it is likely for the reasons MagnifyMoney found. The two main reasons respondents cited for withdrawing money from their retirement savings are home ownership and personal debt. According to the survey, 23% of those making an early withdrawal did so to help pay down non-medical debt, while 17% needed the money for a down payment on a home.Likewise, Fidelity data shows debt and homeownership are driving participants to withdraw funds. A 2016 Fidelity participant panel survey among 743 respondents found 31% of participants use loans for paying down/paying off high-interest credit card debt, 24% for home improvement or repairs, 21% to buy a home or refinance a mortgage and 19% to pay outstanding bills.According to MagnifyMoney, older savers are less likely to withdraw money from their retirement plans than younger savers. Fifty-four percent of Millennial savers say they’ve taken an early withdrawal from a retirement savings account, compared with 50% of Gen Xers and 43% of Baby Boomers. “This stands to reason considering that many Millennials have now entered the stage of life where they are getting mortgages, starting families and taking on bigger financial obligations while also being decades away from the traditional retirement age,” MagnifyMoney says.Millennials are also more likely to say that raiding their retirement savings is justified under certain circumstances, at 39%. One-quarter (26%) of Gen Xers and 17% of Baby Boomers say the same.However, Fidelity’s findings are a little different. Data from the end of the second quarter, looking back at the previous 12 months, shows 8.3% of Millennials initiated loans from their plan accounts and 7.3% of Baby Boomers did so. However, 11.5% of Gen Xers initiated loans from their plan accounts.Though the percentages were lower, there was a similar pattern for taking hardship withdrawals. Three percent of Millennials and 1.1% of Baby Boomers took hardship withdrawals, while 3.3% of Gen Xers did so.The data supports the need for financial wellness programs, especially for Millennials and Gen Xers. Fewer employees feel their compensation is keeping up with their cost of living.Kent Allison, a partner and national leader of PwC’s Employee Education and Wellness Practice, tells PLANSPONSOR financial wellness programs need to holistically cover all of the financial challenges an individual might be facing, not just retirement savings. According to Cerulli Associates, the way to help employees improve their financial situation is to make financial wellness programs action-oriented.More employers are focused on improving employees’ financial wellbeing, yet how employees feel about their financial situations doesn’t appear to be getting substantially better, finds the Alight Solutions’ Health and Financial Wellbeing Mindset Study 2019. The firm offers suggestions for how plan sponsors can improve their financial wellness programs.The post Debt, Homeownership Driving Participants to Withdraw Retirement Funds appeared first on PLANSPONSOR.
Categories: Industry News

Transamerica Unable to Dodge Self-Dealing Suit

Thu, 08/22/2019 - 12:54
A federal court judge has denied Transamerica’s motion to dismiss a lawsuit accusing it of retaining poorly performing proprietary fund portfolios in it 401(k) plan.The lawsuit also says, “Transamerica exacerbated plan participants’ losses by encouraging them to sign up for Transamerica’s Portfolio Xpress, a tool that automatically allocated participants’ money to Transamerica’s investment products.” Also named in the suit are trustees of the Aegon USA Inc. Profit Sharing Trust, who were responsible for the selection and monitoring of the investments in the Transamerica plan. Aegon is the parent company of Transamerica.In his court order, U.S. District Judge C. J. Williams in the U.S. District Court for the Northern District of Iowa noted that the plaintiffs in the case are members of a class of participants under a settlement in a previous similar case against Transamerica and Aegon. The plaintiffs released the “Released Claims,” as defined in the settlement agreement. The settlement agreement defines the “Released Claims” as “any and all claims [against defendants] arising out of or related to the conduct alleged in the plaintiffs’ operative complaint, whether or not included as counts in the complaint.”The defendants contend that plaintiffs’ claims in this case fall within the scope of the Released Claims in that settlement agreement, and thus their claims are barred by the settlement agreement.Citing Iowa case law, the defendants apply a broad definition of the phrase “arising out of or related to” used in the definition of the Released Claims in the settlement agreement. They interpret the conduct alleged in Count I of the previous lawsuit to include “Transamerica’s retention of the [c]hallenged [f]unds as investment options in the Plan.” They also argue that the high fees alleged in that lawsuit are equivalent to the inclusion of underperforming funds alleged in the instant action because both result in lower overall returns.Williams noted that the previous complaint, in relevant part, alleged that Transamerica breached its Employee Retirement Income Security Act (ERISA) fiduciary duty of loyalty when it caused the plan to invest in funds managed by its affiliates who charged substantial middle-man fees, only to turn around and hire sub-advisers to manage the plan’s portfolio. In the new complaint, the plaintiffs allege that defendants breached their ERISA fiduciary duty of prudence by retaining poorly performing funds in the plan. “The conduct alleged in Dennard concerned the method of procuring the portfolio management service through an intermediary and the resulting fees, not the inclusion or performance of the underlying investments themselves,” Williams wrote in his order. “The Court finds that the claims in this case arise out of and relate to different alleged conduct than the claims in Dennard. Thus, plaintiffs’ claims are not barred by the Dennard settlement agreement’s release.”In addition, the defendants assert that Count I of the recent complaint, alleging that defendants’ investment process was imprudent, should be dismissed for failing to state a claim on three independent grounds. They assert that it is not a violation of ERISA’s fiduciary duty of prudence for a plan sponsor to offer affiliated investment funds, and that to the extent plaintiffs’ claim is based on this proposition, plaintiffs’ complaint fails to state a claim for imprudence. They argue that plaintiffs fail to state a facially plausible claim of imprudence because the plaintiffs must plead facts to show that defendants employed a flawed process for selecting investments, and that allegations of poor performance alone are insufficient. The defendants go on to argue that plaintiffs’ admitted lack of “actual knowledge . . . of Defendants’ decision-making processes . . . for selecting, monitoring, and removing plan investments,” is fatal to plaintiffs’ imprudence claim. Finally, they contend that the plaintiffs’ imprudence claim is implausible because the defendants’ substitution of sub-advisers and the performance record of challenged funds demonstrates that defendants acted prudently.However, Williams found that the plaintiffs’ allegation of imprudent conduct is not based on the challenged funds’ affiliation with Transamerica. “Regardless of whether an investment is affiliated with the fiduciary, the fiduciary has an obligation to act prudently in monitoring the underlying investments,” he wrote “Plaintiffs’ complaint alleges that the selection and retention of ‘substandard investment portfolios,’ constituted imprudent conduct.”Citing an 8th U.S. Circuit Court of Appeals decision in Braden v. Wal-Mart Stores, Inc., Williams said ERISA plaintiffs “generally lack the inside information necessary to make out their [imprudence] claims in detail unless and until discovery commences.”  He added that courts employ a “holistic evaluation of an ERISA complaint’s factual allegations” and “draw reasonable inferences in favor of the nonmoving party as required” to effectively serve ERISA’s remedial purpose. “An ERISA claim alleging an imprudent investment process can survive a motion to dismiss even when the alleged facts do not ‘directly address [ ] the process by which the Plan was managed,’ because a court can infer a flawed process from circumstantial factual allegations. Here, plaintiffs’ complaint alleges sufficient factual information ‘to raise a reasonable expectation that discovery will reveal evidence of [the conduct alleged],’” he wrote.According to the court order, the defendants request that the court take judicial notice of various Securities and Exchange Commission (SEC) filings to show the various changes of the sub-advisers. They then ask the Court to conclude, based on the sub-adviser changes, that they must have acted prudently in overseeing their sub-advisers. But, Williams said, even if the court takes judicial notice of defendants’ SEC filings, “it may not rely on [defendants’] opinions about what proper inferences should be drawn from them.”He found that the plaintiffs’ complaint sufficiently asserts the underperformance of the challenged funds in comparison to both comparable funds and the relevant market indices. Transamerica Asset Management’s substitution of its sub-advisers may indicate that defendants acted prudently, but it is merely consistent with lawful conduct, Williams said, adding that the substitution of sub-advisers is not a concrete, obvious explanation for the poor performance of the challenged funds throughout the applicable period. “Drawing all inferences in plaintiffs’ favor, neither the existence of the sub-adviser structure nor the changes in sub-advisers renders plaintiffs’ imprudence claim implausible.”Williams also found that “Based on the well-pleaded facts regarding the challenged funds’ performance, plaintiffs’ imprudence claim is plausible at this stage.”The post Transamerica Unable to Dodge Self-Dealing Suit appeared first on PLANSPONSOR.
Categories: Industry News

Investment Product and Service Launches

Thu, 08/22/2019 - 11:58
Art by Jackson EpsteinAscensus Partners with NextCapital for Investment and Fiduciary Solutions  Ascensus is implementing NextCapital’s technology platform to provide better investment and fiduciary solutions at the institutional and participant levels. Russell Investments will become the first firm to provide participant-level 3(38) protection for its personalized retirement accounts (PRAs) utilizing the NextCapital technology.Third parties, including financial advisers and Ascensus’ key distribution partners, can customize the NextCapital platform and assume the role of the fiduciary. Alternatively, NextCapital can serve as fiduciary while providing advice to participants.The collaboration with NextCapital allows Ascensus to expand on delivering valued-added advice solutions to advisers and their clients; offer future institutional and distribution partners the ability to implement their own fiduciary solutions; and improve retirement outcomes through higher usage of advice by participants, according to Ascensus.“Ascensus’ collaboration with NextCapital will allow us to be much more nimble and flexible when it comes to offering in-plan employee advice solutions,” states Jason Crane, head of retirement sales at Ascensus. “The addition of NextCapital’s platform will help us adhere to our philosophy of an independent, conflict-free business model.” This is the first of many technology investments for Ascensus, as it is broadening its fiduciary capabilities. Russell Investments, a new partner with Ascensus, will be launching PRAs with Ascensus in August.Axioma Releases Canadian Risk Model to Suite of FundsAxioma has added a new Canada equity risk model (AXCA4) to its next-generation Equity Factor Risk Model suite. The release builds on the existing risk models, offering enhanced country-specific content to meet the risk-management needs of investors.The estimation universe for the new Canada model contains over 440 stocks and exchange-traded funds (ETFs), with coverage history from 1995. The enhanced data includes deep daily history and, for the first time, incorporates macro factors for residual gold and oil sensitivity.“The introduction of macro factors such as gold and oil sensitivity in the CA4 model captures the importance of these natural resources in the Canadian economy,” says Arnab Banerjee, director, Product Management at Axioma. “The new CA4 model also uses a custom and granular industry factor structure to better reflect other key Canadian markets, such as the paper and forest-products segment.”Axioma’s updated Canada risk model utilizes 17 market-based and 15 fundamental style model descriptors, offering insights into short and medium-horizon risk exposures. In addition to holistic improvements to attribution and risk estimates, other enhancements include expanded securities universe coverage of Canada-listed shares and ETFs; additional fundamental factors, including market intercept, dividend yield, and profitability; market-based factors covering residual oil and gold sensitivity; and updated industry classifications for more representation of the Canadian market.“There are notable differences in the behavior of factors in the Canadian market,” says Melissa Brown, head of Applied Research at Axioma. “Having an ability to drill down into a Canada-specific view of risk offers superior risk-management capabilities to managers focused on that market.”The post Investment Product and Service Launches appeared first on PLANSPONSOR.
Categories: Industry News

Education and Transparency Two Issues for CIT Use in DC Plans

Thu, 08/22/2019 - 10:53
According to a report by Cerulli Associates and the Coalition of Collective Investment Trusts, collective investment trust (CIT) assets stood at $3 trillion as of year-end 2018. For the five-year period ended by the end of last year, they grew at a compound annual growth rate of 7.25%. Had the market not fallen at the end of last year, that growth rate would have been higher.CIT’s lower costs compared to mutual funds is the primary driver of their growth, the two organizations say. In recent years, defined contribution (DC) plans have accounted for the majority of flows to CIT products, forcing providers to increasingly question strategies for tapping the channel.“More than 40% of CIT providers identify advisers’ lack of CIT knowledge as a top challenge to adoption in DC plans,” says James Tamposi, senior analyst at Cerulli. “This highlights that one of the biggest initiatives has been to increase education and awareness of the vehicle among plan sponsors, financial advisers and other industry participants.”Another challenge that CITs face is their lack of transparency. “The lack of consistent, public reporting factors [has led to] DC plan sponsors’ reluctance to adopt the vehicle,” says Anna Fang, research analyst at Cerulli. “Almost half of providers surveyed noted that CITs’ lack of transparency relative to mutual funds threatens the vehicle’s adoption.”However, that being said, Anya Krymkowski, associate director, retirement, Cerulli, says that knowledge about CITs among advisers who specialize in retirement plans, particularly those in the mid to large market, is quite high, and that CITs have been growing at a faster rate than mutual funds within retirement plans. Additionally, she says, advisers and plan sponsors can negotiate with CIT providers to receive more information on the trusts, thereby addressing the transparency issue. “CIT providers are issuing more information and doing so more frequently,” she notes. However, CIT providers are likely to be reticent to disclose how they negotiate fees, and the information reported for CITs is still less standardized than for mutual funds.The post Education and Transparency Two Issues for CIT Use in DC Plans appeared first on PLANSPONSOR.
Categories: Industry News

Rule on Electronic Disclosures Moving Along

Thu, 08/22/2019 - 08:39
On August 16, the Office of Management and Budget (OMB) received from the Department of Labor (DOL) a proposed rule relating to the providing of electronic disclosures to retirement plan participants.The title of the rule is “Improving Effectiveness of and Reducing the Cost of Furnishing Required Notices and Disclosures.” According to the DOL, it is aimed at reducing the costs and burdens imposed on employers and other plan fiduciaries responsible for the production and distribution of retirement plan disclosures required under Title I of the Employee Retirement Income Security Act (ERISA), as well as making these disclosures more understandable and useful for participants and beneficiaries. It is being proposed in response to Executive Order 13847, Strengthening Retirement Security in America.A study last year from the American Retirement Association (ARA) commissioned with the Investment Company Institute (ICI) found that eliminating the cost of delivering paper notices to 80 million participants annually can translate into additional retirement savings of about 2.4% over a lifetime of work. The study also concluded that e-delivery improves access for the visually impaired and others with disabilities and improves access and the quality of information for those who speak English as a second language.In June, eight organizations associated with defined contribution (DC) plans submitted a letter to the DOL’s Employee Benefits Security Administration asking it to propose regulations that would permit plan sponsors to make electronic delivery the default method of delivery for retirement plan disclosures and notices. If employees did not want electronic delivery, they would have the ability to request paper copies.The OMB has up to 60 days to review and act on the submission—but could act more quickly—after which the DOL would propose the rule in the Federal Register and provide a 60-day comment period for stakeholders. In its spring regulatory agenda, the agency indicated it planned to issue a Notice of Proposed Rulemaking (NPRM) on electronic delivery of disclosures in December of this year.The post Rule on Electronic Disclosures Moving Along appeared first on PLANSPONSOR.
Categories: Industry News

DOL to Host Webcast About HRAs

Wed, 08/21/2019 - 12:55
The Department of Labor (DOL) has announced a health reimbursement arrangements compliance webcast.New rules released by the Departments of Labor, Health and Human Services and the Treasury will expand the use of health reimbursement arrangements to provide new coverage options for employers and their employees. They allow employers to offer a new Individual Coverage HRA as an alternative to a traditional group health plan. The new rules also increase flexibility in employer-sponsored coverage by creating the Excepted Benefits HRA that can be offered in addition to a traditional group health plan. The DOL and the IRS will discuss the benefits of offering these expanded options, who can offer them, how they work, what responsibilities an employer has, when employers can start offering them, where to find more information, and more. The webcast is September 12, 2019, from 2:00 to 3:00 p.m. ET. Those interested may register here.The post DOL to Host Webcast About HRAs appeared first on PLANSPONSOR.
Categories: Industry News

Litigators Share What They Investigate for Filing TDF Lawsuits

Wed, 08/21/2019 - 12:14
There’s been a recent wave of lawsuits over the target-date funds (TDFs) being offered in 401(k) plans recently.A settlement in a lawsuit accusing Franklin Templeton of self-dealing in its 401(k) plan requires it to add a nonproprietary TDF option to the investment lineup in addition to the plan’s qualified default investment alternative (QDIA)—the LifeSmart Target Date Funds. More recently, a lawsuit was filed alleging fiduciaries of the Walgreen Profit-Sharing Retirement Plan selected and kept TDFs in the plan that underperformed their benchmarks. And, last week, retirement plan fiduciaries at Intel were accused of failing to properly monitor and evaluate “unconventional, high-risk allocation models” adopted within the company’s custom target-date funds.On its website, litigation firm Cohen Milstein says it is investigating a number of issues concerning the selection and offering of TDFs. The firm shares what it is looking for:Improper Investment Strategy: The firm says, “The actual investment strategy (e.g. the allocation between equities and bonds) may not be same as the fund advertised.  The fund may be pursuing a far riskier investment strategy than participants and plan sponsors are led to believe, even as plan participants near retirement.”Excessive Fees: “The fees charged by a target-date fund may not be justified by the performance of the investment.  The fees for target-date funds can vary significantly, particularly depending on whether the fund’s fees are “layered” or the underlying investments of the fund are actively or passively managed,” Cohen Milstein says.Self-Dealing or Imprudent Selection: The firm says, “Many providers offer a wide variety of target-date funds.  The fiduciary of the plan may have chosen the particular provider for improper reasons.  For example, where the fiduciary of the plan or the employer sponsoring the plan markets a target-date fund, it improperly chose its own target-date funds without considering whether those funds are most appropriate for its own 401(k) plan participants.”Improper Default Selection: Where a TDF suite is the plan’s QDIA, “the fiduciary of the plan has an obligation to ensure that the target-date fund was prudently, properly, and appropriately selected.”This should inform retirement plan sponsors that offer TDFs in their plan investment menu.In a blog post, Carol Buckmann, an Employee Retirement Income Security Act (ERISA) attorney with Cohen & Buckmann, P.C. in New York City, offers suggestions for plan fiduciaries which she says “will probably require consulting an investment adviser and ERISA counsel for assistance.”She recommends fiduciaries:Understand the basics of how TDFs work and the fees payable, including those for underlying investments;Study the underlying investments.  Some TDFs can include alternative investments such as real estate and some will continue to alter the mix of investments after the assumed retirement age;Understand the risk profile of the investments. Make sure that it is appropriate for plan participants; andBenchmark TDFs for performance and fees.She also says more plan sponsors should consider doing an actual request for proposals (RFP) for their TDFs.“It is equally important to document the steps taken to evaluate the selected target-date funds so that there is a record to point to if a lawsuit is filed,” Buckmann concludes.The post Litigators Share What They Investigate for Filing TDF Lawsuits appeared first on PLANSPONSOR.
Categories: Industry News

Court Says Participant Misunderstood Valuation for ESOP Purchase

Wed, 08/21/2019 - 10:01
In a very concise decision, a federal district court judge found a participant in an employee stock ownership plan (ESOP) did not have standing to sue regarding the valuation of stock price for the setup of the ESOP because she did not prove she suffered any harm.In late 2016, Choate Construction Company created its ESOP. The Choate ESOP purchased 8 million shares of Choate stock for $198 million. These 8 million shares represented 80% of Choate. According to the court’s opinion, Choate’s employees did not pay the company $198 million for the shares. Instead, Choate borrowed $57 million from a bank and then turned around and loaned that $57 million to the Choate ESOP for part of the purchase. To finance the remainder of the purchase, the Choate ESOP issued notes to the selling shareholders for the remaining $141 million at a 4% annual rate. Argent Trust, named in the lawsuit along with Choate defendants, as trustee of the Choate ESOP, oversaw and approved the transactions.The plaintiff, a former Choate employee who worked for the company from April 2007 to April 2017, was “fully vested in the ESOP when her employment ended. She alleges, on behalf of herself and similarly situated current and former Choate employees, that the “creation of the Choate ESOP … was not conducted in the best interests of the employees.” In particular, she relies on a $64.8 million valuation of the Choate ESOP’s stock on December 31, 2016—less than one month after the creation of the ESOP—as evidence in support of her contention that the $198 million that the ESOP paid for Choate stock was excessive.“Plaintiff, however, fundamentally misunderstands the nature of the December 2016 transaction that created the Choate ESOP and Choate’s subsequent valuation,” Chief U.S. District Judge Terrence W. Boyle of the U.S. District Court for the Eastern District of North Carolina wrote in his opinion.He compared the ESOP purchase to the purchase of a mortgage-financed house. Boyle explains that a buyer of a house for $198,000 that gets a mortgage for the entire value has taken on a $198,000 debt (the mortgage) and, in return, obtained a $198,000 asset (the home), resulting in her asset and her corresponding obligation creating $0 in new equity. When the value of the home increases to $262,800, if the buyer sells her house at that value, after paying off her mortgage, she would be left with a profit of $64,800.Likewise, Boyle says, the Choate ESOP obtained its 8 million shares of Choate at a price of $198 million, and the Choate ESOP took on $198 million in debt to obtain the stock. The $64.8 million valuation at the end of December 2016 reflects the fact that the Choate ESOP, like the hypothetical home buyer, realized an immediate equitable benefit. He notes that the benefit has only grown since, as the Choate ESOP’s value was pegged at $107.2 million by the end of 2017.“As the Choate ESOP actually purchased the 8 million shares in 2016 at a discount, and an immediate equitable benefit inured to the Choate ESOP and its members, plaintiff has not plausibly alleged that she suffered any concrete and particularized injury,” Boyle wrote in his opinion.Boyle dismissed the lawsuit.The post Court Says Participant Misunderstood Valuation for ESOP Purchase appeared first on PLANSPONSOR.
Categories: Industry News

DirectPath Integrates GoodRx’s Pricing Data Into its Portal

Wed, 08/21/2019 - 08:45
DirectPath has integrated GoodRx’s pricing data into its member portal, thus enabling its members to access prescription cost information and comparative cost information about medical procedures and treatments.The company’s goal is to help employees make cost-conscious decisions about every aspect of their health care. DirectPath says that having the information in hand can help people save up to 80% on medications and an average of $340 on out-of-pocket spending on procedures and treatments.The company says one-third of consumers do not fill their prescriptions due to cost concerns. By simply entering their ZIP code and prescribed medication into the GoodRx pricing tool, members will be able to access price and discount information for more than 70,000 pharmacies, prescription coupons that can either be printed or saved on their phone, and comparisons between generic and brand-name drug prices.Members will also have access to DirectPath advocates, who can discuss the information presented through the GoodRx widget and contextualize it based on their health plan and specific circumstances.“GoodRx is an extremely powerful tool for educating people on ways that they can save on prescription drugs,” says Bridget Lipezker, senior vice president and general manager, advocacy and transparency at DirectPath. “With health care costs continuing to rise, DirectPath’s mission to democratize information about health care savings opportunities is more important than ever.”The post DirectPath Integrates GoodRx’s Pricing Data Into its Portal appeared first on PLANSPONSOR.
Categories: Industry News

Charles Schwab Wins Significant Pro-Arbitration ERISA Decision

Tue, 08/20/2019 - 13:46
Charles Schwab has prevailed in its appeal of an Employee Retirement Income Security Act (ERISA) lawsuit known as Dorman vs. The Charles Schwab Corporation. Prior to this ruling by the 9th U.S. Circuit Court of Appeals, the U.S. District Court for the Northern District of California had ruled in favor of plaintiffs in the case, who argued that Charles Schwab defendants violated ERISA and breached their fiduciary duties by including certain proprietary investment funds in the plan. Significantly, the 9th Circuit has overturned and remanded the District Court’s decision on the grounds that it is no longer “good law” to conclude that ERISA plaintiffs as a general mater cannot be forced into arbitration.  Technically, the 9th Circuit panel has ruled that Amaro v. Continental Can Co., an earlier 9th Circuit decision from 1984 which held that ERISA claims are not arbitrable, is no longer good law in light of intervening Supreme Court case law, particularly American Express Co. v. Italian Colors Restaurant, which was decided back in 2013.“Over 35 years ago, in Amaro v. Continental Can Co., we wrote that ERISA mandated minimum standards for assuring the equitable character of ERISA plans that could not be satisfied by arbitral proceedings,” the decision states. “We reasoned that arbitrators, many of whom are not lawyers, lack the competence of courts to interpret and apply statutes as Congress intended. In Comer v. Micor, Inc., we acknowledged in dicta that our past expressed skepticism about the arbitrability of ERISA claims seemed to have been put to rest by the Supreme Court’s opinions.”Since Amaro, the decision explains, the Supreme Court has ruled that arbitrators are competent to interpret and apply federal statutes, holding that “there is nothing unfair about arbitration—even arbitration on an individual basis—as long as individuals can vindicate their statutory rights in the arbitral forum.”Generally, a three-judge panel may not overrule a prior decision of the 9th Circuit. If, however, an intervening Supreme Court decision undermines an existing precedent of the circuit, and both cases are closely on point, a three-judge panel may then overrule prior Circuit authority. The issue decided by the higher court need not be identical. The appropriate test is whether the higher court “undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable.”“Where the reasoning or theory of our prior circuit authority is clearly irreconcilable with the reasoning or theory of intervening higher authority, a three-judge panel should consider itself bound by the later and controlling authority, and should reject the prior circuit opinion as having been effectively overruled,” the decision states. “The holding in American Express Co. that federal statutory claims are generally arbitrable and arbitrators can competently interpret and apply federal statutes constitutes intervening Supreme Court authority that is irreconcilable with Amaro. Amaro, therefore, is no longer binding precedent.”The now-defunct District Court decision had found that, even if the claims asserted in the complaint did fall within the scope of one or more of the arbitration agreements in question, the agreements would be unenforceable on multiple grounds. According to the District Court, the lead plaintiff’s claims were brought on behalf of the plan—not on his own behalf—and without the plan’s consent he cannot waive rights that belong to the plan, such as the right to file this action in court.“The District Court acknowledged that the plan did consent to arbitration by virtue of its plan document’s arbitration provision,” the appellate decision explains, “but it erroneously held that consent invalid because the plan fiduciaries added the arbitration provision to the plan document after they were sued.”In fact, as case documents show, the defendants submitted evidence that the arbitration provision took effect while the lead plaintiff was still a plan participant.Read the full appellate decision here.The post Charles Schwab Wins Significant Pro-Arbitration ERISA Decision appeared first on PLANSPONSOR.
Categories: Industry News

ShareBuilder 401k Offering Plan Set-Up Discounts

Tue, 08/20/2019 - 13:45
ShareBuilder 401k, a provider of low-cost, index fund-based 401(k) plans, is offering a discount to businesses that set up a new 401(k) plan ahead of the October 1 government deadline for safe harbor plan designs.The newly independent firm notes that safe harbor 401(k)s feature a variety of benefits and savings for business owners looking to maximize tax-deferred contributions and minimize future tax burdens, while automatically satisfying IRS plan testing requirements. A safe harbor plan requires an initial plan year that is at least three full months, making October 1 the effective deadline for creating a new plan.For plans that set up a new 401(k) from today to September 3, ShareBuilder 401k is offering $200 off set-up costs. For new set-ups between September 4 and September 17, it is offering $100 off.“Most small business owners don’t realize any size business can have a 401(k) plan, or what a safe harbor plan is, much less how it can benefit a business and its employees,” says Stuart Robertson, CEO of ShareBuilder 401k. “At ShareBuilder 401k, that’s our priority—offering accessible and easy-to-digest content and guidance on important topics like safe harbor plans, so business owners can make informed choices about planning and investing for retirement.”More information is at www.sharebuilder401k.com.The post ShareBuilder 401k Offering Plan Set-Up Discounts appeared first on PLANSPONSOR.
Categories: Industry News

Return on Health Benefits Investment Can Be Improved With Single Access

Tue, 08/20/2019 - 12:29
There is a disconnect between companies’ investment in health benefits and the impact on employee health, according to research from Harvard Business Review Analytic Services sponsored by League Inc., a North American enterprise health operating system (OS).According to League, in North America, employers are spending an estimated $15,000 per employee to provide health care benefits to their teams and these costs are continuing to rise. The survey of 238 company executives found that 90% of respondents view employee health benefits as an important way to demonstrate their organization’s understanding and concern for the needs of their workers. More than half (51%) of organizations expect such benefits will become an even higher strategic priority over the next three years.However, 58% of survey respondents report that employees are unaware of the company-provided health benefits to which they are entitled, and 63% say employees don’t know enough about how to leverage their benefits.The research found low engagement levels with health benefit programs. Just 28% of respondents say employees actively engage with all of the health benefit programs they are offered, and only 27% of organizations say employees use the full range of their health benefits. Low awareness, knowledge and engagement often results in higher overall health care costs, poorer employee health, employee absenteeism and lower productivity, League says.One problem the survey identifies is employees are often required to access multiple disparate systems to learn about and access their full range of health benefits. At just 10% of organizations, employees can learn about and leverage the full range of available benefits through a single system. At 13% of organizations, employees use more than five systems to access their benefits.Respondents at most organizations (68%) believe there are opportunities for their organization to better manage health benefits costs. The same percentage report their organization is open to changing its employee health care experience.“There is a profound disparity between what employers are doing to provide health benefits and what employees are actually getting from these efforts,” says Mike Serbinis, CEO of League. He suggests employers consider how they can streamline access to solutions to help employees proactively manage their health.League provides employers with a data-driven platform, Health Benefits Experience: HBX, designed to provide a single access hub for employees to engage with their health, lifestyle and benefit programs.An executive summary of the research from Harvard Business Review Analytic Services and League is available for download here. The full report will be available in September and can be received by signing up on the landing page.The post Return on Health Benefits Investment Can Be Improved With Single Access appeared first on PLANSPONSOR.
Categories: Industry News

Court Orders Fiduciaries to Restore $6.5 Million to ESOP

Tue, 08/20/2019 - 11:37
A federal court judge has ordered the former CEO of a Virginia packaging equipment company and the bank that acted as a transactional fiduciary of the company’s employee stock ownership plan (ESOP) to restore $6,502,500 to the plan.An investigation by the U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) found that Adam Vinoskey, former CEO of Sentry Equipment Erectors Inc., and Evolve Bank and Trust violated the Employee Retirement Income Security Act (ERISA). The breach occurred in December 2010 when Vinoskey and Evolve approved the ESOP’s purchase of Vinoskey’s stock at an inflated price. Specifically, the ESOP paid $406 per share for Vinoskey’s 51,000 shares, which was an overpayment given the stock’s fair market value. In 2009, the stock was appraised at $285 per share.Despite Senior U.S. District Judge Norman K. Moon’s previous decision throwing out part of a DOL expert’s testimony, he found that Evolve caused a prohibited transaction under ERISA by failing to ensure that the ESOP paid no more than adequate consideration for Vinoskey’s stock. He also concluded that Evolve violated its duties of prudence and loyalty and that Vinoskey is jointly liable for Evolve’s breaches as a knowing participant in a prohibited transaction and as a co-fiduciary. “As a result of these breaches, the Sentry ESOP overpaid for Adam Vinoskey’s stock by $6,502,500.00, an amount for which Evolve, Adam Vinoskey, and the Adam Vinoskey Trust are jointly and severally liable,” Moon wrote in his opinion.In his 100-page decision, Moon explained that as a fiduciary to the ESOP, Evolve Bank failed to notice, question or investigate several red flags that appeared in the appraisal of the stock that was used to set the $406 per share price. For example, Moon concluded that the appraiser’s decision to add back half of Sentry’s health care costs—particularly without analyzing the ramifications of that add-back in terms of profits and worker retention—was unreasonable given Vinoskey’s clear statement that Sentry would not cut health care expenses, and the appraiser’s understanding that Sentry’s health care benefits had a major impact on worker satisfaction, recruitment and retention.In addition, Moon found that the appraiser unreasonably added back Sentry’s ESOP contributions when calculating Sentry’s net-adjusted income. Such add-backs or “normalizations” without other adjustments are appropriate only if an appraiser believes that “removing this expense” would have “no impact on the company going forward.” Moon said that such normalizations are highly discretionary and typically favor the seller in a transaction. The appraiser’s apparent assumption that Sentry could eliminate the ESOP without negative repercussions was unreasonable, since the express purpose of the ESOP was to increase worker satisfaction and productivity, and since it is highly unlikely that the ESOP participants would move to eliminate an attractive retirement benefit.Moon also cited as red flags the appraiser’s use of inconsistent capitalization rates in annual appraisals since 2005 and the decision to use a three-year look-back period in the appraisal to compute Sentry’s average yearly cash flow, rather than a longer look-back period. Several other red flags were cited in the opinion.Moon held that Vinoskey violated ERISA when he accepted a $406 per share price at a time when he knew, or should have known, that Sentry’s stock was worth less than that price.The post Court Orders Fiduciaries to Restore $6.5 Million to ESOP appeared first on PLANSPONSOR.
Categories: Industry News

IRS Makes Language Changes to ‘One-Bad-Apple’ Rule Proposal

Tue, 08/20/2019 - 10:52
The IRS has made language changes to its Notice of Proposed Rulemaking (NPRM) relating to the tax qualification of plans maintained by more than one employer.These plans, maintained pursuant to section 413(c) of the Internal Revenue Code (IRC), are often referred to as multiple employer plans, or MEPs. The proposed regulations would provide an exception, if certain requirements are met, to the application of what the regulations call the “unified plan rule,” and what the industry refers to as the “one-bad-apple rule.” This rule can lead to the disqualification of an entire MEP thanks to one employer’s mistake. It applies for a defined contribution MEP in the event of a failure by an employer participating in the plan to satisfy a qualification requirement or to provide information needed to determine compliance with a qualification requirement.The exception generally would be available to the plan if one participating employer causes and is unable or unwilling to correct a qualification failure. It would also be available if the participating employer fails to comply with the Section 413(c) plan administrator’s request for information about a qualification failure that the Section 413(c) plan administrator reasonably believes might exist. For the exception to the unified plan rule to apply, certain actions are required to be taken, including, in certain circumstances, a spinoff of the assets and account balances attributable to participants who are employees of such an employer to a separate plan and a termination of that plan.The IRS says that, as published, the NPRM contains errors which may prove to be misleading and need to be clarified.Comments on the IRS proposal are still due October 1.The post IRS Makes Language Changes to ‘One-Bad-Apple’ Rule Proposal appeared first on PLANSPONSOR.
Categories: Industry News

Legislator Introduces Another Auto-IRA Bill

Mon, 08/19/2019 - 12:24
In an effort to close the retirement plan coverage gap, U.S. Senator Sheldon Whitehouse, D-Rhode Island, introduced legislation designed to help millions of Americans save for a financially secure retirement through an automatic payroll deduction Individual Retirement Account, or Auto-IRA.The “Automatic IRA Act of 2019” would require employers that do not provide another qualified retirement plan and that have more than 10 employees to enroll workers automatically in an Auto-IRA, unless the employee opts out.  Employers would receive tax credits to defray the costs of setting up the accounts.According to the text of the bill, a government or entity described in Internal Revenue Code Section 414(d) and a church or a convention or association of churches which is exempt from tax under Section 501 would be exempt from the mandate.An employer with employees in a state that has a state-run automatic IRA program for private-sector employees and is mandated to participate in that program would also be exempt.The bill would require an automatic deferral of 3% of the compensation of the employee into the IRA, or “such other percentage of compensation as is specified in regulations prescribed by the Secretary [of Labor] which is not less than 2% or more than 6%.” In the case of qualifying employees under an automatic IRA arrangement for two or more consecutive years, the Secretary may by regulation also provide for automatic deferral increases no more than annually.Participant in an Auto-IRA would be defaulted into a target-date fund unless they choose a principal preservation investment option, a guaranteed lifetime income option or equivalent, or any other class of assets or funds determined by the Secretary to be a qualified investment for purposes of the Auto-IRA.The bill has been referred to the Committee on Finance.Legislators have been introducing automatic IRA bills for years. A 2017 survey by the Pew Charitable Trusts found employers without retirement plans were either somewhat or strongly supportive of the concept of Auto-IRAs.The post Legislator Introduces Another Auto-IRA Bill appeared first on PLANSPONSOR.
Categories: Industry News

IRS Issues Guidance About Uncashed Retirement Plan Distributions

Mon, 08/19/2019 - 10:43
The IRS has published a new Revenue Ruling outlining its position on the tax treatment of uncashed retirement plan distribution checks.In addition to answering the question of whether an individual’s failure to cash a distribution check she received in 2019 permits her to exclude the amount of the designated distribution from her gross income in that year, the Revenue Ruling also addresses the employer’s obligations in this situation.In particular, the Revenue Ruling addresses whether an individual’s failure to cash a distribution check received alters the employer’s obligations with respect to withholdings under Revenue Code Section 3405. Additionally, it clarifies whether the individual’s failure to cash the distribution check received alter the employer’s obligations with respect to reporting under Code Section 6047(d).Common Issue With Uncashed Checks Before addressing these matters, the Revenue Ruling first explains the exact situation IRS compliance staff is considering here.The ruling is considering a qualified retirement plan under Revenue Code Section 401(a) that does not include a qualified Roth contribution program under Section 402A(b). An individual in this plan, the IRS explains, must make a distribution of $900 in 2019. In this situation, the individual has “no investment in the contract within the meaning of Code Section 72” with respect to her benefit, has a calendar year taxable year, and has never made a withholding election with respect to her benefit.In the model example, the employer makes the required $900 distribution, technically a designated distribution within the meaning of Section 3405(e)(1), by withholding tax as required under Section 3405(d)(2) and mailing a check for the remainder to individual. Although the individual receives the check and could cash it in 2019, she does not do so. Also important to this situation, the individual does not make a rollover contribution with respect to any portion of the designated distribution, and no other exception to income inclusion under Section 402(a) applies.Code Section 402(a) In a phrase, the IRS’s position is that this situation does not permit the individual to exclude the distribution from gross income in 2019.The rationale for this position is that Code Section 402(a) provides that, except as otherwise specifically provided in the Section, any amount “actually distributed to an distributee by an employees’ trust described in Section 401(a) which is exempt from tax under Section 501(a) is taxable to the distributee, in the taxable year of the distributee in which distributed, under Section 72.”Section 72, in turn, provides rules relating to inclusion in gross income of amounts received from qualified plans and certain other arrangements.“[The individual’s] failure to cash the distribution check she received in 2019 does not permit her to exclude the amount of the designated distribution from her gross income in that year under Section 402(a),” the Revenue Ruling states.Implications for Sponsors In this situation, the employer, as the plan administrator, rightly withheld tax as required under Section 3405(d)(2) from the individual’s designated distribution. According to the Revenue Ruling, the individual failure to cash the distribution check received does not alter the employer’s obligations with respect to withholding of tax, or liability for payment of that tax, under Section 3405.The Revenue Ruling notes that, under the 2019 instructions to Form 1099-R, a Form 1099-R must be filed for each person to whom a designated distribution of $10 or more has been made, and the total amount of the distribution (before income tax or other withholding) must be reported. In addition, under those instructions, the taxable amount of the distribution (including income tax withheld) must be reported, and the federal income tax withheld must be reported.In this model example, the plan distribution, including both the amount of the check and the amount withheld, is a designated distribution under Section 3405(e)(1) that exceeds the reporting threshold. Accordingly, the employer is required to report that designated distribution in Box 1 of a Form 1099-R for 2019.“Because Individual A has no investment in the contract within the meaning of Section 72 and no exception to income inclusion under Section 402(a) applies, Employer M must report the same amount in Box 2a as in Box 1 and must report the federal income tax withheld in Box 4,” the Revenue Ruling stipulates. “Individual A’s failure to cash the distribution check she received does not alter Employer M’s obligations with respect to reporting under Section 6047(d).”The post IRS Issues Guidance About Uncashed Retirement Plan Distributions appeared first on PLANSPONSOR.
Categories: Industry News

Government Prosecutors Weigh In on Supreme Court IBM Case

Mon, 08/19/2019 - 10:38
Attorneys with the Department of Labor, Department of Justice and the Securities and Exchange Commission (SEC) have filed a brief as amicus curiae supporting neither party in the case of Retirement Plans Committee of IBM v. Larry W. Jander in the U.S. Supreme Court.The U.S. Government concludes in its brief that, because the lower courts did not apply the correct legal standard, the Supreme Court should vacate the judgment and remand the case for further consideration.IBM asked the Supreme Court to answer “whether Fifth Third’s ‘more harm than good’ pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.”According to the brief, the Supreme Court in Fifth Third v. Dudenhoeffer identified three considerations that should inform whether an Employee Retirement Income Security Act (ERISA) plaintiff has plausibly stated a duty-of-prudence claim against an employee stock ownership plan (ESOP) fiduciary for failing to disclose inside information about the employer’s stock. “Although the parties largely focus on the third consideration—whether a prudent fiduciary could not have concluded that disclosure would do more harm than good—the proper analysis should be informed by the requirements and objectives of the securities laws,” it says, adding that, “The federal securities laws provide a comprehensive scheme of public disclosure rules designed to protect investors. There is no sound reason to adopt a different set of disclosure rules to protect those investors who are participants in an ESOP.”The original lawsuit alleged that the defendants continued to invest retirement plan assets in IBM common stock despite their being aware of undisclosed troubles relating to IBM’s microelectronic business. Referring to new pleading standards set forth in the Supreme Court’s decision in Fifth Third, the plaintiffs said, “Once defendants learned that IBM’s stock price was artificially inflated, defendants should have either disclosed the truth about microelectronics’ value or issued new investment guidelines that would temporarily freeze further investments in IBM stock.”The U.S. Government’s brief explains how securities law relates to disclosure and nondisclosure of an artificially inflated price.Writers of the brief say, “The courts below and the parties appear to expect a fiduciary to make an ad hoc prediction about whether a public disclosure would do more harm than good in a particular case. But ESOPs have multiple participants and beneficiaries who, at any given time, are likely to have competing economic interests. Both the direction and the strength of those interests in a public disclosure would turn on information about the future that, in many cases, neither the participant nor a fiduciary would know with reasonable certainty. An ad hoc cost-benefit analysis is therefore too indeterminate to serve the meaningful filtering role the Court contemplated.”It concludes that the better course is to recognize that Congress and the SEC have already made a judgment about when a public disclosure would do more harm than good, “and prudent fiduciaries should generally not second-guess that judgment.”The brief states that “absent extraordinary circumstances, ERISA’s duty of prudence requires an ESOP fiduciary to publicly disclose inside information only when the securities laws require such disclosure.”The post Government Prosecutors Weigh In on Supreme Court IBM Case appeared first on PLANSPONSOR.
Categories: Industry News

Reports Conflict About Whether Self-Funding Health Benefits Is Increasing

Mon, 08/19/2019 - 07:58
Increasing health care costs and requirements of the Patient Protection and Affordable Care Act (ACA) led more employers to consider self-funding their health benefits.A fully insured plan is when an employer has decided to purchase an insurance contract to cover the costs and financial risks associated with its employee health plan. A self-insured health plan is when an employer uses its own funds, including funds that might be set aside in a separate trust maintained by the employer (e.g., a voluntary employee beneficiary association), to cover such costs. Employers offering self-insured plans often purchase stop-loss coverage from an insurance company to mitigate the risk of higher-than-budgeted expenses.Self-funding may be cheaper due to the different types of fees built into premium costs, but it is also cheaper under the ACA, which requires more taxes and subsidies. The share of both private-sector self-insured health plans and number of covered workers in self-insured health plans have increased among small and mid-sized firms since enactment of the ACA in 2010. In 2016, the Employee Benefit Research Institute (EBRI) found the largest increases in self-insured plan coverage among covered workers occurred in establishments with 25 to 99 employees and with 100 to 999 employees.However, recent EBRI research suggests the percentage of all private-sector establishments offering health plans, at least one of which is self-insured, has since fallen. Data from the Medical Expenditure Panel Survey – Insurance Component (MEPS-IC) shows, in 2016, 40.7% of private-sector employers reported that they self-insured at least one of their health plans, but by 2018, 38.7% reported the same.“The availability of self-insured plans is now increasing among large establishments, has started to fall among small establishments, and might be stabilizing among medium-sized establishments,” said Paul Fronstin, director of the Health Research and Education Program, EBRI.The recent EBRI report doesn’t provide any answers about why the movement to self-funding may be reversing itself.Ray West, chief growth officer at Maestro Health, based in Orlando, says it seems to make sense. “The expectation was, as a response to the ACA, small businesses would be subject to its employer mandate and would choose the self-funded path,” he says. “Then some companies offered level-funded plans—in which they take plan costs and spread them over 12 months to look like premiums to spread out risk—but some companies were underfunding the plans in order to make premium equivalence look more attractive, so in the second year, there were huge increases in the monthly costs to participants as companies were trying to catch up with claims costs.”In addition, there were stop-loss insurance issues, according to West. If an employer’s employee base ended up with multi-year health conditions, it increased exposure to risk in subsequent years, and stop-loss insurance may not be renewed.West adds that several states adopted warnings for selling stop-loss insurance to small groups. In 1995, the National Association of Insurance Commissioners (NAIC) adopted a model state law setting minimum specific and aggregate attachment points for stop-loss coverage. Higher attachment points may dissuade some small employers from self-funding by exposing employers to greater risk than they would face with policies with low attachment points, according to a report supported by the Robert Wood Johnson Foundation (RWJF) and the Urban Institute.For instance, the report says, while large employers may be able to tolerate the risk exposure of a stop-loss plan with a $60,000 or $100,000 specific attachment point, most small employers will likely find these points to be too high.According to West, lots of confusion was created about what to do and what is the right to do. When small employers realized the risks they were taking with self-funding, they moved to offer other coverageIs there really a decrease in self-funding?Beth Umland, head of research for health at Mercer in New York City, says Mercer is not seeing a decline in self-funding; it is seeing slow and steady growth.Mercer’s most recent National Survey of Employer-Sponsored Health Plans found, among employers with 10 to 49 employees, 17% offered a self-insured plan in 2018, up from 10% in 2014. Among other employer sizes (based on number of employees), the numbers were:50 to 199 employees; 23% in 2018, 23% in 2014;200 to 499; 49%, 37%;500 to 999; 62%, 55%;1,000 to 4,999; 83%, 83%; and5,000 or more; 96%, 93%.Umland says the difference between Mercer’s data and EBRI’s may be explained by the dataset used. She also notes that the decrease discussed in the EBRI report is small and only covered a difference over two years.Joseph Kra, head of Mercer’s New York health business, says many fully insured employers are talking to Mercer about moving to self-funding, but very few self-insured employers are looking to go back to fully insured.Is self-funding still a good idea?According to West, there are still some things self-funding can do even for small groups that understand their risks. “Good care management and case management are things that directly affect utilization,” he says. “Plan sponsors that self-fund health benefits can use claim analytics to make sure services are delivered at the right time, right place and right price”Kra explains that self-funding offers flexibility in plan design. For each employer, the data may show something different driving health costs. For example, one employer may have a lot of employees using infertility treatment, so it will put in place in the plan a best-in-class infertility program. Another employer may have a lot of joint replacement claims, so it will put in place physical therapy and other alternatives.He adds that cost pressure is motivating employers to be more creative in managing their health plans, and with self-funding, employers are still saving on state taxes and ACA taxes and subsidies.According to Kra, one barrier to employers moving to self-funding their health benefits, historically, is the fear of unknown costs. “We’ve built sophisticated tools to model the probability of having a bad year. Clients usually find the likelihood is small, especially if they have the right stop-loss insurance. There are better tools now to model and determine what level of stop-loss is needed,” he says.“It is an exciting time in the health benefits space now. There are so many new creative solutions employers can choose from,” Kra says.The post Reports Conflict About Whether Self-Funding Health Benefits Is Increasing appeared first on PLANSPONSOR.
Categories: Industry News