Financial News

Gig Workers Feel Just as Prepared for Retirement as Traditional Workers - Mon, 03/25/2019 - 17:41

As individuals look for more work flexibility or employers turn to freelancers and consultants, the so-called “gig” economy is growing, and a lack of benefits for these employees could mean a potential financial crisis when they are ready to retire.

According to T. Rowe Price’s second annual survey focused on workers participating in the gig economy, 56% of independent workers are actively saving for retirement (excluding independent workers who identify as already retired), significantly less than the percentage of traditional employees that are doing so (72%). This may be due to the fact that the majority of traditional workers use their employer-sponsored retirement plan (68%) and likely have access to the automatic savings features typically available in those plans, while independent workers are primarily using IRAs (40%).

However, independent workers are just as likely as traditional workers to feel they are financially prepared for retirement (49% and 47%, respectively). In addition, just over half of both independent and traditional workers envision working part time or independently in retirement.

Despite the concerns that a lack of retirement benefits can cause, independent workers say that working on their own has made them more involved in their finances, which is especially true with Millennials. For the second consecutive year, the majority of independent workers say they are much more or somewhat more involved in their finances as a result of working independently (75%), with Millennials more likely to say this (85%) compared to Gen Xers (73%) and Baby Boomers (71%).

“Without the safety net of being able to save for retirement through an employer-sponsored plan, independent workers have to make active decisions about their retirement,” says Stuart Ritter, senior financial planner at T. Rowe Price. “So, it’s encouraging to see that many of them are making the effort to save and that this proactive financial behavior extends beyond just saving for retirement.

T. Rowe Price sponsored the online national survey, conducted by Beacon Research, from January 24, to February 16, 2019. The findings are based on a national sample of 2,010 adults ages 22 to 73. The survey report is here.

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Categories: Financial News

IRS Updates Mortality Tables for DB Plans - Mon, 03/25/2019 - 17:36

The IRS has issued Notice 2019-26, which specifies updated mortality improvement rates and static mortality tables to be used for defined benefit (DB) plans under Section 430(h)(3)(A) of the Internal Revenue Code (Code) and section 303(h)(3)(A) of the Employee Retirement Income Security Act (ERISA).

The updated mortality improvement rates and static tables apply for purposes of calculating a DB plan’s funding target and other items for valuation dates occurring during the 2020 calendar year. 

The notice also includes a modified unisex version of the mortality tables for use in determining minimum present value under Section 417(e)(3) of the Code and section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2020 calendar year.

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Categories: Financial News

Bank of America Adds 3(38) Investment Management Offering - Mon, 03/25/2019 - 16:00

In 2017, Bank of America launched Fiduciary Advisory Services (FAS) for Merrill Designated Advisors to offer 3(21) non-discretionary services to plan sponsor clients. Based on the success of the offering and by the request of institutional clients, Bank of America has now announced the introduction of a 3(38) discretionary offering.

Stacy Bucchere, head of defined contribution at Bank of America, says the firm has been getting direct requests from clients. “Overall plan sponsors are looking for ways to be a better fiduciary, especially for plans with $10 million in assets and below; 3(38) service is in demand. Plan sponsors want to gain efficiency in operating their business and delegate responsibility for their retirement plans,” he says.

“The new offering will provide plan sponsor clients a choice in how they want to work with us,” Bucchere adds. “The expanded FAS solutions will provide clients with the choice of two service models based on whether they want to maintain or delegate investment discretion.”

Some retirement industry professionals say plan sponsors have a hard time completely giving up investment decisions. According to Bucchere, with Bank of America’s offering, plan sponsors will still have input. “We will have three menus—core menu, core plus and expanded menu—and depending on the demographics and investment acumen of participants, plan sponsors will have choice. The difference in the choices is the number of asset classes available. They also will have a choice for a stable value or money market fund, as well as target-date or balanced funds,” she explains.

By participating in the FAS program, plan sponsors also benefit from the expertise of the chief investment office, and specifically its due diligence team, which has 62 investment professionals who conduct quantitative and qualitative analysis to evaluate and select investment strategies. Plan sponsors will work with Merrill Designated Advisors specialized in this area and sophisticated reporting.

According to Bucchere, 4,100 Designated Advisors have completed designation requirements and will be able to provide either 3(21) investment adviser or 3(38) investment manager services.

“This will be beneficial to plan participants, as defined contribution plans are increasingly more important [to saving for retirement]. This offering, along with other services, is to help ensure good outcomes for participants in the plans we serve—the core of what we do,” Bucchere says.

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Categories: Financial News

Calculator Quantifies the Cost of Keeping Small Balances in Retirement Plans - Mon, 03/25/2019 - 15:51

Retirement plan sponsors are allowed to automatically roll over participant account balances of up to $5,000 into an individual retirement account (IRA) if a participant doesn’t make a distribution selection on his own or cannot be found, and some take advantage of this due to the administrative costs of keeping those participant accounts in their plans.

A new calculator from Millennium Trust, the Automatic Rollover Savings Calculator, allows plan sponsors to see their potential cost savings by getting rid of these accounts. Plan sponsors input the number of participants in their retirement plan, the percentage of those with small balances, and the approximate annual cost of administering their plan, and the tool calculates the potential savings.

However, the firm does warn that the calculator assumes that annual administrative costs are allocated equally among plan participants and may not be representative of a plan sponsor’s particular plan design or experience. It encourages plan sponsors to seek advice from qualified professionals regarding all finance issues impacting their plan.

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Categories: Financial News

Stay Motion Signals End of Eaton Vance ERISA Challenge - Mon, 03/25/2019 - 14:25

A motion filed in the U.S. District Court for the District of Massachusetts could bring to a close a class action Employee Retirement Income Security Act (ERISA) self-dealing lawsuit filed by participants in an Eaton Vance retirement plan.

The joint motion requests the judge in the case stay further proceedings—including a hearing scheduled for today, March 25. According to the motion, lead plaintiff Shannon Price, individually and on behalf of the class and the plan, has agreed to a proposed settlement, as have defendants Eaton Vance Corporation, Eaton Vance Management, the Eaton Vance Investment Committee, and some 30 individual defendants.

Today’s hearing would have addressed the defendants’ motion to dismiss for failure to state a claim regarding counts VII, VIII, and IX of the complaint.

In support of the stay motion, the parties state they have reached an agreement in principle to settle this action on a class-wide basis. Further, according to the motion, the parties will “work diligently to prepare and submit a motion for preliminary approval of the anticipated class settlement.”

“In the event that the parties are unable to reach a final agreement to settle this action, they will promptly notify the court,” the motion states. “The parties request that the court vacate the date now on the calendar for the March 25, 2019, hearing on motion to dismiss for failure to state a claim counts VII, VIII, and IX of the complaint, and stay further proceedings in this action pending the parties’ submission of a motion for preliminary approval of the anticipated class settlement. The parties anticipate that they will be in a position to make that submission to the Court within 45 days.”

The text of the lawsuit alleges that Eaton Vance “used the entire plan as a test laboratory and vehicle for self-gain.”

“Instead of leveraging its investment expertise to select prudent investment options on the open market, Eaton Vance filled the plan with funds that Eaton Vance managed,” the compliant states. “Of the 42 non-money market investments strategies on the plan, 35 were managed by one of the Eaton Vance defendants. Moreover, Eaton Vance proprietary funds were the exclusive actively managed investment strategies available on the plan. As of December 31, 2016, the Plan had $434,848,484 in assets under management, approximately 80% of which were invested in Eaton Vance funds.”

The details of the settlement will be made available when the parties file their formal settlement motion with the court, in about a month and a half. In the meantime, context for this settlement decision can be found in the recently filed settlement agreement struck in a similar case by BB&T. Apart from tens of millions of dollars in monetary compensation, the employer in that case agreed to “significant future relief in terms of scope and duration while also securing additional commitments for participants’ benefit.” In particular, the fiduciaries agreed to engage a consulting firm to conduct a request for proposal for investment consulting firms that are unaffiliated with BB&T and engage an investment consultant to provide independent consulting services to the plan. Among other matters, during the two year period following entry of the final order, BB&T will rebate to the plan participants any 12b-1 fees, sub-ta fees, or other monetary compensation that any mutual fund company pays or extends to the plan’s recordkeeper based on the plan’s investments; and if, during a two-year time period following the entry of the final order, BB&T decides to charge plan participants a periodic fee for recordkeeping services, the plan fiduciaries will conduct a request for proposal for the provision of recordkeeping and administrative services.

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Categories: Financial News

SURVEY SAYS: When Tax Returns Are Filed - Mon, 03/25/2019 - 10:30

Last week, I asked NewsDash readers, “When do you usually file your income tax return?”


Four in ten (40.9%) responding readers indicated they file their income tax return as soon as they have the information they need; 44.3% do so whenever they get to it, but before the April 15 deadline; 10.2% file their return on April 15; and 4.5% said they typically file for an extension.


Many readers who chose to leave verbatim comments said they file early if expecting a refund and late if expecting to pay. Some said it is best to file early either way so you know your situation or just to get it over with. Several, like me, said they were surprised this year, but it wasn’t always due to tax reform. And, there were readers who expressed thoughts about refunds as interest-free loans to the government. Editor’s Choice goes to the reader who said, “Death and taxes, you can’t avoid them. But may you plan wisely so neither is a surprise.”


Thanks to everyone who participated in the survey!



Earlier for my state return as I get a refund, but wait as long as possible for my federal return since I owe.

I do my own taxes, and Q1 at work is always a pretty busy time of year. I’m pretty pleased if they’re filed by the end of March.

I too was surprised when I filed even though I found out my refund was basically the same as last year’s. This was despite doubling up on my usual charitable contributions (I plan to just take the standard deduction this year). Filing early gave me a heads up that I needed to change my withholding for 2019!

Death and taxes, you can’t avoid them. But may you plan wisely so neither is a surprise.

Ever since I stopped getting a refund, it has been later and later.

Apparently I missed the boat for getting a tax cut – we owe quite a bit this year

I usually have a federal refund coming, so I file soon after I have my W-2, etc. This year the refund was somewhat less than prior years, but filing was a bit simpler. Even if you end up owing money, I think it’s best to know where you stand as early as possible.

Usually file in early February and look forward to a healthy return. This year, filing April 15 as we owe over a thousand dollars. Pretty painful surprise with no changes to our tax status from last year.

Two words: It Sucks!

If I get a refund I will file as soon as I can. If I have to pay in I wait until close to the deadline

Of course, we wait until early April if there is no refund!

My returns (3) are electronically filed as soon as they are completed. It doesn’t matter if I have a payment or a refund — just want to be done.

Not sure why people were surprised their returns are lower this year – less taxes were withheld. That being said – I was surprised when my refund was higher than last year. LOL

I’d rather file as soon as possible and be done with it rather than wait until the last minute to file–regardless of whether I owe additional tax or receive a refund.

Seems like everyone I have talked to is also not getting as big of a refund as last year.

I’m in the process of doing my tax return work and keep putting is aside because the numbers are putting me in shock where normally I would be getting a refund from Federal and State but this year, I owe. It’s a $6000 difference where together I’d maybe get $4000 back. This year, so far my initial figures put me in the hole $2000. There goes the idea of paying with the refunds for my annual insurance premiums due in May. It’s not all tax reform related because a large dividend hit from one investment that never produced like that before. I have to pay the tax on the higher investment income. Scrambling to put together the amount I owe. And then, I better finish the tax work.

Normally I file in late January or early February, but my husband decided to have a hip replacement during that period, so this year I filed in March – latest ever!

I never seem to have the time to file my return (which is fairly complicated) so I go on extension. But, somehow, I always find the time to file on October 15th each year and stand on line at the post office.

Do them early before someone else steals your SSN. I file early. If I owe, I pay on 4/15. I don’t want a refund. I don’t care to give the feds an interest free loan so they can waste the money the steal from me.

I prepare the return as soon as the information needed is available. If a refund is forthcoming, I will file as early as February. On the other hand, if taxes are owed, I wait until about a week before the April 15th deadline.

Usually in early April whether I get a refund or not – I try to owe a small amount every year

If I owe, I wait until 4/15. For a refund I file ASAP. This year as I was phasing into retirement and cutting back hours, I got a refund for the first time in ages!

We usually owe so we don’t file until April 15th. I was taught a long time ago that if you get a refund, you’re lending YOUR money to the government for an entire year. So now we make sure we keep as much of OUR money during the course of the year and pay the IRS on the due date.

I too was surprised by the much lower refund we will be receiving. Let’s face it, a lower refund actually means we kept more of our money instead of giving it to the government, interest free. My husband, who was never happy without a large refund, might be pouting but I’m ok with it.

I always start with good intentions in January and I’m usually ready the first week of April. There has to be a simpler way.

If I know I’m getting a federal refund, I’ve been known to file my taxes at the end of April when my state taxes are due. The IRS doesn’t care if you file late if they owe you money.

I figure, if I’ve already given the gov’t a loan, I should get it paid back sooner rather than later. If I find out, that I owe, then I can schedule the payment on the due date, like any other interest free payment.

Stop calling it a refund. You overpaid all year. You are getting your change back.

My husband farms-we are required to send our taxes in by March 1st.

Owning a business, seems to always require an extension. Plus never get a refund means there is no incentive to file early.

I would rather get it done early even if I owe so that it is one less thing to worry about.

I tend to claim zero exemptions so that I usually end up getting money back. My fiance, however, does the math each year to come as close to zero as she can so that she can make the most of investing that money.

As late as humanly possible.

When ours started getting complicated with a variety of investments and financial transactions, we stopped doing it ourselves and started paying to have it done. It’s ridiculous how much we have to pay, just to have someone else prepare them! I’m glad we have the assets, but it would be nice to file a 1040EZ form!

Like everything else in the past few years…the results were pretty lame this year…

It mostly depends on how lazy I am feeling. Last year I had it filed by the end of February, this year, I’ll be lucky to get it filed by April 15th!

I try to file as quickly as possible. A couple people that I know have gone to file only to find out someone has already fraudulently filed a return using their personal data. Not a fun thing to have happen and the clean-up is painful.

When we get a refund, we file immediately. When we owe, we file and pay on April 15th. However, we check several times during the year, so we can adjust our withholding to ensure we won’t owe at year’s end!

Usually, I get a small refund so I file as soon as the IRS begins accepting returns in January but not this year. Since I owe this year, I am waiting until April to submit my tax return and payment.

I have my numbers before I receive my tax documents. I update myself on the tax laws. I track every penny all year and adjust my withholdings to break even. I like to maximize my pay as opposed to letting the government make money off of me.

My refund this year was half of what last year’s was, but that was expected. I was happy to have more in my paycheck each week.

If I am getting a refund, then as soon as possible. If I have to pay, then by April 15.

It has been several years since we have received a refund and I felt a need to file early. My return has been ready for a while, but I will wait until close to the deadline.

It has become my President’s Day ritual.

Turbo Tax makes it mostly easy and painless, especially as my situation is usually not too complicated.

That is unless I’m a payer rather than a receiver. Then it’s the 15th of April.



NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Institutional Shareholder Services (ISS) or its affiliates.

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Categories: Financial News

Fidelity Workplace Giving Pairs Charity and Retirement - Mon, 03/25/2019 - 04:01

Fidelity Investments announced the introduction of the Fidelity Workplace Giving program, created to allow employers to integrate charitable giving into their current benefits program while offering employees a way to manage philanthropic activities.

Explaining the firm’s thinking in launching this new solution, Kevin Barry, president of workplace investing at Fidelity Investments, points to data showing employees are increasingly interested in working for organizations that are socially responsible and offer benefits such as volunteer opportunities or charitable giving programs.

“Employers increasingly recognize the importance of offering benefits that contribute to the total well-being of their workforce, especially charitable giving programs,” Barry says. “However, it’s often difficult for employers to easily integrate these programs into their benefits platform.”

According to Barry, Fidelity Workplace Giving enables companies to provide access to a charitable giving option alongside other company benefits, increasing employee engagement and helping employees better understand how charitable giving fits into their overall financial picture. He adds that Fidelity Workplace Giving streamlines charitable giving activities for employees by allowing them to give directly through their workplace.

Employers offering the program gain a centralized administrative process and a clearer way to measure employee engagement and impact, Fidelity says. The Workplace Giving platform gives employees access to hundreds of thousands of charities aggregated into a single view that can be sorted by name, industry or cause, and workers can pre-set or select the amount they want to donate. Employee donations can be one-time or recurring, and delivered by the employee’s preferred method (e.g., credit card, bank transfer).

And since Workplace Giving is part of an employee’s benefits platform, they can weave charitable giving into their overall financial wellness strategy, alongside other financial vehicles such as their 401(k), health savings account or 529 plan, Barry says. 

“When charitable giving is made easier and more transparent, employees are more likely to engage, which will ultimately contribute to greater corporate responsibility and a more positive impact on the community,” Barry adds.

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Categories: Financial News

Fourth Quarter Volatility Wipes Out DB Plans’ Funding Status Gains - Fri, 03/22/2019 - 17:49

Despite higher interest rates and significant contributions by pension plans, their funding status rose only 70 basis points last year, according to a new report from Goldman Sachs, “2018 Pension Review ‘First Take:’ Groundhog Day.”

While some plans notably increased fixed-income allocations, likely linked to significant contribution activity and the intra-year rise in funded levels last year, other pension plans may not have been able to act before the volatility of the fourth quarter erased gains. Goldman Sachs’ report, written by Senior Pension Strategist Mike Moran, says, “In some ways, it feels like the 1993 movie ‘Groundhog Day,’ as we relive the same scenario over and over again. For corporate pensions, that may mean seeing funded levels rise, missing the opportunity to lock in those gains, and then watching those gains dissipate, especially in light of an aging bull market and expectations of a potential slowdown.”

Goldman’s report is based on the 50 largest pension plans in the S&P 500. These companies’ funding levels rose during 2018 to their highest level since the 2008 financial crisis, but gave back most of their increases in the fourth quarter. “This is, unfortunately, a scenario that has played out before for U.S. corporate defined benefit [DB] plans and is contributing to a sense of déjà vu.”

Allocations to fixed income rose to 48% by the end of 2018, the highest level Goldman Sachs has ever tracked in DB plans. In 2017 and 2018, the majority of DB plans were cash flow negative, meaning that some of their contributions were used to fund benefit payments and never made their way into asset allocations. Furthermore, Goldman Sachs says, another reason why allocations to fixed income rose last year could well have been because pension plans withdrew allocations from other asset classes in order to pay benefits.

“Also, recall that the end of 2018 was quite volatile,” Goldman’s report says. “The S&P 500 lost around 9% in December, while fixed income had low single digit returns as interest rates fell. Some plans may not have been able to effectuate rebalancing actions before the end of the year, resulting in higher fixed-income allocations than anticipated.”

Over the past 10 years, there have been times when pension plans could have de-risked through better asset liability matching but some did not, Goldman Sachs says, resulting in many plans having to repeat their contributions. By the end of 2017, plans were collectively underfunded by $245 billion for a funded ratio of 86%.

For 2019, Goldman Sachs expects fixed-income allocations to rise and it recommends that pension plans take a “more customized approach in managing these assets,” the report says. “Unless the fixed-income allocation is tailored to the actual liability profile of the plan, the hedging assets may not perform as contemplated and funded status may decline unexpectedly.” To accomplish this, Goldman Sachs recommends that pension plans hire a strategic partner to use overlays and derivatives to fine tune hedges and position the portfolio for an annuitization in-kind transfer.

Goldman Sachs also notes that pensions are increasingly turning to outsourced chief investment officer (OCIO) services and that this movement could help them improve their funded status.

Goldman Sachs’ full report can be downloaded here.

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Categories: Financial News

Retirement Industry People Moves - Fri, 03/22/2019 - 16:17

Art by Subin Yang

Schroders Makes Promotions and Hires to Distribution Team

Schroders has announced changes to its distribution team, as part of the firm’s strategy to enhance its North American distribution platform.  As part of these changes, Marni Harp has been promoted to head of Institutional Consultant Relations for the U.S. and Scott Garrett has joined the firm as an institutional sales director, focused on Taft-Hartley.

Harp brings over two decades of experience in the investment industry and will be responsible for overseeing the firm’s relationships with local and global investment consultants and their institutional clients.  She joined Schroders in August 2016 to lead coverage of investment consulting firms in the firm’s western region. Harp is based in Los Angeles and will report directly to Marc Brookman, deputy CEO of North America. 

As an institutional sales director, Garrett will be responsible for new business development and relationship management for Taft-Hartley clients in the U.S. He joins from Systematic Financial Management, where he was a senior vice president and was responsible for developing and maintaining client relationships with Taft-Hartley, public funds, foundations and endowments and corporate plans. Garrett will be based in Southern California and will report to Rock Wilkinson, head of U.S. Institutional Sales. 

Niles Lankford Group Rebrands to Latitude

Niles Lankford Group Companies, a third-party retirement plan administration group, has changed its name to Latitude Service Company Inc.

A leading third-party retirement plan administration firm specializing in quality retirement plan administration, Latitude has offices nationally and serves more than 2,500 employer-sponsored plans.

“Latitude is as much an idea as it is a destination. It reflects our national presence as well as our flexibility in crafting retirement plan solutions that meet each client’s needs,” says CEO Brad Lankford.

Latitude operates as Latitude Retirement and unifies the branding of Niles Lankford Group (NLG), Pension Systems (PS), Retirement Systems of Arizona (RSA), and Retirement Systems of California (RSC). In addition to providing plan consulting and administration services, the company offers actuarial, compliance, payroll integration and fiduciary services to help employers achieve their goals with less work and lighter responsibilities.

Franklin Templeton Names PM on Emerging Markets Team

Franklin Templeton has appointed Nicole Vettise as senior vice president, institutional portfolio manager, within the Franklin Templeton Emerging Markets Equity (FTEME) investment team. Reporting to Manraj Sekhon, her primary responsibility will be to support FTEME’s full suite of strategies for clients in Europe and North America. Vettise is based in London.

Vettise brings over 20 years of experience in the investment industry and joins the firm from Blackrock, where she managed a team of product strategists for a range of equity strategies including natural resources and thematic funds. Prior to this, she was institutional portfolio manager, emerging markets and natural resources, at RBC Global Asset Management and previously worked at J.P. Morgan Asset Management. Vettise has also held communication and investor relations roles in Asia, Europe and London.

Vettise obtained a BSc qualification in European studies from the Institute d’Etudes Politiques in Grenoble, France, and the University of Hull and is a CAIA Charterholder.

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Categories: Financial News

Increasing Health Care Costs Have Implications for Retirement Savings - Fri, 03/22/2019 - 15:56

As much as people try to understand their financial needs in retirement, one unknown cost is health care. Despite the existence of Medicare insurance for seniors, it does not cover all costs and health care can be extremely expensive, particularly as one ages.

For instance, according to the analysis “Healthcare Costs & Spend: Rising by Age, Gender, and Race” by, by the time one reaches age 65, average health care costs are $11,300 per person, per year—nearly triple the annual average cost of those in their 20s and 30s. The average health care expenses for women is nearly twice as high as for men. And minority groups such as Black and Hispanic Americans costs are nearly 30% less than on White Americans. analyzed several reports to create this analysis.

According to the Department of Health and Human Services MEPS survey data of medical costs by age and demographics dating from 1999 through 2016, health costs are lowest from age five to 17 at just $2,000 per year on average. From then on, it’s a steady increase with costs rising to over $11,00 per year.

In addition, according to the data, women will need to budget more than men for health care expenses each year. Not only that, but women tend to live two more years than men in the United States,  which requires additional savings.

There is an average of $3,500 annual health care spending by white adult Americans, approximately 70% higher than for Asian, Black, and Hispanic Americans. The root cause and implications of this unequal spending should be studied further to see if their remedy can improve health care outcomes for all, according to the analysis.

If one adds annual spending figures, in today’s dollars, if you’re “average,” one can expect costs to be $414,000 over a lifetime. However, according to, there is reason to believe this estimate is conservative. Their data suggests that health care costs in the United States have been increasing faster than inflation. 

Even with the best health insurance, senior citizens are often charged expensive co-pays or need drugs that their plans won’t cover. These expenses can impact ones retirement savings and even result in bankruptcy. As one saves for retirement, it’s important to understand the value of having savings for your future medical expenses, which will likely be higher than they are today.

Medical surveys were analyzed by the staff at See their report here.  

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Categories: Financial News

TIAA Enhances Customers’ View of Retirement Income - Thu, 03/21/2019 - 19:13

TIAA announced enhancements to its Retirement Profile tool, a feature of the company’s Preparing for Retirement experience.

Available to all customers, the tool analyzes an individual’s real-time account information, along with their responses to a handful of simple lifestyle and financial questions, to give them a view of what their income in retirement might look like.

According to Executive Vice President and CEO of TIAA Financial Solutions Lori Dickerson Fouché, the tool is designed to make retirement planning easier for customers and help them build confidence in their decisions.

“The enhanced Retirement Profile tool shows TIAA annuity customers how the combination of lifetime income—such as fixed and variable annuities, Social Security or pensions—and systematic withdrawals have the potential to yield a steady and guaranteed retirement paycheck,” she adds.

According to TIAA, the expanded retirement income profile tool offers individuals estimates whether an their portfolio is “on track” to generate the monthly income they will need in retirement using real-time account data; suggests strategies to help an individual work toward their goals by adjusting factors like the age at which they start collecting Social Security and how they will draw income from their annuities; and provides an interactive “play area” that shows individuals how adjustments to their inputs, such as retirement age, can change their monthly retirement income and likelihood of meeting their annual retirement income needs.

Proposed strategies are outlined alongside an individual’s current strategy, illustrating how adding income from annuities may be able to help an individual secure a stream of income in retirement for as long as they live. The tool also generates a “probability of success” indicator to further illustrate whether a particular approach will put an individual on track to achieve their annual retirement income needs.

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Categories: Financial News

Investment Product and Service Launches - Thu, 03/21/2019 - 17:55

Art by Jackson Epstein

Schwab Adds Conestoga Fund to Mutual Fund List

Conestoga Capital Advisors, LLC announced that the Conestoga SMid Cap Fund (ticker CCSMX) has been added to Charles Schwab’s Mutual Fund OneSource Select List in the first quarter of 2019.  The Mutual Fund OneSource Select List is comprised of no-load and no-transaction fee mutual funds that have passed rigorous screening for performance, risk and expenses by Charles Schwab Investment Advisory, Inc.  Launched in 2014, the Conestoga SMid Cap Fund celebrated its five-year history on January 21.

“We are excited to have been chosen for the OneSource Select List and look forward to the opportunity to work with Schwab’s Individual and Advisory clients,” says Derek Johnston, partner and portfolio manager of the Conestoga SMid Cap Fund.

The SMid Cap Fund is managed by the same five-person investment team that oversees Conestoga’s Small Cap Fund.  The Conestoga SMid Cap Fund seeks to provide long-term growth of capital through a portfolio invested in small- and mid- capitalization companies.  The investment team searches for profitable companies which they believe have sustainable earnings growth rates, strong financial characteristics, and insider ownership. Co-Portfolio Managers Robert Mitchell and Derek Johnston employ a very similar investment approach as the Small Cap Fund, but across a wider market capitalization range. The Conestoga Small Cap and SMid Cap Funds have approximately 50% overlap in portfolio holdings. 

“We believe the SMid Cap Fund offers a similar opportunity for long-term capital appreciation and downside protection as our Small Cap Fund,” says Conestoga Co-Founder/Managing Partner and Portfolio Manager Bob Mitchell.  “In addition, we are able to hold some of our companies as they grow into the mid-capitalization range, seeking to extend their growth and success.”

GSAM Acquires Standard & Poor’s Investment Advisory Services

Goldman Sachs Asset Management (GSAM) has entered into an agreement to acquire Standard & Poor’s Investment Advisory Services (SPIAS) from S&P Global Market Intelligence, a division of S&P Global. The transaction is expected to close in the first half of 2019. Terms of the agreement were not disclosed.

The acquisition is said to expand GSAM’s multi-asset offerings and rules-based equity strategies, positioning the firm to address the needs of financial intermediaries and institutional clients. SPIAS manages multi-asset class model portfolios using Exchange Traded Funds (ETFs) and mutual funds, as well as equity portfolios produced employing a rules-based investment process.

“The firm is acquiring a compelling platform for growth and a differentiated team with a strong long-term track record of performance. The team’s expertise will allow us to deliver greater value to the financial intermediaries and institutions we serve,” says Timothy O’Neill and Eric Lane, co-heads of the Consumer and Investment Management Division at Goldman Sachs.

“S&P Global enabled us to grow our investment advisory business, and as our business continues to evolve, our focus on providing clients with solutions to more easily and efficiently manage their portfolios fits perfectly within GSAM,” says SPIAS president and chairman Michael Thompson. “We look forward to becoming part of one of the world’s leading asset managers, which will deliver additional resources to benefit our clients and address their changing needs.” 

Firm Offers FDIC-Insured Alternative to Stable Value Funds

Insured Retirement Investments has introduced SafeHaven, an FDIC-Insured alternative to stable value funds with a significant rate and safety advantage.

The firm notes that stable value funds invest in lower maturity fixed rate bonds, and prices of bonds go down when rates go up. Three rate hikes are expected in 2019, and payouts to 401(k) plan participants will generally decline because the stable value fund must amortize differences between book and market value against the participant payout. SafeHaven is in the opposite position: as rates go up, payout to participants goes up.

Currently the rate for SafeHaven is 2.4%, compared to 1.92% for stable value funds.

For participants, SafeHaven is the best place to keep cash until it’s needed, there is easy access to cash, they cannot lose principle, and earnings increase as interest rates go up. SafeHaven provides retirement plan sponsors with sensible alternatives for cash investments. Since it is fully FDIC-Insured, there is less risk than stable value or money market funds, and a low expense ratio provides exceptional value.

In addition, the firm says SafeHaven is the smart choice for advisers acting as fiduciaries to retirement plans.

More information can be found here.

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Categories: Financial News

Start-Up Retirement Plans Will Evolve in Plan Design and Governance - Thu, 03/21/2019 - 17:49

It takes time to perfect a project, and results from PLANSPONSOR’s 2018 Defined Contribution Survey suggest this is true for start-up defined contribution (DC) plans.

While start-up plans (defined as those with less than $1 million in assets and less than three years of tenure with their provider) do offer beneficial provisions for retirement plan participants, the survey finds not all of them are yet using plan designs and governance practices that are recommended in the industry. It is likely this will change as start-up plans get larger and spend more time being educated by plan advisers and providers.

According to the survey, the majority (73.9%) of start-up plans are safe harbor plans, which do not have to worry about nondiscrimination testing. This compares to 54.4% of DC plans overall in the survey. In addition, three-fourths (75.7%) of start-up plans offer participants the ability to save after-tax contributions in a Roth account. Forty-five percent of start-up plans that match participant deferrals say match amounts are immediately 100% invested, compared to 36% for DC plans overall. Start-up plans offer a similar variety of investment classes to participants for investing plan assets as DC plans overall.

One-third of start-up plans report their approximate average asset-weighted expense ratio of all investment options in their plan less than 25 bps, and 74.4% reported it is less than 75 bps. Also, more often than other plans, start-up plans do not pass fees to participants. For example, 66.1% said recordkeeping fees are paid by the company, versus 33.9% for DC plans overall. More than three-fourths (78.8%) of start-up companies report that expenses associated with employee communications and education are paid by the firm, compared to 52.1% for all DC plans.

However, only 19.5% of start-up plans use automatic enrollment, compared to 46.3% of DC plans overall. Those that do use automatic enrollment tend to stick more to smaller default contribution rates than DC plans overall. Two-thirds (66.7%) use a default deferral rate of 3% or less. In addition, only 14.7% of start-up plans use automatic deferral escalation, versus 37.8% of DC plans overall.

While average participation and deferral rates are similar between start-up plans and DC plans overall, start-up plans tend to make employee wait longer to be eligible to participate in their DC plans. Only 17.9% are eligible immediately upon hire (vs. 36.8% for DC plans overall), and 33.3% must wait until they are employed for one year (vs. 21%).

What is interesting is the information about which start-up plans are unsure. Nearly two-thirds (64%) are unsure or don’t know whether their plan includes mutual funds that pay 12b-1 and/or sub-TA fees to recordkeepers or third-party administrators (TPAs). Half are unsure whether their plan uses an “ERISA account” or “plan expense reimbursement account” to track revenue sharing credits.

In addition, no start-up plans have a policy to address fee equalization.

Fortunately, nearly two-thirds (64.5%) of start-up plans employ the services of a retirement plan adviser or institutional investment consultant. Continued interaction with retirement plan advisers, investment consultants and recordkeepers most of the time results in improved education for plan sponsors and participants and improved plan design.

For information regarding the purchase of the PLANSPONSOR 2018 Defined Contribution Survey results or industry reports, contact Brian O’Keefe at

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Categories: Financial News

Nearly Half of State and Local Government Employees Approve of Auto-Enrollment - Thu, 03/21/2019 - 16:56

Nearly half of state and local government employees (47%) approve of automatic enrollment in defined contribution plans, known in the space as supplemental retirement plans (SRPs), the Center for State and Local Government Excellence (SLGE), ICMA-RC and Greenwald & Associates learned in a survey of 400 government employees.

If they were auto-enrolled into a SRP, 77% of these employees say they would remain invested in the plan. Employees who approve of auto-enrollment say it encourages saving (24%), that people are unprepared for retirement (14%), that people would not enroll on their own (13%) and that it is done with the best interests of the employee in mind (13%).

Additionally, 44% approve of the employer setting a default deferral rate. SLGE said it conducted the survey since few government agencies auto-enroll their workers into a SRP.

Approval of auto-enrollment declines from 24% when the default rate is 1% to 12% when the default rate is 7%. At the same time, 38% disapprove of auto-escalation, and 30% approve of it.

Seventy-nine percent said they are satisfied with their retirement plan. Eighty-four percent are saddled with consumer debt. Eighty-five percent have savings goals other than retirement. Sixty-seven percent said debt is preventing them from saving more for retirement.

A slim majority want more information about general financial issues and retirement planning. Thirty percent would welcome an increase in one-on-one in-person communication by their employer and financial services companies.

“The findings are critically important given that the responsibility of saving for retirement in the public sector is shifting from the employer to the employee in many jurisdictions,” says Rivka Liss-Levinnson, director of research at SLGE and author of the report. “The fact that those presented with a 7% default settled on a significantly higher rate than the group given the 1% default rate is important. This suggests that employers, retirement plan providers and policymakers should consider how small nudges—such as changing the default rate for auto enrollment in a SRP—can combat inertia and impact an employee’s ability to save for retirement.”

The report can be downloaded here. SLGE and ICMA-RC will host a webinar on May 7 to discuss the findings. Registration for the webinar is here.

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Categories: Financial News

MainePERS Has Some Suggestions for Struggling Public Pensions - Thu, 03/21/2019 - 16:39

According to Sandy Matheson, executive director of the Maine Public Employees Retirement System (MainePERS), there is good reason to be optimistic that the public pension system in the U.S. may be turning a corner towards greater stability and financial strength.

She says this because she has seen firsthand how a troubled public pension system can be reformed. In addition to her description of the MainePERS turnaround, she points out that a good portion of the unfunded liabilities on the books of public retirement systems today were actually created years ago—under employer contribution and benefit structures that have since been reformed. In Maine’s case, after decades of irresponsible management, the plan today is far more conservative about its long-term assumed rates of returns and its projected liability discount rates, and it forbids the creation of any new unfunded liabilities.

“I like to say our plan is a case study in how to turn around a troubled pension system,” Matheson said during a briefing held by ICMA-RC and the Center for State and Local Government Excellence in New York. “In the 1980s, we had a funded status that ranged below 20%. We were in about as bad a situation as you could be.”

Today the system is far better funded, Matheson said, approaching 85%.

“Some states are lagging in their recovery due to the more constrictive nature of their unique laws governing public pensions,” Matheson said. “That is an additional layer to this conversation that can make fixing public pensions even more difficult. But in states where there is flexibility, a lot has already been done to put public pensions on a better path. Maine is a state that has made great progress and may serve as an example for other states to follow.”

The Maine story

At a high level, the recovery of the MainePERS system started in earnest in 1995, when a public outcry successfully propelled an amendment to the Maine State Constitution, setting the goal of achieving a 100% funded status by 2028. Under the Constitution, any new benefits created in the system had to be paid for with defined funding streams arranged up front, Matheson noted, which essentially meant the system would permit no new unfunded liabilities. Matheson recalled that the fund has also benefited from an additional technical overhaul in 2011.

As Matheson explained, apart from mandating more realistic return assumptions and interest rate projections, the core of the new policy was to ensure that contributing government employers would have predictability and stability in their required contributions. In fact, she called contribution volatility the top challenge facing public pension systems today. 

“Of course the unfunded liability is a serious problem, but we realized it was important to acknowledge that you only get unfunded liabilities when there are required contributions that are not being made,” Matheson explained. “We came to realize that, if we could smooth out the volatility in required contributions, this would be a very practical way to start to bring our funded status up over time.”

The operational details are complicated, but one salient feature of the reformed MainePERS is that any excess investment losses the system faces in the equity markets are offset by amortized reductions to the system’s variable benefit cost-of-living increases. This approach is taken in contrast to simply requiring greater employer or employee contributions when a the plan’s funded status slips in a given year. Under the first round of reforms, the amortization period was set at 10 years, but eventually the leadership proposed and adopted a 20-year amortization period to create an even smoother contribution figure.

She said this realization about the interplay of funded status and contribution volatility is important for all pension plans, but especially for public plans which rely on budgets that are a matter of law. In the case where the markets have a bad year and a much greater contribution is necessary, the market issues can cause the state or local government to experience a short-term budget crunch that will make a larger contribution all but impossible. Thus a funded status drop is also all but impossible. 

Matheson said the cost of living adjustment (COLA)-reduction approach was settled upon after more than two years of analysis and discussions. She said a very important part of the success of the reforms was a concerted communications campaign, targeting both the participating employers and employees. Eventually, stakeholders came to see this new approach represented a balanced way to parcel risk between all the parties.  

Significant progress yet to be made

Matheson encouraged other states to learn more about the changes that Maine has put into place, which have dramatically improved funded status. She noted that, thanks to the reforms put in place, the MainePERS funded status is commonly seen to increase when other pension systems’ are suffering funding setbacks.

Stepping back, Matheson set the context for Maine’s success by reflecting on where the broader public-sector defined benefit pension system stands today. She recalled that, as recently as the year 2000, the average funded status for state and local government retirement systems was about 85%. Today the figure is closer to 72%.

As Matheson explained, there is a plethora of related causes that have driven the collective state and local government pension funded status so low, and it’s not just the lingering effects of the “dotcom” market crash or the Great Recession.

“A big part of the challenge is more structural and fundamental than the occasional recession,” Matheson said. “The whole defined benefit model was created at a time when individuals’ working and private lives looked different than they do today. When pension plans were first designed and popularized, people didn’t commonly live late into their 80’s and 90’s. Furthermore, as fixed-income returns have fallen over time to the very low levels we have seen persist for the last decade, this drove pensions to hold more in equities to meet their return needs, which left them very exposed during the market crashes in the 2000s.”

According to Matheson, a more stable future for public pensions will only come about if states get serious about implementing the principles of liability-driven investing (LDI), and if they seriously consider making the kind of changes MainePERS has embraced.

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Categories: Financial News

VALIC Changes Name to AIG Retirement Services - Thu, 03/21/2019 - 14:13

VALIC, a retirement plan provider for health care, K-12, higher education, government, religious, charitable and other not-for-profit organizations, will now be known as AIG Retirement Services.


“By changing our name to AIG Retirement Services, we are leveraging the strength, scale and brand of our parent company, AIG—a recognized Fortune Global 500 leader with deep experience in retirement and financial services. While the VALIC name is strong and well respected, the AIG name carries even greater recognition in the marketplace and among sponsors, consultants and participants,” Rob Scheinerman, president, AIG Retirement Services, tells PLANSPONSOR.


“With AIG celebrating its Centennial this year and our new relationship as the official insurance partner and exclusive retirement plan provider for the PGA of America, it was the perfect time. Our relationship management teams and advisers are very excited to go to market as AIG, and we look forward to working with our plan sponsor and consultant partners to help them make the most of their benefit plans and improve retirement outcomes for participants,” he adds.


AIG Retirement Services offers retirement plan participants and sponsors access to technologies that can greatly improve retirement readiness. FutureFIT is AIG’s proprietary participant experience offering a highly personalized digital platform that encourages engagement and action through guidance, education, tools and behavioral science principles. Retirement Pathfinder is an retirement readiness tool that enables employees to sit down with an adviser and map out the future they envision, including real-time answers to key retirement-related questions such as: Can I retire when I plan? Am I currently saving enough? How much monthly income will I need? Will I outlive my savings? These tools are complemented by local advisers who help employees develop holistic financial plans when and where it best meets the employees’ needs, whether at work, at home or online.


AIG Retirement Services provides every generation with information tailored by life stage to address the decisions they are most likely facing, as well as personalized FutureFIT statements that offer a snapshot of how much income they’ll need at retirement and steps they can take to improve their retirement readiness.


In addition, AIG Retirement Services offers data analytics to help plan sponsors drive better employee engagement and improved participant outcomes. This includes SponsorFIT, a comprehensive online experience that transforms how plan sponsors access and interact with their retirement plan, whether it’s creating custom reports, reviewing plan data or trends to turn insights into action, or customizing specific strategies to help improve retirement readiness and financial wellness among employees.


“Our interactive digital programs like FutureFIT, SponsorFIT and Retirement Pathfinder are powerful tools for participants and sponsors, and when coupled with our local advisers, help close the gap between retirement dreams and reality,” Scheinerman said in a press release.


AIG Retirement Services includes the VALIC family of companies which are not changing their legal names: The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company.


The renaming to AIG Retirement Services will be phased in throughout 2019. The way clients work with the company with respect to customer accounts, policies or service will not change as a result of renaming.

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Categories: Financial News

Small Business 401(k) Recordkeeper Redesigns Website - Wed, 03/20/2019 - 18:41

LT Trust, a low-fee, open architecture 401(k) recordkeeping platform for small businesses, launched a redesigned website,


The website offers deeper insight into the 401(k) services offered by LT Trust for 401(k) advisers, employers, and employees, as well as a more intuitive interface.


The new website highlights LT Trust’s dedication to providing a true open architecture 401(k) platform, with detailed sections on what true open architecture is, the importance of investment freedom, and how unlimited investment lineup options can help 401(k) advisers give their clients the best chance of reaching retirement readiness.


In an effort to educate small business owners on the importance of saving for retirement and on 401(k) basics, LT Trust’s new website will also serve as a 401(k) resource center to employers sponsoring 401(k) plans and to their employees.

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Categories: Financial News

Education Can Help Employees Engage in Managing Health Care Costs - Wed, 03/20/2019 - 17:17

Two-thirds (66.7%) of consumers are moderately or highly engaged in their physical wellness and health costs, according to HSA Bank’s Health & Wealth Index for 2019.

The greatest difference in health and wealth engagement occurs for health plan type. High-deductible health plan (HDHP) consumers remain the most engaged group overall. Baby Boomers show the greatest level of engagement in their health and wealth. The tendency of women to consider cost more frequently when purchasing health services and receive more preventative health services leads to a slightly higher engagement score for women than men.

HSA Bank’s survey revealed that nearly one in five consumers are not able to identify their health plan type. The firm notes that plan type influences how consumers access care and pay for health care services because the health insurance plan determines the in-network providers, treatment and prescription coverage, as well as premium, copay, coinsurance, deductible and out-of-pocket costs. Knowing the costs involved in one’s health care is key to being an engaged consumer. Thirty percent of consumers don’t know their premium, deductible or out-of-pocket cost amounts.

HSA Bank encourages plan sponsors to simplify health plan terminology by creating a guide for employees to understand the health insurance plans offered. For each plan, indicate: the type of plan, a definition of that plan, and the key cost-sharing amounts for those plans with definitions and examples of when those costs would be applicable. Make the guide available to employees all year, not just during open enrollment.

In addition, the firm says a health plan comparison tool can accompany the guide and help employees evaluate their plan options. Employees can “do the math” for various health care scenarios: no health care expenses, about the same expenses as last year, and expenses equal to the deductible or out-of-pocket maximum, to determine what their total estimated annual cost would be with each of the plans offered.

For the second year, 86% of consumers believe they made lifestyle changes to improve their health in the past year, and more than 90% receive at least one preventative health exam each year. Women and college graduates are more likely to receive preventative health services. In addition, those enrolled in health savings account (HSA)-eligible HDHPs are likely to receive preventative exams.

HSA Bank notes that many preventative health exams are covered under the Affordable Care Act regardless of the type of health insurance plan. Employees may not be aware of this, so it’s important to educate them about what is covered and encourage them to receive preventative health services by offering incentives like adding funds to their HSAs.

Saving and considering cost are two fundamental aspects of financial responsibility for health care. But, these two practices can be a bit more challenging since many consumers do not have an account specifically designed to help them save for health care, and researching and comparing costs for health care services is still largely up to the individual. The research finds 40% of consumers are not currently saving for health care expenses and 30% are not considering cost.

HSA Bank says employers can improve employee financial engagement in health care by offering a convenient and tax-advantaged account, such as an HSA, to save specifically for health care expenses today and in retirement. The firm suggests employers encourage employees to make regular contributions by implementing a match program similar to a 401(k) plan.

For the index, a survey of more than 2,000 randomly selected U.S. adults (ages 18 and older) was conducted in the fall of 2018. The full report may be downloaded from here.

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Categories: Financial News

Fidelity Faces Second Lawsuit Over Undisclosed Payment Scheme - Wed, 03/20/2019 - 17:00

Participants in several retirement plans served by Fidelity Investments have filed a lawsuit challenging what it claims are undisclosed payments received by Fidelity through its “Funds Network.”

This is the second such lawsuit filed against Fidelity this year. In a statement to PLANSPONSOR about the new lawsuit, Fidelity said, “Fidelity emphatically denies the allegations in this complaint and intends to defend against this lawsuit vigorously. Fidelity fully complies with all disclosure requirements in connection with the fees that it charges and any assertion to the contrary is not only misleading, but simply false. Fidelity has an outstanding platform that provides significant benefit to our customers, including an extensive offering of funds with no transaction fees, the ability to consolidate investments in one place, and industry-leading tools to help find the right funds. We are committed to remaining an open architecture platform that provides access to thousands of funds to all of our customers, but such a broad offering requires substantial infrastructure. For example, Fidelity must support systems and processes needed for recordkeeping, trading and settlement, make available regulatory and other communications, and provide customer support online and through phone representatives. It is costly to maintain this kind of infrastructure, and Fidelity requires the fund firms on our platform to compensate us for those costs. For a small number of those companies, this includes an infrastructure fee that is charged to the fund firms.  The fee is not charged to the plan sponsor or plan participants.”

According to the recent complaint, brought on behalf of similarly situation Fidelity retirement plan customers, since at least 2016, Fidelity has breached its fiduciary duties to the plans by charging mutual fund and other investment companies a substantial fee as a condition for their investment vehicles being offered on Fidelity’s fund platform. The lawsuit alleges that “Although Fidelity refers to this arrangement as an ‘infrastructure’ fee, it is in fact an illegal and undisclosed pay-to-play fee that Fidelity extracts from investment companies that wish to ensure their products are marketed and sold through Fidelity.” The plaintiffs say the fee drives up expense ratios borne by 401(k) plan participants, causing these participants to pay more in fees and receive lower returns on their investments.

The complaint cites a Wall Street Journal report that said Fidelity instructed participating mutual funds not to disclose the fee to any third party, including plan sponsors, plan beneficiaries and the public. The Journal further reported that, based on internal Fidelity documents, the fee represents “0.15% of a mutual-fund company’s industry-wide assets.” According to the plaintiffs, that the fee is calculated by reference to industry-wide assets, rather than assets held only through Fidelity, confirms that the fee bears no meaningful relationship to any “infrastructure” maintenance by Fidelity and constitutes excessive compensation.

According to the complaint, Fidelity has significant leverage to coerce payments from mutual fund complexes interested in offering their funds through Fidelity. The firm also offers its own mutual funds, and the fee enables it to offset losses it has sustained from investors flocking to lower-cost index funds.

The plaintiffs point out that the Department of Labor (DOL) and the Massachusetts Securities Division have each opened investigations into Fidelity’s imposition of the fee.

The lawsuit alleges that Fidelity’s assessment of the fee constitutes self-dealing that violates Fidelity’s fiduciary duties and the Employee Retirement Income Security Act’s (ERISA)’s prohibited transaction rule. Additionally, the fee constitutes indirect compensation to Fidelity that must be disclosed to the plans under ERISA, which mandates written disclosure of any such compensation that Fidelity “reasonably expects to receive” in connection with its services. “Despite its fiduciary and disclosure obligations, Fidelity continues to charge the fee and keeps the amount of the fee payments confidential,” the complaint says.

The plaintiffs seek to enforce the Fidelity defendants’ liability to return all plan losses arising from each breach of fiduciary duty and to restore to the plans all profits gained through the use of the plans’ assets. They also seek to enjoin Fidelity’s imposition of the undisclosed fee.

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Categories: Financial News

Pension Risk Transfers Help Largest DB Plans Reduce PBGC Premiums - Wed, 03/20/2019 - 15:46

Entering Q3 2018, corporate pension plans had broken through post-crisis highs and were on course to notch a second year of strong funded status gains, notes J.P. Morgan’s “Corporate Pension Peer Analysis 2018,” written by Michael Buchenholz, head of U.S. Pension Strategy, Institutional Strategy and Analytics.

But because average funded status declined an estimated 7.2% in Q4 2018, J.P. Morgan’s analysis of the largest 100 corporate defined benefit (DB) plans by assets found only a 1.5% improvement to an 87.2% funded status on average for the year.

Returns for almost every public market asset class fell in 2018, with the exception of extended credit exposures. Agency mortgages/collateralized mortgage obligations (CMOs), commercial mortgage loans (CMLs), bank loans and other securitized assets had small positive returns. “These asset classes are increasingly being utilized as hedge portfolio diversifiers and did their job in 2018,” says Buchenholz.

Generally, the only plan sponsors with positive total returns for the year were those whose fiscal year ended prior to the Q4 market rout. The peer set’s average calendar year return, -3.9%, was the worst performance since a flat 2015 and, before that, the 2008 financial crisis.

De-risking activities

Preceding Q4, rising rates, accelerated contributions, improved funded status and concerns about equity market valuations led to the largest asset allocation de-risking year since 2011. Buchenholz notes that while the pension industry has been steadily increasing fixed income duration every year since at least 2010, data from regulatory filings show that 2018 brought a large shift in actual fixed income allocation. More than 20 of the top 100 plans moved 10% or more of assets into fixed income over the year. J.P. Morgan expects this de-risking trend to continue along with constructing more diversified hedge portfolios and shifting more assets into low-equity-beta alternatives like infrastructure equity.

This shift in fixed income allocation corresponded with lowered return assumptions. The average expected return assumption for plans with 70% or more in fixed income assets was 5.70%.

Buchenholz cites LIMRA research that shows the pace of pension risk transfers continued unabated. One of the major drivers of pension risk transfer activity over the last several years has been the accelerating costs of Pension Benefit Guaranty Corporation (PBGC) premiums. Buchenholz points out that DB plan sponsors have attempted to reduce these outlays by improving funded status, reducing head count, off-loading small balance participants to minimize the variable rate cap, and other “actuarial engineering” transactions, such as the reverse spinoff, which was rebuffed by the PBGC. PBGC data suggests that despite the continued march higher in premium levels, plan sponsors have been successful: The average premium paid as a percentage of assets declined two years in a row, to 16bps for the top 100 plans, and closer to 20bps for all pension plans.

Other topics explored in the review are pension contributions versus other uses of cash and the impact of changes to pension accounting and reporting rules.

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Categories: Financial News
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