Financial News

Some Help for Women’s Retirement Savings Gap May Be Coming - Tue, 07/16/2019 - 18:36

In Goldman Sachs Asset Management’s (GSAM)’s latest issue of Defined Contribution Viewpoints, “With Challenges Come Opportunities,” Mike Moran, GSAM’s senior pension strategist, notes that the retirement savings gap for many Americans is significant, but even more so for women.

Among the reasons Moran cites for this are: women make up approximately 46% of the total labor force but make up 69% of low-wage workers; women make up two-thirds of caregivers in the U.S. and are more likely to leave the workforce or reduce their hours to take on caregiving responsibilities; and women make up 64% of all part-time workers in the U.S., and only 36% of part-time workers have access to a workplace retirement plan. Moran also cites the gender pay gap, and citing a 2016 AARP survey, he says caregivers could lose up to $324,000 in reduced salaries and retirement benefits over their lifetime.

A study from Merrill Lynch in partnership with Age Wave found 70% of women surveyed contend that the financial services industry has traditionally catered to men. Financial planning models have defaulted to men’s salaries, career paths, family roles, life spans and preferences. As an example, the study report says, retirement calculators do not allow for planned or unplanned breaks from the workforce—breaks taken more frequently by women—to raise children or care for aging family members.

The study estimates that women will have earned a cumulative $1,055,000 less than men who have stayed continuously in the workforce, due to the accumulated lifelong pay gap and workforce interruptions. Moran also notes in the GSAM document that gaps in employment and low earnings are directly tied to what an individual receives in Social Security benefits. If an individual has years of no earnings or low earnings, the amount they may receive from Social Security may be lower than if they had worked steadily.

Women in the study also reported a lack of confidence in investing and a desire for more education. The study report suggests women also need more education about longevity, as women, in general, live longer than men.

In GSAM’s Defined Contribution Viewpoints, Moran says the Secure Act’s proposed rule to expand retirement plan eligibility to part-time workers could help women achieve their savings goals, as well as auto-IRA programs, which have been implemented by many states, and proposals to increase the minimum wage.

He suggests targeted education for women, which would include:

  • Defining potential retirement savings gap;
  • Providing guidance on saving earlier in their career and the savings impact of gaps in employment;
  • Discussing longevity risk and living longer in retirement;
  • Promoting early engagement in financial planning; and
  • Illustrating how Social Security is calculated.
Among other things, Moran also suggests women be provided with investment advice services as well as financial planning or wellness tools that include, for example, guidance on budgeting and debt management.

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Categories: Financial News

401(k) Investor’s Move to Fixed Income Continues in June - Tue, 07/16/2019 - 17:50

For the 17th straight month, 401(k) investor trades have favored fixed income over equities, according to the Alight Solutions 401(k) Index.


In June, 17 of 20 trading days favored fixed income. While investors may still have a fear of the markets since the steep correction in December in spite of good equity returns, Alight Solutions suggests they are moving to fixed income in part to preserve their gains.


Trading inflows mainly went to bond (40% or $180 million), stable value (38% or $174 million) and money market (16% or $74 million) funds.  Outflows were primarily from large U.S. equity (48%) or $217 million), company stock (31% or $142 million) and small U.S. equity (15% or $67 million) funds.


Still, average asset allocation in equities increased from 67% in May to 67.7% in June, but new contributions in equities decreased from 67.9% in May to 67.7% in June.


Alight Solutions says the steady stream of trades in one direction made for the heaviest quarter of net trading since the third quarter of 2016. In the second quarter, 53 out of 63 trading days had net trading dollars moving from equities to fixed income. Net transfers for the quarter were 0.61% of balances.


More than half (55%) of trading inflows went to bond funds during the quarter, with 23% going to stable value funds and 14% going to money market funds.

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Categories: Financial News

GWU Lawsuit Over Two Retirement Plans Dismissed - Tue, 07/16/2019 - 15:27

U.S. District Court Judge John D. Bates of the U.S. District Court for the District of Columbia has dismissed a lawsuit alleging fiduciary breaches by George Washington University (GWU), finding the plaintiff had previously waived her right to file such a suit.

GWU argued that Melissa Stanley lacks standing to sue because she signed a general release of claims against the university. Stanley responded that her claims fall into an express exclusion in the general release preserving claims for vested benefits under her retirement plan. The court found that Stanley released her fiduciary breach claims against GWU under the terms of the release.

According to the court opinion, in 2016, for reasons unrelated to the present suit, Stanley entered a confidential settlement agreement with the university in return for valuable consideration.

The agreement states in part: “Ms. Stanley, on behalf of herself and anyone who might claim through her, hereby forever releases . . . the George Washington University . . . from any and all claims . . . of any nature whatsoever . . . (collectively, “Claims”), which Ms. Stanley has or may have or which may hereafter accrue or which may be asserted by another on her behalf, arising prior to her execution of this Agreement. This release includes, without limitation . . . Claims for violation of any federal . . . statute . . . including but not limited to Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the Family Medical Leave Act, the D.C. Family and Medical Leave Act, the Genetic Information Nondiscrimination Act of 2008, and the D.C. Human Rights Act. It is expressly understood that this is a GENERAL RELEASE, and is intended to release claims to the fullest extent permitted by law. Excluded from this General Release is an action by Ms. Stanley to enforce the terms of this Agreement, claims for vested benefits under employee benefit plans, claims that arise after Ms. Stanley signs this Agreement, any right Ms. Stanley has to file a charge with a government agency (although she releases and waives, and agrees not to seek or accept, any monetary payment or other individual relief in connection with any such charge) and any other claim which cannot be released by private agreement as a matter of law.”

Approximately two years after entering the Agreement, Stanley brought a putative class action against GWU under Employee Retirement Income Security Act (ERISA) Sections 502(a)(2) and (a)(3). The complaint alleges that GW breached its fiduciary duties to participants by: causing participants to pay unreasonable recordkeeping and administrative fees; imprudently offering unreasonably expensive and underperforming investment options; imprudently obtaining services from investment funds that required the university to offer participants the funds’ proprietary investment products; and improperly retaining multiple recordkeepers to administer the plans when prudent fiduciaries would have used only one recordkeeper.

GWU moved to dismiss, arguing that Stanley lacks standing because she has released her claims under the terms of the settlement agreement. In opposition, Stanley contended her claims fall into the exclusion in the release preserving “claims for vested benefits under employee benefit plans.” The court previously ordered both parties to submit supplemental briefing on this and other standing questions.

Bates cited case law that says, “Where the language [of a release] is clear and unambiguous, its plain language is relied upon in determining the parties’ intention,” and “the effect of the release can be determined as a matter of law.”

GWU argued that the broad language releasing all claims alleging violations of “any federal . . . statute” plainly covers Stanley’s fiduciary breach claims under ERISA Sections 502(a)(2) and (a)(3). And it argued the exclusion in the release preserving “claims for vested benefits under employee benefit plans” does not apply because that language refers to Section 502(a)(1)(B) claims for vested benefits arising under the terms of the ERISA-governed plans—claims that Stanley concedes she does not bring. Stanley responded first that the clause generally releasing federal claims does not cover ERISA claims because it does not expressly mention ERISA. In addition, she said the carve-out for “claims for vested benefits” plainly preserves fiduciary breach claims brought under ERISA sections 502(a)(2) and (a)(3).

But, Bates found that Stanley has released her claims under the agreement and thus lacks standing to sue. As an initial matter, he says, Stanley’s ERISA claims plainly fall within the language releasing “any and all claims” “for violation of any federal . . . statute.” And in the very next clause, the release goes on to say that “[i]t is expressly understood that this is a GENERAL RELEASE, and is intended to release claims to the fullest extent permitted by law.” Bates says, “The law is clear that a broad and unambiguous release need not list every conceivable cause of action that might come within its terms.”

Bates also ruled that the exclusion in the agreement cannot be read as expansively as Stanley suggested. By its terms, the release carves out only claims for benefits “under employee benefit plans.” Bates points out that the common legal usage of the term “under” is pursuant to, in accordance with, or as authorized or provided by, citing the 1999 case of Davis ex rel. LaShonda D. v. Monroe Cty. Bd. of Educ. Also, quoting 43 Words and Phrases 149–152 (1969), Bates says cases have defined the term “under” as “indicating subjection, guidance or control, and meaning ‘by authority of,’” or “‘by and through the authority of’.” Understood in the context of ERISA, “claims . . . under employee benefit plans” plainly refer to contractual, or “plan-based,” claims of the kind that typically are brought pursuant to ERISA Section 502(a)(1)(B), Bates says. “Indeed, in at least two cases involving similar general releases, a carve-out for claims ‘under the plan’ was interpreted as saving contractual, but not fiduciary breach, claims,” Bates wrote in his opinion.

Because Stanley’s fiduciary breach claims concededly arise under rights conferred by ERISA, not “under [her] employee benefit plans,” Bates continues, they fall outside the plain language of the exclusion in the General Release.

Bates granted GWU’s motion to dismiss the complaint for lack of subject matter jurisdiction.

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Categories: Financial News

Good Returns Move State Pension Funded Status Higher in Q2 - Mon, 07/15/2019 - 17:45

The aggregate funded ratio for U.S. state pension plans increased by 1.4 percentage points during the second quarter of 2019 ending at 73%, according to Wilshire Consulting.


The quarterly change in funding resulted from a 2.6% increase in asset values partially offset by a 0.7% increase in liability values. The aggregate funded ratio is estimated to have increased 6.8 percentage points year-to-date and 1.5 percentage points for the trailing 12 months.


Wilshire says this increase in funded ratio was driven by the estimated 7.5% return on assets and contributions. It notes that, if not for contributions, it estimates that the funded ratio would be 3.1% lower at 69.9%.


The aggregate figures represent an estimate of the combined assets and liabilities of state pension plans included in Wilshire’s 2019 state funding study. The Funded Ratio is based on liabilities, service cost, benefit payments and contributions in-line with Wilshire’s 2019 state funding study.


The assumed asset allocation is 29% in U.S. Equity, 18% in Non-U.S. Equity, 10% in Private Equity, 24% in Core Fixed Income, 6% in High-Yield Bonds and 13% in Real Assets.

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Categories: Financial News

Sponsors Want More Financial Wellness Offerings from Advisers - Mon, 07/15/2019 - 16:42

Defined contribution (DC) retirement plan sponsors would like to see broader financial wellness topics addressed in participant education, according to a survey by Voya Investment Management, titled, “Survey of the Retirement Landscape: Challenges and Opportunities for DC-Focused Advisors.”

In line with this, sponsors are less optimistic than advisers about their participants’ retirement readiness.

“We found that the issue of retirement readiness is more of an issue for plan sponsors and is often an area where they could do more to address the topic with participants,” says Michael DeFeo, managing director and head of retirement and investment only at Voya Investment Management. “On the other hand, advisers are more optimistic, perhaps because they have been able to convince their sponsor clients of how important this is and have provided them with the tools for these conversations. Plan compliance remains a top concern for both advisers and sponsors, but a number of new issues emerged that weren’t on the radar of advisers or sponsors in the past, such as cybersecurity, which will only grow in importance.”

Sponsors are also less tuned in than advisers when it comes to providing help to caregivers of people with special needs. Advisers are more than twice as likely than sponsors to say this is highly important. Sponsors are also less likely to view a higher percentage of participants as caregivers.

“When you consider that, according to the U.S. Census Bureau, one in five workers has a disability, or one in six workers serve as a caregiver to an individual with a disability, you can see how important this is,” DeFeo says.

The survey also found that sponsors are looking for expert guidance on a broader array of issues, including alternative plan design, cybersecurity, financial wellness and special needs caregivers. Sponsors are also behind the curve on using risk-assessment tools to gauge the suitability of investments, and need advisers’ help on this.

The use of target-date funds (TDFs) rose significantly among larger plans, with nearly 60% offering them and one-third that do not offer them now would like to offer them in the future.

Sponsors say the biggest challenge they face is increasing plan participation. They are also focused on fees, matches, investments and performance.

Sponsors rank market volatility as their fifth biggest concern, though advisers rank it as 10th. Sponsors said fiduciary/compliance issues are their fourth biggest issue, but advisers thought it was their first. However, sponsors and advisers agree on the importance of educating plan participants.

Voya’s findings are based on an online survey of 307 sponsors and 204 advisers conducted last December. Brookmark Research Practical Perspectives assisted with the development, execution and analysis of the survey.

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Categories: Financial News

Adidas Sued Over Excessive Fees for 401(k) Participants - Mon, 07/15/2019 - 15:03

Participants in the Adidas Group 401(k) Savings and Retirement Plan have filed a proposed class action lawsuit against Adidas America over the plan’s administrative and investment fees.

According to the complaint, for every year between 2013 and 2017, the administrative fees charged to plan participants were greater than a minimum of approximately 75% of its comparator fees when fees are calculated as cost per participant. And for every year between 2013 and 2017 but two, the administrative fees charged to plan participants were greater than 80% of its comparator fees when fees are calculated as a percent of total assets.

The complaint includes tabular depictions of the Adidas plan’s fees calculated as cost per 401(k) plan participant/beneficiary and as a percentage of the total plan’s assets when compared to a representative group of plans with a participant count from 5,000 to 9,999 and plans with a total value of plan assets greater than $500 million. It shows the total difference from 2013 to 2017 between Adidas’ fees and the average of its comparators based on total number of participants is $6,242,659. The total difference from 2013 to 2017 between Adidas’ fees and the average of its comparators based on plan asset size is $6,078,234.

The lawsuit contends that the plaintiffs had no knowledge of how the fees charged to and paid by Adidas plan participants compared to market norms.

The participants also allege the Adidas plan’s fees were also excessive when compared with other comparable mutual funds not offered by the plan. A chart in the complaint shows the 3-year return of investments offered by the Adidas plan compared to 3-year returns of comparable investments.

“By selecting and retaining the Plan’s excessive cost investments while failing to adequately investigate the use of superior lower-cost mutual funds from other fund companies that were readily available to the Plan or foregoing those alternatives without any prudent reason for doing so, Adidas caused Plan participants to lose millions of dollars of their retirement savings through excessive fees,” the lawsuit alleges.

The lawsuit suggests that prudent fiduciaries exercising control over administration of a plan and the selection and monitoring of designated investment alternatives will minimize plan expenses by hiring low-cost service providers and by curating a menu of low-cost investment options.

It argues that the funds chosen by Adidas from which plan participants may elect to invest are actively managed, which in significant measure results in the higher administrative fees. The plaintiffs suggest Adidas could have offered passively managed funds as an alternative to plan participants, which would have resulted in significantly lower administrative fees yet generated comparable returns.

They claim that it is understood in the investment community that passively managed investment options should either be used or, at a minimum, thoroughly analyzed and considered in efficient markets such as large capitalization U.S. stocks. The lawsuit contends this is because it is difficult and either unheard of, or extremely unlikely, to find actively managed mutual funds that outperform a passive index, net of fees, particularly on a consistent basis.

“To the extent fund managers show any sustainable ability to beat the market, the outperformance is nearly always dwarfed by mutual fund expenses. Accordingly, investment fees are of paramount importance to prudent investment selection, and a prudent investor will not select higher-cost actively managed funds unless there has been a documented process leading to the realistic conclusion that the fund is likely to be that extremely rare exception, if one even exists, that will outperform its benchmark over time, net of investment expenses,” the complaint states.

The participants allege Adidas’ decision-making, monitoring and soliciting bids from investment funds was deficient in that it resulted in almost no passively managed funds options for plan participants, resulting in inappropriately high administrative plan fees.

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Categories: Financial News

Retirement Industry People Moves - Fri, 07/12/2019 - 18:31

Art by Subin Yang

QMA Announces Chief Business Officer

QMA has named Linda Gibson to the newly created role of chief business officer, the latest step in the firm’s continued global expansion. QMA is the quantitative equity and global multi-asset specialist of PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc.

Gibson will work closely with QMA’s chairman and CEO, Andrew Dyson, to advance QMA’s strategy including the provision of customized global solutions across the risk-return spectrum to clients, while leveraging the full scale of PGIM. Gibson will be based out of QMA’s headquarters in Newark, New Jersey, and oversee finance, business planning and management, competitive intelligence, project management, human resources (HR), operational risk and cross-functional initiatives.

“Linda brings a wealth of knowledge to QMA with her nearly 30 years of experience across all aspects of operating a large global company in the asset management industry,” says Dyson. “Her hire is proof that QMA’s innovative, client-focused culture continues to attract top-notch talent to complement our existing management team.”

“I’m thrilled to join QMA at such a pivotal time for the firm,” says Gibson. “I’m looking forward to working with the team to drive the strategy to the next level as we solidify QMA as a leading global player across the full range of quantitative strategies.”

Gibson joins QMA with nearly 30 years of investment management and financial services business experience, including 18 years at BrightSphere Investment Group, a public multi-boutique asset manager. Her roles there spanned a wide range of front and back office executive functions, including management of legal, compliance, operations, global business development and human resources. As part of Old Mutual’s executive team, Gibson led several high-profile initiatives such as transforming affiliates through product development, product line extension and lift-outs; creating a global, centralized distribution team; and developing strategy to take the company public.

Gibson has a variety of board experience, including serving at the chairman and board level for investment firms, trust vehicles and UCITS Funds within Old Mutual. She has also held several officer-level positions on multiple mutual funds. Gibson holds a law degree from Boston University School of Law and a bachelor’s degree in mathematics from Bates College.

Nationwide Appoints Leaders to Financial Services Business

John Carter has been named as the president and chief operating officer-elect of Nationwide’s financial services business lines, effective immediately. Carter succeeds Kirt Walker, who will become Nationwide’s next chief executive officer in October. Reporting to Walker, Carter will oversee the company’s retirement plans, life insurance (individual, business and corporate-owned), annuities and mutual funds business operations.

“John brings more than 30 years of financial services industry experience to this role,” says Walker. “Throughout his career, he has demonstrated outstanding leadership, both in terms of results and people. John is a strong advocate for the retirement security of America’s workers—helping them prepare for and live in retirement. We look forward to achieving continued success under his guidance.”

Carter joined Nationwide Financial in 2005 as president of the Nationwide Financial Sales and Distribution organization, responsible for leading sales of private-sector retirement plans, life insurance, annuities and mutual funds. In 2013, he was named president of Nationwide’s retirement plans business.

Prior to joining Nationwide, he held executive positions in financial services at Prudential Financial, UBS and the former Kidder Peabody.

“Nationwide benefits from a strong bench of executive leaders,” says retiring CEO Steve Rasmussen. “Kirt and John will work together to facilitate a smooth transition and maintain the strong growth momentum we’ve built over the past several years. We look forward to achieving continued success under John’s leadership, building on Nationwide’s mutual heritage, financial strength and culture of caring.”

Carter is a graduate of the University of Missouri where he earned a bachelor’s degree in business administration and finance.

Former Financial Services CEO Joins Custodia’s Advisory Council

Custodia Financial has appointed Roger Ochs, previous CEO of HD Vest, to its Strategic Advisory Council (SAC). In his role on the SAC, Ochs will provide guidance and subject matter expertise on corporate matters, capital markets, and corporate governance.

In addition to serving on the SAC, Roger is a member of the board of eSecLending, a provider of securities financing, collateral and liquidity services; chairman of the Board for Door, Inc., a residential real estate brokerage firm; a member of Parthenon Capital’s Industry Advisor Council; and a member of Securities Industry Financial Markets Association’s (SIFMA) Advisors Council. He is also a member of the Texas and Dallas bar associations.

“Roger brings a unique perspective to our Strategic Advisory Council,” says Tod Ruble, CEO of Custodia Financial. “First, he’s a true entrepreneur. His experiences growing HD Vest from a smaller firm into a nationally-recognized, technology-driven organization couldn’t be more relevant to Custodia. In addition, he knows the accounting and audit world, and an important benefit of [Retirement Loan Eraser] RLE is mitigating audit risk.”

“Loan defaults represent not just a retirement security and plan fiduciary problem, but also a significant audit risk, particularly given recent IRS changes to plan sponsor reporting. I see Retirement Loan Eraser as a win-win for employees and the companies they work for,” says Ochs.

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Categories: Financial News

Legislative Proposals Could Help Retirement Income Adequacy: EBRI - Fri, 07/12/2019 - 17:34

Since 2003, the Employee Benefit Research Institute (EBRI) has used its Retirement Security Projection Model (RSPM) to evaluate retirement income adequacy on a national basis. EBRI’s use of RSPM typically is confined to analysis of the current retirement system. The EBRI Retirement Savings Shortfalls (RSS) give the size of the deficits that households are simulated to generate in retirement.

Recently, EBRI used its model to simulate the effect on retirement income adequacy from certain legislative proposals, including:

  • Requiring retirement plans for all but the smallest employers,
  • Covering part-time employees,
  • Introducing auto portability,
  • Providing the option of guaranteed income for life from 401(k) and 403(b) plans,
  • Allowing open multiple employer plans (MEPs), and
  • Modifying required minimum distributions.

Requiring retirement plans for all but the smallest employers

In one scenario, EBRI assumes all employers are required to offer defined contribution (DC) plans, except those with fewer than 10 employees. Its analysis assumes all new plans would be auto-IRAs with a 6% default contribution rate that escalates by 1% per year until it reaches 10% of pay. Based on experience observed from OregonSaves, a 30% opt-out is assumed for all new eligibles.  As expected, the youngest age cohort (35 to 39) would have the largest benefit—a 15.2% decrease in retirement deficit—since they would be exposed to the enhanced coverage for a longer period of time. Those in the 40 to 44 age cohort are simulated to have a 12.4% reduction in deficit, and those ages 45 to 49 are simulated to have a 10.3% reduction in deficit. Cohorts older than 50 are also simulated to have reductions in retirement deficits; however, the reductions are less than 10%.

Changing the scenario to have a cap on auto-escalation of 15%, the youngest cohort is simulated to have a 17% reduction in retirement deficit. Those in the 40 to 44 age cohort are simulated to have a 14.2% reduction in deficit, while those ages 45 to 49 are simulated to have an 11.7% reduction in deficit. Again cohorts older than 50 are simulated to have a reduction in retirement deficit less than 10%.

Covering part-time employees

Using its assumptions but including coverage of part-time employees, EBRI found the youngest cohort is simulated to have a 17.3% reduction in retirement deficit. Those in the 40 to 44 age cohort are simulated to have a 14.5% reduction in deficit, while those ages 45 to 49 are simulated to have an 11.9% reduction in deficit. Cohorts older than 50 are simulated to have reductions in retirement deficits that are less than 10%.

Introducing auto portability

EBRI explains that auto portability is designed to retain DC assets within the retirement system and reduce “leakage” from cashouts upon employment termination. When auto portability is in place, the youngest cohort is simulated to have a 27.1% reduction in retirement deficit, while those in the 40 to 44 age cohort are simulated to have a 23.5% reduction in deficit. Those 45 to 49 are simulated to have a 19.8% reduction in deficit, and those in the 50 to 54 age cohort are simulated to have a 14.7% reduction in deficit. Those ages 55 to 59 are simulated to have a 10.3% reduction in deficit. Cohorts older than 60 are also simulated to have reductions in retirement deficits; however, the reductions are less than 10%.

Providing the option of guaranteed income for life from 401(k) and 403(b) plans

EBRI found that having half of all 401(k) or 403(b) plan distributions taken in the form of guaranteed income for life at age 65 actual increases the retirement deficit for those who die prior to age 85. Those who die five years into retirement (by age 70) are projected to have a $74 average increase. The average increase in deficits for those who die between 70 and 75 is $876. The increase gradually scales down to $617 for those who die between ages 75 and 80 and to $532 for those who die between ages 80 and 85.

For those who die after age 85, however, the purchase of a single premium immediate annuity with 50% of the 401(k) or 403(b) account balance provides reductions in average retirement deficits. For those who die between ages 85 and 90, the average retirement deficit decreases by $1,014. The reductions in average retirement deficits increase substantially for those who die at later ages: $1,831 for those who die between 90 and 95, $3,140 for those who die between 95 and 100, and $4,027 for those who die after age 100. Overall, the impact of using 50% of the 401(k) or 403(b) balance to buy a single premium immediate annuity at age 65 is to decrease retirement deficits by $985.

Allowing open multiple employer plans (MEPs)

The potential impact of open MEPs on retirement income adequacy is heavily dependent upon plan sponsor adoption of such retirement vehicles, EBRI concedes. Rather than make assumptions about adoption, EBRI models a scenario in which all workers currently ages 35 to 39 benefit from the availability of an open MEP for all years during which they might not be eligible for another type of employer-sponsored retirement plan. Workers are divided into four quartiles according to their lack of eligibility. For example, those in the lowest “lack of eligibility” quartile are workers who are eligible for an employer-sponsored retirement plan for all future years in their working career as well as those who lack only a few years of eligibility. 

The percentage reduction in retirement deficits from the introduction of open MEPs for these individuals is de minimis (3.5%), EBRI says. However, the second quartile is simulated to have an 11.7% reduction in retirement deficit from open MEPs, while the third quartile is simulated to have a 23.2% reduction. Individuals in the highest quartile (where the most lack eligibility) are simulated to have a 26.7% reduction in average retirement deficit.

Modifying required minimum distributions


It has been proposed to raise the age for taking required minimum distributions (RMDs) from 70 ½ to 72. EBRI found an ad hoc increase in life expectancy of 5% with no increase in the age provides relatively small decreases in IRA distributions—0.2% for total balances and 0.3% for non-Roth balances.

However, when the 5% increase in life expectancy is combined with a one-year increase in the RMD starting age, to 71 ½, the decreases in IRA distributions are 2.7% (total) and 3.2% (non-Roth). In a scenario in which the RMD age is increased to 72 ½, EBRI found the decreases in IRA distributions are 5.3% (total) and 6.5% (non-Roth). EBRI also provides an analysis in which the ad hoc increase in life expectancy is 10%.

“By quantifying the impact of potential changes, EBRI allows plan sponsors, providers and policymakers to better understand their ramifications. This, in turn, can lead to better decision-making that affects the lives of millions of American workers,” EBRI concludes in its Issue Brief about the research.

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Categories: Financial News

DOL Secretary Announces Resignation - Fri, 07/12/2019 - 15:15

Labor Secretary Alexander Acosta is resigning from the Department of Labor (DOL) following controversy over his role in financier Jeffrey Epstein’s plea deal for crimes committed when Acosta was a U.S. attorney in Florida.

Epstein was required to register as a sex offender following two state prostitution charges in 2008 and ended up serving a custodial sentence of 13 months in jail, where he was allowed out on during the day on work release. He was also required to pay restitution to those victims identified by the FBI.

Acosta had stated his support of the plea deal since 2008, even as further evidence was released after the outcome.

“Some may feel that the prosecution should have been tougher,” Acosta said in a 2011 letter to the Daily Beast, according to the Washington Post. “Evidence that has come to light since 2007 may encourage that view… I supported the judgement then, and based on the state of the law as it then stood and the evidence known at the time, I would support the judgement again.”

However, when Acosta spoke with CNBC recently, he expressed frustration over the lack of sentence time Epstein received. “The work release was complete BS,” Acosta said. He told reporters his office had meant for Epstein to complete his full sentence, at 18 months, in prison.

Even as Acosta faced mounting pressure from members of the Left Party to resign these past days, Washington Free Beacon editor-in-chief Matthew Continetti said Democrats may regret their demands for his resignation. “Democrats might end up regretting calling for Acosta’s resignation because it is true that many conservatives feel that Acosta has been slow rolling some of the labor deregulation agenda of this president,” Continetti said. “So you might get a replacement for him should he resign who would actually be much more forward leaning in terms of deregulating the labor market.”

President Donald Trump has stated that Deputy Labor Secretary Patrick Pizzella will take Acosta’s place in an acting capacity, according to CNBC. Pizzella was nominated to serve as deputy secretary by President Trump, and was sworn in by Acosta in April 2018. Previously, Pizzella had acted as a member of the Federal Labor Relations Authority (FLRA) under former President Barack Obama, and as a member of the Board of Directors of the Overseas Private Investment Corporation, under past President George W. Bush.

Acosta stated his resignation will be effective one week from the announcement.

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Categories: Financial News

Employers Encouraged to Offer Multi-Dimensional Wellness Programs - Thu, 07/11/2019 - 18:27

Employers are broadening their well-being programs to encompass many aspects of life, according to a new white paper from Optum and the National Business Group on Health, titled, “Workplace Well-Being and the Employee Experience.”

They are now considering physical, social, financial, community and mental health, all in an effort to help their workers become more productive at work. The groups define physical health as the ability to manage health conditions, and social health as having feelings of social belonging.

They define financial health as a person’s ability to manage their current and future economic life, and community health as having a connection with the area in which they live. Finally, mental health, in their estimation, is the presence of positive emotions and moods.

Optum and the National Business Group on Health surveyed 2,000 employees on what well-being benefits they were offered by their employer and how these benefits affected them.

The employee insights showed a “profound interplay among the dimensions of financial, physical and mental health, as well as community and social health,” the white paper says. “Equally as important, they also provide a roadmap for employers, suggesting practical, new opportunities to improve the employee experience.”

Some of the key insights were that approaching well-being from multiple angles improves employee productivity, loyalty and well-being. The health care offered should be of a high quality and in a convenient location. Employees’ desire is first and foremost for their employer to help them with their financial health, followed closely by their mental health. Finally, employers should consider investing in the health of the communities surrounding their workplace locations as this has a positive impact on employees- well-being.

The survey found that 38% of employees who are not offered any king of well-being program say their overall well-being is either excellent or good. For those who are offered between one and three well-being programs, this jumps to 43%, and for those offered either four or five well-being programs, the percentage rises to 58%.

“In a world of well-being, more is better: the greater the number of dimensions addressed, the higher the levels of reported overall well-being,” the white paper says. “Indeed, the survey shows the sweet spot is employer investment in four to five dimensions. Nearly nine out of 10 employees who report their employer supports four to five dimensions say their job performance is excellent. Employees report lower levels of well-being as the number of dimensions addressed declines.”

Among those who are offered either four or five well-being programs, 77% have either an excellent or very good impression of their employer. Conversely, this is true for only 50% of those who are offered fewer, or no, well-being programs. They also are more likely to say their job performance in the past two years has been excellent (88% versus 81%) and that their overall well-being is excellent or very good (58% versus 42%).

Asked what kinds of well-being programs their employer offers, 74% say physical health, followed by mental health (71%), financial health (61%), social health (36%) and community health (34%).

Asked what kinds of well-being programs they would like to see their employer offer, the responses were: financial health (32%), mental health (27%), physical health (17%), social health (6%) and community health (5%).

By financial health, the groups say, employers should address a person’s entire financial issues, not just retirement. Asked what kinds of financial topics their employers are addressing, employees said retirement (69%), maximizing health savings accounts (HSAs) (29%), lowering health care costs (21%), finding resources for child care needs (21%), budgeting (17%), addressing transportation costs and needs (15%), accessing earned wages before payday (13%), managing student loan debt (12%) and addressing housing costs (9%). Asked what financial issues they would like their employer to address, employees said health care and prescription costs (34%) and housing (26%).

The survey found that employees between the ages of 55 and 64 care the most about physical health, while younger employees are more focused on mental and social health.

Asked what kinds of mental health issues their employer is addressing, participants said: substance abuse (41%), access to quality mental health care (40%), managing stress (40%), mental health stigma awareness (24%), mindfulness (21%), resiliency (20%), burn-out at work (19%), caregiving (17%) and sleep (15%).

As for what kinds of community issues their employer addresses, 56% said charitable giving campaigns, volunteer opportunities (43%), initiatives to improve either the health or the safety of the community (25%), monetary support for community initiatives (24%) and paid time off for volunteering (24%).

Employees said that their employers’ support for social health is low, with only 35% saying their employers support collaboration, improving workplace relationships (35%), socialization (34%) and helping them improve relationships at home or outside of work (20%).

In conclusion, the paper says, employers have many “opportunities to increase employee well-being and experience at work.”

The findings in the paper are based on a survey of 2,210 employees between the ages of 18 and 64 conducted in 2018.

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Categories: Financial News

Investment Product and Service Launches - Thu, 07/11/2019 - 18:10

Art by Jackson Epstein

Man Group Releases ESG Analysis Tool

Global active investment management firm Man Group has launched a proprietary, dashboard-style tool enabling investment teams to monitor non-financial risks and analyze environmental, social and governance (ESG) factors across single issuers, portfolios and indices. Referred to as Man Group ESG Analytics, the tool also features stewardship data, offering real-time overviews of a portfolio’s proxy voting performance and statistics.

Man Group ESG Analytics was developed internally under the direction of Man Group’s responsible investment team, with close collaboration between Man Numeric (the firm’s fundamentally driven, quantitative investment engine) and Man Group’s risk and performance analysis team and stewardship team. The tool is available to all portfolio management teams across Man Group’s investment engines and can be applied across asset classes, as well as to both traditional and alternative investment strategies.

The dashboard embeds a proprietary ESG scoring system derived from Man Numeric’s data research. The system applies advanced data science and quantitative analysis to break down multi-vendor ESG datasets, allowing the tool to generate a holistic score for the sustainability profile and impact of a business. Datasets from three leading ESG data providers—Sustainalytics (ESG scoring and controversies data), MSCI (ESG scoring), and Trucost (environmental data)—are also integrated into the platform, allowing portfolio managers to evaluate a wide variety of company-specific ESG metrics.

The dashboard provides investment teams with the ability to drill-down into this data at a company, portfolio and index level to further enhance analysis. A built-in alert function with the ability to set limits on changes in individual or benchmark scores allows portfolio managers to closely monitor and track movements. Additionally, the dashboard displays voting activity, reinforcing fund-level engagement and active ownership by Man Group’s investment teams.

“One of the main challenges that both quantitative and discretionary managers face when incorporating [responsible investing principles] into their investment processes is that ESG data is messy and subjective. This requires a different approach to understanding the variables than with traditional factors,” says Rob Furdak, co-chief investment officer at Man Numeric. “Man Numeric’s ESG team has undertaken a stringent process to understand the unique qualities of this data and develop a multi-source, industry-based view of ESG. We are excited by the launch of the ESG Analytics tool and the opportunities this presents for us as a firm.”

Prudential Capital Group Renames Global Investment Business

Prudential Capital Group has changed its global investment business to PGIM Private Capital.

 “Adopting PGIM Private Capital reinforces our connection to the global PGIM brand and underscores the types of investment products we offer institutions seeking exposure and attractive returns through private debt and mezzanine investments,” comments Allen Weaver, managing director and head of PGIM Private Capital.

PGIM Private Capital’s global origination network will adopt Prudential Private Capital (Pricoa Private Capital outside the Americas) as its new name. In the first half of 2019, $5.1 billion of senior debt and junior capital was provided to 100 middle-market companies and projects worldwide.

Schwab Expands ETF OneSource Program

Schwab has added 25 exchange-traded funds (ETFs) to Schwab ETF OneSource, the firm’s commission-free ETF program. Clients will now have access to 539 ETFs covering 83 Morningstar Categories with $0 online commissions. Schwab ETF OneSource has no enrollment requirements, no early redemption fees and no activity assessment fees.

“In Schwab’s 2019 ETF Investor Study, investors said a broad selection of ETF categories and no additional fees are critical differentiators when evaluating commission-free ETF programs,” says Kari Droller, vice president of third-party mutual fund and ETF platforms at Schwab. “From day one, our priority with the Schwab ETF OneSource program has been to provide a broad lineup of commission-free ETFs that spans a variety of asset classes and index weightings to make it simple for investors and advisers to build highly diversified, commission-free ETF portfolios.”

Schwab ETF OneSource offers commission-free ETFs from 15 leading providers: Aberdeen Standard Investments, ALPS, DWS Group, Direxion, Global X Funds, IndexIQ, Invesco ETFs, iShares ETFs, John Hancock Investment Management, J.P. Morgan Asset Management, PIMCO, State Street Global Advisors SPDR ETFs, USCF, WisdomTree and Charles Schwab Investment Management. The 83 Morningstar categories covered on Schwab ETF OneSource represent more than 98% of ETF assets in the industry.

The 25 new ETFs are from seven providers and cover a range of Morningstar categories including Muni National Intermediate, Consumer Defensive, and Consumer Cyclical. 

AllianceBernstein and Wilmington Trust to Offer CITs for DC Clients

AllianceBernstein L.P. and Wilmington Trust will partner to provide collective investment trusts (CITs) for defined contribution (DC) clients, supported by administrative and custody services.

“CITs have gained traction in defined contribution plans due in large part to their ability to offer relatively low costs, flexible pricing and operational ease, which uniquely positions them to help today’s plan sponsors effectively fulfill their fiduciary duties,” says Jennifer DeLong, managing director and head of defined contribution at AllianceBernstein. “Our partnership with Wilmington Trust, a leader in the industry for more than 70 years, is a testament to our commitment to provide investment services that meet the evolving needs of our clients.”

Wilmington Trust is highly active in the CIT market with over $38 billion in assets across funds managed by more than 50 sub-advisers, with products made available on more than 35 trading platforms.

Hartford Funds Launches AARP Retirement Fund

Hartford Funds has introduced the Hartford AARP Balanced Retirement Fund. Sub-advised by Wellington Management Company LLP, the Hartford AARP Balanced Retirement Fund seeks to provide long-term total return while reducing downside risk and the impact of inflation on retirement accumulations. The new fund expands Hartford Funds’ lineup of multi-strategy mutual funds.

 “For investors approaching or already in retirement, it’s critical to develop a well-diversified portfolio that seeks to protect purchasing power and principal while maintaining opportunity for growth,” says Vernon Meyer, chief investment officer of Hartford Funds. “We are thrilled to leverage Wellington’s investment platform to develop a multi-asset solution that offers investors the potential for both capital accumulation and loss mitigation during the retirement and near-retirement years.”

The fund will primarily invest in a broad range of equity and equity-related securities, debt securities, structured products, derivatives, money market instruments, and other investments, including other mutual funds and exchange-traded funds (ETFs). The fund’s investment strategy is intended to generate real total return, with an emphasis on downside mitigation for investors in or near retirement, who have less tolerance for significant declines in the market, but also must generate real returns to meet spending needs.

Christopher Goolgasian, managing director and portfolio manager at Wellington Management, will serve as the fund’s portfolio manager. 

“Financial security in retirement has always been at the heart of AARP’s social mission,” says John Larew, senior vice president, branded products, AARP Services Inc. “Employees nearing retirement need investment options designed to meet their specific needs. Many have saved and invested for decades and are now asking themselves, ‘What do I do with my money now, with retirement just around the corner?’ Hartford Funds has designed this product to help address that need.”

FTSE Russell Creates Climate Risk Government Bond Index 

FTSE Russell has launched a government bond index to adjust index weights based on each country’s preparedness and resilience to climate change risk. The FTSE Climate Risk-Adjusted World Government Bond Index (Climate WGBI) is derived from the FTSE World Government Bond Index, a widely used benchmark of investment-grade sovereign bonds of 22 developed economies. The index will be available to investors going forward as a portfolio performance measurement tool as well as for the basis of an investment portfolio.

The bond index uses climate risk modelling developed by Beyond Ratings, am ESG analytics provider. The higher the index-weighted Climate Score, the lower the climate risk exposure. The objective of the index is to reduce climate risk compared to the standard FTSE World Government Bond index (WGBI) while minimizing tracking error. Each country is assessed by three core climate risk pillars: Transition risk; Physical risk; and resilience.

According to FTSE Russell, transition risk represents the impact on the country and its economy from efforts to mitigate climate change, encompassed by Greenhouse Gas (GHG) emission reduction needed to meet the Paris Agreement target of less than 2 degrees Celsius of global warming and the recent trend of historical carbon emissions. Physical risk represents the climate-related risk to the country and its economy from the physical effects of climate change, and resilience represents a country’s preparedness and actions to cope with climate change.

 “Climate change and the efforts required to mitigate its impact carry numerous risks that have not historically been incorporated into investment grade government debt,” says Rodolphe Bocquet, CEO at Beyond Ratings. “However, these issues have a direct and long-term impact on government finances, with projected expenditure on climate mitigation expected to reach almost $1 trillion a year for the next 30 years according to the United Nations’ Intergovernmental Panel on Climate Change. Beyond Ratings has developed a quantitative and transparent approach to climate risk modelling and assessment that will help investors mitigate these risks.”

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Categories: Financial News

Analyst Sees ‘Moral Hazards’ in GASB Pension Accounting Standards - Thu, 07/11/2019 - 17:55

The National Conference on Public Employee Retirement Systems (NCPERS) has published a detailed new white paper, “The Case for New Pension Accounting Standards.”

Tom Sgouros, a research associate in the computer science department at Brown University and former senior policy adviser to the Rhode Island General Treasurer, authored the peer-reviewed white paper for NCPERS. He argues the existing accounting rules for public defined benefit pension funds as formulated in the various statements of the Governmental Accounting Standards Board (GASB) “provide a misleading picture of the health of a pension system and a poor guide to decisions by policy makers.”

According to Sgouros, the GASB rules furthermore create “a degree of moral hazard for stakeholders,” whereby the consequences of important decisions are not felt for years, possibly decades, after the decisions are made.

“Following the rules closely means hiding some risks and exaggerating others, attending to unimportant details while ignoring important assets, and basing momentous decisions about the distant future on layers of guesses while delaying the consequences of poor decisions until the decision makers are long gone,” Sgouros says. 

As outlined in the white paper, the current GASB accounting approach involves calculating a net pension liability by subtracting the assets on hand from the estimate of total liability. Plan sponsors must present the net pension liability in a statement of net position for the employer, and future contributions cannot be counted against current liabilities. This means effectively that the promise of future payments has no value.  Other elements of the GASB approach include a limitation on the discount rates used to calculate liabilities, and the fact that all assets are counted as equal in value if their present market values are equivalent. Under this system, the funded ratio becomes the key indicator of pension health, and there is essentially no acknowledgement of the economic strength or weakness of the plan sponsor in measuring the health of the plan.

Looking across these various elements, Sgouros presents a series of alternative approaches that he believes could be more effective. He emphasizes that the goal of these recommendations is the same as the goal of the GASB rulemaking committees—to preserve the valuable institution of the pension plan, and to make clear how best to manage these plans so as to keep them strong and solvent for this and future generations of public employees and citizens.

On the point of calculating a net pension liability by doing a simple subtraction of the assets on hand from the estimate of total liabilities, Sgouros suggests this approach is inherently flawed in that it combines low-accuracy numbers on the liability side with high-accuracy numbers on the assets side. Plan sponsors should not expect to get anything but a very rough estimate of their funded status in this manner, he argues, and as such, this approach is unsuitable as a basis for making important decisions.

“The calculation is a useful exercise for any system, but differences cannot be precise, so important decisions must not depend on that precision as they currently do,” Sgouros writes.

Sgouros argues that pension-sponsoring employers simply should not be required to include pension liability in their statement of net position.

“As we see in case after case (Detroit, Stockton, Connecticut, etc.), including this vast but very uncertain number in the net position increases pressure on policy makers and guarantees it is used inappropriately to make policy decisions,” Sgouros suggests. “It is not a debt known with anywhere near the precision of accounts payable, for example, and combining the two merely creates inaccurate financial statements.”

While not all future contributions should be counted against current liabilities, Sgouros says, some future contributions should be. His argument is based on the importance of accounting clarity.

“A public pension system is an ongoing, permanent, enterprise,” he writes. “Employees who support their predecessors will have successors to support them in turn. Introduction of a standard cost is an alternative way to provide the necessary clarity while responsibly allowing future payments to pay for the future retirement benefits of current employees.”

According to Sgouros, it would further be wise for the system to revert to the requirement to divulge discount rate in use when liability estimates are made, rather than prescribing discount limitations.

“Decreasing the importance of the total liability calculation makes the chosen discount rate less important,” he writes. “Estimates of future liabilities must be made responsibly, but the discount rate limitations effectively increase the size of the liability, increasing the pressure to adopt risky funding policies.”

The white paper suggests that plan sponsors’ use of “normal costs” in allocating 100% of the projected cost of a single individual’s pension to that specific individual leaves them prone to making errors when assessing the financial position of the entire system.

“Normal costs cover a fraction of a single individual’s pension expense, while a standard cost covers the remaining expense of keeping the system running,” the white paper explains. “Normal costs are estimates, prone to errors. By introducing a standard cost to cover part of the expense of maintaining the system, the accounting can accommodate the collective nature of a pension system and provide estimates of the whole system cost with greater confidence.”

Sgouros then suggests that asset values should be weighted in inverse proportion to their risk. The current standards require that all assets are counted as equal in value if their present market values are equal.

“It is almost tautologically true that a fund with a risky capital structure is likely to be unable to cover its liabilities even if the current value of the assets equals the value of the liabilities,” Sgouros writes. “This is precisely what it means to have a risky capital structure. Funds should be evaluated with risk at the forefront, not tucked inside an estimated rate of return.”

Sgouros concludes by arguing that the use of a “depletion date estimate using risk-weighted assets” should become the key method for indicating the fiscal health of a public pension—and that the economic strength of a plan sponsor is actually very important to understanding whether a pension system is in crisis or not.

The full text of the analysis is available for download here.

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Categories: Financial News

New HSA Platform from HSAgateway - Thu, 07/11/2019 - 16:19

HSAgateway has created a health savings account (HSA) platform to make it easier for both employers and workers to use HSAs. The platform guides an individual through their initial health care saving and spending decisions while helping to craft an investment approach designed to meet their unique needs.

HSAgateway says it designed the platform because many workers do not understand how to use HSAs.

“HSAgateway recognizes the unparalleled value that retirement advisers and benefits consultants bring to these important financial decisions,” says Jamie Greenleaf, founder and principal at HSAgateway. “We are pleased to partner with these professionals to offer an HSA solution that was built by advisers, for advisers.”

The solution begins with an online tool to help individuals quantify the value of their high-deductible health care plan. It helps them to see the effects of their health care decisions both in the present and in the future. It then helps them select investments for their HSA, offering users funds from BlackRock, Franklin Templeton, Lord Abbett, MFS Investment Management, State Street Global Advisors and The Capital Group American Funds.

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Categories: Financial News

PBGC Updates ERISA Title IV Determination Instructions - Thu, 07/11/2019 - 16:12

The Pension Benefit Guaranty Corporation (PBGC) this week released a new form and related instructions for fiduciaries requesting determination about whether their retirement plan is covered under Title IV of the Employee Retirement Income Security Act (ERISA).

Title IV of ERISA governs the plan termination insurance program that covers defined benefit pension plans. Among other elements, Title IV of ERISA is used to determine liability for PBGC termination premiums.

The PBGC says it released the form and instructions after receiving approval from the Office of Management and Budget (OMB), and that the form was created to streamline and simplify the coverage determination process. The instructions explain that in limited circumstances, under a one-year pilot program, employers may also use the form to request an opinion letter about whether a plan in the process of being created is likely to be covered by PBGC.

According to the PBGC, the four plan types for which coverage determinations are most frequently requested are church plans as listed in Section 4021(b)(3) of ERISA; plans that are established and maintained exclusively for the benefit of plan sponsors’ substantial owners as listed in Section 4021(b)(9); plans established and maintained by professional services employers, as listed in Section 4021(b)(13) that, since September 2, 1974, have covered no more than 25 active participants; and Puerto Rico-based plans within the meaning of Section 1022(i)(1) of ERISA.

A number of DB plans that have been determined to qualify for church-plan status by the IRS have had that status challenged in lawsuits. But, the PGGC tells PLANSPONSOR, the new form and instructions do not tie to the lawsuits, and the purpose of the coverage form is simply to ease the process by which people can make a request for a coverage determination.

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Categories: Financial News

House Committee Advances Bill to Establish Union Pension Lifeline Program - Wed, 07/10/2019 - 19:20

The Ways and Means Committee of the U.S. House of Representatives marked up and voted along party lines to advance a new bill formally titled the Rehabilitation for Multiemployer Pensions Act, setting the stage for full floor consideration and the amendment process.

The legislation is also colloquially known as the Butch Lewis Act, after the former president of Teamsters Local 100. Lewis died in December 2015, following years of advocacy on the union pension funding issue. He is survived by his wife, Rita Lewis, who has continued to work directly with Congressional Democrats on this issue.

As passed by the committee, the act would provide funds for 30-year loans and new financial assistance, in the form of grants, to financially troubled multiemployer pension plans. As detailed in the text of the legislation, the program is designed to “operate primarily over the next 30 years.”

Financially stressed multiemployer pension plans of the type sponsored by many unions would apply for both the loan and grants jointly. Certain plans in the direst financial situations would be required to apply. The loans and grants would be available only to plans that are currently severely financially troubled; other plans would be eligible only for financial assistance available under current law.

While members of the Ways and Means Committee all agreed something must be done to address the underfunding of union pensions, they fiercely debated whether the Butch Lewis Act will be effective. Democrats, led by Chairman Richard Neal of Massachusetts, generally voiced strong support. They suggested that the dire financial situation faced by some multiemployer pension systems is chiefly due to the Great Recession and long-lasting market challenges that have particularly harmed manufacturing and other blue-collar industries. They said economic conditions in the last two decades have forced many employers that offer these pensions to go insolvent themselves, which in turn left the multiemployer pension plans with fewer and more financially stressed contributing employers.

Republicans, on the other hand, led by Ranking Member Kevin Brady of Texas, were quick to cite their worries about ongoing mismanagement and even maleficence on the part of union leaders and pension trustees. They said a loan program will do nothing to solve the underlying problems that weakened many of the plans to begin with, and they commonly used the term “bailout” to describe the program.

In debating this point and others, Neal was adamant that this bill is a positive first step that can and should be built upon in a bipartisan manner. He invited committee members to submit amendments that would address their concerns. In closing the debate, he added that House leadership’s plan is to be prepared to vote on the bill as soon as the end of this month. Given the opposition of Republicans in the House, it’s far from clear that the bill will succeed in the GOP-controlled Senate, where even popular bipartisan pieces of legislation such as the SECURE Act are stalled.

“This is not a government bailout; it’s a backstop,” Neal said. “These are loans that are funded by bond sales in the open market, and we believe the administrative costs can be absorbed into the loan issuances. It’s a common-sense solution that brings together the public sector and private sector. Further inaction means many more Americans will risk slipping into poverty in retirement, even though they sacrificed throughout their careers.”

Brady stressed that union plans have different rules and requirements as to making and funding benefit promises than do single-employer pensions. Like other Republicans, he said a solution is doomed from the start that fails to address union plan trustees consistently making plan contributions insufficient to meet future benefit obligations. He suggested a more effective approach would be to put stricter rules in place as to the actuarial and investment assumptions being used in operating many of these stressed pensions.  

For context, in December 2014, Congress approved, and President Barack Obama signed, a spending bill that included provisions allowing for dramatic cuts to financially troubled multiemployer pensions. Under the provisions, the pension benefits of retirees could be cut by 30% or more, and this has already occurred. Before the law was changed, it was illegal for an employer to cut the pension benefits retirees had earned. But even with this new provision, numerous union pension plans are still on a path toward collapse. 

One report published by the Society of Actuaries (SOA) identifies more than 100 such plans “that are meant to be representative of the larger problem.” The estimated unfunded liability of these plans alone is $107.4 billion when measured at a 2.90% discount rate. The report identifies some 21 plans with approximately 95,000 participants that are projected to become insolvent by 2023, and 48 plans with approximately 545,000 participants are projected to be insolvent by 2028. 

Notably, the Butch Lewis Act as passed through the committee includes a few technical modifications versus the originally proposed version. Among these, the bill now specifically provides for the creation of a Pension Rehabilitation Authority (PRA), which will coordinate the loan and grant program with the Pension Benefit Guaranty Corporation (PBGC). Further modifications include adding a third category to be used in ranking stressed plans. The expanded proposal also provides that stressed pensions can use their loan to acquire annuities or establish portfolios for terminated vested participants—not just those beneficiaries in payment status.

Under the modified bill, the PRA would gain authority to forgive the loans, but only in the case of imminent insolvency. Finally, inadequacies in the operation of pension plans receiving loans would now have to be cured in two years, versus five in the original draft.

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Categories: Financial News

Mercer Offers Longevity Risk Reporting to Pension Plan Sponsors - Wed, 07/10/2019 - 18:31

Mercer and Club Vita, a firm specializing in longevity analytics, announced that Mercer is the first consulting firm to offer Club Vita’s longevity risk reporting to its clients in the United States, effective immediately.

As part of their five-year agreement, Mercer’s pension plan clients in the United States will have access to Club Vita’s proprietary longevity assumptions, analytics and reporting, which will help them to better assess and manage their plans’ longevity risk. In addition, the aggregate enhanced data set will also be used by Mercer’s consulting teams to provide more powerful insights to help with client decision making.

Bruce Cadenhead, chief actuary, Mercer, says, “Longevity has become a crucial focus for plan sponsors as people are living longer, particularly in the current low interest rate environment. By working with plan sponsors to collect more insightful data, we can tailor each plan’s assumptions to their participants, increasing transparency and, in turn, improving the value in pension risk transfer deals. Access to this data will help to justify lower pension liabilities in some cases.”  

Dan Reddy, U.S. CEO, Club Vita, says, “We aggregate longevity data to aid anyone who wants to be better informed about the true cost of their pension plan. By combining Mercer’s data with ours, and adding in our analytical strengths, we will empower pension plan decision makers to decide the best strategies to manage the costs associated with their plans.

Reddy adds, “In a recent pilot program, we tested data aggregated from over 100 U.S. pension plans. We found increases and decreases in pension plan liabilities of up to 6% relative to the standard Society of Actuaries tables, with a reduction in liabilities on average.”

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Categories: Financial News

Sponsors of Fully Automated Retirement Plans Feel They Are Reaching Goals - Wed, 07/10/2019 - 16:56

Proactive plan sponsors are much more likely (71% versus 47%) to believe that their workers are on a path towards a financially secure retirement, according to a report from J.P. Morgan Asset Managment, “The Power of Being Proactive.”

In the survey, proactive plan sponsors were actually those who indicated “that they place participants on a strong saving and investing path, through features such as automatic enrollment, automatic escalation, and streamlined investment decisions, like a target-date fund.”

Additionally, 70% think their approach will help employees retire at their targeted retirement age, compared to only 43% of plan sponsors without this specific plan design.

J.P. Morgan found 41% of plan sponsors fully automate their plans in this way, while 59% allow their participants to make their own choices. Among those that the firm says are proactive, 87% believe that their approach is an appropriate benefit for their organization, compared to 74% of other plan sponsors. They also think their plan design demonstrates their level of care about employees (84% versus 64%), helps them in recruiting quality employees (74% versus 57%), helps their workers appreciate their compensation package (71% versus 60%), motivates employees (71% versus 50%) and helps them retain quality employees (69% versus 56%).

“We still see a sizeable gap between the importance plan sponsors place on their goals and how successful they believe their plans are in achieving them,” says Catherine Peterson, managing director, global head of insights programs at J.P. Morgan Asset Management. “The survey demonstrates the benefits of plan sponsors taking a proactive approach through measures such as automatic enrollment, automatic contribution escalation and streamlining investment decisions.”

The survey also found 55% of plan sponsors use automatic enrollment, up from 28% in J.P. Morgan Asset Management’s first survey in 2013. Thirty-eight percent use automatic escalation, up from 21% in 2013. While sponsors that do not use these tools said they thought employees would push back on them and/or should take financial responsibility themselves, J.P. Morgan’s 2018 DC Participant Survey found that most participants are in favor of automatic features, or are neutral about them.

Sixty-two percent of sponsors offer target-date funds (TDFs), up from 46% in 2013. Seventy-five percent of sponsors are highly confident in their selection and monitoring of TDFs. However, 30% said they do not have a solid understanding of how their TDFs work.

Seventy-one percent of sponsors work with an adviser or consultant, and among this group, 67% are satisfied with the service advisers are providing to them. However, only 24% are very satisfied. Forty-one percent of those sponsors working with advisers say their adviser comes to them with new ideas and best practices.

In sum, J.P. Morgan says that being proactive is a win-win for both plan sponsors and participants. Sponsors still need to learn more about how TDFs are constructed, and there is an opportunity for advisers and consultants to work with sponsors on these strategies.

“Significant progress has been made to strengthen DC [defined contribution] plans, with plan sponsors showing a strong and growing commitment to their employees’ fiscal health,” says Meghan Jacobson, executive director with J.P. Morgan Asset Management. “However, the fact that many plan sponsors are still falling short of achieving their goals suggests that more needs to be done to adopt a proactive approach.”

The firm’s findings are based on an online survey of 838 sponsors that Matthew Greenwald & Associates conducted between January and March of this year.

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