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Insight on Plan Design & Investment Strategy
Updated: 7 hours 10 min ago

TIAA Institute Links TDFs to Positive Retirement Savings Behavior

Wed, 06/19/2019 - 20:51

The TIAA Institute has released a report discussing the effects of changes in participant contribution decisions following the adoption of target-date funds (TDFs) after The Pension Protection Act of 2006 (PPA) was introduced.

Prior to TDFs, money market funds were the most common default investment option. With this in mind, the study asks three questions: “First, how do the changes in default investments and available numbers of funds in the plan menu affect the number of funds used by participants? Second, what determines whether participants use target-date funds? Finally, how do these regulatory and plan changes affect the percentages of equity in allocations?” 

The study finds that participants who join plans with a TDF default contribute to fewer funds and are significantly more likely to choose only TDFs for their allocations. Additionally, participants will, on average, contribute to funds with greater equity exposure, and the study found there is “less cross-sectional variation in contribution equity exposure across participants.” Instead, both equity exposure effects are high in different age groups and genders.

The study was conducted with a cross-section of 600,000 TIAA participants, with each added into three distinct groups of participants: (1) participants who joined plans in their current combination before any of the plans had target date fund defaults; (2) those who joined after some, but not all, combination plans had target-date fund defaults; and (3) those who joined after all combination plans had target-date fund defaults.

In the first group, participants who allocate contributions to a larger number of funds were found less likely to utilize TDFs when available, and they also hold significantly less equity than participants in the third group, the study says. These participants’ allocations were also more varied and prone to positive plan investment menu effects. For those joining after TDFs were made the default, these effects were mitigated.

Participants who joined after target-date defaults were made the default were significantly more likely to invest only in a single TDF, and as a result, target-date only participants tend to hold substantially more types of mutual funds because TDFs are composed of a number of underlying mutual funds, the study reports.

The study concludes by noting that TDFs offer an effective solution for plan sponsors and participants, but they do not account for differences in income, wealth, risk aversion, and life expectancy. Additionally, while the higher equity exposure linked to TDF defaults can lead to higher expected returns, it is also associated with greater portfolio volatility.

More information on the TIAA Institute’s study can be found here.

The post TIAA Institute Links TDFs to Positive Retirement Savings Behavior appeared first on PLANSPONSOR.

Categories: Financial News

Aegon Ties Health to Wealth in Retirement Planning

Wed, 06/19/2019 - 18:54

Touching on the role of longevity in retirement planning, a recent Aegon study emphasizes how health plays a daily role when planning for the future, and sometimes, is even more important than wealth.

The Aegon Retirement Readiness Survey 2019 relates health with retirement readiness through the Aegon Retirement Readiness Index (ARRI), a score that ranks the level of readiness employees feel as they near retirement. Workers who believed they are in good or excellent health achieved a higher score than those who said they are in fair or poor health, at 6 for those in “Good” shape and a 7.1 for those in “Excellent” shape, while those who indicated they are in “Fair” health reached a 5.5 ranking, and those who concluded their health as “Poor” scored a 5.1 ranking. Each high index score was rated on a scale between 0 to 10.

Additionally, the study finds the healthier a worker is, the more positive their attitude will be when it comes to retirement. Those who stated they have “Good” or “Excellent” health had significantly higher scores than those in “Poor” or “Fair” shape.  

While Aegon does disclose how several factors can influence both health and retirement readiness, including age, sex and income, results show positive correlations between the two.

The white paper stresses the importance of healthy lifestyles during an employee’s working life, citing the benefits employers reap from a healthy work force. Because it can be difficult for sedentary and inactive individuals to achieve long-term behavioral changes when it comes to adopting a new diet or exercise regime, the study suggests plan sponsors incorporate smaller changes and benefits to encourage workers on making conscious healthy choices, such as sit-to-stand desks, and healthy challenges with colleagues, noting that a workplace’s social environment could encourage healthy behavior.

More information on the study can be found here.

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Categories: Financial News

Supreme Court Asked If Well-Funded Pensions Can Harm Participants

Wed, 06/19/2019 - 18:12

In a newly published analysis, a trio of attorneys with Bressler, Amery & Ross consider the case of Thole v. U.S. Bank, which has been appealed to the Supreme Court in the hope of testing the question of whether well-funded pensions can be sued for “harming” retirees.

The authors are Thomas Roberts, a principal in the firm’s securities practice; Donald Winningham III, counsel; and Kathryn Rockwood, an associate in the firm’s securities practice. According to the trio, the case of James J. Thole et al. v. U.S. Bank NA et al. asks the question whether participants in U.S. Bank’s pension plan can sue their employer for alleged Employee Retirement Income Security Act (ERISA) fiduciary breaches even though their pension plan is not facing funding issues—implying that individual retirees cannot establish that they have suffered an actionable harm.

Specifically, the Supreme Court has been asked to weigh the following questions: “(1) Whether an ERISA plan participant or beneficiary may seek injunctive relief against fiduciary misconduct under 29 U.S.C. § 1132(a)(3) without demonstrating individual financial loss or the imminent risk thereof; and (2) whether an ERISA plan participant or beneficiary may seek restoration of plan losses caused by fiduciary breach under 29 U.S.C. § 1132(a)(2) without demonstrating individual financial loss or the imminent risk thereof.”

As the attorneys point out, back in October 2018, the Supreme Court requested the United States Solicitor General to “opine whether the court should grant cert to the matter filed by retirees.” As detailed in a lengthy brief, the Solicitor General responded in the affirmative. The next step in the case is a conference of the Supreme Court justices on this matter, set for June 20.  

Roberts, Winningham and Rockwood recall that this case emerged after retirees alleged that U.S. Bank breached its fiduciary duties by engaging in prohibited transactions under ERISA, which the retirees say in turn caused considerable losses to their defined benefit pension plan. Crucial to the case is the fact that the pension plan is not facing insolvency, raising the question of whether these retirees can prove concrete harms occurred which are necessary for establishing standing.

“Whether the Supreme Court grants cert and how it decides the circuit split remains to be seen,” the attorneys suggest.  

In the original Supreme Court appeal, the retirees say their case presents two independent, substantial legal issues that have divided the courts of appeals regarding when an ERISA plan participant may invoke the remedies Congress explicitly authorized to police fiduciary misconduct and protect federally guaranteed benefits. They explain how alleged fiduciary breaches caused $750 million in losses to their pension plan, and why they feel injunctive relief is appropriate under 29 U.S.C. 1132(a)(3) and restoration of the plan’s losses under 29 U.S.C. 1132(a)(2).

According to the retirees, the Eighth Circuit inappropriately affirmed district court dismissal of their claims under the belief that petitioners had not yet suffered any individual financial harm—as the plan did not at that point face a risk of default.

“In so holding, the Eighth Circuit departed from holdings of other circuits under both Sections 1132(a)(3) and 1132(a)(2), and rejected the long-held position of the Department of Labor, which has repeatedly urged the courts of appeals to let these claims proceed,” the appeal states.

In its latest brief arguing against the conclusions of the Solicitor General—and against the Supreme Court weighing in—U.S. Bank argues that “despite its ultimate conclusion, the United States’ brief reads like a recommendation against certiorari.”

“The United States correctly determines the Eighth Circuit’s decision implicates no split,” the U.S. Bank opposition brief states. “It admits the Eighth Circuit passed on no Article III questions and that [the Supreme Court] is not ordinarily one of first review. And it suggests the Court consider the additional question whether the Eighth Circuit properly addressed statutory standing first—which could preclude any need to decide the actual questions presented. Nevertheless, the United States recommends the Court grant certiorari to address what amounts to a potential alternative ground for affirmance—an unaddressed question of Article III standing.”

According to U.S. Bank’s argument, the Solicitor General “presses three abstract legal ‘theories’ conceivably relevant to some plaintiffs, somewhere. But it fails to explain how this petition presents a vehicle for addressing these theories. It does not.”

The post Supreme Court Asked If Well-Funded Pensions Can Harm Participants appeared first on PLANSPONSOR.

Categories: Financial News

Settlement of MFS Excessive Fee Suit Includes Plan Design Changes

Tue, 06/18/2019 - 18:56

The parties in the lawsuit Velazquez v. MFS have filed a proposed settlement agreement in the U.S. District Court for the District of Massachusetts.  

The lawsuit had alleged that MFS defendants seeded the company’s own retirement plans primarily with MFS investment offerings, without investigating whether plan participants would be better served by investments managed by unaffiliated companies. The plaintiffs argued the retention of these proprietary mutual funds cost plan participants millions of dollars in excess fees. The plans in question had a combined $515,246,820 in assets as of the end of 2012.

The lawsuit also accused the defendants of failing to select the least expensive share class available for the plan’s designated investment alternatives, failing to investigate the use of separate accounts and collective trusts as alternatives to mutual funds, and failing to monitor and control recordkeeping expenses. Plaintiffs argued the defendants also failed to remove poorly performing investments from the plan.

Under the settlement, MFS shall cause its insurers to pay $6,875,000 into a qualified settlement fund to resolve the claims of the court-approved class. The net settlement amount—after deduction of any Court-approved attorneys’ fees and costs, administrative expenses, or class representatives’ compensation—will be allocated to class members according to a plan of allocation approved by the Court. For the most part, the settlement agreement stipulates, allocations to current participants who are entitled to a distribution under the plan of allocation will be made directly into their existing accounts in the plans. Authorized former participants who are entitled to a distribution may receive their distribution as a check or, if available and they elect, as a rollover to a qualified retirement account.

Beyond the monetary payment to the plan, the settlement provides that for a period of no less than three years beginning on the effective date of the settlement, the plans’ qualified default investment alternative options will be one or more target-date funds that are unaffiliated with MFS, and are index funds or are funds-of-funds that invest in underlying index funds. Further, during each year for a period of no less than three years following the date of filing of the motion for preliminary approval of the settlement, MFS will retain a third-party investment consultant unaffiliated with MFS for an engagement to provide an annual evaluation of the plans’ investment lineup and review the plans’ investment policy statement.

As stipulated in the settlement agreement documents, all class members and anyone claiming through them will fully release the plans as well as individual fiduciary defendants and the released parties from all released claims. The released claims include, but are not limited to, all claims that are or could be based on “any of the allegations, acts, omissions, purported conflicts, representations, misrepresentations, facts, events, matters, transactions or occurrences that were or could have been asserted in the class action.” They also include all claims that that arise out of, or are related to, the facts alleged in the class action, as well as those claims that “relate to the direction to calculate, the calculation of, and/or the method or manner of allocation of the net settlement amount pursuant to the plan of allocation and/or that relate to the approval by the independent fiduciary of the settlement agreement, unless brought against the independent fiduciary alone.”

The resolution of this case comes nearly two years after the filing of the complaint in the Massachusetts District Court. During the course of the action, case documents show, the settling parties engaged in extensive discovery, including production of over 90,000 pages of documents by defendants, production of additional documents by the class representatives, production of documents by non-parties, four depositions of defense fact witnesses, and a deposition of one of the class representatives.

On May 9, 2019, the parties engaged in private mediation with a jointly-selected mediator. After extensive arm’s length negotiations supervised by the mediator, the settling parties reached a settlement in principle. Documents and exhibits laying out the proposed settlement agreement are available here.

The post Settlement of MFS Excessive Fee Suit Includes Plan Design Changes appeared first on PLANSPONSOR.

Categories: Financial News

HRA Final Rule Includes Changes and Clarifications

Tue, 06/18/2019 - 18:07

Last week, the U.S. departments of Health and Human Services, Labor and the Treasury issued a final regulation that will expand the use of health reimbursement arrangements (HRAs).

Under the rule, starting in January 2020, employers will be able to use what are referred to as individual coverage HRAs to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions. The HRA rule also creates an excepted benefit HRA. In general, this aspect of the rule lets employers that offer traditional group health plans provide an excepted benefit HRA of up to $1,800 per year—indexed to inflation after 2020—even if the worker doesn’t enroll in the traditional group plan. Employers may also reimburse an employee for certain qualified medical expenses, including premiums for vision, dental, and short-term, limited-duration insurance.

According to a benefits brief posted by Groom Law Group when the regulation was first proposed, prior guidance from the Departments generally provides that a stand-alone HRA (or other employer-funded arrangement) cannot satisfy all of the Affordable Care Act (ACA)’s market reform provisions and requires an HRA to be integrated with qualifying group health plan coverage. The new regulation permits an HRA to be integrated with certain qualifying individual health plan coverage in order to satisfy the market reforms. In order to be “integrated” with individual market coverage, the regulations provide that the Individual Coverage HRAs (ICHRAs) must meet several conditions:

  • Any individual covered by the ICHRA must be enrolled in health insurance coverage purchased in the individual market and must substantiate and verify that they have such coverage;
  • The employer may not offer the same class of individuals both an ICHRA and a “traditional group health plan”;
  • The employer must offer the ICHRA on the same terms to all employees in a “class”;
  • Employees must have the ability to opt-out of receiving the ICHRA; and,
  • Employers must provide a detailed notice to employees.

The proposed regulation permitted employers to divide their workforce into several specified classes of employees. If the employer offers an ICHRA to an employee in a given class, it must offer the ICHRA on the same terms to all employees in that class. The classes proposed were:

  • Full-time employees;
  • Part-time employees;
  • Seasonal employees;
  • Employees in a unit covered by a collective bargaining agreement in which the employer participates;
  • Employees who have not satisfied a waiting period that meets the requirements of PHSA section 2708 (generally, no longer than 90 days other than for variable-hour employees whose hours of service cannot be determined in advance);
  • Employees who are younger than 25 at the beginning of the plan year;
  • Foreign employees who work abroad; and
  • Employees who work in the same rating area.

However, Rachel Leiser Levy, principal at Groom Law Group in Washington, D.C., who previously worked in the office of tax policy at the Treasury working on ACA and guidance, tells PLANSPONSOR that, for most part, final rules adhere closely to proposed rules, but there are a few clarifications and two noteworthy changes. These changes regarded the classes employers can use to separate employees to whom they offer a traditional plan or an ICHRA.

“The proposed regulation did not include salaried versus hourly employees. Employers use that differentiation for a lot for other benefits. The Departments received robust comments around that issue and added that class to the final rule,” she says. In addition, the final regulation took away the class of employees younger than 25. “Employers didn’t much care about it; it’s not a separation employers use a lot, and I think insurers were somewhat concerned because younger employees are generally healthier,” Levy says.

Levy contends the class issue is in some way the most important part of the regulation and how employers will use the rule.

Another important change: The proposed rule had no minimum class size; a class could consist of one employee, but in the final rule, there are minimums for class sizes. Levy explains that now, for employers with one to 100 employees, a class cannot have less than 10 employees; for employers with 100 to 200 employees, the minimum class size is 10% of the workforce; and for employers with 200 or more employees, the minimum class size is 20 employees.

Levy says this is something insurers likely asked for, and there was concern about the effect on the individual market if employers want to send less healthy employees to the individual market.

As for clarifications, she says there are some clarifications around integrating Medicare and HRAs, but one important clarification regarded some confusion employers had about Employee Retirement Income Security Act (ERISA) rules about using a private exchange; they asked for a safe harbor. Levy adds that the Labor Department seemed to offer a safe harbor, but that since employers need to offer all plans available in a state, it is unclear in some ways whether it is a safe harbor that will have much practical effect.

One noteworthy clarification is that for excepted benefit HRAs, the IRS and Treasury committed to publishing update on the limit employers can contribute to these accounts by June 1 prior to the year effective. Levy explains that HRAs are funded by employer money only; there is a limit to what employers can contribute to excepted benefit HRAs, but not for ICHRAs. “However, employers generally put their own limits on what they will contribute to individual HRAs because they are on the hook for what they promise,” she adds.

Results for the employer health benefit market

“The final rule gives employers more flexibility to offer benefits,” Levy says. In the announcement of the final rule, the departments said they estimate that, when employers have fully adjusted to the rule, the expansion of HRAs will benefit approximately 800,000 employers, including small businesses, and more than 11 million employees and family members, including an estimated 800,000 Americans who were previously uninsured. But, Levy says it remains to be seen.

She says the individual market needs to stabilize because employers don’t want to participate in an unstable market. “It could be a game changer if employees like the ability to choose plans and to have money for other medical expense, but it’s a little premature to predict exactly what will happen,” Levy says.

“Certainly, the cost of health care is a concern for employers, so anything that can reduce costs and allow employees to choose plans that cater to them is attractive,” Levy states. “To the extent employees are unhappy with the option, we will not see employers drop traditional plans, but, if employees are happy, we may see that. It again goes to the stability of the marketplace and what employers feel about the safe harbor.”

She adds that it will also depend on the size of the employer and whether leadership is interested in changes and into going into the individual market.

“Whether it’s a sea change for employers to drop traditional plans and got to HRAs, we may see in many years, but not now because employees look at health insurance in their decision to accept a job,” Levy concludes.

The post HRA Final Rule Includes Changes and Clarifications appeared first on PLANSPONSOR.

Categories: Financial News

Will Education Benefit Offerings Increase Soon?

Tue, 06/18/2019 - 17:33

Record high college tuition and a tight labor market are prompting many employers to revisit their education benefits, according to a survey by the International Foundation of Employee Benefit Plans. Ninety-two percent offer some type of education benefit.

The most common is tuition assistance/reimbursement, offered by 63% of employers, followed by in-house training seminars (61%), attendance at educational conferences (51%), continuing education classes (50%), coverage for licensing and exams (44%), personal development courses (35%) and 529 college savings plans (10%).

Fifty-seven percent of employers have had tuition reimbursement programs in place between six and 20 years, and 27% have had them for 21 years or more.

Eighty-seven percent reimburse employees after the end of their studies if they meet certain requirements. The most common amount paid to employees is between $5,000 and $5,999. Fifty-seven percent require a payback of some kind from their employees in exchange for tuition reimbursement, with 54% requiring their employees to remain employed with the firm one year after finishing their education.

However, “only 1% to 5% of employees take advantage of tuition reimbursement provided by their employer,” notes Julie Stich, vice president of content at the Foundation. “This means offering educational assistance isn’t a huge financial commitment for organizations in comparison to other types of benefit offerings. Tuition reimbursement helps to attract and retain employees—especially younger ones who appreciate the opportunity to grow in their careers.”

The survey also found that, currently, a mere 4% of employers offer some type of student loan repayment assistance benefit. Two percent are in the process of implementing one, and 23% are considering doing so in the future.

Asked what is keeping them from offering a student loan repayment assistance benefit, employers first say the high cost, followed by the complexity of implementing one, resentment among employees who have already paid off their student loans or who never had any, and turnover among employees once the debt is repaid.

Among those offering such a program, they say they are doing so to attract and retain talent, increase employee satisfaction and loyalty and keep employees current on evolving skill sets required for their role.

“Student loan repayment is a very new benefit offering,” Stich says. “With high interest from employees and no firm governmental guidelines in place, it’s something to watch closely in the future.”

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Categories: Financial News

Retirement Concerns Show Uneven Playing Field for Women

Tue, 06/18/2019 - 16:46

Fifty-six percent of Americans age 60 and older are concerned that health care costs will outpace their retirement savings, and 43% think the same of prescription drug costs, a National Council on Aging (NCOA)/Ipsos survey found.

Women are even more concerned than men, with 60% worried about the rising costs of health care and 46% worried about prescription drug costs. Sixty-eight percent of Americans age 60 and older with household incomes of less than $50,000 are worried.

Fifty-one percent of women in this age group are worried about outliving their savings, outpacing the 48% of Americans, overall, who share this same fear. Among those with household incomes of less than $50,000, 61% are worried about outliving their savings.

Fifty-nine percent of women age 60 and older are worried about losing their independence, whereas this is true for 54% of Americans overall. Additionally, 46% of Americans in this age group are worried about being a burden to their families. Among women, 52% share this fear, whereas only 40% of men share this fear.

“Results underscore the reality of an uneven playing field for women in the American economy and the economic opportunity cost after years as mothers and caregivers and not wage-earners. However, the ever-rising cost of health care and prescription drugs are a real and imminent threat to a safe, secure, and dignified retirement for aging adults across the country regardless of gender,” says Anna Maria Chavez, NCOA executive vice president and chief growth officer. “After careers of earning less than their male counterparts, women are more likely to face financial insecurity, and this survey shows widespread concern among women, far more than men.”

The findings are based on an online Ipsos poll conducted among 1,227 adults in May and June.

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Categories: Financial News

Principal Announces Additions to Leadership Teams From Wells Fargo

Mon, 06/17/2019 - 18:19

In April, Principal Financial Group announced a definitive agreement with Wells Fargo & Company to acquire its Institutional Retirement & Trust business, and now it is announcing additions to its Retirement & Income Solutions leadership teams—bringing those from Wells Fargo Institutional Retirement & Trust (Wells Fargo IRT) and establishing a team to lead the integrated organization in the future.


“The Wells Fargo IRT leaders who will join Principal have deep expertise, industry knowledge and proven experience that will support our ability to bring more solutions, choice and service to clients – no matter their size or complexity of needs,” says Renee Schaaf, president of Retirement & Income Solutions. “Our focus remains on bringing the best-of-the-best from both businesses together as we build out a leading retirement organization committed to helping people to live their best lives.”


The incoming Wells Fargo IRT leaders will become part of established leader teams with the Principal Retirement & Income Solutions business headed by Schaaf as president of Retirement & Income Solutions, Jerry Patterson, SVP of Workplace Savings & Retirement Solutions, and Sri Reddy, SVP of Income Solutions.


The following Wells Fargo IRT leaders will assume roles within Principal at appropriate points throughout the integration process, following close:

  • Jon Graff, current director of participant services, will be responsible for administration and operations across Workplace Savings & Retirement Solutions.
  • Angie McDaniel, current lead for Business Solutions, will lead a new team at Principal, Business Planning and Solutions, for Workplace Savings & Retirement Solutions.
  • Brian Jirak, current director of Trust & Custody, will join the Income Solutions leader team and will have responsibility for trust, custody and pension services.


The following individuals will join the Customer Care group in Principal’s Workplace Savings and Retirement Solutions:

  • Mary Hollingsworth, current director of product strategy and positioning, will transition to the Customer Care leadership team.
  • Marcia Wepfer, current director of relationship management, will transition to the Field Service leadership team.
  • Bob Millikin, current head of institutional services for investment contact centers, will join the contact center leadership team.


The following individuals will join the Employer Services and Operations group in Principal’s Workplace Savings and Retirement Solutions:

  • Sheila Cox will be responsible for larger plan administration efforts.
  • James Rossini will lead operations across Workplace Savings & Retirement Solutions.


Joe Ready, current head of Wells Fargo IRT, is taking a new role as head of Trust and chief fiduciary officer for Wells Fargo Wealth & Investment Management. Ready will remain connected to the integration of Principal and Wells Fargo IRT, supporting client and employee transitions.


Additional leadership appointments will be made post-closing and throughout the transition process. Further details regarding the leadership structure and integration of the Wells Fargo deferred executive compensation and discretionary asset advisory businesses will be shared in the weeks to come as the two businesses continue to work toward integration.


Principal and Wells Fargo IRT are well-positioned to close the acquisition in early third quarter, pending regulatory approval.

The post Principal Announces Additions to Leadership Teams From Wells Fargo appeared first on PLANSPONSOR.

Categories: Financial News

Balancing the Need and Desire to Work Past Retirement Age

Mon, 06/17/2019 - 17:41

Northwestern Mutual’s 2019 Planning & Progress Study found that 46% of Americans expect to work past the traditional retirement age of 65.

Nearly one out of five Baby Boomers (18%) and an equal percentage of Generation X (18%) expect to work even longer—past the age of 74.

More than half (53%) of Americans who expect to work past age 65 say it will be by choice, compared to 47% who say it will be out of necessity.

Among those who say they expect to work past age 65 out of necessity, the top three reasons why include:

  • “I won’t have enough saved to retire comfortably” (78%);
  • “I do not feel like Social Security will take care of my needs” (56%); and
  • “I am concerned about rising costs like health care” (49%).

For those expecting to work past 65 by choice, the top three reasons why include:

  • “I enjoy my job/career and would like to continue” (58%);
  • “I want additional disposable income” (46%); and
  • “It is a social outlet that will help me stay active/prevent boredom” (39%).

According to the study, more than one-fifth (22%) of Americans have less than $5,000 saved for retirement. “Given what we know about savings levels, the number of people who can afford to retire at 65 is low,” says Emily Holbrook, senior director of planning at Northwestern Mutual. “At the same time, people across the country are changing what the face of retirement looks like and getting satisfaction well beyond their bank accounts by continuing to work. The combination of those factors—affordability and lifestyle—form the bedrock of a good financial plan.”

However, studies have shown that employees’ plans to work later in retirement do not always pan out. According to the Employee Benefit Research Institute’s (EBRI’s) 2018 Retirement Confidence Survey, the median age at which people expect to retire is 65, but the actual age is 62. The reasons why are usually because of a health problem, a disability or being laid off.

Seventy-nine percent of workers want or expect to work in retirement, said Lisa Greenwald, executive vice president with Greenwald & Associates, but only 33% of retirees have worked for pay since retiring. Twenty-one percent of workers expect that working in retirement will provide them with a major source of income, but this is only true for 9% of retirees, she added.

Employers have reasons to want employees to retire on time—older workers are often paid higher salaries than newer workers, can increase employers’ health care costs and can prevent hiring and advancement opportunities for younger workers. However, a survey of 2,043 retirees by the Transamerica Center for Retirement Studies (TCRS) shows two-thirds (66%) say their most recent employers did “nothing” to help pre-retirees transition into retirement, and 16% are “not sure” what their employers did.

Among the 18% of retirees whose employers helped pre-retirees, the most frequently cited offerings are financial counseling about retirement (6%), seminars and education about transitioning into retirement (5%), the ability to reduce work hours and shift from full- to part-time (5%), and accommodating flexible work schedules and arrangements (5%).

The U.S. Chamber of Commerce has tried to promote the idea of a phased retirement, Aliya Wong, executive director of retirement policy at EBRI said.

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Categories: Financial News

Rhode Island Moves Closer to Church Pension Transparency

Mon, 06/17/2019 - 15:32

The Rhode Island House of Representatives and the State Senate have each passed legislation that would require religious organizations that manage pension plans in Rhode Island to send regular updates on the financial health of the pensions to their plan participants.


Specifically, the State Senate version would require all pension plans not covered by the Employee Retirement Income Security Act (ERISA) with at least 200 members to submit to a public reporting of all its liabilities and assets.


Last July, Rhode Island General Treasurer Seth Magaziner joined retired members of the St. Joseph Health Services of Rhode Island pension plan to propose new transparency requirements for pension plans managed by religious organizations. At that time, he announced that he will seek legislation in the 2019 General Assembly session that would require pension plans managed by religious organizations in Rhode Island to send regular updates on the financial health of the pensions to their plan participants.


The legislation was pushed after the $85 million St. Joseph pension plan—which covers current and former employees of Our Lady of Fatima and Roger Williams hospitals—was left insolvent when contributions to it ceased following the sale of Fatima and Roger Williams to Prospect Medical Holdings in 2014.


Each chamber will now consider and vote on the other’s legislation. If passed by both the House and the Senate, the legislation will be sent to Governor Gina Raimondo.

The post Rhode Island Moves Closer to Church Pension Transparency appeared first on PLANSPONSOR.

Categories: Financial News

SURVEY SAYS: Favorite Vacation Spots

Mon, 06/17/2019 - 10:30

Last week, I asked NewsDash readers, “What types of places do you like to go on vacation?” I also asked them to share the best vacation they’ve ever had.


Beaches (74%) was the most favored type of place to go on vacation, followed by National parks, memorials or monuments (54%) and another country (52%). The mountains was a close No. 4, chosen by 48% of responding readers.


Other types of places ranked as follows:

  • Lakes – 34%;
  • Quirky, little-known attractions – 32%;
  • Amusement parks – 8%;
  • Family member’s homes – 6%;
  • Friend’s homes – 6%;
  • Campsites- 12%; and
  • Stay home – 14%.


The readers’ list of best vacations mirrored the rankings of favorite types of places to go, with many citing trips out of the country or to national parks. Also, it seemed a very popular way to travel was via a road trip.


Best vacations included:

  • Cruise to Key West, Cuba and Cozumel from Tampa, FL.
  • We did a family road trip to Mt. Rushmore, Badlands, Devil’s Tower, and Yellowstone. It was wonderful bonding time!
  • Tour of the Columbia River Gorge
  • Each year my husband and I do a warm weather get away and love it! However, I think the best vacation was when I surprised him with a trip to see his favorite baseball team. We saw 3 games at Fenway and had an amazing time!
  • South of France
  • I took my son and daughter-in-law to San Francisco in 2017. I created a travel binder with attraction choices in it so we could make the most of our time. Of course they laughed at me, but later realized it was a good idea when it rained and we had an indoor choice lined up. The best thing out of the trip was that 10 months later I had a granddaughter!! Not sure it was related…but I’m taking credit for it!!
  • At age 11, my family took a 3-week camping vacation, driving across the country to a family reunion. Saw Mt. Rushmore, Yellowstone, Grand Canyon, and more. 50+ years later, my siblings and I still talk about it.
  • So many places to pick from, but to have to pick a place would be Barcelona. So much to see from just walking around the streets or the beach. Or maybe Rome throwing coins in the fountain or eating pizza in the little cafe’. In the states a place called The Secret in Alabama.
  • My family goes to York Beach, ME, every year and I always look forward to that, but I loved touring Italy after my semester abroad in Scotland. I will probably never get the opportunity to backpack through Europe again!
  • Driving (alone) from San Francisco to San Diego down the PCH, stopping over in Pacific Grove, Cambria, L.A., and ending in Coronado Island. I had to pull over many times just to take photos of God’s beauty.
  • Hallstatt, Austria – a cute little town on the lake. We stayed in a B&B type place where we got to know the sweet older woman who owned the place. It was back in the college days so quite a while ago. I’m sure the adventure had as much to do with enjoying the time as the place did.
  • Boise, ID, was one of the best vacations I took. Rafting and tubing along the rivers; exploring ghost towns, hiking. Truly feeling disconnected from the hectic pace of everyday life.
  • Italy!!! Two years ago, my husband and I went for two glorious weeks, our first trip to Europe. He planned the entire trip and carefully laid out each day’s itinerary. We would do tours in the morning and early afternoon, leaving the rest of the day open so we could relax and have free time. It was amazing beyond words. We went to Rome, Tuscany, Florence, Venice, Bologna, Milan, and Capri. We toured the Vatican and saw the changing of the Swiss Guard. We tossed coins in the Trevi Fountain and walked the ancient grounds of the Colosseum and Roman Forum. We took a private wine tasting tour of the Chianti region in Tuscany. We saw Leonardo da Vinci’s The Last Supper and Michelangelo’s Statue of David. We visited the Duomo of Santa Maria del Fiore in Florence, St. Peter’s Basilica in Rome, Basilica San Marco in Venice, Duomo di Milano in Milan, and Basilica Papale di Santa Maria Maggiore in Rome, all of which were breathtaking. We took a gondola ride in Venice and window-shopped in Milan. We went to restaurants that locals frequent and savored every delicious meal. We savored the awesome porterhouse Florentine steak which they only prepare rare. We enjoyed gelato every chance we got and sipped limoncello in Capri. We quenched our thirst with the coolest, freshest water you’ll ever taste from the fountains in Rome. A few years ago, we had an exchange student from Bologna, and we stayed with her family for a couple of days. We enjoyed her mother’s delicious meals, and she made my favorite blueberry tart. To say we loved visiting Italy is an understatement. And guess what? We’re going back this September.
  • First, road trip to Yellowstone National Park staying in cabins and resorts in the different sections of the park; hiking and exploring. Second, road trip down the Oregon and California coast line in a convertible Camaro; stopping at all the cheesy but nostalgic stops such as Sea Lion Caves, Trees of Mystery, Prehistoric Forest, the Redwood Forest and the Drive Thru Tees.
  • I’ve had so many great vacations, that it is hard to pick just one. I love dramatic, wild scenery as well as historical places, museums and cities. One of the more interesting places I have been was Ilulissat Greenland just a few days after the summer solstice. It was unseasonably warm and the sun never set. The ice fjiord and the views from our hotel room of huge ice bergs in Disko Bay were incredible.
  • Took a wine tour to Tuscany for a week
  • We love to cruise. There are so many activities to keep everyone entertained, they clean and cook so you have no responsibilities, and you get to visit all kinds of new places.
  • Siena, Italy – Great food, wine and gelato. Friendly and helpful people. Tours of the piazza and surrounding countryside.
  • Trip to Europe. We flew there with only a car rental booked. We drove through Germany, Austria, Italy, France, Switzerland, Belgium, Holland & back to Germany all in 2 weeks. It was great being on our own schedule without any timelines. Enjoyed many restaurants & sites. Best trip ever.
  • Hawaii by far!
  • Two full weeks of traveling Colorado and Utah. Mountains, Canyonlands, etc. Beautiful views, cliff dwellings, caught in a sand storm. Childhood dream, finally fulfilled.
  • Costa Rica
  • East Coast vacation – fall foliage tour. We were in 20 states and drove over 4,000 miles. Beautiful trip!
  • Vancouver Island; took a week and drove around it. Very relaxing, everyone was so friendly, just a very peaceful week.
  • My husband and I took a vacation to Alaska. One of the highlights was a plane ride we took to Ruth Glacier near Denali. The plane landed on skis. Hard to describe how beautiful. Another great part, no cell phone coverage!!!!!
  • Typically, we go to the beach, which is wonderful. However, this year we are going on a cruise to Alaska, which I’m anticipating will be one of my top vacations!
  • The best vacation I have ever had is the one where I am not working! They’ve all been great but if forced to choose, I would have to say my cross-country journey across America using the southern route from PA to California. It really was life changing for me on so many levels. This is an amazing country. My cat loved it too! He got so that he could recognize when there was something beautiful we were remarking on and he would go to the car window to look too.
  • The best vacation is when the phone and laptop are turned off, and the person you’re with is turned on
Categories: Financial News

Retirement Industry People Moves

Fri, 06/14/2019 - 18:17

Art by Subin Yang

Morgan Stanley Adds Hires to Financial Solutions Team

Morgan Stanley has hired two financial professionals for its Morgan Stanley at Work team.

Krystal Barker Buissereth, who served on the Digital Strategy team at Goldman Sachs and is a CFA charterholder, has joined Morgan Stanley to lead Financial Wellness, reporting to Marc McDonough. In her previous role, Buissereth provided leadership for the development of new product and service offerings across employer financial wellness programs and direct to consumer wealth management services for the Ayco and Goldman Sachs wealth management businesses.

Marc McDonough, former SVP of Workplace Financial Solutions at Charles Schwab, joined Morgan Stanley in mid-May as head of Workplace Experience and Sales Enablement, reporting to Brian McDonald, head of Morgan Stanley at Work. In this role, McDonough is overseeing Financial Wellness, Education and Content, Field Sales Support, Digital Experience, Field Training and Corporate Participant Experience. In his previous role at Schwab, McDonough’s teams supported over 2,200 clients with equity compensation, designated brokerage, and financial wellness programs.

Morgan Stanley at Work offers a suite of workplace financial solutions, including Retirement, Financial Wellness and its new equity management offering, Shareworks by Morgan Stanley.

The Standard Promotes Defined Benefits Director

Standard Insurance Company (The Standard) has promoted Rob Vidin to second vice president and actuary for Retirement Plans.

In his new role, Vidin will run the defined benefits (DB) business within the Retirement Plans team, evaluating adjacent opportunities to complement the existing DB offering.

Vidin joined The Standard in 2016 as the senior director of Defined Benefits. Prior to joining The Standard, he served as a consulting actuary at Venuti & Associations, Rael & Letson and Mercer.

Vidin earned a bachelor’s degree in economics at Portland State University. He is an Associate of the Society of Actuaries, and Enrolled Actuary and a member of the American Academy of Actuaries.

PCS Hires VP of Service

PCS, LLC (PCS) has hired Stephen J. Carney as vice president of service.

Carney will optimize PCS’ approach to customer service for clients in the qualified retirement market, leveraging more than 20 years of leadership experience in financial operations, risk and sales.

Prior to joining PCS, Carney managed the delivery of regulatory, financial and consultative services to clients at Ascensus. Earlier in his career, he directed service operations for CitiStreet Total Benefits Outsourcing and State Street in Jacksonville, Florida. He managed teams responsible for defined contribution, defined benefit and health and welfare platforms, plus benefits consulting for qualified and non-qualified defined contribution plans.

“I’ve dedicated my career to improving the customer experience for clients in need of comprehensive benefit solutions,” says Carney. “I’m excited to join PCS to help advisers, plan sponsors and participants better prepare for retirement by improving their experience with our platform.”

Carney received a bachelor’s degree in finance and financial management services from Saint Anselm College.

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Categories: Financial News

IRI Promotes Need for Guaranteed Income for Retirement

Fri, 06/14/2019 - 17:58

The 4% rule, proposed by William Bengen in the 1994 paper “Determining Withdrawal Rates Using Historical Data,” is outdated, the 2019 Insured Retirement Institute (IRI) Fact Book contends.


An underlying assumption of the rule is a 50% allocation to stocks, and a 50% allocation to bonds, but with interest rates at historic lows and equity markets at historic highs, expected returns may well be much lower in the future, IRI says. “Withdrawal rates can vary widely based on the portfolio assumption used and the desired probability of success,” it adds.


According to IRI, systematic withdrawal strategies, whether a simple “x%” rule or based on a more sophisticated stochastic analysis of the probability that assets will not be depleted at various withdrawal rates, have two significant drawbacks: first, they are based on historic asset class returns, which may not repeat in the same sequence in the future, and secondly, they assume that the investor acts rationally, maintaining the asset allocation assumed in the models even during periods of significant negative returns. However, many consumers may weight more heavily toward cash and cash equivalents after a period of negative returns, and miss out on subsequent positive returns. This is why it contends there is a need for the use of products and solutions that guarantee income and/or protection against principal loss and other risks regardless of market conditions.


IRI notes that with longer life expectancies and health care costs trending higher, retirement continues to get more expensive. For example, if a person has annual expenses of $50,000 in retirement. Expenses for a 65-year-old living 14 years in retirement would total $700,000. Expenses for a 65-year-old living 19 years in retirement is $950,000, an increase of 36%. Factoring in inflation, assuming an annual rate of 3%, a 65-year-old living 14 years to age 79 would need $854,000 in income to meet his or her expenses. And by living an additional five years to age 84, he or she would have total retirement expenses of $1,256,000, 47% higher.


According to Fidelity estimates, a 65-year old couple retiring in 2019 can expect to spend $285,000 in health care and medical expenses throughout retirement. The IRI notes that Medicare does not provide complete coverage. Long-term care is another significant component of health care costs in retirement, one which many mistakenly assume is always covered by Medicare. IRI’s 2019 Boomer study showed half of respondents believed long-term care would be covered by Medicare.


The IRI Fact Book discusses risks retirees will face—longevity risk, inflation risk, health care risk and sequence of returns risk—to make its case for the need for guaranteed income in retirement.


It is a guide for the retirement income industry and go-to resource for financial advisers, professionals, public policymakers, and financial and insurance regulators. The new edition updates research findings on generational retirement readiness, explores product development and market trends in the retirement income space, and offers data and research-based insights into advisers’ practices and consumer retirement planning success factors. It includes in-depth descriptions of fixed, fixed indexed, income and variable annuity products and features.


A digital or print version of the IRI Retirement Fact Book may be purchased from here.

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Categories: Financial News

Regulators Finalize New HRA Rule

Fri, 06/14/2019 - 17:44

The U.S. departments of Health and Human Services, Labor and the Treasury issued a final regulation that will expand the use of health reimbursement arrangements (HRAs).

Under the rule, starting in January 2020, employers will be able to use what are referred to as individual coverage HRAs to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions. The departments say these conditions strike the right balance between employer flexibility and guardrails meant to protect the individual market against adverse selection, and include a notice requirement to ensure employees understand the benefit.

Besides allowing individual coverage HRAs, the HRA rule creates an excepted benefit HRA. In general, this aspect of the rule lets employers that offer traditional group health plans provide an excepted benefit HRA of up to $1,800 per year—indexed to inflation after 2020—even if the worker doesn’t enroll in the traditional group plan. Employers may also reimburse an employee for certain qualified medical expenses, including premiums for vision, dental, and short-term, limited-duration insurance. According to the departments, this provision will also benefit employees who have been opting out of their employer’s group health plan because the employee share of premiums is too expensive.

When the rule was first proposed, John Barkett, senior director of policy affairs at Willis Towers Watson, in Washington, D.C., called it the first legal framework for employers that want to contribute to employees’ purchase of health insurance but not to pick the plan. He added that this model could lower costs for employers if they find and adopt plans from the individual marketplace that would be attractive to employees and cost less than the group plan they have today.

A press release from the departments says the HRA rule makes it easier for small businesses to compete with larger businesses by creating another option for financing worker health insurance coverage. The rule enables businesses to better focus on serving their customers and growing their businesses, vs. navigating and managing complex health benefit designs.

Additionally, the HRA rule increases workers’ choice of coverage, increases the portability of coverage, and should generally improve workers’ economic well-being. The rule will also allow workers to shop for plans in the individual market and select coverage that best meets their needs. Because HRAs are tax-preferred, workers who buy an individual market plan with an HRA receive the same tax advantages as workers with traditional employer-sponsored coverage. Further, by increasing employee options and empowering more people to shop for health plans in the individual market, the final rule should spur a more competitive individual market that drives health insurers to deliver better coverage options to consumers, the departments say.

The departments estimate that, when employers have fully adjusted to the rule, the expansion of HRAs will benefit approximately 800,000 employers, including small businesses and more than 11 million employees and family members, including an estimated 800,000 Americans who were previously uninsured.

An unpublished version of the final rule is available for download here. A Q&A about the final rule is here. And a model notice can be viewed here.

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Categories: Financial News

Investment Product and Service Launches

Thu, 06/13/2019 - 18:32

Art by Jackson Epstein

LGIMA Builds ESG Strategy for DC Plans

Legal & General Investment Management America (LGIMA) has launched the Legal & General Future World Developed Climate Change Strategy. Developed for U.S. clients who want to express a conviction on environmental, social and governance (ESG) themes depending on their different investment styles, this is the first in LGIMA’s Future World Strategy series.

The strategy is now accessible in the client’s U.S. defined contribution (DC) program as an investment option that specifically considers climate risk factors and related economic opportunities. 

Tracking a FTSE Russell Index, the strategy invests in a globally diversified portfolio of developed market equities. It uses an equity index to reduce exposure to companies with carbon emissions and fossil fuel assets that are higher than industry peers, and increases exposure to companies that generate revenue from green products. The strategy has been constructed to be a core, long-term equity holding opportunity for qualified retirement plans. 

“We are seeing increasing demand for straightforward investment strategies that efficiently balance risk and return while explicitly helping the world transition to a low carbon future,” says LGIMA CEO Aaron Meder. “The Future World Developed Climate Change Strategy meets this demand, at a low cost, with conventional index characteristics.”

Russell Investments Announces Tax-Managed Fund for Long-Term Investors

Global asset manager Russell Investments has launched the Russell Investment Company Tax-Managed Real Assets Fund for long-term investors who seek to diversify their portfolios with real assets and reduce the impact of taxes on their investment returns. Focusing on U.S. real estate, global infrastructure and global natural resources, the new fund aims to offer equity-like returns over a market cycle while mitigating downside risk relative to equities. The fund also implements tax-optimized strategies such as tax-loss harvesting, turnover management and yield reduction with a goal to manage the inherently higher tax implications in the real assets sector.

“Our research indicates real assets can offer attractive returns while exhibiting low correlations to global equities and acting as an effective diversifier within a broader portfolio context,” says Patrick Nikodem, portfolio manager at Russell Investments. “With the firm’s deep experience in both tax-aware investing and management of real asset portfolios, we expect our tax-managed real assets solution will help clients meet their desired investment outcomes.”

For investors concerned about potential weakness in the U.S. and global equity markets, Nikodem adds he believes real assets have the potential to offer some measure of downside protection in difficult environments while still capturing the majority of upside through a full market cycle. In addition, real assets may help to protect against the impact of rising inflation.

The new fund combines carefully selected third-party investment managers who specialize in the real assets sector. At launch, the line-up features the following allocation: Deutsche Asset Management manages an assignment for U.S. real estate investment trusts (REITs) exposure; Colonial First State Global Asset Management has a global listed infrastructure assignment; Grantham, Mayo, Van Otterloo & Co. has a global natural resources assignment; and Russell Investment Management, LLC manages tax-optimized and positioning strategies.

Regarding the implementation of tax-optimized strategies, Frank Pape, senior director, North America Portfolio Consulting Group at Russell Investments says, “While real assets play an important role in a multi-asset portfolio, taxes in this sector can present a drag if not addressed in tax-smart ways. Many miss the diversification real assets can provide. With our centralized trading and implementation capabilities, we maintain an overarching tax-managed view at the total portfolio level and implement steps to keep a close eye on after-tax outcomes.”

FTSE Russell Introduces Preliminary Report of Indexes’ Reconstitutions

FTSE Russell posted its official preliminary lists of companies set to enter or leave the U.S. broad-market Russell 3000 Index and the Russell Microcap Index following completion of the annual Russell U.S. Indexes Reconstitution. The rebalance will take place after U.S. equity markets close on Friday, June 28. The lists of 166 projected additions and 157 projected deletions for the Russell U.S. Indexes are now available on the FTSE Russell website.

For the first time since it took the top position in 2012, Apple, Inc. will not be the largest stock in the Russell U.S. Indexes. Apple lost 2.1% of its value in the last year to become the third largest U.S. stock in terms of total market capitalization. Microsoft gained nearly 30% market cap to become the largest U.S. stock in the Russell U.S. Indexes at this year’s Russell Reconstitution with a total market capitalization of $974.2 billion as of rank day on May 10, 2019. Rounding out the tech-heavy top five stocks in the newly rebalanced Russell U.S. Indexes are #2 Amazon at $930.5 billion, #3 Apple at $907.2 billion, #4 Alphabet at $808.3 billion and #5 Facebook at $537.6 billion. Visa at #9 with a $351.2 billion market cap in this year’s reconstitution, is the only new entrant to the top ten largest U.S. stocks, replacing Bank of America.

Uber, Lyft and Spotify headline a notable list of companies expected to directly enter the U.S. large-cap Russell 1000 Index at this year’s Russell Reconstitution. Uber and Lyft had recent high-profile IPOs and Spotify (a direct listing in 2018) is now eligible for inclusion as it meets the free float requirement. Beyond Meat and PagerDuty round out the list of four IPOs entering the Russell 1000 Index at this year’s Russell Reconstitution while 29 recent IPOs, mostly from the health care and financial services sectors, are expected to join the Russell 2000 Index.

The preliminary lists of additions and deletions are the first public step in the annual reconstitution process for the Russell U.S. Indexes. The first preliminary additions and deletions are published after market close on Friday, June 7, and updates to the lists will be posted to the FTSE Russell website after U.S. market close on June 14 and 21. If any changes to membership occur during the query period, daily technical notices will be published to the FTSE Russell website between these dates.

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Categories: Financial News

Pennsylvania Law Requires Multiple Providers for School District 403(b)s

Thu, 06/13/2019 - 17:47

An act inserted into Pennsylvania’s Public School Employees’ Retirement Code requires school districts, beginning July 1, 2019, to have a minimum of four separate “financial institutions or pension management organizations” for each 403(b) plan sponsored.

The term “financial institutions or pension management organization” is intended to include providers of an annuity contract or custodial account, according to a Pennsylvania government website

The Retirement Code also requires the Pennsylvania State Employees Retirement System (PSERS) to select three “providers of investment options” for the School Employees’ Defined Contribution Plan, effective July 1, 2019. If one or more of the providers selected by PSERS for the DC plan is also a provider that has a contract with a school district for the school district’s 403(b) plan, then the school district is required to seek additional providers to ensure that the school district has four providers plus the provider that was selected to be a provider for the DC plan.  In other words, the school district must maintain four providers that are not also a provider for the DC plan.

For example, if PSERS offers providers A, B and C for the DC plan, and employer 1 uses provider C, it must choose four additional providers other than A, B or C for its plan.

K-12 public school 403(b) plans haven’t changed as much as plans in other 403(b) market segments—mostly keeping the multiple-provider model—but efforts have been made to encourage them to move to a single-provider model.

Some players in the K-12 403(b) plan marketplace say the traditional model—in which plan participants have individual relationships with advisers and the majority, if not all, of their retirement savings is in individual annuity contracts or custodial accounts—needs a revamp. Among their arguments, this camp says the traditional model leaves plan sponsors with an unworkable number of retirement plan providers serving the same plan. Participants also have too much choice and responsibility for investments and providers, and investment costs to participants are higher.

But there are others who argue that elements of the traditional model work best for K-12 school districts and their employees. They are not advocating for maintaining the status quo exclusively, but say plan sponsors can find a balance between old and new, and should look at all options to determine what is best for plan participants.

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Categories: Financial News

Vanguard Finds Positive Savings Behaviors by DC Plan Participants

Thu, 06/13/2019 - 17:40

Despite volatile U.S. equity markets in 2018, with the market declining by 6%, only 8% of participants in defined contribution (DC) plans served by Vanguard made one or more portfolio trades or exchanges during the year. The number of participants holding more than 20% of their account balance in company stock fell to 19%, down from 30% in 2009.

Jean Young, lead author of “How America Saves 2019” and senior research associate with the Vanguard Center for Investor Research, tells PLANSPONSOR that it is these balanced accounts, the fact that people generally tend to only look up their balances when they receive their quarterly statements, and their ongoing contributions, that keep investors in the markets during periods of volatility. Young also says that within the next month, Vanguard will be releasing a report looking at investors’ behavior during periods of market volatility.

In 2018, 33% of participants could have taken a distribution due to separation of service in the current or prior year, but 81% of these participants kept their assets either in the current plan, in a new plan through a rollover, or by moving the assets into an individual retirement account (IRA). In terms of assets, 96% of all assets available for distribution were preserved, and only 4% were taken in cash.

Young says people tend to take distributions when the plan only permits lump-sum distributions. Because plan sponsors typically negotiate much lower investment fees than people can obtain on their own, Vanguard is encouraging all of the retirement plan sponsors it serves to adopt ad hoc distribution options, to encourage people to remain invested in the plans after retiring.

“Plan design is undoubtedly the most powerful tool to drive improved savings behavior, but it is all the more promising to see participants taking positive steps on their own to secure their financial future,” Young says. “The trend toward preserving retirement savings upon separation of service is especially encouraging, as it shows participants are thinking long-term.”

The increased use of automatic savings features has helped more employees save at near optimal levels, and save more effectively, according to the research report. At year-end 2018, 48% of Vanguard plans had adopted automatic enrollment, and 66% of new entrants were enrolled via automatic enrollment. Forty percent of contributing participants in 2018 joined their plan under automatic enrollment.

Ninety-nine percent of all plans with automatic enrollment paired that with a balanced investment strategy, with 98% choosing a target-date fund (TDF) as the default.

Including both employee and employer contributions, the average 15-year total contribution rate in 2018 was 10.6%, while the median was 9.8%. Sixty-six percent of plans that use automatic enrollment pair that with automatic escalation.

At year-end 2018, 52% of all participants were invested in a single target-date fund (TDF), 3% in a balanced fund and 4% in a managed account program. Vanguard expects that by 2023, 80% of Vanguard participants will be enrolled in a professionally managed allocation. By year-end 2018, only 9% of participants have taken an extreme position, holding either 100% equities (6% of participants) or no equities (3%).

Ninety percent of plan sponsors offered a TDF at year-end 2018, up one-third from year-end 2008. Ninety-seven percent of Vanguard participants are in plans that offer TDFs, and 77% of participants use TDFs.

At year-end 2018, 71% of Vanguard plans had adopted the Roth feature, and 11% of participants were invested in such plans. In 2018, the average account balance was $92,148 and the median balance was $22,217. As more new plans with small balances converted to Vanguard in 2018, the average account balances declined by 11% in the year and the median account balances were down 16%.

In 2018, 13% of participants had an outstanding loan, down from 17% in 2014. The average balance was $9,900.

“Our research has shown plan sponsors have a continued commitment to improving plan design for participants which has led to positive results: increased participation, savings rates and improved portfolio construction,” says Martha King, managing director of Vanguard’s Institutional Investor Group. “Moreover, the greater adoption of target-date funds signals a shift in responsibility as participants’ investment decisionmaking is increasingly moving toward employer-selected investment and advice programs. We are actively using this research and other participant data to better understand the individual behind every financial decision in order to drive better retirement outcomes.”

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Categories: Financial News

Supreme Court Takes on Intel Case About ‘Actual Knowledge’

Thu, 06/13/2019 - 15:55

The U.S. Supreme Court has granted a petition for writ of certiorari filed by the Intel Corporation Investment Policy Committee asking the court to determine whether the provision of plan documents, in itself, creates for participants “actual knowledge” of an alleged fiduciary breach under the Employee Retirement Income Security Act (ERISA).

The lawsuit says Intel invested participant assets in custom-built target-date funds (TDFs), which included alternative investments, that have underperformed peer funds by approximately 400 basis points annually. The lawsuit claims automatic enrollment and a re-enrollment of existing participants resulted in more than two-thirds of participants being allocated to custom-built investments. The text of the complaint goes into great detail about why the plaintiffs believe hedge funds and private equity funds are inappropriate investments for ERISA retirement plans.

In April 2017, a federal district court judge found that claims against Intel Corporation’s Investment Policy Committee were time-barred under ERISA’s three-year statute of limitations. U.S. Magistrate Judge Nathanael M. Cousins of the U.S. District Court for the Northern District of California noted that actual knowledge exists when a plaintiff knows of the transaction constituting the alleged violation. He found that the plaintiff had actual knowledge of the facts underlying his substantive claims because financial disclosures sent to plan participants over the years provided information about plan asset allocation and an overview of the logic behind investment strategy.

However, the 9th U.S. Circuit Court of Appeals overturned the decision in December 2018 and remanded it back to the District Court, finding that the lower court used an errant interpretation of “actual knowledge.”

The appellate court’s decision says: “The lesson we draw from these cases is two-fold. First, ‘actual knowledge of the breach’ does not mean that a plaintiff has knowledge that the underlying action violated ERISA. Second, ‘actual knowledge of the breach’ does not merely mean that a plaintiff has knowledge that the underlying action occurred. ‘Actual knowledge’ must therefore mean something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.”

The court concluded: “In light of the statutory text and our case law, we conclude that the defendant must show that the plaintiff was actually aware of the nature of the alleged breach more than three years before the plaintiff’s action is filed. The exact knowledge required will thus vary depending on the plaintiff’s claim.”

Speaking about the case with PLANSPONSOR, Marcia Wagner, founder and managing partner of the Wagner Law Group, said there has been a longstanding split of authority among the circuit courts about the issue. “For example, the Court of Appeals for the 3rd Circuit and the 5th Circuit have held that ‘actual knowledge’ requires a plaintiff to know not only the facts concerning the conduct or transaction that constitutes the breach but also that these are actionable under ERISA. Other courts take the position that it suffices if the plaintiff has actual knowledge of the underlying conduct, but that it is not necessary for the plaintiff to have knowledge of the law,” she said.

Wagner added that the 4th Circuit has taken a flexible approach, concluding that the less complex the underlying factual transaction, and the more egregious the alleged breach or violation, the more readily a plaintiff may be found to have actual knowledge.

“It would be useful for the Supreme Court to address this underlying circuit court split,” she said. “What may be of concern to the Supreme Court, however, is that if the 9th Circuit Court view is accepted, it will be almost impossible to dismiss a claim on statute of limitations grounds at the motion to dismiss stage. That is, until a defendant has had the opportunity either on discovery or deposition to ask a plaintiff is he/she read and comprehended a document, defendant will lack the requisite information.”

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Categories: Financial News

BrightPlan Enhances Financial Wellness Platform

Thu, 06/13/2019 - 15:49

BrightPlan, a provider of financial wellness programs for the Fortune 1000, announced a series of enhancements to strengthen its platform.

The new functionality is said to promote smarter employee planning, investing and spending decisions. Via the company’s planning wizard, employees can receive personalized recommendations for selecting funds in their employer’s 401(k). Those with linked investment accounts can obtain investment insights, including portfolio analysis, and all can receive an analysis of their spending, in BrightPlan’s budgeting module.

BrightPlan brings together the benefits of both professional financial advisers and digital financial advice.

For employees, BrightPlan’s financial wellness platform delivers, in sum, CEFEX [Center for Fiduciary Excellence]-certified fiduciary advice, financial education, goals-based planning, automated investing, progress tracking, spending analysis, and help with debt reduction and budgeting.

For employers, BrightPlan provides an assessment of the state of financial wellness across their employee base and identifies ongoing opportunities to help employees increase their financial acumen. The platform provides objective data and insights, according to the company, that help employers adjust their benefit programs to alleviate workers’ financial stress.

“BrightPlan’s financial wellness platform helps power growth by increasing profitability and transforming a company into an employer of choice,” says Marthin De Beer, CEO and founder of the company. “In labor-constrained markets, a financial wellness program is a clear competitive advantage in retaining and attracting talented employees. The new capabilities in BrightPlan make the platform even more valuable to both employers and employees.”

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Categories: Financial News

PSNC 2019: Is It Time for an RFI/RFP?

Thu, 06/13/2019 - 15:16

From left: Dave Hulsen, Mike Lulofs, Jason K. Chepenik, Julie Doran Stewart, Photograph by Matt Kalinowski

“Going out to [request for information (RFI)/request for proposals (RFP)] is part of your fiduciary responsibility. It’s incumbent upon you to truly make sure you are evaluating your service providers, said Julie Doran Stewart, SVP, retirement plan advisory, Sentinel Benefits & Financial Group, to attendees of a panel discussion at the 2019 PLANSPONSOR National Conference.

At the same time, she said, be sure you speak with your current providers and ask them what is new, what other clients are doing, how else you should invest in the plan.

“Sometimes relationships get stale and it’s important that you remain vigilant. Make sure you hold providers accountable to bring in fresh ideas. Maybe they have other things to bring to you but they aren’t presenting to you at an RFP finalist presentation. Make sure you are asking for what is new as you go,” Stewart said.

How do you narrow down the pool of providers to cull down to the right number of parties?

The quest for the best recordkeeper leads down a path well-traveled by sponsors and their advisers or consultants. But it can be hard to identify clear areas of differentiation among the leading providers of recordkeeping services. “There are a lot of recordkeeper features that are commoditized,” according to Dave Hulsen, chief operating officer, RFP360. “Initially you have to make sure the provider’s base capabilities are good enough for you, and if so, you can jump right in with all of the great qualitative questions.” And by doing a quick RFI or doing some market checks through a third party you can check a lot of qualifications and move from a large vendor pool to a smaller pool.

To Jason Chepenik, managing partner, Chepenik Financial, there are several ways to narrow the search down, but if plan sponsors are really shopping, they need to get the prospective providers in the room and have some way to differentiate them. “Get them in the room and interview them—that makes for the most successful match,” he said.

It’s the people that make a difference when comparing providers, he added. “Whether it’s an advisory team or a recordkeeper, it’s the people that make a difference and you cannot always tell that on paper. You can’t tell how many accounts or how complex the accounts are of the person who will be your contact. And if they have 20 accounts, they’ll give you more attention than 100 accounts. And always document how you narrowed down the list.”

Stewart added that requesting a case study brings tremendous insight. “You want someone who understands your goals and objectives. Ask the provider how they have done something similar for another client maybe someone of a similar size or industry, for instance.”

Mike Lulofs, human resources director, Sumitomo Machinery Corporation of America and a 2019 PLANSPONSOR Plan Sponsor of the Year finalist said, “We’ve had the same recordkeeper and relationship manager for 18 years—though we have put out many RFPs. This ongoing relationship has helped us considerably as far as keeping new things working in the plan.”

“Because of the relationship we have with recordkeeper Principal, we learn about changes as they come to market—we don’t wait for an RFP. They know us so well and we know the capabilities they have and that helps us feel that we’re on the front edge of new things as they are made available,” he added.

How do plan sponsors use some of the new tools that help support a plan’s search?

Chepenik said he values tools such as RFP360. These tools really help with documentation and organization.

He continues, “On the recordkeeper side, your adviser should be able to tell you which are a good fit for your plan. Based on industry demographics, complexity and environment and that’s going to be seven or eight. Even with advisers, you can start with a list of seven or so and narrow it down to three or four. To go to 15, is too much. The person receiving it may be less interested in working with a client that sends out an RFP to too many providers and asks too many questions.”

Hulsen interjected that if an adviser recommends a short list of recordkeepers, for instance, plan sponsors should ask why those providers were chosen “If they can’t give you good, solid evidence, it makes me feel concerned. I’m not comfortable with an adviser suggesting a recordkeeper that they may have an exclusive relationship with,” he said.

What does a plan committee want to see their plan look like in the future? What drives you nuts about the plan currently? What’s working and what’s not? Stewart said, “Make sure you are baking that into the plan requirements. This is what I’d like to see in the future.”


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