Industry News

Pension Funded Status Jumped in April on Higher Treasury Rates - Wed, 05/02/2018 - 09:45

While volatility persisted during the month, April in the end delivered strong equity market gains and, thanks to favorable trends in interest rates, the funded status of U.S. pension plans jumped as a result.

According to LGIMA’s Pension Solutions Monitor Report for April 2018, the month of April brought plenty of sources of concern in terms of global and U.S. equity asset prices. Concerns mounted during the month about trade disputes and geopolitical tension, but investors still experienced positive price action as earnings, especially in the U.S., exceeded expectations.

“General confidence remains as global growth prospects appear steady,” LGIMA reports.

In terms of interest rate action, during April, the 10-year Treasury rate touched 3.0% for the first time since 2014, “as both headline and core inflation ticked slightly higher.”

“The U.S. Federal Reserve remains focused on wage growth as a primary driver of inflation, which also increased,” LGIMA explains. “With unemployment steady for the past few months, it is clear that Fed action will be centered around the inflation point. The market is currently ricing a 35% chance of a rate hike in May, but has priced in a June hike at a probability of about 93%.”  

On a slightly sour note, LGIMA reports U.S. long-duration credit “continued to leak four basis points wider in March, ending the month at year-to-date wides of 152 basis points.” New issuance was larger than expected, LGIMA says, and in the last few weeks there has been a “noticeable improvement in demand for credit from some of the key buyers that went missing in the first quarter.”

“One might think that high demand would continue to tighten spreads, but they continue to widen even as earnings continue to surprise on the upside,” LGIMA says. “Part of the problem may be that investors simply don’t believe improvement in demand will persist.”

Overall, however, credit spreads had a minimal impact on pension funding ratios over the month of April, the LGIMA Pension Solutions Monitor Report concludes.

In combination, these forces resulted in a 2% increase in average funded status during April, driven mainly by the increase in Treasury rates and positive equity returns. Overall, liabilities for the average plan were down 1.9%.

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Categories: Industry News

TDFs Can Provide Retirement Income as Part of ‘Auto Retirement’ - Tue, 05/01/2018 - 22:05

PLANSPONOSR: Why do you believe that target-date funds (TDFs) should incorporate retirement income components?

Anne Ackerley: I’d start by saying that we need to be thinking about retirement income solutions, in part, because future retirees will face a very different environment. BlackRock research finds that current retirees aren’t spending down their retirement savings very fast. A substantial portion of retirees today have 80% or more of their savings nearly 20 years into retirement. This can largely be attributed to the fact that retirees have benefited from additional sources of retirement income, like Social Security and strong equity market returns.

We believe the environment for future retirees will be different. The option to not spend down retirement assets will likely be off the table, so we need to help people understand how to spend in retirement.

Both plan participants and plan sponsors agree on this. Our annual DC Pulse survey found that 93% of participants are looking for guidance on how to spend their assets and 90% of plan sponsors feel responsible to help. That’s where target-date funds (TDFs) can provide a solution. Target-date funds have functioned as great products to help people save. Why not use this successful, existing product set to help people spend down their assets? We think this makes a lot of sense.

PS: Is this how you define “auto retirement”?

AA:  As we talk about it, “auto retirement” is the new frontier of auto features. Think about what has been successful in helping people save—plan design features like auto-enrollment and auto-escalation, paired with “set it and forget it” investment vehicles like the target-date fund as a qualified default investment alternative (QDIA). In other words, what’s worked has been a combination of tools and products that leverage what behavioral finance has proven to be true. People tend to be subject to inertia, so let’s make that work to their benefit, during accumulation and decumulation.

Auto retire applies these same principles to the spending phase. There will be a range of solutions. But we believe this new term calls for a combination of products, tools and technology to help participants translate a lump sum into a consistent stream of retirement income.

PS: How can plan sponsors make TDFs part of the “auto retire” framework?

AA: There are three things that plan sponsors can do to make a target-date fund part of an auto retire framework. First, when evaluating a target-date fund, they should look for one that is designed both for accumulation and decumulation of assets. Not all target-date funds are.

Second, plan sponsors need to make sure that their plans allow for periodic distributions. Very early, when 401(k) plans were first being started, plan sponsors set up their plans for a one-time lump sum. They need to go back to review their policies and work with their recordkeeper to make this adjustment.

Third, plan sponsors should think about a spending tool that can be integrated with the target-date fund. The BlackRock LifePath spending tool, for example, provides retirees with an estimate for how much they can spend in retirement each year. By putting in their age and retirement savings, a retiree immediately receives an estimate for current-year spending and its impact on their savings up until the age of 95. 

PS: How difficult is it for recordkeepers to support target-date funds that include a retirement income component?

AA:  Most plans today aren’t set up to allow for flexible distribution options. To enable that, plan sponsors can absolutely work with recordkeepers toward solutions that would allow retirees to automatically receive consistent income throughout retirement, including more frequent and periodic withdrawals.

PS: And what if the target-date fund includes a guaranteed income component in the form of annuities?

AA: The need for retirement income is going to result in a spectrum of products. The BlackRock LifePath funds, combined with a spending tool is one approach. Certainly, another could be to include some form of guaranteed income in the target-date fund. We currently offer the Lifetime Retirement Income product with annuities embedded. However, we are still in the early days of in-plan annuity use. Plan sponsors are only just starting to consider the full spectrum of options.

PS: What are the upsides and downsides of including an annuity in a TDF?

AA: The upside is that because participants have become very familiar with TDFs for the accumulation phase, we think that adjusting TDFs for retirees to help them spend their assets down is going to be a real advantage. As far as downsides are concerned, while our Lifetime Retirement Income product is straightforward, other TDFs with annuities embedded in them have been complex and require a fair amount of participant education.

PS: Are you finding that more plan sponsors are interested in retired workers remaining in the plan?

AA: Yes, particularly as more people are retiring every day. The benefit is that the employee continues to enjoy institutional pricing. And certainly the fiduciary rule, while it is going through some changes, has put a focus on what happens to assets in retirement.

More and more plan sponsors and participants are focusing on what happens in retirement. Our DC Pulse survey found that nine in 10 plan sponsors feel responsible for helping people with their retirement planning needs, and 93% of participants want more guidance. Across the industry, there is more focus on how to manage retirement income, and BlackRock believes target-date funds can offer a good in-plan solution.

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Categories: Industry News

The Real Retirement Crisis: Assessing Retirement Savings Adequacy - Tue, 05/01/2018 - 19:26

Andrew G. Biggs, resident scholar at American Enterprise Institute, told attendees of the Plan Sponsor Council of America (PSCA) 71st Annual National Conference, that for most of his 20 years in the retirement industry, if someone had asked him if Americans are undersaving for retirement, he would have said they were.


However, he’s been looking at the research and claims that indicate there is a retirement crisis in America and suggests they are understating what Americans will have for retirement income and overstating what they will need. “The outlook is more positive than what the stories tell,” he said.


Biggs said retirement planning is about maintaining a person’s standard of living from work to retirement, and keeping consumption smooth over time. Total retirement savings in public- and private-sector retirement plans, individual retirement accounts (IRAs), annuities and Social Security income is about $48 trillion. According to Biggs, academic studies report a retirement savings gap of around $1 trillion; the Center for Retirement Research (CRR) estimates it at approximately $6 trillion and the National Institute for Retirement Security (NIRS) says it is $14 trillion.


Biggs argued that the Current Population Survey (CPS) on which many research studies are based is a “terrible source of information about retirement income.” This is because it counts regular payments, such as monthly Social Security benefits or monthly payments from annuities, or pensions as income, but if someone takes irregular payments, such as withdrawing from a defined contribution (DC) plan only when funds are needed, that is not counted as income. “The CPS only captures 58% of retirement income that Americans actually report to the IRS,” he says.


Data from the Internal Revenue Service (IRS) and the Census Bureau shows that the percentage of households receiving income from private retirement plans doubled from 1984 to 2007. According to IRS data, poverty in retirement is falling. “That is success,” Biggs said.


In addition, the Social Security Administration reports that one-third of retirees depend on Social Security for 90% of their retirement income. However, according to Biggs, research from economists Josh Mitchell and Adam Bee, using IRS data, shows only 18% of Americans are highly dependent on Social Security for retirement income, and only 12% receive 90% of income from Social Security. These economists find that a typical retiree has 114% of replacement income five years before claiming Social Security.


Biggs also noted that some studies say if retirees don’t have annuity payments, they will spend their money down and not have enough to last through retirement; however, government research shows that for people who retired in the 1920s, their net worth increased over time. “This is because people tend to spend less in retirement—they’re not buying houses or expensive cars,” Biggs said. “Most retirees are savers. They’re not drawing down retirement savings, but building up their assets. There are exceptions, but this is the trend.”


There is also the claim that health costs eat up retirees’ savings, but Biggs pointed out that the Consumer Expenditure Survey found health outlays are essentially flat over the years in retirement. Other surveys show the median household spends only $7,000 in long-term care. “Medicare does pay some, and other benefits may pay some,” Biggs said. “If health care costs were going through the roof, we would see more retirees file for bankruptcy, but the data shows more employees than retirees file for bankruptcy.”


According to Biggs, Federal Reserve data shows retirement savings are at record levels. Americans saved an average of 6% in 1975, but in 2013 was 8%. Biggs said this may seem small, but “if you go through life saving 8% versus 6%, you will have 33% more retirement income.”


He also noted that there are now two parties contributing to Americans’ retirement savings, the employee and the employer, where before it was only the employer. “Everyone talks about the good old days of DB [defined benefit] plans and the retirement crisis is because of the switch from DB to DC,” Biggs said. “But, at the peak, only 39% of Americans participated in a DB plan and a Congressional study found only 10% of those who participated in a DB plan actually received a benefit from it. Whether one gets money from a DB plan depends on vesting and funding.”


Biggs noted that Employee Retirement Income Security Act (ERISA) requirements caused many corporate plan sponsors to move away from DB plans, and that is why there are still so many public-sector DB plans—no ERISA requirements. He also points out that “even the smallest estimates of underfunding of government DB plans are bigger than the largest estimates of undersaving by households.” He adds, “This does not tell me we need to shift retirement savings from households’ hands into the government’s hands.”


Biggs does not say that attempts to overcome the retirement savings “crisis” are necessarily bad, but they need to be considered. For example, a study of Federal employees automatically enrolled in the Thrift Savings Plan showed savings did increase, but debt increased even more. “We try to get the poorest to save for retirement, but do they need to?” he queried.


“We need a better analysis of retirement savings issues and to rely less on interest group studies,” Biggs said. “If today’s workers are saving well and today’s retirees are doing well, then my gut says tomorrow’s retirees will be ok.”


Biggs suggested some things that do need to be done to improve retirement savings adequacy:

Fix the big problems – Social Security, the Pension Benefit Guaranty Corporation (PBGC) and state and local retirement plans are facing insolvency. Biggs suggests Social Security be enhanced for the poor.

Pick the low- hanging fruit – He recommended making auto enrollment universal and raising the default deferral rate, but considering exempting low-income employees from auto enrollment.

Addressing expanding retirement plan coverage for employees – Biggs said multiple employer plans (MEPs) will help, but wonders whether we should embrace state-run auto-IRAs or a federal alternative for employees without DC plans.


“If there’s a case for the auto-IRA, it is for lower-income people to use that in order to delay claiming Social Security,” Biggs said. “Even if you’re in the category of someone whose projected longevity is lower, there is still a lot of uncertainty, so I think there is value in insuring yourself from poverty at the point of life when you have fewer options, so I think that is a case for delaying Social Security claiming.”

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Categories: Industry News

Paying for Health Care Costs in Retirement Is Biggest Fear - Tue, 05/01/2018 - 11:08

Americans are most concerned about paying for medical and pharmaceutical expenses in retirement, cited by 31%, according to Franklin Templeton’s “Retirement Income Strategies and Expecations (RISE)” survey. Americans’ second greatest fear is paying off debt (18%) and funding assisted living care (15%).

Forty-six percent do not know how they are going to pay for health care expenses in retirement. Sixty-two percent of younger Gen X women, those between the ages of 38 and 45, are worried about managing retirement income. By comparison, this is true for 45% of older Gen X women, those between the ages of 46 and 53.

Despite these concerns, 67% of Gen X women do not have a retirement income strategy that could last 30 years or more, compared to 55% of Millennial women and 51% of Baby Boomer women who say they lack such a strategy. If they have insufficient income, 58% of Gen X and 60% of Millennial women say they would delay retirement. But only 42% of Baby Boomer women would delay retirement in that circumstance.

Sixty-one percent of Millennial men are worried about short-term market volatility, compared to 40% of Gen X men and 50% of Baby Boomers. However, nearly 30% of younger Millennial men, those between the ages of 20 and 28, would consider a higher growth-oriented investment strategy should they be unable to retire as planned, whereas this is only true for 15% of Gen X men and 7% of male Baby Boomers.

Overall, 33% of Americans are worried about running out of money in retirement, outpacing health care concerns (26%) and having an inactive lifestyle (11%). Forty-nine percent say Social Security will be their top source for retirement income, followed by their workplace retirement plan (41%) and a checking and savings account (27%). While 62% say working with an adviser is critical for retirement planning,  only 29% are actually working with one.

“This year’s RISE survey findings really highlight how individualized a person’s retirement savings plan needs to be,” says Michael Doshier, vice president of retirement marketing at Franklin Templeton Investments. “The differences between generations, even among those of the same gender, show that comprehensive retirement planning requires a holistic view that incorporates demographic differences and short-term risk tolerances, as well as long-term goals.”

The RISE survey was conducted online among 2,002 adults in January by ORC International’s Online CARAVAN.

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Categories: Industry News

Report Lays Out Causes and Consequences of ERISA Lawsuits - Tue, 05/01/2018 - 11:01

Lawsuits against 401(k) plans have been on the rise in the past two years, according to a report, “401(k) Lawsuits: What Are the Causes and Consequences,” issued by the Center for Retirement Research at Boston College. In 2016 and 2017, there were 107 lawsuits filed, the highest since 2008 and 2009, when 169 lawsuits were filed.

The Center says it is important to understand the causes and potential consequences of these lawsuits, since 73% of workers in 2016 were offered a workplace retirement plan, up from a mere 12% in 1983—and 401(k) plans now hold over $5 trillion in assets.

Rather than spell out specific guidance on how plan fiduciaries should act, the Department of Labor (DOL) has historically emphasized enforcement over regulation and guidance, the Center says. This “means that fiduciaries are often left to guess what practices comply with ERISA [the Employee Retirement Income Security Act] and may only become aware of an alleged violation from a DOL investigation or lawsuit,” the Center says.

There are three main reasons for lawsuits, including inappropriate investment choices, excessive fees and self-dealing, the Center says. The DOL only says that fiduciaries should exercise a prudent process when selecting investments “so as to minimize the risk of large losses.” Lawsuits arise when funds persistently deliver poor performance compared to their benchmarks. Another issue arises when fiduciaries include the employer’s own stock in the 401(k) plan and it performs badly. However, in Dudenhoeffer v. Fifth Third Bancorp in 2014, the Supreme Court ruled that absent “special circumstances,” fiduciaries cannot be held liable for failing to predict the future performance of the employer’s stock, thereby setting a tough standard for plaintiffs to succeed.

Excessive fees are another reason for 401(k) lawsuits. Here, too, the DOL says fiduciaries should employ a prudent process, select funds that charge no more than a reasonable fee and periodically assess whether that fee is still reasonable by comparing the fees to funds with similar risk/return and asset class characteristics. However, in addition to this, the Center says, the fiduciary must ensure it has taken steps to select  the lowest-cost share class of a given fund. One way they can open themselves up to a lawsuit is by selecting a retail share class when an otherwise identical but lower-cost institutional share class is available.

Fiduciaries must also ensure that administrative fees, which include recordkeeping fees, are reasonable. They can do this by leveraging the plan’s size to negotiate lower administrative costs, ensuring that the plan’s recordkeeping fees do not subsidize services other than the retirement plan and asking the recordkeeper to offer transparency into the fees they charge.

In the case of self-dealing, this is when a fiduciary acts in their own best interest, rather than in the best interest of the plan and its participants. More than 40 financial firms’ 401(k) plans have been associated with lawsuits alleging self-dealing, i.e. choosing their own investment funds that had poor performance potential, excessive fees, or both. Since 2015, excessive fees and self-dealing lawsuits have dominated the lawsuits brought against 401(k) plans.

Consequences of litigation

As a result of these lawsuits, many retirement plans have gravitated to low-cost passive mutual fund options, which also track very closely to their benchmarks. In 2016, 24.9% of equity mutual fund assets were in index funds, a dramatic rise from 9.9% in 2001, data from the Investment Company Institute (ICI) shows.

Plans have also dropped specialty asset class funds, such as industry-specific equity funds, commodities-based funds and narrow-niche fixed income funds, as these potentially charge higher fees and carry highest investment risks.

Fiduciaries have also been demanding better fee disclosure from service providers, and this has resulted in lower fees. Additional ICI data shows that the average mutual fund fees as a percentage of assets for 401(k) participants has declined from 0.77% in 2000 to 0.48% in 2016.

However, one downside, the Center says, is that fiduciaries may stay clear of new innovations out of fiduciary fear, such as investment vehicles that provide lifetime income streams. “After all, offering an annuity option would involve more complexity than passive investments, and, thus, higher fees, and would require the plan to choose a provider, which itself entails more risk,” the Center says. Policymakers can counter this with more clarification on how plans can offer drawdown products while protecting themselves from litigation.

The full brief can be downloaded here.

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Categories: Industry News

Will Student Debt Repayment Support Become Table Stakes? - Tue, 05/01/2018 - 10:50

Student loan education, repayment and refinancing specialist CommonBond hosted a panel discussion about the topic of “the missing benefit,” by which it means payroll integrated student loan repayment and refinancing support for employees.

Journalists and financial industry professionals were invited in by the firm to hear speakers, including Heather Coughlin, U.S. solutions leader for financial wellness at Mercer, along with Naz Vahid, managing director and law firm group head at Citi Private Bank, and Tara Malone, vice president of employee benefits for Young & Rubicam Group. The panel spoke broadly about the student loan debt challenges facing workers across the United States, and they all agreed that both employers and employees will benefit from greater uptake in student loan repayment benefits.

According to the panel, the total amount of U.S. student loan debt has topped $1.4 trillion, including nearly $75 billion in “parent PLUS loans” taken out by individuals on behalf of their kids. In terms of workforce percentages, fully 72% of workers say they have outstanding student loans or had successfully finished repaying loans while working. While it’s probably not a surprise to hear that 59% of those ages 22 to 44 currently carry student debt, it is perhaps more startling to see that 21% of workers older than 45 currently have student debt. Other stats show 10% of individuals have both their own student debt and that of a friend or family member that they are responsible for, while 21% plan to take out debt in the next five years to help finance someone else’s education.

“These numbers show that student loan debt repayment is a universal workforce challenge,” Coughlin stressed, citing her own statistics from within the Mercer book of business. “It is not just an issue for Millennials.”

Nor is it only in lower-earning jobs and industries that individuals struggle to repay student debt. From her perspective working with law firm clients, Vahid suggested it is not uncommon to hear about younger married couples with more than $1 million in combined student loan debt. According to Common Bond’s survey data, twice as many people with student debt than without are worried about their personal finances, and across all generations, financial worries drop drastically for those people who do not have student debt.

Sharing her perspective as an active HR corporate professional, Malone suggested the impact of student debt is so pervasive and damaging that workers aren’t opting into traditional financial wellness benefits that highlight saving for the future. Sixty-one percent of survey respondents who say they worry about their finances regularly also say student debt has delayed or prevented them from saving for retirement.

Plugging for its own services, which include helping employers establish payroll integrated student debt repayment benefits, CommonBond experts suggested most financial wellness programs, as they have been rolled out so far, are tailored to workers without student debt. As CommonBond VP of Partnerships Leigh Gross pointed out, approximately four in five HR leaders reached for the survey indicate they are planning to make improvements to their employee benefit offerings within the next three years, but they are failing to take into account those with student debt.

“For workers ages 22 to 34, student debt significantly outranks retirement as the top financial concern,” he noted. “Those without student debt had a much different perspective. Retirement and health care were cited as their biggest financial stresses—as they should be.”

As the experts explained, there is something of a disconnection between what employers view as the most progressive and valued benefits, versus what employees want to see. Employers are proud of their offering of “general financial planning” and of “tuition reimbursement.” Yet employees across all age groups and industries with student debt consistently rank student loan repayment support ahead of tuition reimbursement and financial planning as a preferred benefit.

The speakers all indicated that offering student loan repayment is a tremendous way to improve the loyalty and employment longevity of Millennials—and to attract new talent of all generations in competitive industries. Currently only about 5% of employers in the U.S. offer any type of student loan repayment benefit, but Coughlin suggested Mercer believes this type of benefit “could soon become table stakes.” Tied to proper education and the availability of 529 college savings plans, the offering of student loan repayment support can help individuals as much or more than any other single benefit, she concluded. 

“More than 86% of employees who have student debt for themselves or others, or are planning to take out loans in the next five years, said they would be more inclined to stay at their current company if their employer provided monthly student loan repayment support,” Gross noted. “Additionally, 85% of those said they would commit to staying at least three years or more. Another 41% said they would stay at least until their loans were paid off.”

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Categories: Industry News

Investors Want Adviser Discussions to Expand Beyond Risk to Retirement Income - Tue, 05/01/2018 - 09:40

Investors are interested in discussing how they can protect themselves in times of market volatility, but they are also interested in discussing guaranteed retirement income, AXA found in a survey of more than 1,000 individuals and 300 financial professionals.

Seventy-nine percent of individuals are interested in learning about an option that offers principal protection and the potential for growth. However, only 50% of people say their adviser has discussed guaranteed lifetime income, whereas 80% say they have discussed risk tolerance.

When their financial professional brings up the topic of lifetime income, 56% of individuals rate them highly. When they do not, only 34% do so.

Additionally, the survey found that 66% of investors prefer investments with a certain return, 83% say that not losing principal is extremely or very important, 73% are concerned that their income will not last throughout retirement, and 92% expect inflation to negatively impact their retirement expenses.

“Financial professionals play a key role in supporting their clients in reaching their retirement goals,” says Kevin Kennedy, head of the individual retirement business at AXA U.S. “Clients want their financial professionals to move beyond the standard risk tolerance questionnaire and engage them in a thorough discussion of options, including income planning for health care expenses.”

The research also found that nearly 60% of individuals say they are only somewhat or not at all well prepared for a major health event and only 20% say their adviser has helped them estimate retirement health care costs.

“This research underscores financial professionals’ pivotal role in helping retirement savers to gain comfort around their ability to withstand market volatility and the potential role of high quality annuity products in helping to achieve financial security,” says Catherine Weatherford, president and CEO of the Insured Retirement Institute. “In return, financial professionals will be rewarded with higher client satisfaction.”

Greenwald & Associates conducted the survey in the fourth quarter of last year.

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Categories: Industry News

Post-Crisis Pension Portfolios Include More Fixed Income, LDI Strategies - Mon, 04/30/2018 - 13:12

CEM Benchmarking has published a new report analyzing corporate defined benefit (DB) plan investment trends since the financial crisis.

According to the analysis, faced with the dual goals of closing funding shortfalls and reducing pension plan risk, data from close to 100 U.S. corporate pension plan sponsors shows plan sponsors have chosen to retain much of the risk and to let funded status guide their de-risking programs.

While few plan sponsors would want to return to the dark days of late 2008 and early 2009, the analysis suggests that subsequent years have brought their own challenges for pension plans. Equity prices have strongly recovered, bringing some benefit to funded status, but the pension plan sponsors still have faced periods of unprecedented volatility, a prolonged slowdown in global growth, and historically low interest rates. Together, these factors have negated gains in equity asset prices and left many pension plans still far shy of a fully funded status.

“For the 69 U.S. corporate sponsors that participated in the CEM database in 2007 and 2008, the average decline in funded status over 2008 was 30%,” the analysis points out. “A quarter of the plans saw declines in excess of 37%; and fewer than 10% of plans remained fully funded on a U.S. GAAP basis at the end of 2008. Despite the relatively positive returns for many asset classes in recent years, the decline in interest rates has proven to be a large impediment to restoring the funded status of pension plans to pre-crisis levels.”

How have these factors impacted pension plan investment decisions? Strongly, according to CEM benchmarking.

“Since the financial crisis, the predominant investment theme amongst U.S. corporate plan sponsors has been to risk reduction, both on an asset only basis and also more importantly with reference to their liabilities,” the report says. “Consistent with the desire to reduce risk, U.S. corporate plan sponsors have greatly increased their allocations to fixed-income securities and reduced their exposure to public equities and in particular U.S. equities.”

Other data show corporate DB plans have slightly increased allocations to private assets. However, this increase is much smaller than that seen among U.S. public-sector plans over this same time period, CEM Benchmarking reports.

“Another factor that has been cited as holding back de-risking strategies is a reluctance by plan sponsors to de-risk plans while in a deficit, often expressed as not wanting to lock-in deficits,” researchers explain. “One investment concept that has gained prominence as a result, is the de-risking glide path, a formulaic evolution of a plan’s strategic asset allocation that gradually reduces risk as either funded status improves, interest rates increase or both. Thirty percent of U.S. corporate sponsors in CEM’s database stated that they had a formal de-risking glide path in place at the end of 2016.”

Of these plans, according to the report, the vast majority (72%) were based on funded status alone with the remainder based on both funded status and interest rates.

“Admittedly, fixed-income allocation is not a perfect proxy for LDI investing, as it does not capture the duration of the fixed income investments in relation to liabilities,” researchers conclude. “A better metric is hedge ratio, which we calculate as the dollar duration of a sponsor’s fixed-income assets divided by the dollar duration of the liabilities. While CEM did not collect the necessary data to calculate hedge ratios in 2007, the information is available for 2016. The theory behind de-risking glide paths would suggest that the correlation between funded ratio and hedge ratio should be stronger than that between funded ratio and fixed income allocation. The data reveals that there is in fact a stronger correlation between funded status and hedge ratio than for fixed income allocation.”

The full analysis is available for download here.

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Categories: Industry News

Hellman & Friedman Buying Financial Engines for $3.02 Billion - Mon, 04/30/2018 - 11:09

Hellman & Friedman has signed a deal to purchase robo adviser Financial Engines.

Hellman & Friedman, which owns Edelman Financial Services, will combine the two companies.

Financial Engines has $169 billion in assets under management. The company serves retirement plans at more than 750 companies. Edelman manages more than $21.7 billion for more than 35,000 clients.

“After a thorough assessment, the board has determined that this transaction represents a compelling outcome for our stockholders, customers and employees,” says Blake Grossman, chairman of the board of Financial Engines. “It recognizes the value of Financial Engines’ franchise and mission while providing stockholders with a substantial premium.”

Allen Thorpe, a partner at Hellman & Friedman, adds, “We look forward to further investing in Financial Engines to accelerate its growth and success.”

Ric Edeman, chairman of Edelman, says, “We are very excited to join forces with Financial Engines to serve more clients better than ever and to accelerate growth in the business.”

The transaction is expected to close in the third quarter, subject to approval by Financial Engines’ stockholders, regulatory approval and other customary closing conditions.

In 2015, Financial Engines purchased The Mutual Fund Store for $560 million in order to offer its clients more holistic advice. At the time, Financial Engines President and CEO Lawrence (Larry) Raffone said that robo and in-person advice are not mutually exclusive and that research his firm conducted indicates that even those interested in robo-advice value the human touch. In line with this, the following year, Financial Engines hired additional advisers around the country. Citing reserach from Aon Hewitt, the company noted that 54% of employees would like access to financial advice through the workplace. Additionally, Aon Hewitt’s 2016 Hot Topics in Retirement and Financial Well-Being report indicated that 89% of employers are likely to add or expand the financial well-being tools and services offered to employees this year.

In March, The United States District Court for the Northern District of Illinois, Eastern Division, ruled for the defendants in an Employee Retirement Income Security Act (ERISA) lawsuit filed by participants in the Caterpillar 401(k) plan against Aon Hewitt. Financial Engines was named in the text of the suit but was not formally charged as a defendant.

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Categories: Industry News

Tax Reform Could Impact Corporate Bond Supply, LDI Strategies - Mon, 04/30/2018 - 10:49

The latest Insights analysis published by Willis Towers Watson argues the 2017 tax reform law could have an enormous impact on pension fund credit portfolios, “one we believe has yet to receive the attention it deserves.”

According to Willis Towers Watson experts, while market participants have been focused on the benefits of tax reform for major risk assets, very few have taken into account the potential effects to their liability hedging portfolios. Among other likely outcomes, a reduction in top-line corporate taxes could decrease issuance of corporate credit, and in particular long-duration credit, described as “a key component to pension fund liability management.”

As the analysis spells out, the headline reduction of the corporate tax rate from a 35% maximum to a flat 21% has garnered much of the public’s attention since the passage of the Tax Cuts and Jobs Act in late 2017, “and rightfully so.”

“A lower tax rate affects the way companies manage their balance sheets as the relative attractiveness of financial engineering becomes less compelling and the value of issuing debt is reduced,” researchers suggest. “In addition, companies may no longer be incentivized to borrow over longer time horizons due to rising rates.”

Statistics in the report show how “issuance has tended to be inversely related to interest rates.”

“The combination of rising rates and a lower corporate tax could deter companies from issuing debt. While these dynamics may not take effect immediately, over the long term there is reason to believe that companies could deleverage as a result,” the analysis explains. “Similarly, repatriation offers companies the opportunity to bring cash traditionally held overseas back to the U.S. after paying a one-time tax rate. Companies that have assets tied up in other countries have typically been concentrated in select sectors, such as Technology and Pharmaceuticals, investing in short-term instruments, such as money market funds. Because they were unable to deploy the cash in the U.S., many turned to the foreign debt markets. It’s reasonable to anticipate that some portion of the funds eligible for repatriation will be brought back and made available to these companies. In doing so, the need for U.S. debt issuance is reduced.”

The analysis further argues that the reduction in allowance for interest rate deductibility could affect many lower-rated, high-yield companies.

“While not a part of the hedging portfolio, the high-yield market will help shape the new reality within credit as companies adjust their issuance patterns,” experts warn. “As such, it should be taken into consideration by investors as they review their portfolios holistically.”

Perhaps even more relevant for liability-focused investors such as pension funds or endowments are the findings regarding the U.S. corporate credit market and long-term debt. According to researchers, the U.S. corporate credit market “has witnessed tremendous growth following the global financial crisis of 2008, as companies have utilized historically low interest rates to issue long-term debt more cheaply.”

“As a result, long-dated corporate credit (securities with greater than 10 years to maturity at the time of data collection) has become a larger portion of the market as a whole, representing more than 30%, and has nearly tripled in size to more than $5 trillion as of December 31, 2017.,” the report explains. “While issuance is at an all-time high, spreads are near all-time tights, driven by investors’ search for yield. The U.S. primary issuance market has been one of the largest benefactors of this trend as U.S. yields have still looked attractive relative to their global developed market peers.”

The report suggests “nontraditional investors have contributed in a meaningful way to a significant supply/demand imbalance in U.S. credit as new issues have been heavily oversubscribed.” Related to these trends, the analysis argues “there is sufficient reason to believe that the shift in dynamics associated with the aforementioned aspects of the new tax law could lead to lower issuance over the medium to long term.”

“On the surface, much of what has been discussed points to a scenario that is favorable for long-duration credit markets as demand should continue to outpace supply, a positive for bondholders,” the report explains. “However, we believe investors must also consider the risk that capital will become more difficult to deploy due to scarcity, leaving pension funds in a troubling situation.”

As demonstrated in the report, total U.S. defined benefit liabilities outstrip the overall size of the Barclays Long Credit and Long Government/Credit indices.

“Despite the staggering growth of credit markets discussed earlier, it’s evident that supply in the market is already a concern—without incorporating other market participants that traffic in long-dated bonds,” the report states. “Though it is not our base case, a tail risk is that a significant amount of defined benefit assets could flow into the asset class during a time when supply weakens.”

With all this in mind, the Willis Towers Watson researchers present various “opportunities outside of traditional hedging assets other than long corporate credit that may be added to the hedging portfolio to help provide a diversifying source of long-term credit premia,” without major administrative burden. Explored in detail in the report, some of these include securitized credit, private credit and tax-exempt municipal bonds.

In conclusion, the experts say they believe that tax reform will be “transformational for credit markets,” and defined benefit pension plan sponsors need to ensure that they are prepared to confront the challenges that could arise.

“We have outlined a scenario in which corporate credit supply, particularly on the long end of the curve, could become strained during a time when these same assets could see rising demand. In this scenario, many plans may have unintended risks embedded in their hedging portfolios as a result of under-diversification that could lead to issues down the road,” the paper warns. “The part of their portfolio that is supposed to be sleepy could turn out to be anything but, and the consequences could be material.”

The full analysis is available for download here.

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Categories: Industry News

‘Peeps’ Candy Company Loses Appeal in Multiemployer Pension Funding Case - Mon, 04/30/2018 - 09:13

The United States Court of Appeals for the 4th Circuit has ruled against Just Born II, Inc., a food manufacturer known for producing Peeps marshmallow candy, in a complex case involving the company’s participation in a financially stressed union pension.

The decision comes on an appeal out of the United States District Court for the District of Maryland. Just Born II had appealed the district court’s judgment requiring it to pay delinquent contributions into the Bakery and Confectionary Union and Industry International Pension Fund, a multiemployer pension fund, as well as interest, statutory damages, and attorneys’ fees.

On appeal, the candy company contended that the district court misapplied the federal statute governing multiemployer pension funds in critical status and, second, that the court erred in holding that it had failed to plead adequately its affirmative defenses. For reasons laid out in a 20-page decision, the circuit court fully confirms the district court’s judgement.

Background information provided in the text of the appellate decision shows Just Born and the Bakery, Confectionary and Tobacco Workers International Union, Local Union 6, were both parties to a collective bargaining agreement governing employment at Just Born’s Philadelphia, Pennsylvania, confectionary plant from March 1, 2012, to February 28, 2015. The collective bargaining agreement, the decision states, required Just Born to contribute to the pension fund, which is an employee benefit plan and multiemployer pension fund governed by the Employee Retirement Income Security Act of 1974 (ERISA). According to the decision, these contributions were to be “paid from the first day the employee begins working in a job classification covered by” the collective bargaining agreement.

While the collective bargaining agreement (CBA) was still in effect, the pension fund’s actuaries certified it to be in critical status, a designation based on statutory guidelines indicating the potential that the pension fund’s assets and expected contributions would be insufficient to meet its projected future obligations. A critical-status designation triggers statutory safeguards, including the requirement that the plan sponsor “adopt and implement a rehabilitation plan” designed to return the plan to financial stability and bring it out of critical status.

As the plan sponsor, the Pension Fund’s Board of Trustees developed a rehabilitation plan as required for multiemployer plans that are in critical status. In late 2012, Just Born and the Union selected “a revised contribution schedule that, like the CBA, required Just Born to contribute for every hour or portion of an hour, beginning on the first day of employment, that a person works in a job classification that is covered by the CBA.” In addition, the revised schedule required Just Born to increase its contributions to the Pension Fund by 5% each year. The appellate decision points out that, as a practical matter, “because the CBA required Just Born to participate in the pension fund, the fund’s critical-status designation altered the nature of Just Born’s obligations not only under its agreement with the pension fund, but also under its CBA with the union.”

According to the text of the decision, Just Born contributed to the pension fund under the revised schedule “without incident” until negotiations for a new CBA with the union fell through.

“As part of the negotiations for a new agreement, Just Born demanded the new CBA not require it to contribute to the pension fund for newly hired employees. Citing concerns about the pension fund’s solvency and management, Just Born proposed to contribute to a separate 401(k) plan for such new employees, but to continue contributing to the pension fund—which was still operating under the rehabilitation plan schedules—for existing employees,” the decision explains. “The union would not agree to those terms, and, as a result, Just Born declared a good-faith impasse. Relying on the principle from federal labor law that permits an employer to act upon a good-faith impasse, Just Born unilaterally implemented the terms of its last, best offer to the union.”

Thus, while it continued to contribute to the pension fund under the rehabilitation plan for existing employees, Just Born contributed nothing to the fund for newly hired employees. Instead, Just Born contributed to a separate 401(k) plan for any employee who began working after November 2, 2015.

This impasse lead to the initial challenge and decision in the Maryland district court. In its amended answer to the underlying complaint, Just Born denied the applicability of the contribution provisions and raised several affirmative defenses. Relevant to the appeal, Just Born contended that, once the CBA expired and the impasse occurred, it was not a “bargaining party” as defined by 29 U.S.C. § 1085(j)(1) and, thus, that the provisions cited did not apply to it. Further, Just Born asserted a series of affirmative defenses including “fraudulent and fraudulently induced material misrepresentation; fraudulent and intentional material misrepresentation; unjust enrichment; unclean hands; and an unspecified defense of legally defective and unlawfully imposed critical-status determination, rehabilitation plan, and revised schedule.”

According to the appellate decision, these defenses all “centered on the theory that the pension fund defrauded and deceived Just Born into accepting the critical-status designation and its consequences.”

With these arguments on the table, the pension fund moved for judgment on the pleadings on the issue of liability, and Just Born filed a cross-motion for judgment on the pleadings as to the entire case. The district court ultimately held in favor of the pension fund, concluding that Just Born was liable for contributions to the pension fund for its newly hired employees. Relying on a plain reading of the provisions in question, the district court concluded it requires bargaining parties to an expired collective bargaining agreement to continue making payments consistent with the previously adopted rehabilitation plan and schedule. The court rejected Just Born’s contention that the term “bargaining party” did not apply to it because the company was no longer a party to an operative collective bargaining agreement. Turning to the affirmative defenses, the district court held that Just Born had failed to plead any of them with the particularity required for fraud-based allegations under Federal Rule of Civil Procedure 9(b).

Even on a de novo review, the candy company has not met any more success pleading its case in front of the appellate court. While the appellate court sides strongly with the district court’s plain language conclusions, it does make an important caveat regarding Just Born’s actions: “Our interpretation of the provisions in no way limits the application of other ERISA provisions governing when and how an employer may withdraw partially or completely from an ERISA-qualified plan. See Borden, Inc. v. Bakery & Confectionary Union & Indus. Int’l Pension. Instead, our decision centers on what is required of employers who have not sought to withdraw, and who instead remain participants in the plan by virtue of an expired collective bargaining agreement. Here, Just Born has never sought to withdraw from the pension fund and our interpretation of the Provision does not limit its ability to do so. … Just Born is attempting a de facto partial withdrawal from the pension fund by not covering new employees, which could lead to a complete withdrawal eventually over time through the attrition of its older employees. In so doing, Just Born is seeking to circumvent both the critical status contributions for an expired collective bargaining agreement under the provisions and the withdrawal penalty under § 1381.”

On the affirmative defenses matter, the appellate court again sides strongly with the decision of the district court: “We agree with the district court’s reasoning that the Rule 9(b) standard applies to Just Born’s affirmative defenses and that Just Born’s allegations did not satisfy this standard. … Just Born’s amended answer failed to plead its allegations of fraud to support its defenses with sufficient particularity. … In addition, Just Born’s allegations do not explain why the complained-of changes were false or misleading. Put another way, Just Born failed to allege particularized facts demonstrating the requisite misrepresentations and deception to support its defenses. The mere fact of a change in actuarial assumptions or the motive for moving the pension fund into critical status does not suffice; instead, Just Born had to allege specific facts demonstrating that the alleged conduct causing the change was unreasonable.”

The full text of the opinion is available here.

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Categories: Industry News

Solution Targets Practical Employee Financial Literacy Gains - Mon, 04/30/2018 - 08:10

Resources Investment Advisors, Inc., a partnership of independent financial advisers based out of Overland Park, Kansas, is launching a new financial wellness solution called Financial Elements.

Going live on May 1, 2018, the program is meant to be “purchased by employers who experience the soft and hard costs of high-turnover, absenteeism and financial hardship of their employees.” According to the firm, the Financial Elements program breaks down challenging concepts into simple elements to increase financial literacy and reduce employee financial stress through education and behavioral coaching.

The rollout comes as financial stress among U.S. employees is reaching “epidemic proportions.” Survey data shows as many as 75% of Americans currently live paycheck to paycheck, while personal savings rates are at their lowest since 2007 and non-mortgage debt levels are higher now than during the Great Recession.

Data provided by Resources Investment Advisors, citing PwC’s latest employee financial wellness report, suggests more than half of employees are regularly stressed about their finances—and more than a quarter of financially stressed employees admit to being distracted at work. Notably, nearly half of distracted employees say they spend over three hours per week on personal finances at work.

“Financial Elements wellness program targets employees on an individual level to identify and change behaviors that impact each employee’s financial literacy and wellness,” the firm explains. “First, through an online assessment, mentors (financial professionals) identify the state of each employee’s financial health. Second, mentors who provide personalized financial guidance introduce ‘the human element’ by reaching out to employees to address elements such as budgeting, retirement planning, debt, and investment counseling. Finally, through periodic check-ins and goal setting, mentors assist employees in sticking to their financial plans, thereby changing behavior, and easing financial stress.”

Vince Morris, president and CEO of Resources Investment Advisors, says the program is unique in its utilization of technology and off-site mentors to work with employees.

Additional details about the program can be found at

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Categories: Industry News

SURVEY SAYS: 2018 Summer Vacations - Mon, 04/30/2018 - 04:30

Last week, I asked NewsDash readers, “Are you planning a stay-cation or vacation this summer?” I also asked them to share their favorite vacation destination.


Very few responding readers (2.6%) said they do not plan to take a summer vacation. Among those who plan to take a summer vacation, 7.7% will take a stay-cation, 10.3% will visit family or friends, 25.6% will go to a place where they can wind down, and 38.5% said they would do more than one of these.


Asked to share their favorite vacation destination, Destin, Florida; Hawaii; Colorado; the beach; and the Outer Banks of North Carolina, were repeats. Responses included:

  • Beach
  • Destin, FL
  • Aruba
  • Any place that is different!
  • Paris or Addis Ababa
  • Las Vegas for fun and surrounding areas like Red Rock for relaxation.
  • Anywhere with water: an ocean, a lake, a river, or all of the above.
  • Europe
  • Glenwood Springs, Colorado – world’s largest natural hot springs pool
  • Boating in the Gulf Islands in British Columbia, Canada.
  • Outer Banks, NC
  • Just about anywhere out west where the scenery is beautiful is my idea of a dream vacation. The mountains, Canyonlands, wild animals, wilderness…
  • Hawaii; Colorado and New York City
  • The Grand Tetons
  • Colorado. I love riding a motorcycle in the mountains. It reminds me of how insignificant I am in comparison to nature.
  • Hawaii, but my husband and I are using these last years before retirement to explore the world while we are still working and earning a paycheck
  • Rocky Mountain National Park
  • Cold climates with dramatic scenery – Iceland, Greenland, Alaska, Canadian Rockies
  • Cape May, NJ
  • York Beach, Maine!
  • British Columbia
  • Theodore Roosevelt National Park
  • Beach or mountains
  • My favorite vacation is where everyone gets along, and I get to sleep in!
  • St. George Island in Florida
  • Any Caribbean island, Kitty Hawk, NC, and Savannah, GA.
  • Kauai
  • Camping out west – Colorado, Montana, Washington, Oregon
  • Ocean Isle, NC
  • Canadian Rockies
  • Provincetown, MA on Cape Cod
  • A little cabin on a lake in upstate New York!
  • Ely, MN
  • Sanibel Island
  • My favorite vacation destination is going to a secluded beach and taking a nap on the beach. The family’s favorite vacation destination is Walt Disney World where it is the exact opposite.


In reader comments about summer vacations, a couple suggested that a “stay-cation” is not really a vacation or an opportunity to unwind. Many readers said they like to vacation at other times than the summer, and some noted that weekend trips can also be fun and relaxing. Because I live in North Carolina, Editor’s Choice has to go to the reader who said: “During the summer, I love the local opportunities around town like Carolina beach music concerts and Carolina shag dancing, summer festivals, etc. It gives you a time to wind down and relax on a weekday evening or weekend event that just makes the pressure and stress of the week easier to deal with.”


Thanks to all who participated in the survey!



One week on the beach. No computer. No cell phone. Nothing but a few good books. My brain needs to rest.

I like to go remote, out of the country, where the cost of WiFi is so egregious, it only makes sense to completely disconnect and leave everything behind – with the exception of my family (obviously).

It’s been a rough few years. I hope 2019 allows for true time off!

My favorite thing is to see new things. We aren’t really “sit around on the beach” people.

Those of us in the benefits industry are always under a lot of pressure. We wear many hats, are constantly under deadlines, deal with ever changing regulations and just in general are pulled in a lot of directions. An “unplugged” vacation is a must!

Now that the kids are all grown up and moved out, my husband and I have realized they don’t have to just be in the summer anymore!

Sorry but a stay-cation is NOT a vacation.

As a kid, our vacations were visits to relatives, most living a few hundred miles away. Occasionally we went camping. While I still visit relatives, I enjoy real vacations immensely.

Everyone needs one whether they think they do or not!

I have no kids so I prefer to travel during cooler, less crowded times

I have one of those jobs where vacation time is earned but can’t really be used. I have accumulated the maximum vacation hours but the work still must be done and no one as backup. I’ve not had a vacation in over 11 years. If I could, I would probably not vacation in the summer but in the off season to avoid crowds.

I love getting away and enjoying the sights of attractions in the U.S., but I am thinking I should go south for the winter instead.

My summer vacation this year will be spent moving into my new home! My West Coast vacation is being postponed until next Spring! Wins both ways!

During the summer, I love the local opportunities around town like Carolina beach music concerts and Carolina shag dancing, summer festivals, etc. It gives you a time to wind down and relax on a weekday evening or weekend event that just makes the pressure and stress of the week easier to deal with.

In addition to having fun, I know how important it is for my mental health to take time off and I don’t understand people who don’t use their vacation time!

With the exception of a long weekend to have fun, this year I will be doing grandma duty on my vacations. I love my kids and grandkids and can’t wait to spend more time with them, but I also miss the days of traveling to exotic and fun places.

Away…I need to go away.

I plan on taking a stay-cation for my birthday in May, and our trip vacation will be in the beginning of September.

We’ve done a staycation for the past couple years, and after a while the burnout reality sets in from failure to unwind. Staycations do not allow me to unwind, so this year we are going away,

I don’t believe there is a person alive who wouldn’t gain value from being around big trees (sequoias, redwoods, old-growth pines, etc.) at some point in their lives. It’s important to be humbled at least once by the sheer magnitude of life that large trees contain. Many places with such trees make fantastic summer vacation destinations!

I usually avoid them. Weekends here or there instead. Too many people/kids in summer. My vacation is actually 1st week of September still technically summer but less people, I hope.

I like to be productive during my PTO time. Every year I volunteer for a week with my church’s summer mission’s trip (this year we’re painting houses for individuals living at or near the poverty level)

Simply awesome – makes the rest of the year worth it!

Whether it is a vacation where we go somewhere else or a stay-cation to get things done around the house I always end up refreshed and ready to go!

My husband and I don’t usually do a summer vacation, we split 2 vacations up over the year (more like long weekends) so all the fun isn’t used up in the summer and you have something else to look forward to later in the year.

I enjoy staycations as well, just don’t have enough vacay time to do it all:)

We went camping with our oldest child when she was just 3 months old. Now that she is in her mid 20’s and expecting her first child, she and her husband are already planning their first camping trip after the baby is born. Runs in the family! What a great way to see this wonderful country, spend quality time with the family and enjoy nature.

My new favorite hobby is planning vacations. Love taking my boys to see new places.

Gotta have ’em!

Summer vacations are great for getting out and exploring the world around us. I like to travel locally to explore what is around my own state.



NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Strategic Insight or its affiliates.

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Categories: Industry News

Retirement Industry People Moves - Fri, 04/27/2018 - 13:08

Ascensus has appointed Bob Entringer and James Lucania to the board of directors for Ascensus Trust.

Ascensus Trust provides trust and custodial services to employee benefits plans across the nation, offering integrated solutions that increase efficiency and make it simpler for business owners to manage their plans. It is overseen by a seven-member board of directors, four independent and three internal.

Entringer joins the board as an independent director, with over 35 years of experience to his role. Prior to joining the board of directors, he served as Commissioner of the North Dakota Department of Financial Institutions, where he was responsible for regulating financial institutions, protecting the public, and ensuring that federal regulation did not infringe on state chartered institutions’ abilities to effectively serve their clients. Entringer replaced Clifton “Buzz” Hudgins, who retired from the board after serving since 1992.


Continuing independent board members include:

  • Marilyn Foss, general counsel for the North Dakota’s Banker Association, a director since 1987;
  • Jim Hambrick, senior vice president of Cornerstone Bank, a director since 2016; and
  • Sandi Piatz, site leader of Fargo, ND Microsoft Campus, a director since 2017.

Lucania joins the board as an internal member and will serve as chairman, bringing extensive financial services industry experience to his role. He currently serves as Ascensus’ chief financial officer. Continuing internal board members include Rick Irace, chief operating officer of the firm’s retirement division, and Brad Kraft, president of trust services

“We’re excited for Bob and James to join the Ascensus Trust board of directors,” says Bob Guillocheau, Ascensus’ chairman and chief executive officer. “Their industry experience and leadership skills will go a long way toward helping us shape policies that enhance the client experience and help more Americans save for life’s most important milestones.”

Goodwin Adds Partner to ERISA Team


Global 50 law firm Goodwin announced that Rachel Faye Smith has joined the firm’s Boston office as partner in the ERISA and Executive Compensation practice

“The demand for Goodwin’s employee benefits services remains strong across our key industries, including technology, life sciences and private equity,” says Scott Webster, chair of Goodwin’s ERISA and Executive Compensation practice. “This demand is driven in large part by the success of our portfolio company practice and the increasing complexity of retirement and health plans. Rachel’s range and depth of experience as a benefits lawyer enhances, complements, and ensures continued strength of our benefits offering. We are delighted that Rachel has chosen to join Goodwin.”

Smith represents a wide range of clients and business sectors, including both public and private companies, venture capital and private equity backed companies, and nonprofit, government, and religious organizations in the areas of employee benefits and executive compensation. She counsels on the establishment and operation of qualified plans, such as profit-sharing and 401(k) plans, 403(b) and 457(b) plans, as well as defined benefit (DB) pension plans and cash balance plans, and on the correction of compliance issues under the IRS Employee Plans Compliance Resolution System.

Smith regularly represents clients before the Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit Guaranty Corporation (PBGC) in the context of plan audits, compliance, and terminations. She also advises clients on employee health and welfare benefit plans, including issues relating to the Affordable Care Act (ACA), as well as on nonqualified deferred compensation (NQDC) arrangements. 

Smith received her Bachelor of Laws and Bachelor of Civil Law from McGill University, her M.A. from the International University of Japan and her B.A. from Wilfrid Laurier University. She is admitted to practice in Massachusetts.

AllianzGI Hires Head of Client Business for North America

Allianz Global Investors (AllianzGI), announced that Aiden Redmond has joined as the head of Institutional North America.

In this role, Redmond will lead the firm’s institutional client business in North America, with responsibility over developing AllianzGI’s overall marketing and business strategy, deepening existing relationships and building new business partnerships globally. He officially joined on April 17, reporting to Doug Eu, CEO US.

“AllianzGI has successfully created a cohesive institutional marketing and sales effort in the US, and I am pleased that Aiden has joined the team,” says Eu. “With more than two decades of experience in the institutional space, Aiden brings the necessary business acumen, people leadership and strategic mindset necessary to take AllianzGI’s efforts in this marketplace to the next level.”

Redmond most recently served as managing director and head of North American Institutional for Morgan Stanley Investment Management, where he oversaw North American sales and consultant relations and served as a member of the global institutional steering committee. Before assuming this role in 2014, Aiden spent three years at Delaware Investments/Macquarie Investments as a senior vice president and head of institutional, overseeing all aspects of the business, including sales, consultant relations and client service. Previously, Redmond was a managing director at Blackrock, overseeing several client channel businesses. Prior to Blackrock’s acquisition of Merrill Lynch Asset Management, he worked as a managing director within institutional sales. He began his career at Kidder Peabody in the retail funds group, and holds a bachelor’s degree from Boston College.

Global Services Professional Joins Fidelity

Fidelity Benefits Consulting appointed Iain Jones to the role of vice president, where he will serve as North America leader for its international benefits practice.

Jones has over twenty years of industry experience and joins Fidelity from Willis Towers Watson, where he led their Global Services & Solutions group for the western U.S. region. He has worked in multiple countries over his career, including the U.K. and South Africa, and will be based in Irvine, California. At Fidelity, Jones will report to Mark Sullivan, head of International Benefits Consulting.  

“Iain’s appointment is an important step in our strategy to further build out our U.S.-based international consulting team, and will strengthen Fidelity’s international benefit consulting offering,” says Sullivan. “It will ensure that our multi-national clients are fully supported in the creation and management of innovative international benefits programs that range from governance and strategy, driving financial and operational efficiency to supporting employee engagement through international financial wellness and wellbeing programs.”

Central to Jones’s role will be advising multinationals on development and deployment of global benefit strategies, while supporting risk mitigation and compliance assurance. His wealth of experience and expertise will enable Fidelity to extend and enhance these capabilities to better meet the needs of our multi-national clients.

“Our clients can be confident that, in the pursuit of the engagement and retention of talent, the international benefits solutions we work with them to create will ensure that we remain focused on their needs and those of their employees,” continues Sullivan. “I am delighted Iain has joined our growing team and look forward over the next few months to his support in adding other exceptional talent to our client-focused team.”

Findley Davies | BPS&M Brand Renames Due to Merge

Findley Davies | BPS&M has renamed as Findley, citing a recent merger as the cause for change.

According to Findley, the 2016 merger between Findley Davies and BPS&M (Bryan, Pendleton, Swats & McAllister), positioned the firm “for continued growth as a regional and national player in a rapidly changing marketplace.” Through the merger, the firm expanded its geographic reach in the U.S. to all 50 states, and deepened industry expertise within the employee stock ownership plans (ESOP) market and the government sector.

“One of our overarching goals during the integration of our two firms was to create a brand that represents our forward thinking vision for the future while exemplifying our culture, dedication to client service and expertise in the marketplace,” says John Weber, managing principal of Findley. “We’re pleased to roll out the Findley name as we continue our evolution with greater geographies, resources and breadth of services.”


Ascensus Acquires TPA Firm


Ascensus has entered into an agreement to acquire Benefit Planning Consultants, Inc. (BPC). Headquartered in Champaign, Illinois, BPC is a diversified third-party administrator (TPA) that provides retirement and consumer-directed healthcare (CDH) solutions. The firm assists businesses with the design, implementation, and administration of retirement plan services (such as 401(k), 403(b), 457, money purchase, profit sharing and employee stock ownership plans [ESOPs]) and benefit plan services (such as flexible spending accounts [FSAs], health reimbursement arrangements [HRAs], health savings accounts [HSAs], and COBRA).

BPC, which was founded in 1979, serves clients across the nation by providing retirement and benefit administration solutions. Its business practices, culture, and community involvement have earned accolades from numerous industry and business organizations for service. Most notably, BPC was among the first TPAs in the country to earn certification from the Centre for Fiduciary Excellence, LLC (CEFEX) for Retirement Plan Administration Service.

“BPC is a great fit for Ascensus from both business and cultural standpoints,” states David Musto, Ascensus’ president. “Designing benefit and retirement plans that meet the needs of companies and their employees while treating clients with the utmost care and respect is very much in line with our mission of helping Americans save for the future—BPC’s talented group of associates will no doubt be an outstanding addition to the Ascensus team.”

“With BPC, we are excited by the prospect of adding a hybrid TPA that provides a combination of retirement and CDH/benefit continuation services along with a fantastic service delivery reputation,” says Raghav Nandagopal, Ascensus’ executive vice president of corporate development and M&A. “We are committed to aggressively growing our CDH and benefit continuation offerings; adding BPC right after our acquisition of Chard Snyder fits this strategy.”

Bolton Concludes Rebranding Strategy

Bolton Partners, Inc., has announced that as part of its evolution, it has completed re-branding the organization to Bolton. Along with the updated brand name, Bolton has launched a new website, and have completed an organizational realignment to clearly distinguish its three primary service lines: Bolton Health, Bolton Retirement, and Bolton Investment.

Speaking about the announcement, Christopher Bolton, COO of Bolton, says, “Today is an important step for us as we continue to build on the successes and progression of the company over the past 37 years. Through organic growth, acquisition, and strategic partnerships we’ve expanded our geographic presence, expertise, and service lines to offer a more comprehensive solution set for our public and private sector clients.”

Geoff Adams, chief growth officer at Bolton, adds “The name change provides a foundation for the growth we expect in the next decade. Bolton has always been known as a leader in providing data-driven risk advisory and strategic business solutions for our clients; how we fulfill that mission has simply grown based on our clients’ needs, and their continued trust in Bolton to serve them in new ways.”

Founder Robert Bolton will continue to serve as chairman and CEO of the organization; Tom Lowman serves as chief actuary and president of Bolton Retirement; Mark Lynne is the president of Bolton Health; and Clyde Randall is chief investment officer of Bolton Investment.


Schroders Adds Three Professionals to Leadership Roles


Schroders announced that Marc Brookman has been appointed to the newly created role of deputy CEO, North America, effective this July.  

Brookman will take on direct management of all distribution, client service, product management and marketing responsibilities. He will be based in New York and report to Karl Dasher, CEO, North America and co-head of fixed income

Brookman will join from Morgan Stanley where he has been leading Graystone Consulting for eight years and served as head of institutional wealth services at Morgan Stanley for five years, with oversight of more than $400 billion in assets advised. 

Additionally, Schroders announces that Rock Wilkinson and Tiffani Potesta have been  appointed to new leadership positions. Wilkinson takes on the role of head of U.S. Institutional Sales which will oversee  broad institutional sales effort in the U.S. He will also continue to manage sales and relationship management activities in the Taft-Hartley channel. Potesta, head of wealth management solutions, will add leadership of the North American Alternatives Sales unit to her area of responsibility. With this, Potesta will oversee the effort to grow Schroders’ alternative investment client base in North America.

Ascensus Hires Head of TPA Solutions Team

Ascensus hired Jerry Bramlett as head of TPA Solutions. He will report to David Musto, president of Ascensus.

Bramlett will oversee the strategic direction for Ascensus’ newly formed TPA Solutions division. He will be responsible for P&L management, sales, services, operations, relationship and practice management, and employee engagement and talent management.

Prior to joining Ascensus, Bramlett was managing director at Sage Advisory Services and managing partner at Redstar Advisors. He cofounded The 401(k) Company in 1983, evolving the firm from a TPA to a leading full-service platform that included TPA, recordkeeping, and advisory capabilities. Bramlett has also served as president and chief executive officer of BenefitStreet and NextStepDC, as a defined contribution strategist for Dimensional Fund Advisors, and as a thought leadership contributor to NAPA Net.

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Prison Sentences Handed Down in DOL ERISA Fraud Case - Fri, 04/27/2018 - 10:11

An investigation by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the FBI has led to prison sentences for two former officials of Orlando, Florida-based First Farmers Financial LLC (FFF).

Both officials have entered guilty pleas for their involvement in the sale of $179 million in fraudulent loans to a Milwaukee company that provided investment services to 42 retirement plans covered by the Employee Retirement Income Security Act (ERISA). Following the guilty pleas, the U.S. District Court for the Northern District of Illinois sentenced former FFF President Timothy Fisher to 120 months in prison, two years supervised release, and ordered restitution of $27,651,838. Fisher pled guilty to money laundering.

According to the DOL and FBI, Fisher’s plea agreement follows the March 6, 2018, sentencing of former CEO Nikesh Patel, who pleaded guilty to five counts of wire fraud in connection with the sale of the loans. The court sentenced Patel to 25 years in prison and three years of supervised release, and ordered him to make $174,791,812 in restitution to the sham loan scheme’s victims, including 42 retirement plans.

As laid out in the course of the prosecution, between November 2012 and September 2014, Patel and Fisher produced false documents and sent them to the Milwaukee investment firm to support 26 sham loans, causing the firm’s clients—which included community banks, retirement plans, and municipalities and subdivisions in Illinois and elsewhere—to suffer $179 million in losses.

“The documents, which Patel submitted to the investment company, falsely created the appearance that FFF had lent money to borrowers in Florida and Georgia in amounts ranging from $2.5 million to $10 million,” DOL and FBI explain. “The documents also falsely indicated that the federal government guaranteed a portion of the loans through a program administered by the U.S. Department of Agriculture (USDA). In fact, the 26 loans had no actual borrower, no pre-existing loan, no government guarantee, and were completely fabricated.”

The investigation found Patel created fictitious business names and false USDA loan identification numbers, and forged the signatures of USDA employees and purported borrowers. He also assisted in creating false financial documents, including what purported to be a certified audit by a fictitious accountant that he submitted to the investment company to obtain the funds.

“By transferring money between inter-state accounts, he committed wire fraud,” DOL and FBI continue. “Fisher admitted in his plea agreement to creating and submitting documents to the USDA that falsely reported FFF’s financial stability, creating false financial statements for FFF, and transferring money knowing the funds were criminally derived.”

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IRS Reverses Change in HSA Limit - Fri, 04/27/2018 - 09:15
The Internal Revenue Service (IRS) has issued Revenue Procedure 2018-27 which allows the $6,900 limitation as the maximum deductible health savings account (HSA) contribution for individuals with family coverage under a high-deductible health plan (HDHP) who contribute to an HSA to remain in effect for 2018.

On May 4, 2017, the Department of the Treasury and the IRS released Revenue Procedure 2017-37, which provided that the annual limitation on deductions under section 223(b)(2)(B) for an individual with family coverage under an HDHP was $6,900. Subsequently, statutory amendments by “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018,” enacted December 22, 2017, modified the inflation adjustments for certain provisions of the Internal Revenue Code, including the inflation adjustments under section 223.

On March 2, 2018, the Treasury Department and the IRS released Rev. Proc. 2018-18, to reflect the statutory amendments to the inflation adjustments under the Act, reducing the annual limitation on deductions under section 223(b)(2)(B) for an individual with family coverage under an HDHP to $6,850 for 2018.

The IRS says it is reversing the change to the limitation because stakeholders informed it that implementing the $50 reduction to the limitation would impose numerous unanticipated administrative and financial burdens. Specifically, stakeholders noted that some individuals with family coverage under an HDHP made the maximum HSA contribution for the 2018 calendar year before the issuance of Rev. Proc. 2018-18, and that many other individuals made annual salary reduction elections for HSA contributions through their employers’ cafeteria plans based on the $6,900 limit. Stakeholders informed the IRS that the costs of modifying the various systems to reflect the reduced maximum, as well as the costs associated with distributing a $50 excess contribution (and earnings), would be significantly greater than any tax benefit associated with an unreduced HSA contribution (and in some instances may exceed $50).

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Mutual Fund and ETF Costs Continue Downward Trend - Fri, 04/27/2018 - 09:11

Morningstar’s Annual U.S. Fund Fee Study found the asset-weighted average expense ratio across U.S. open-end mutual funds and exchange-traded funds (ETFs) was 0.52% in 2017, an 8% decline from 2016.

This 8% year-over-year decline is the largest recorded since Morningstar began tracking asset-weighted fees in 2000. Morningstar estimates that investors saved more than $4 billion in fund fees in 2017 by continuing to gravitate toward lower-cost funds. This year’s asset-weighted average expense ratio is down from 0.56% in 2016 and 0.63% three years ago.

“This trend toward lower-cost funds should have an exponentially positive impact on investors’ returns in the future because costs compound over time and eat into investors’ nest eggs,” says Patricia Oey, senior manager research analyst for Morningstar. “Our data shows that the cheapest 20% of funds raked in nearly $1 trillion last year while the rest of the industry saw net outflows of approximately $250 billion. The message investors are sending is crystal clear—cost counts.”

The asset-weighted average expense ratio for passive funds fell to 0.15% in 2017 from 0.16% in 2016, a 7% decline. Morningstar says this reflected strong flows into the lowest-cost passive funds, as well as fee cuts by some asset managers for widely held, broad index funds.

The asset-weighted average expense ratio for active funds was 0.72% in 2017 from 0.75% in 2016. This 4% decline was the largest annual percentage decrease in more than a decade and Morningstar says it was driven primarily by large net flows from expensive funds to cheaper funds and secondarily by fee reductions.

The full study report may be downloaded from here.

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One-Quarter of Employees Do Not Know How Much They Need to Save for Retirement - Fri, 04/27/2018 - 09:08

More than half (53%) of workers ages 60 and older say they are postponing retirement, with 57% of men putting retirement on hold compared to 48% of women, according to a CareerBuilder survey.

Four in 10 workers don’t think they’ll be able to retire until age 70 or older.

Approximately one-quarter (24%) do not know how much they will need to save for retirement. Women are much more likely to be unsure of how much to save than men—31% vs. 17%, respectively.

When asked how much money they think they’ll need to save in order to retire, workers said:

  • Less than $500,000: 20%;
  • $500,000 to less than $1 million: 31%;
  • $1 million to less than $2 million: 14%;
  • $2 million to less than $3 million: 5%; and
  • $3 million or more: 7%.

When asked if they are currently contributing to retirement accounts, roughly one in four workers ages 55 and older (23%) said they do not participate in a 401(k), IRA or other retirement plan. Among younger adults ages 18 to 34, 40% said they do not participate in a 401(k), IRA or other retirement plan.

The survey was conducted online within the U.S. by The Harris Poll on behalf of CareerBuilder among 809 employees ages 18 and older (employed full-time, not self-employed, non-government) between November 28 and December 20, 2017.

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Plaintiff in UPenn 403(b) Suit Asks for Amicus Briefs to Not Be Accepted - Thu, 04/26/2018 - 12:12

The plaintiff in a case challenging the management of the University of Pennsylvania’s 403(b) plan has filed an opposition against amicus curiae briefs filed in support of the university.

According to the court document, these briefs, if accepted, would greatly expand the scope of the factual and legal arguments that the plaintiffs must address within the 6,500-word limit allowed for their reply brief. “Instead of responding to a single 11,592-word brief, Plaintiffs would have to respond to briefs totaling nearly 28,000 words,” it states.

The plaintiff argues that under Federal Rules of Appellate Procedure, typically, the option of filing a reply brief provides the appellant more total words than the appellee. Accepting the briefs would provide defendants with an 8,000-word advantage.

The court document notes that although a 3rd U.S. Circuit Court of Appeals decision in Neonatology Assocs., P.A. v. Commissioner disapproved a “restrictive” approach to granting leave to file amicus briefs, at issue there was a motion for leave to file a single amicus brief. “That opinion did not address the potential prejudice to the opponent of allowing numerous amicus filings which effectively multiply the arguments on one side of an appeal while diluting the opponent’s ability to adequately respond,” it states.

In addition, the plaintiff argues that all three proposed briefs seek to inject irrelevant issues that are not before the court because they were not raised in the defendants’ opening brief. The opposition document says TIAA’s proposed filing simply disputes the truth of the plaintiffs’ allegations regarding TIAA’s products and services, and thus is irrelevant to the legal sufficiency of the plaintiffs’ allegations.

The plaintiff says the proposed brief of the American Council on Education argues for a fiduciary standard that is inconsistent with the standard advocated by the defendants. The opposition document contends that the council suggests that, in light of historical differences between 403(b) plans commonly offered by universities and 401(k) plans commonly offered by for-profit companies, courts should apply a different Employee Retirement Income Security Act (ERISA) fiduciary standard to fiduciaries of 403(b) plans.

The plaintiff argues that the proposed Chamber of Commerce brief urges the court to extend to ERISA fiduciary breach claims the “same approach to pleading” adopted in the context of “antitrust, retaliation, supervisory liability, RICO, and securities,” and the defendants do not advocate for the adoption of pleading standards developed in disparate areas of law, so the proposed brief is irrelevant.

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Alight Solutions Introduces Customized Investment Product for DC Plans - Thu, 04/26/2018 - 10:46

Alight Solutions has introduced WealthSpark, a new solution that combines highly customized investment portfolios designed by AllianceBernstein (AB) with Personal Capital’s digital wealth management tools that offer greater into people’s financial picture. WealthSpark’s initiatives are to create easier means for workers to plan, save and invest smarter.

“We believe WealthSpark will be a bridge to connect people’s financial realities with their financial goals to truly help them thrive,” explains Alison Borland, executive vice president of defined contribution [DC] solutions at Alight. “Most default investment options do not recognize and appreciate the complexities of people’s individual financial situations or the competing priorities they face through the course of their lifetimes.”

WealthSpark’s investment recommendations are based on up to 18 individualized data points cultivated through Personal Capital’s technology, including individual financial situations, investment accounts outside their retirement plan, their partner’s financial situation and obligations like paying for a child’s college or elder care. The platform also helps workers better understand and make decisions about their personal finances from everyday budgeting to managing life events like paying back student loans, saving to buy a home or planning for retirement. WealthSpark can serve as the qualified default investment alternative (QDIA) in the employer-provided savings plan.

“We have more than a decade of experience designing custom glide paths for many of the largest U.S. defined contribution plans, and are excited to partner with two leaders in their respective fields to deliver this innovative solution,” says Jennifer DeLong, head of defined contribution at AB. “The solution combines asset allocation with technology to deliver a more personal participant experience. By better understanding a participant’s individual circumstances, we can create a series of optimized glide paths to tailor outcomes to participants’ unique financial objectives.”

More information about WealthSpark can be found here.

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