Industry News

DOL Proposes Rule to Permit Online Plan Disclosures

Plansponsor.com - Tue, 2019-10-22 13:47

The Department of Labor (DOL) has proposed a new electronic document disclosure rule that would permit retirement plan sponsors to make plan disclosures available online in order to reduce printing and mailing expenses.

The proposal would offer a safe harbor for those sponsors that want to make electronic retirement plan disclosures the default. Participants would be notified that information is available online, including instructions for how to access the disclosures and their right to receive paper copies of disclosures.

The proposal also includes additional protections for participants, such as standards for the websites where disclosures will be posted and system checks for invalid electronic addresses.

“This proposal offers Americans choice in how they receive important retirement information,” says U.S. Secretary of Labor Eugene Scalia. “By adjusting for modern technology, the Department can help save billions of dollars in costs for the U.S. economy. The U.S. Department of Labor is focusing on rulemaking that eliminates unnecessary burdens while furthering the needs of the wage earners, job seekers and retirees of the United States.”

DOL projects that the proposal could save $2.4 billion over the next 10 years. It is seeking input on the scope, content, design and delivery of the disclosure information. It notes that the proposal is in line with President Trump’s Executive Order 3487.

Chris Spence, senior director, government relations and public policy at TIAA, says his firm will issue a formal opinion on the proposal once it has been able to thoroughly examine it. “That said,” Spence adds, “we have been very supportive of enhancing electronic default delivery for a number of years and have been working closely with the SPARK Institute to advocate for improving electronic delivery, either through legislation or regulation.”

Edward Gottfried, group product manager at Betterment for Business, adds, “The DOL’s new electronic disclosure rule will not only reduce paper usage and cut significant costs across the industry, but will also be beneficial in making sure plan participants are updated on disclosures in a modern and timely fashion. This is an important step in modernizing the industry overall and giving participants more choices for how they access information. We’ve seen strong inclination from plan sponsors and their employees to provide as much documentation digitally as possible, and we’re glad that policy now reflects that opinion.”

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Categories: Industry News

Work Guilt Leading to Unused Vacation Time

Plansponsor.com - Tue, 2019-10-22 12:53

Nearly forty-four million working Americans report having seven or more paid vacation days left to use this year, and a commonly cited reason is work guilt, according to the 2019 Priceline Work-Life Balance Report.

Nearly one in five (18%) say they feel guilty taking a break from work, with the same percentage reporting that they are simply too busy to go on vacation.

More than half (55%) of American workers report having more than 10 paid vacation days available to them each year, and 53% of the 1,000 survey respondents say they typically leave available vacation days unused at year’s end. One-third of American workers report leaving at least half of their days unused.

When Americans do leave the office, many say that work follows them. Nearly one in three (29%) say their company, or their supervisor, expects them to be “available” while on break, while nearly one in four (38%) report they feel “pressure” to check email or voicemail while away. Fifteen percent of American workers say they end up working during some portion of every vacation they take.

The youngest respondents were the likeliest to report feeling guilty when using paid vacation time. Nearly half of Generation Z workers (47%) report feeling the most pressure to check email and voicemail while on vacation. Four in ten Millennials report feeling the same pressure, as do one-third (34%) of Generation X workers. Baby Boomers, at 24%, feel the least pressure.

Despite feeling this pressure, among those who expressed frustration over their use of vacation this year, one in three complained about spending too much vacation time engaged with work.

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Categories: Industry News

Actuary Groups Update Longevity Calculator

Plansponsor.com - Tue, 2019-10-22 12:26

The American Academy of Actuaries and the Society of Actuaries (SOA) have updated the jointly developed Actuaries Longevity Illustrator, a web-based tool that allows users to quickly generate an estimate of how long they might live in a few simple steps.

“With the Actuaries Longevity Illustrator, users can generate interesting results about the probabilities of living to different ages, which is particularly useful for understanding the risk of outliving income, or longevity risk, when planning for retirement,” says Academy Senior Pension Fellow Linda K. Stone.

Language on the illustrator website has been clarified to help users effectively use and understand its results, and back-end data and methodologies used to calculate results have been updated. The mortality tables used to generate the illustrator’s results have been updated from the U.S. Social Security’s 2010 to 2016 tables, and the mortality improvement scale has been updated from SOA MP-2015 to MP-2018. Changes have also been made to the factors used to adjust for smoking and health status.

While the increasing life expectancy is certainly worth celebrating, it’s important to note the risks associated with it. Aside from an expected imbalanced workforce, those retiring at age 65 will still be considered a long-term investor. Ed Farrington, executive vice president at Natixis, notes that for a couple retiring in their 60s, there is a high likelihood that at least one of them will be live well into their 90s. Therefore, this perception that near-retirees are short-term investors, who must invest conservatively, isn’t realistic anymore.

In addition, as people continue to live to older ages, the main challenges they face are high out-of-pocket medical expenses, the possibility of making financial mistakes due to declining cognitive abilities and the specter of widowhood.

To use the Actuaries Longevity Illustrator, an individual or a couple enters some basic information about themselves—including their age, gender, and general health status—and the tool generates easy-to-read charts showing the likelihood of living to certain ages. For instance, a couple can determine the chance of living a given number of years together as well as the likelihood that one or the other will survive additional years. The Actuaries Longevity Illustrator does not provide financial advice but the results can be useful for individuals or couples in understanding their financial needs in retirement.

“The Actuaries Longevity Illustrator adds an important perspective to the retirement planning conversation—namely, longevity risk,” says Lisa Schilling, SOA retirement research actuary. “It’s very risky to consider just one point in time for how long you’ll live. Instead, individuals and couples should look at the potential for either one or both of them to live to a variety of points and the associated risks they face.”

The tool may be accessed at www.longevityillustrator.org.

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Categories: Industry News

Executive Orders May Impact Retirement Plan Guidance

Plansponsor.com - Tue, 2019-10-22 09:27

According to a Groom Law Group Benefits Brief, on October 9, President Donald Trump signed two executive orders that will likely impact guidance and enforcement in the retirement and health arenas.

The first is an Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents, and the second is an Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication. The Groom attorneys explain that these Executive Orders build on recent memoranda adopted by individual executive agencies. These agency memoranda generally limit sub-regulatory guidance with the force and effect of law and signal that agencies should not bring enforcement actions absent an act violating a regulation that was subject to notice and comment or the text of a statute.

The attorneys say the Executive Orders are consistent with a Department of Justice (DOJ) memorandum from November 16, 2017, that announced an administration-wide policy against issuing guidance documents “that purport to create rights or obligations binding on persons or entities outside the Executive Branch,” the Benefits Brief says. The DOJ expanded its stance in early 2018 by limiting itself from using enforcement actions to convert agency guidance into binding rules. For the DOJ, guidance documents themselves can no longer provide the basis for proving violations of applicable law.

The Department of Treasury’s Policy Statement adopted on March 5, reiterates that sub-regulatory guidance does not have the effect of law and cannot be used to modify existing legislative or regulatory rules. The Department of Labor (DOL) did not issue a similar policy statement.

However, the DOL’s Employee Benefits Security Administration (EBSA) recently underwent a reorganization that some say will stem its practice of issuing sub-regulatory guidance and lead to more regulatory guidance. According to Michael Kreps, attorney with Groom Law Group in Washington, D.C., “There have been some public statements by DOL officials that they would like to help the industry by issuing more guidance and opening up a process that has been dormant for a while.”

The Guidance Executive Order adopts the policy that “agencies may impose legally binding requirements on the public only through regulations and on parties on a case-by-case basis through adjudications, and only after appropriate process, except as authorized by law or as incorporated into a contract.” It defines “guidance documents” broadly as “an agency statement of general applicability, intended to have future effect on the behavior of regulated parties, that sets forth a policy on a statutory, regulatory, or technical issue, or an interpretation of a statute or regulation,” but not including rules promulgated pursuant to notice and comment rulemaking and certain other rules, decisions and internal guidance.

The Guidance Executive Order imposes new procedural requirements on all agencies issuing certain types of guidance documents. Notably, existing sub-regulatory guidance must undergo review by the Office of Management and Budget (OMB). Further, any guidance document that an agency seeks to have remain in effect will need to be included in a single, searchable and indexed database on that agency’s website.  Agencies are also required to amend or finalize regulations that set forth procedures for issuing guidance documents themselves.

As a result of the Guidance Executive Order, the public will likely have a greater opportunity to petition an agency for changes to or the removal of a particular guidance document while the regulatory agencies will have less opportunity to respond to stakeholders by way of sub-regulatory guidance (which is generally not subject to notice and comment under the Administrative Procedure Act). The Groom attorneys say the new procedural requirements for significant guidance documents do not appear to apply to written agency responses to inquiries concerning compliance. That likely includes EBSA advisory opinions, IRS private letter rulings, and non-enforcement letters issued by the Securities and Exchange Commission.

The Enforcement Executive Order requires agencies, when taking administrative enforcement actions or engaging in adjudication, to “establish a violation of law by applying statutes or regulations.” An agency can only apply standards of conduct that have been publicly stated in a manner that would not cause “unfair surprise.”

Further, an agency must publish a guidance document in advance in the Federal Register or in the searchable database on the agency’s website if it wishes to cite the document for the legal applicability of a statute or regulation in an enforcement action or adjudication, the Benefit Brief states. 

This issue of taking enforcement actions when no standards of conduct exist has come up regarding the DOL’s perceived aggressive enforcement regarding missing retirement plan participants. In a public statement sent to the IRS and DOL, the Plan Sponsor Council of America (PSCA), a part of the American Retirement Association (ARA), said “there have been numerous reports of aggressive DOL enforcement activity, and sometimes inconsistent positions taken by DOL auditors, regarding how plan sponsors are handling missing participants. We have heard concerns from our plan sponsor members that they have been or may be subjected to enforcement actions even though the DOL and IRS have not issued comprehensive guidance on missing participants that provide a clear roadmap for compliance.”

“In the benefits context, it will be interesting to watch whether EBSA shifts its enforcement priorities to align with the policy of the Executive Orders,” the Groom attorneys say in the Benefits Brief. They also say there is a risk that all agency pronouncements will move more slowly if agencies are forced to show that the benefits of their sub-regulatory pronouncements outweigh their costs.

The Benefits Brief points out that Executive Orders remain in effect only as long as the President elects to retain them, so “a subsequent administration could rescind, modify, or reinterpret” them.

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Categories: Industry News

Cassell v. Vanderbilt University: Nonmonetary Remedies

Plansponsor.com - Tue, 2019-10-22 07:44

Most of the coverage on Employee Retirement Income Security Act (ERISA) class actions has been focused on settlements or dismissals. Sometimes, however, the most telling detail and the true value to participants in settlement agreements is in the nonmonetary terms. Ironically, the nonmonetary relief is a methodology modification.

Look at two claims in the case of Cassell v. Vanderbilt University.

Breach of fiduciary duty of prudence: The plan sponsor/investment committee did not apply a viable methodology to choose and review recordkeepers.

Plan sponsors/investment committee members must develop and evidence a methodology to choose and review recordkeepers. Like choosing investments, recordkeepers must be chosen with participant best interests in mind. The Vanderbilt settlement agreement mandates that the school’s retirement plan committee must request recordkeeping proposals that include what the fees are on a per-participant basis. It seems like a viable methodology would attempt to decouple recordkeeping costs from asset size, especially if no additional services are provided. Given the size of the plan, one would think this should have been part of its methodology in the first place. I think the recommendation by Jerry Schlichter, the plaintiff’s counsel, makes sense here: 

“… on or before April 1, 2022, the Plan’s fiduciaries shall conduct a request for proposals (“RFP”) for recordkeeping and administrative services for the Plan to at least three qualified service providers; the RFP shall request that any proposal for basic recordkeeping services express fees on a per-participant basis.”

In developing a methodology to choose recordkeepers, avoiding conflicts and other improper influences should be baked in. One must be particularly careful here because recordkeepers are making business decisions not fiduciary decisions. It’s no secret that recordkeeping fees are shrinking, especially for larger plans, so they may seek creative ways to achieve additional revenue streams. It becomes even more complicated, and worrisome, when a recordkeeper sorts through participants’ information and uses it to sell them additional unrelated services even though the participants never requested those services. The attorneys at Schlichter identify a protocol that can minimize such occurrences:   

“… Vanderbilt University shall inform Fidelity, the Plan’s current recordkeeper, that when communicating with current Plan participants, Fidelity must refrain from using information about Plan participants acquired in the course of providing recordkeeping services to the Plan to market or sell products or services unrelated to the Plan unless a request for such products or services is initiated by a Plan participant.”

Breach of fiduciary duty of prudence: The plan sponsor/investment committee did not apply a viable methodology to choose and review investments. 

Choosing recordkeepers, the appropriate recordkeeping cost structures, and investments can be a tricky proposition. These decisions should not be viewed in isolation, as they are interdependent and require diverse skill sets. Giving consideration to share classes with higher expense ratios should become highly unlikely if viable methodologies are applied to larger plans. When considering investments, in all cases, share classes with the lowest expenses have to be considered because they reduce participant returns the least. In most capitalizations, passively managed investment options with very low expenses consistently outperform their actively managed counterparts.

If passively managed investments with better performance at a lower cost to participants are available without revenue sharing and rebates, one may question any methodology that causes a plan to include revenue-sharing, rebates and an assortment of different share classes. And a second point to keep in mind: It can be difficult to explain in a way that can be understood multiple share classes to a retirement plan population, who have varying degrees of sophistication. It seems like it would only require the plan sponsor/investment committee to have additional skill sets and expose them to additional liability. As far as investments are concerned, the way the costs are structured and whether those trickle down to the participant to the detriment of his returns, is baked into the process of choosing the investment. Here, too, Schlichter’s team of attorneys has it right:  

“… throughout the Settlement Period, the Plan’s fiduciaries shall, when evaluating Plan investment options, consider the cost of different share classes available for the Plan’s current investment options, among other factors.”

Conflicts of interest, inappropriate share classes, and recordkeeping fees that may be related to plan size or the compounding returns participants receive, are all outcomes of highly questionable methodologies. All who have an interest in employer-sponsored retirement plans—especially plan sponsors—should pay attention to the nonmonetary terms in class settlements.

Neal Shikes, Chartered Retirement Planning Counselor (CRPC), and managing partner at MJN Fiduciary LLC (The Trusted Fiduciary), has 30 years’ experience in financial services, wealth management, portfolio construction, and fintech. He is also a consultant/expert to the financial services industry and the legal profession on matters concerning the Financial Industry Regulatory Authority (FINRA)/suitability and ERISA/fiduciary duty. He is a guest writer for financial publications, articles and blogs and has been referenced by think tanks and financial associations. 

This feature is to provide general information only, does not constitute legal or tax advice and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services Inc. (ISS) or its affiliates.

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Categories: Industry News

Ask the Experts – Reasons for Certain Retirement Plan Definitions of Compensation

Plansponsor.com - Tue, 2019-10-22 06:00

“I recently read your Ask the Experts column about the differences between 3401(a) “pay stub” compensation and W-2 wages as a retirement plan definition of compensation. I was hoping the Experts could elaborate as to why an employer would choose one over the other? I understand this may have to do with the other benefits the employer may offer to his/her employees.”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Certainly! As the column points out, these definitions are two of the more popular definitions plan sponsors use as their definition of compensation for retirement plan purposes, though it is possible to utilize other definitions as well. The primary difference between the two definitions is that 3401(a) compensation will include fewer pay codes than a W-2 compensation definition, because wages subject to withholding are generally only those wages included on an employee’s pay stub (in fact, 3401(a) compensation is sometimes known as “pay stub” compensation, as you labeled it in your question). Thus, compensation items that do NOT appear on an employee’s paystub but are included in year-end W-2 reporting, such as the taxable cost of group term life insurance in excess of $50,000, are NOT included in Section 3401(a) wages.

As you indicated, the decision as to which definition to use (or an alternate definition) would be somewhat dependent on the types of other benefits an employer may offer to his/her employees. If any employer does NOT offer any benefits that would not be listed on an employees pay stub, but would be listed on the year-end W-2 if offered (such as, for example, group term life insurance), then it is probably irrelevant as to which definition is used; just choose the one that is easier to administer for the entity that is calculating contributions to the plan. If the employer does have a lot of items that are added to the W-2 that are not present in “pay stub” compensation, it might be easier to communicate a 3401(a) “pay stub” definition of compensation, since contributions will correspond to employees’ pay stubs.  However, as noted, there are other factors which should be considered when making that determination.

Regardless of the definition chosen, someone should regularly review all of your pay codes to confirm that each pay type is properly included/excluded from the plan compensation definition, based on the definition of compensation that is being used.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

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Categories: Industry News

Putting a Price Tag on Workplace Financial Stress

Plansponsor.com - Mon, 2019-10-21 22:01

John Hancock Retirement this week offered PLANSPONSOR an early look at its forthcoming Financial Stress Survey.

The sixth annual edition of the survey shows more than half of employees worry at least once a week about personal finances while on the job, causing workplace distraction and a loss of productivity. This loss of productivity, combined with absenteeism from financial stress, has major impact on organizations, John Hancock finds.

In dollar terms, absenteeism and lower productivity tied to financial stress is costing more than an estimated $1,900 per year, per employee, and totaling an estimated annual loss of $1 million for midsized employers and $19 million for large employers.

Patrick Murphy, CEO, U.S. Retirement, says the survey report shows employers cannot afford to ignore their employees’ financial stress.

“Our 2019 Financial Stress Survey highlights a downward trend on retirement readiness and indicates participants’ financial situations are at risk, with 36% of participants responding they are not in a good financial situation,” Murphy warns. He points to other stats showing 71% of participants are worried about having financial difficulties.

“This is the most we have seen from this survey in the past six years,” Murphy says. “We must come together as recordkeepers, financial representatives, and plan sponsors to help participants plan for their future and better understand the underlying cause of stress and its effect on retirement savings.”

Some good news for employers is that the survey shows financial wellness programs, when properly structured and executed, may improve job retention, reduce stress levels and buoy job productivity. However, some survey findings underscore the challenge of building effective financial wellness programs. While 88% of employers say they currently have or are developing a financial well-being strategy, only 20% of participants claim their employer offers “anything more than a limited financial wellness program.”

Higher than in previous years, about half (49%) of workers consider themselves behind schedule when it comes to saving for retirement. Fifty percent of respondents feel they would be at least somewhat more productive at work if they did not worry about finances while at their jobs—up from 43% last year. This trend is disproportionately impacting the younger workforce, the survey results show.

Only 18% of respondents feel very confident in their ability to make the right financial decisions, showing a decrease over the past three years. About one-third consider themselves very knowledgeable about basic financial concepts, such as managing debt (33%) and budgeting (31%).

According to John Hancock’s research, debt is one of the most significant indicators for financial stress, and most people are dealing with some kind of debt. Fifty-nine percent say their debt is a problem, with more than one in five saying it’s a major problem. And among participants with student loans, 76% say debt is a problem, with almost half calling debt a major problem.

“This is hitting younger generations particularly hard, as 46% of participants aged 36 and younger have as student loan,” the survey report explains. “People who say their debt is a major problem and people with student loans have much higher financial stress than those who don’t. Women feel more financial stress than men, likely because they rate their financial situations worse than men. They’re also more worried about having financial difficulties.”

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Categories: Industry News

TRIVIAL PURSUITS: Which 60s and 70s TV Actor Voiced The Flintstones’ Alien?

Plansponsor.com - Mon, 2019-10-21 13:35

Fred Flintstone and Barney Rubble, from the animated television series The Flintstones, met The Great Gazoo, a tiny green flying alien, when his flying saucer crashed to Earth.

The Great Gazoo’s voice was provided by actor Harvey Korman. Korman is best remembered for his performances on the sketch comedy series The Carol Burnett Show for which he won four Emmy Awards.

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Categories: Industry News

Law Firm Confirms SEC Examination of 403(b) Plan Investment Practices

Plansponsor.com - Mon, 2019-10-21 13:23

News reports at the beginning of the month announced that the New York State Department of Financial Services is planning to investigate sales of annuities in the 403(b) retirement plan market.

Now a client alert from law firm Jenner & Block confirms that the Securities and Exchange Commission (SEC) is conducting its own investigation.

According to Jenner & Block attorneys, the SEC “sent letters to companies that administer Section 403(b) and 457 retirement plans, opening an investigation to determine whether violations of federal securities laws have occurred in the plans’ administration. The SEC is seeking details on how the plan administrators, which often serve crucial roles in selecting investments for the retirement plans of employees including teachers and government workers, choose investment options and police themselves when conflicts of interest arise.”

The client alert states that the “SEC also is requesting (1) documents pertaining to any compensation that the administrators have received since January 1, 2017 for referring investors to specific investment options or companies; (2) explanations of any gifts that administrators have received from companies that sell investments; (3) ‘information and documents’ pertaining to how administrators provide investment counseling to investors; and (4) organizational charts that show companies that own or have ties or partnerships with 403(b) and 457 plan administrators.”

The attorneys say the investigation has not been made public, and it is unclear how many plan administrators have received letters.

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Categories: Industry News

PBGC to Assume Responsibility of Health System’s Retirement Plans

Plansponsor.com - Mon, 2019-10-21 12:14

The Pension Benefit Guaranty Corporation (PBGC) is taking steps to assume responsibility for two pension plans sponsored by Verity Health System, which cover nearly 8,000 people. The six-hospital system is based in El Segundo, California.

Verity, with 16 of its affiliates, filed for Chapter 11 protection on August 31, 2018, and is no longer able to continue its plans. The bankruptcy court and the state of California recently approved the sale of four of Verity’s hospitals to KPC Group’s Strategic Global Management Inc. News reports say KPC is the only bidder that agreed to keep the hospitals open.

The Verity Health System Retirement Plan A covers 6,989 people. PBGC estimates Plan A is 52% funded, with underfunding of approximately $306 million. A separate plan, the Verity Health System Retirement Plan B, covers 985 people. PBGC estimates it is 74% funded with underfunding of approximately $2.8 million.

This protection for employees and retirees by the PBGC is one reason for a string of lawsuits that challenge other nonprofit healthcare systems’ retirement plans’ status as “church plans” under the Employee Retirement Income Security Act (ERISA). ERISA imposes funding and reporting requirements for defined benefit (DB) plans, but church plans are exempt from these rules. Since they are exempt, church plans are also not insured by the PBGC.

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Categories: Industry News

Principal Announces Key Platform Decisions in Wells Fargo Integration

Plansponsor.com - Mon, 2019-10-21 11:39

Principal Financial Group has revealed key technology details in its ongoing integration of the Wells Fargo Institutional Retirement & Trust (IRT) business. Technically, the firm has announced its choice of technology platforms for its Trust and Custody business, its nonqualified plans business, and its employee stock ownership plan (ESOP) business segments.

Principal’s acquisition of Wells Fargo was first announced early in 2019 and more recently made final. Through the acquisition, Principal doubled the size of its U.S. retirement business and brought on board new institutional trust and custody offerings for the non-retirement market while also expanding its discretionary asset management footprint.

Moving forward, the firm’s leadership has selected the current SEI platform to serve trust and custody clients. The Principal platform, on the other hand, will be used to serve ESOP and nonqualified plans. Last month, Principal announced its retirement recordkeeping platform would also serve 401(k) plans and defined benefit customers.

Renee Shaaf, president of retirement and income solutions at Principal, says the collective tech infrastructure will be flexible, robust and efficient. It is also meant to provide “a solid foundation to build enhancements in the future.”

“We’re committed to delivering a results-driven, customer-first experience,” Schaaf says. “These digital and service model investments support our efforts to bring the best from both organizations to provide unparalleled value to participants, clients, advisers and consultants.”

Offering more detail about what these developments mean, Shaff explains that Principal will retain the SEI trust accounting platform Wells Fargo IRT uses today to support the combined organization. She says using the existing trust accounting platform provides a familiar, reliable, high-quality interface for clients and employees, and builds additional capabilities for Principal.

According to the firms, clients will benefit from single login access to account information across the trust accounting and additional reporting platforms, including access to performance measurement for domestic and multi-currency investment portfolios.

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Categories: Industry News

Military Retirement Plan Participants Need Financial Education Too

Plansponsor.com - Mon, 2019-10-21 11:22

Financial wellness education is increasingly a focus for retirement plan sponsors in the private sector, but a new report suggests military members who have recently switched to the Federal Thrift Savings Plan (TSP) need the same type of education.

Service members who entered military service on or after January 1, 2018, are offered a new military retirement system that replaces the traditional 20-year pension with a blended program that includes a reduced pension in exchange for a lump-sum bonus and a new matching funds program through the TSP. A 2016 white paper from First Command Financial Services, Inc. suggested that service members who fail to save a sufficient portion of their basic pay and all of their lump sum bonus—and invest both in recommended fund offerings through the TSP—are at risk of receiving monthly retired pay that could be considerably smaller than the size of monthly paychecks under the previous 20-year pension.

At the time, Scott Spiker, CEO of First Command, said, “Success will depend on adopting the types of strong personal financial choices and behaviors that often run counter to the temptations of our instant-gratification society.” And, First Command noted that the new retirement system features financial education to help service members take a stronger role in pursuing their financial security in retirement.

However, a Government Accountability Office (GAO) report announced by Senators Patty Murray, D-Washington, ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Dick Durbin, D-Illinois, found that some of the Department of Defense’s (DOD) financial education efforts generally lacked any assessment component that could be used to ensure the trainings were effective or to improve future financial preparedness efforts for servicemembers.

After assessing the DOD’s implementation of a new military retirement system and its efforts to educate and prepare servicemembers to make decisions with long-term implications for their financial wellbeing, the GAO made three recommendations:

The Secretary of Defense should evaluate the results of its financial literacy training assessments to determine where gaps in servicemembers’ financial knowledge exist and revise future trainings to address these gaps;

The Secretary of Defense should provide servicemembers with disclosures that explain key pieces of information about the lump-sum payment, including some measure of its relative value, the potential positive and negative financial ramifications of choosing the lump-sum payment option, and a description of how it was calculated; and

The Executive Director of the Federal Retirement Thrift Investment Board should work with the Secretary of Defense to explore alternative options (including online resources) for servicemembers to receive their initial Thrift Savings Plan password so that servicemembers can access and manage their online accounts without added delays.

Some examples of financial literacy challenges of military members, according to the GAO are understanding the training due to a low initial level of financial literacy and relating to long-term goals of retirement due to short-term life goals. These are similar to findings about the American population in general.

In June, The Securities and Exchange Commission (SEC) introduced its Military Service Members’ Initiative. The initiative will increase proactive outreach to educate servicemembers and veterans about savings and investment, investment fees and expenses, retirement programs and the red flags of investment fraud.

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Categories: Industry News

Allina Health System Reaches Agreement in Lawsuit Regarding Plans’ Investments

Plansponsor.com - Mon, 2019-10-21 10:22

Participants in the Allina Health System 403(b) Retirement Savings Plan and 401(k) Retirement Savings Plan have reached an agreement with defendants to settle a lawsuit challenging plan investment decisions, among other things.

The complaint filed in 2017 suggested plan officials ceded discretion to a provider to add any mutual fund it wished, “regardless of whether the funds were duplicative of other options, had high costs, or were performing poorly.” The plaintiffs also claimed their 401(k) and 403(b) plan fiduciaries failed to adequately monitor investment services providers.

Without admitting any liability or wrongdoing, the Allina defendants agree to deposit $2.425 million into a settlement fund. The settlement fund will be used to pay case contribution awards to the named plaintiffs, attorney’s fees and expenses, costs and expenses incurred by the plans’ recordkeeper and the settlement administrator to implement the settlement and proceeds awarded to a class of participants represented by the lawsuit.

The settlement agreement still needs the court’s approval.

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Categories: Industry News

SURVEY SAYS: Reasons for Employee Disengagement

Plansponsor.com - Mon, 2019-10-21 04:30
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Last week, I asked NewsDash readers which, from a list of factors, do they think MOST CONTRIBUTES to employees becoming disengaged at work.

The top reason selected, by far, was lack of appreciation shown by management (44.2%). Half as many (21.1%) chose “poor communication among employees and managers,” and 9.6% selected “nothing new to learn.” Coming in fourth, was “loss of interest in the work,” chosen by 7.7% of respondents, and “bad relationships in the workplace” (5.8%) rounded out the top five.

“Underpaid” was selected by 3.8% of responding readers, while “workload is too great,” “lack of work/life balance,” “lack of ability to move up” and “none of the above” each received 1.9% of readers’ votes. No readers selected “poor benefits or lack of benefits” or “personal reasons not related to work.”

Of course, a combination of factors can contribute to employee disengagement, and this point was made by the small group of respondents who chose to leave comments. Suggested additions to the list were bad managers, lack of empowerment and change for the sake of change. Factors that were touted as most important coincided with the top two selected as those that most contribute to disengagement. Editor’s Choice goes to the reader who said: “This is a tough one! I think for most people, it is a combination of issues. For me personally, I’m just running out of steam and am looking forward to retirement in a couple years! :)”

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Thanks to all who participated in the survey!

Verbatim

A little praise/thank you goes a long way.

All of the suggested choices are relevant. A job is like a marriage; there’s seldom any one reason why you stay or leave. An accumulation of reasons will send employees out the door.

Probably a little bit of “all of the above,” but it all comes down to the value placed on communication.

Relationships have always been the tipping factor for me. If your coworkers or supervisor(s) are making the work and non-work interactions difficult, the work eventually suffers as a result.

I believe most employees want to perform well and be appreciated/acknowledged for the work they do. If you continue to be ignored or overlooked for the work you do, it becomes just a “job” and you give up trying to do your best.

In my experience, a bad manager can turn a job you love into a source of dread. I’ve only left two organizations and both were due to unbearable managers. On the flip side, a great manager can make an ok job worth staying at for the longer-term.

In my experience it usually comes down to the manager. A bad manager can sour an entire team, ultimately sending them elsewhere in the company or to other companies.

It truly is all about environment…no one wants to work long hours and not hear what an excellent job they are doing…that just goes against all of human nature and kindness…

I would add lack of empowerment to this list.

Change for the sake of change. I believe in the “if it’s not broke, doesn’t need to be fixed” seems that is the new rule in Bschool that new grads bring to the table. Not always thought through and implemented effectively before pushed out.

It only takes a little to keep most employees happy. When employees feel their voice isn’t heard is when things start to go downhill.

This is a tough one! I think for most people, it is a combination of issues. For me personally, I’m just running out of steam and am looking forward to retirement in a couple years!

The importance of communication cannot be overstated. It is key to having engaged employees who understand the company’s values and mission.

Sometimes it is just that one person you just can’t seem to agree with or work with well and it causes whole days to be at a disconnect.

Too bad that I can only choose one item above. Seems like you have hit on many factors that cause this. Not sure one is the MOST.

I think all your options contribute to becoming disengaged, but for me, it’s when I feel unappreciated for putting in extra time daily because of my workload and they just add more to it.

 

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

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Categories: Industry News

TriNet Solution Helps Employees With Benefit Selection

Plansponsor.com - Fri, 2019-10-18 13:33

TriNet, a provider of full-service HR solutions for small and medium size businesses, has launched a Benefits Enrollment Application that provides customers on its platform with an intuitive navigation experience that simplifies the benefit enrollment selection process.

Key features of the Benefits Enrollment Application include:

  • Guided and flexible navigation with step-by-step direction for enrollment in available benefits plans;
  • Easy access to critical benefits and submission information, including modeling of pay period costs as benefits are selected;
  • Easy-to-use benefits plan analysis that allows users to select and compare eligible plans, along with a dynamic cost calculator and one-click view to learn more about the plan summaries;
  • Comprehensive integration of all benefit types; and
  • Paired with the TriNet Mobile App users have on-the-go access to insurance cards for health care benefits and information on retirement, life, disability and flexible spending account (FSA) benefits.

Selecting the right benefits is an important decision for our customers’ employees and their families. With multiple types of benefits, carriers, plans and associated costs, the process can be time consuming and overwhelming,” says Dilshad Simons, SVP of products at TriNet. “Our Benefits Enrollment Application is designed to save time and simplify the benefits selection experience, helping our customers to better provide their employees with a positive, quality benefits experience.”

In addition to enhancing the benefit selection experience, TriNet also announced that it has added to its health insurance provider offering. Beginning January 1, 2020, TriNet customers headquartered in New York will have access to an additional health insurance carrier.

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Categories: Industry News

Retirement Industry People Moves

Plansponsor.com - Fri, 2019-10-18 13:18
Principal Global Investors Selects Global Managing Director

Principal Global Investors appointed Matthew Minnetian as managing director, global head of Investment Grade Credit for Principal Global Fixed Income. Minnetian assumes responsibility for investment grade credit portfolio management, research and trading and will also lead efforts to further integrate data science and quantitative tools into the fixed income investment management process.

“Matthew brings extensive expertise in investment grade credit, as well as experience in combining fundamental investment management with quantitative approaches to achieve strong results for clients,” says David Blake, senior executive director and head of Principal Global Fixed Income. “We look forward to bringing his leadership on-board as we continue to integrate the latest technologies with our core investment management processes.”

Minnetian will lead an investment grade credit team managing more than $46.3 billion in assets.

Previously, Minnetian worked at AllianceBernstein for more than 20 years holding multiple leadership roles across fixed income.

Nassau Acquires Holding Company and Subsidiary

Foresters Financial has entered into a definitive agreement with Nassau Financial Group, L.P., subsidiary Nassau Life Insurance Company (NNY), to acquire Foresters Financial Holding Company, Inc. and its subsidiary Foresters Life Insurance and Annuity Company (FLIAC). NNY and FLIAC are New York-domiciled life insurance companies. 

The sale marks the final stage of Foresters strategy of exiting its North American Asset Management business, which commenced earlier this year with the sale of its asset management and broker-dealer businesses.

“Following the sale of our U.S. and Canadian asset management businesses earlier this year, this transaction is in step with our strategy of focusing on fixed life insurance in North America and continuing to grow as a purpose-driven international fraternal benefit society. We will continue to evolve our business by focusing on innovation, new product development and independent distribution to best serve our members,” says Jim Boyle, president and chief executive officer, Foresters Financial.

The transaction is expected to close in the first quarter 2020 and is subject to customary closing conditions including regulatory approval by the New York State Department of Financial Services.

Mercer Announces Multiple Appointments

Mercer has appointed Ethan Bronsnick and Charlie Wright to its Wealth business, as well as promoted Forest Banks.

Bronsnick joins as partner, U.S. Financial Strategy Group, and Wright joins as sales director for Endowments and Foundations, while Bank’s new role will be sales director for Large Market Employer Plans.    

“We’re thrilled to have Ethan and Charlie join our growing team at Mercer, and to announce Forest’s promotion. We aim to cultivate talent within while adding industry leaders and expanding our footprint for the benefit of our clients,” says Marc Cordover, East Market Wealth Business Leader. “These individuals will further strengthen our expertise and capabilities in annuity transactions and pension risk management, endowment and foundation services and large-market employer plan advisory services respectively.”

Bronsnick joins Mercer’s Financial Strategy Group, a team specifically focused on managing risk in defined benefit (DB) pension plans. He brings expertise in facilitating large-case annuity transactions between pension plan sponsors and insurers.

Prior to joining Mercer, Bronsnick spent 10 years at Morgan Stanley, where he led its pension solutions team and prior to that spent 10 years at Credit Suisse working closely with life insurance companies. Bronsnick will be based in New York, reporting to Matt McDaniel, partner and U.S. Financial Strategy group leader.

Wright is an institutional asset management sales and client service executive with over 10 years of industry experience in advising OCIO, multi-asset class, single asset sleeve, and environmental, social and governance (ESG) strategies to endowments, foundations, family offices and pension plans. 

Prior to joining Mercer, he worked for Russell Investments and Northern Trust in Institutional Asset Management Sales positions. He held previous roles at Citibank and Wells Fargo. He is based in New York, reporting to Cordover.

Banks will become the sales director for Large Market Employer Plans, effective January 1, and will be responsible for business development and client solutions for the Southeast U.S. region. With Mercer for four years, he is currently working as a senior investment consultant, providing investment advice to defined contribution (DC) clients. He is a member of Mercer’s U.S. Defined Contribution Investment Committee and Mercer’s Manager of Manager strategic research team, and chairs Mercer’s Stable Value strategic research team.

Prior to joining Mercer, Banks spent 10 years at Northern Trust as a senior investment consultant. Having worked with large market foundations, endowments, DB and DC plans, he has aided clients with asset allocation decisions, performance measurement, plan design, and manager selection and monitoring. Banks is based in Charlotte, North Carolina, reporting Cordover.

Pentegra Announces New Executive VP Overseeing Sales and Marketing

Matthew P. Mintzer has joined Pentegra as executive vice president. Mintzer will head Pentegra Sales and Marketing, Client Services and Operations and will report directly to John Pinto, president and CEO.

In making the announcement, Pinto says, “We are fortunate to have someone of Matt’s caliber and industry experience leading our team.  Matt has a solid understanding of our products and markets. His clear vision for integrating technology throughout the customer experience is exactly what Pentegra needs as we enter the next chapter of our business, as we’ve already seen in the development of our exciting partnership with ADP. This vision and leadership will position us to take advantage of the market opportunities that lie ahead.”

Prior to joining Pentegra, Mintzer was a principal at Eyes Up Consulting, where he worked with firms nationally to develop product, sales, marketing, operations and distribution solutions designed to differentiate clients from the competition. His previous senior leadership roles include: head of Advisor Retirement Business at J.P. Morgan Asset Management; head of Advisor Retirement Business at AllianceBernstein (AB); and head of Retirement Marketing at Putnam Investments.

Mintzer earned a bachelor’s degree in finance from Pennsylvania State University and currently holds FINRA Series 7 & 63 licenses.

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Categories: Industry News

Participants Invested in TDFs Contribute Less to Retirement Accounts

Plansponsor.com - Fri, 2019-10-18 12:18

Retirement plan participants who invest in target-date funds (TDFs) contribute less to their plans than participants who don’t use them, an analysis from Alight Solutions finds.

And what Alight thought were reasons this is true, turned out not to be. Alight studied behavior for approximately 2.5 million target-date fund investors as of January 1, 2019 who are in its book of business, and found that even when accounting for factors like age and automatic enrollment, participants who fully invest in TDFs tend to save less than others.

According to the data, full TDF users who were automatically enrolled contributed an average of 5.3% of salary to their plans. This compares to 7% for partial TDF investors and 7.6% for non-TDF investors. Among those self-enrolled, full TDF users contributed 7.4%, while partial users contributed 8.5% and non-users contributed 8.7%.

Full TDF users younger than 30 contribute on average 5.6% of salary to their retirement plans compared to non-TDF users, who contribute 7.7%. For those ages 40 to 49, full TDF users contribute 6.4% and non-TDF users contribute 8.7%. The differences are even higher for those age 50 and older.

The study found when people changed from full TDF use, approximately half (47%) actively changed their contribution rate, 14% changed their contribution rate via automatic escalation and the rest kept their contribution rate the same. Among those who remained full TDF investors, only 24% actively made a contribution rate change, while another 24% increased their rate via automatic escalation.

“The prevailing wisdom is that younger investors save less than older investors or participants who are automatically enrolled save less because they stick with the initial default rate, but we isolated for those things and still find people investing in TDFs are saving less,” says Rob Austin, head of research at Alight Solutions.

Another possible idea is that those who remain full TDF investors feel that TDF returns will boost their savings accumulation more so than other investments. However, other findings from Alight seem to contradict this as well. Even though many plans label TDFs with descriptions like “lifecycle funds,” participants are not staying invested in them throughout their working lives. In fact, half of participants (49%) who were fully invested in them ended up moving out of them within ten years.

In addition, when participants stop using TDFs, many make extreme changes to their asset allocation, the study suggests. Among those who stopped using TDFs altogether, 46% invested their entire portfolio in equities, while 14% went all-in on fixed income.

Austin calls this finding “pretty interesting.” He notes, “Some TDFs for the youngest participants have high balance in equities already—up to 90%—so the move to 100% equities is a bit alarming. It is less surprising for older participants to take on more equities; they may need a greater return. But maybe all those moving out of TDFs are chasing returns, especially with the fixed income market as it is today.”

Austin says knowing what the reasons for these actions aren’t is a lesson in itself. “We have debunked some of the myths about savings behavior.” He also says the findings indicate there is something unique to TDFs that lead participants to take these actions. It’s an area ripe for future research. Employers could target participants making these decisions to ask why—maybe even use focus group conversations.

The research found investing in multiple TDFs is common. One out of every 10 TDF investors uses more than one vintage. Among partial TDF users—those who invest in TDFs as well as other core investment menu options—the percentage more than doubles.

“I think this is a combination of people following the market and misunderstanding TDFs. In previous research we found only 11% of people know a TDF is designed to invest in only that fund,” Austin says. “People have been told not to put all their eggs in one basket, and that’s what a TDF looks like to them. They don’t understand that there’s diversification in underlying funds.”

Aside from indicating the need for better education and communication about TDFs, another lesson for plan sponsors is to perhaps slim down the core investment menu. “We looked at the number of investments offered other than TDFs, and found the more funds available to participants, the less likely they are to fully invest in TDFs. It’s counterintuitive because TDFs are an easier choice,” Austin says. “We also found if fewer funds are available, the less likely participants are to create their own portfolios.”

Austin concludes that there needs to be more personalization in TDFs. “I think what we’re seeing here is TDFs are good, but not all they promised to be. They are not lifecycle funds because people are not staying in them. Maybe they are oversimplified—they only consider the age of participants and there are other considerations for people planning for retirement.”

Some may argue that managed accounts are the solution to more personalization for participant investment choices. And, Austin admits Alight’s study on managed accounts showed they provided better outcomes than if participants chose their own investments.

Austin says while TDFs lagged managed accounts, they also provide better outcomes than if participants choose their own investments. “I think there can be more innovation in TDFs going forward,” he says.

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Categories: Industry News

Retirement Income Can Be About More Than Guaranteed Options

Plansponsor.com - Fri, 2019-10-18 11:05

BlackRock analysts tackle the timely and vexing issues of retirement income strategies and the potential greater use of in-plan annuity products in a new white paper, “Income reimagined: expanding DC from saving to spending.”

According to BlackRock, plan sponsors, providers and legislators are all showing growing interest in providing guaranteed or income annuity options within defined contribution (DC) retirement plans. But so far, BlackRock finds, no consensus approach has emerged.

“Despite the rational case that can be made for lifetime income solutions, a number of participant biases and behavioral financial barriers need to be overcome to drive adoption,” the paper suggests.

The BlackRock analysis points to the contractions one discovers when surveying retirement plan investors about annuities and guaranteed income. On the one hand, survey data tends to show that participants are interested in “guaranteed income solutions,” but at the same time people commonly voice negative views of “annuities.” As such, even when progressive plan sponsors have made annuity products available in their plans, there has been quite modest uptake.

“Yet when they do choose guaranteed income, the surveys suggest that [investors] are more satisfied than those who try to manage retirement spending on their own,” the BlackRock white paper says. “A MetLife study found that nearly everyone who took monthly income instead of a lump sum payment were happy with their choice. The same study found nearly one-third who took a lump sum regretted their first year spending habits.”

According to the white paper, research suggests that how one frames income solutions greatly impacts participants’ perceptions and decisions. For example, when income solutions are framed as a way to protect their ability to spend over time, participants see it as a rational decision. If participants focus on the “risk” that they will not collect enough income payments in return for the purchase price, they may think of income as a bad “investment.”

“We believe that framing income as a smart decision to protect retirement spending can be the first step to overcoming a range of biases and behavioral barriers,” the BlackRock paper concludes. “And by embedding income into the default option, DC plans can take advantage of one of the most powerful plan design features to help nudge participants into appropriate retirement income decisions.”

The analysis then explains that target-date funds (TDFs), as highly trusted and popular default investment options used by many plan sponsors, may be a great pathway for introducing guaranteed income in the plan context.

“Target-date funds are already in place on most plans and capture the majority of contributions,” the paper explains. “They are widely understood by participants and already frame their planning around the target date. They have a structure that naturally lends itself to building up income over time, leading to partial annuitization at the target date. They may offer a growing stream of retirement income that feels like a natural extension of the lifecycle management they provide.”

An Alternative Take

Toni Brown, senior defined contribution specialist at Capital Group, home of American Funds, agrees that retirement income is the next frontier of innovation in this space.

“There is a broad and important discussion going on about the potential of bringing annuities closer to DC plans,” Brown says. “First of all, I am so excited about the energy in the marketplace and among plan sponsors about the 401(k) becoming a true retirement vehicle, rather than a supplemental savings plan as it was originally designed.”

However, as Brown sees it, so much of the discussion has been around guaranteed income and annuities, and while that makes sense to some extent, guaranteed income products are not the only important part of this conversation. In fact, given the various challenges associated with bringing annuities into DC plans, Capital Group’s perspective is actually that annuities are better sitting outside of plan.

“Many plan sponsors offer an annuity bidding platform that is linked to their plan, but it technically sits outside of the plan for a number of important reasons,” Brown explains. “Under this approach, in the plan, you then select the TDF be very effective to and through retirement. Sponsors should also then consider adding an option specifically built for those people who will be taking money out regularly.”

As an example, Capital Group/American Funds offers a retirement income solution that is basically a series of three risk-based funds. In a sense, they are similar to the risk-based portfolios that were quite popular before the Pension Protection Act cleared the way for target-date funds’ dominance.

“The difference between these funds and other funds is that these are built specifically for retirees, so they are sufficiently liquid and portable to serve retirees’ needs,” Brown says. “They are, generally speaking, more conservative in their equity holdings, to make it possible for the funds to pay income efficiently to retired investors. Within this more conservative framework, there are three different risk levels to meet the individual’s needs—conservative, moderate and enhanced.”

Other investment managers have similar solutions. They aren’t guaranteed and they don’t need to be guaranteed, Brown says.

“In sum, we think the future of retirement income in-plan is really this non-guaranteed approach,” Brown says. “It will be important for people to, out of plan, be able to access guaranteed income that is really tailored for and appropriate for the individual.”

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Categories: Industry News

Investment Product and Service Launches

Plansponsor.com - Thu, 2019-10-17 14:02
J.P Morgan Improves TDF Analysis Tool

J.P. Morgan Asset Management has enhanced its Target Date Compass, the target-date fund (TDF) analysis tool used by advisers to help plan sponsors evaluate and select funds with greater knowledge and confidence.

The enhanced Target Date Compass delivers new search capabilities that allow advisers to more quickly find the funds that align to plan sponsor goals, while new filters enable them to easily narrow down the target-date universe. The upgraded tool is powered by third-party Morningstar data.

“Since Target Date Compass was launched in 2008, the program has been a standard bearer for target-date fund evaluation. Over the past decade we have continued to work in consultation with our clients to evolve the tool. The latest iteration provides advisers with the capability to assess target-date funds more quickly, easily and accurately,” says Michael Miller, head of Retirement Distribution at J.P. Morgan Asset Management.

The new Target Date Compass offers a suite of new search filters resulting from extensive user testing with advisers. These include fund types, minimum track records, Morningstar analyst rating, equity exposure, diversification, and more.

Nuveen Presents CIT TDF Series

Nuveen has increased its target-date fund (TDF) solutions offering with the introduction of the Nuveen TIAA Lifecycle Blend CIT series. The new collective investment trusts (CITs) will be managed by Nuveen’s mixed assets portfolio management team.

The Nuveen TIAA Lifecycle Blend CIT series consists of 12 funds, including 11 target-date funds (TDFs) at five-year intervals for retirement dates 2010 through 2060 and a retirement income fund for those already in retirement.

The trustee for the new CITs is SEI Trust Company, wholly owned subsidiary of SEI Investments Company, a global provider of institutional and private client wealth management solutions. SEI maintains ultimate fiduciary authority over the management of and the investments made in the CITs, with Nuveen as adviser.

“Collective investment trusts offer an attractive investment framework for plan sponsors and their advisers and consultants who are focused on cost-effective investment solutions,” says Jeff Eng, managing director and head of retirement products at Nuveen. “This new blended target date fund CIT series helps meet a growing demand in the 401(k)-market space.”

The Nuveen TIAA Lifecycle Blend CIT series contains a blend of active and passive holdings. The series aims to appeal to plan sponsors seeking expertise and experience in actively managed funds while seeking to balance investment costs by using index funds where appropriate.

“We’re excited to partner with SEI to offer a blended CIT series with direct real estate investments,” says Brendan McCarthy, defined contribution investment only (DCIO) national sales director at Nuveen. “With the addition of an active passive mix of underlying investments designed to help meet the needs of today’s corporate retirement plan market, we expect the response from plan sponsors and their advisers to be very positive.”

Fidelity Promotes New Bond Index Fund

Fidelity Investments has launched Fidelity International Bond Index Fund (FBIIX).

Fidelity International Bond Index Fund’s total net expense ratio is 0.06%, and is available, with no investment minimum, to individual investors, as well as through third-party financial advisers and workplace retirement plans.

The fund will normally invest at least 80% of its assets in securities included in the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Diversified Index (USD Hedged), which is a multicurrency benchmark that includes fixed-rate treasury, government-related, corporate and securitized bonds from developed and emerging markets issuers while excluding U.S. dollar-denominated debt. The fund’s foreign currency exposures will be hedged by utilizing forward foreign currency exchange contracts.

“While historically known for our active management expertise, Fidelity has arguably built one of the best index fund franchises in the industry, backed by exceptionally low costs and world-class customer service,” says Colby Penzone, head of Investment Product. “Whether it’s index funds, actively managed funds or separately managed accounts, we’re focused on providing individual investors, workplace retirement plan sponsors and participants, and financial advisers with extensive choice and exceptional value, elements that we believe are unmatched in the industry.”

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Categories: Industry News

DC Plan Dominance Is Overstated, But Not For Long

Plansponsor.com - Thu, 2019-10-17 13:54

The newly published 2019 Wells Fargo Retirement Study, now in its 10th edition, compiles the survey reposes of some 2,700 workers and another 1,000 retirees.

The Wells Fargo study outlines several key characteristics that influence today’s retirees, who, in this survey, are 70 years old at the median. Among retirees, nearly nine in 10 (86%) fund their retirement primarily with Social Security and pension income. Currently just 5% say personal savings accounts, such as a 401(k) or individual retirement account (IRA), are their main source of retirement funding. In addition, 70% of those surveyed said they “wouldn’t know what to do” to fund their retirement years effectively if Social Security benefits were substantially cut.  

According to Fredrik Axsater, head of the institutional client group for Wells Fargo Asset Management, these stats show the generational change from pensions to defined contribution (DC) plans is still very much playing out. Despite recognition that saving and paying for retirement will increasingly rest with the individual, younger generations hold mixed views about whether they are saving enough.

As Axsater points out, debt plays a critical role in workers’ inability to save sufficiently. In fact, 31% of Millennials surveyed say they have an “unmanageable amount of debt,” followed by Generation X (26%). Fully 67% of workers paying off student loans say the burden of student loans is getting in the way of saving for retirement.

“I would say that Generation X stands out as the most vulnerable in the survey population,” Axsater says. “They are caught in the middle of the shift from pensions to personal savings, and at the same time they are caught in the middle of supporting their own growing children and aging parents.”

In reviewing the Wells Fargo data, Lori Lucas, president and CEO of the Employee Benefit Research Institute, says many people appear to be over confident about their retirement prospects—even with the debt challenges already mentioned. She notes that nearly a third of workers have personally saved less than $25,000, while 13% have saved between $25,000 and $100,000. Just 11% of those in the Wells Fargo survey have saved between $100,000 and $250,000. This means in turn than half of workers have saved less than $250,000. Looking at workers on a median basis, including those with no savings, Baby Boomers have $160,000 saved, Generation X has $66,000 and Millennials have $10,000.

Zar Toolan, head of advice and research, Wells Fargo Advisors, says the survey results underscore the importance of instilling “a planning mindset” in people. This entails such things as helping them set a long-term goal, helping them set and achieve shorter terms goals, and ensuring they understand the importance of making sacrifices today to benefit themselves in the future. In a phrase, those survey respondents that have such a planning mindset are far ahead of their peers in terms of accumulated savings, confidence levels, projected retirement readiness, etc.

By generation, the planning mindset is highest among retirees (42%), followed by Millennials (39%), Baby Boomers (37%) and Generation X (30%). Current workers with the planning mindset start saving at a younger age, save more each month for retirement and have saved more for retirement than workers without the planning mindset. Lucas suggests the best way to get people to have such a planning mindset is simply to help them generate a balance in a retirement plan.

“This emphasizes the importance of automatically enrolling workers into retirement plans,” Lucas says. “Once people see even a few thousand dollars accumulate in a retirement plan, they become far more engaged.”

Other findings show that, across generations, workers and retirees voice strong emotions about the importance of Social Security and the need for the nation’s political leadership to tackle the retirement security topic. As such, 91% of workers and 95% of retirees say they would feel betrayed if the money they paid into Social Security was not available when they retire. At the same time, 90% say Congress needs to make it easier for workers to have access to tax-friendly retirement plans, and 79% believe companies should automatically enroll new employees into such plans. 

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