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Insight on Plan Design & Investment Strategy
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Retirement Industry People Moves

Fri, 2019-09-20 12:26

Art by Subin Yang

Past PIMCO and Goldman Sachs Exec Joins Retiree, Inc.

Sean Murray will join as principal and chief revenue officer to Retiree, Inc.

Formally, he was a managing director at a global investment management firm and had a successful experience driving defined contribution (DC) growth with Goldman Sachs and PIMCO.

Murray will lead partnerships and initiatives to consultants, plan advisers, plan sponsors, recordkeepers, and asset managers to help bring important new methodology to employees. Retiree, Inc. is launching a new financial wellness program for the DC market called Retirement Snapshot, which Murray will be promoting.

“[William Meyer, CEO of Retiree, Inc.] and his team have done extensive research and product development and are poised to disrupt the retirement market with a unique solution that Boomers truly need,” says Murray. “This innovative approach to the complex problem of managing your income during retirement provides consumers with a strategy to actually make their nest egg last longer.”

Mercer Health Adds Principal to Dallas Office

Mercer has appointed Kim Marsh as principal in Mercer’s Health business, based in Dallas. In this role, she will help clients assess their current benefit offerings as well as future strategy and plan design considerations. Marsh will report to Larry Chim, Dallas office business leader, Health.

“We are thrilled to welcome Kim to Mercer,” says Chim. “Kim brings a depth of experience working with small and mid-sized employers in a wide range of industries, making her a natural fit here at Mercer. Her industry knowledge in employee benefits and years of success will help us further provide exceptional service and solutions to our clients while strategically growing our business in Dallas.”

Marsh has more than 20 years of experience in employee benefits, including insurance brokerage/consulting and carrier sales and account management. Prior to Mercer, Marsh worked at USI Insurance Services, most recently serving as a senior account executive.

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Categories: Industry News

Small Businesses Willing to Band Together to Reduce Health Benefit Costs

Fri, 2019-09-20 12:23

“Without advantages such as a larger pool of insured employees, more bargaining power with health insurance companies, and the benefit of full-time human resources personnel, small-business owners are often left with little recourse and few options when a health insurance carrier hikes costs,” says The Commonwealth Fund.

In the first half of 2019, it conducted three phases of research: key informant interviews, two focus groups, and a national survey of 500 small employers. The survey revealed that health care costs are top of mind for small businesses. When asked to choose their top two challenges, they cited the cost of providing health coverage to employees (37%) and attracting new customers (33%).

To compete with larger employers, small employers are hard-pressed to offer benefits like health insurance, even as the benefit takes up a larger share of the bottom line, The Commonwealth Fund notes. Two-thirds of businesses (69%) said the problem has been getting worse. They reported that costs have increased over the last four years; one-third of this group reported annual increases of 10% or more. Businesses with fewer employees cited bigger increases than larger businesses. Employers cited prescription drugs and lack of choice of health care plans as pain points.

Focus group findings also revealed that many small-business owners make painful decisions around health care quickly, often because they lack choice or the time or resources to wade through the policy information. Without a human resources professional on staff, small-business owners often have to take more time later to find an alternative when a health care plan becomes too costly.

More than half of employers said they have made adjustments in the past four years to decrease the costs of providing health care, with many shifting the cost burden onto employees. Nearly half said they have increased deductibles or copayments for their employees, one-quarter required employees to pay higher premiums, and 16% either reduced or eliminated dependent coverage. In addition, 29% of small-business owners negotiated with their current carriers and slightly more than one-quarter changed carriers. One-third have considered discontinuing health care coverage for their employees.

Ideologically, many employers prefer private-sector solutions to government solutions. Yet all options provided to curb costs—both market-based and regulatory options—find support among business owners. When asked about specific solutions, respondents said that allowing small-businesses to purchase their health insurance together to gain market power (92%), efforts to increase transparency (92%), access to unbiased information (91%), and accountability for brokers (90%) would be helpful.

Dave Chase, co-founder of Health Rosetta, which promotes reform for the U.S. health care system, says there is an ongoing move away from traditional benefits brokers to benefits consultants. He recommends plan sponsors get away from traditional brokers and utilize benefits advisers/consultants.

About two-thirds of small-business owners surveyed by The Commonwealth Fund have already spoken with other owners about health care costs, and 92% are willing to work together to push for changes to make health care more affordable. They are mixed about phone banking federal or state representatives and averse to hiring an advocacy firm. Instead, they are more willing to be part of an organization that offers group health insurance and advocacy (59%) and to join a volunteer association where they discuss ways to control costs with others (78%).

A survey from PeopleKeep earlier this year found nonprofits also want more cost-effective alternatives to group health insurance. In the meantime, many are satisfied that qualified small employer health reimbursement arrangements (QSEHRAs) meet employees’ needs. Another study from the same firm found 71% of small businesses that offered QSEHRAs in 2017 had not offered health benefits previously. Through a QSEHRA, employers may offer employees a fixed monthly allowance of tax-free money (up to $429.17 per single employee and $870.83 per employee with a family in 2019).

Under new rules adopted by the U.S. departments of Health and Human Services, Labor and the Treasury, starting in January 2020, employers will be able to use what are referred to as “individual coverage health reimbursement accounts,” or “ICHRAs,” to provide their workers with tax-preferred funds to pay for the cost of health insurance coverage that workers purchase in the individual market, subject to certain conditions.

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Categories: Industry News

PBGC Releases New Forms Relating to ERISA Section 4062(e)

Fri, 2019-09-20 11:24

The Pension Benefit Guaranty Corporation (PBGC) has released new forms related to Employee Retirement Income Security Act (ERISA) Section 4062(e), which requires companies with defined benefit (DB) plans to report to the PBGC when they stop operations at a facility and employees lose their jobs. 

In such a case, 4062(e) requires the company to provide financial security to protect the plan. The PBGC typically requires companies to make additional contributions or provide a financial guarantee. 

In 2012, the agency implemented a pilot program under which it would generally take no action to enforce section 4062(e) liability against creditworthy companies or small plans and target its 4062(e) enforcement efforts to companies where the risk remained substantial. In 2014, President Barack Obama signed into law H.R. 83, which made major changes to Section 4062(e).

The new forms include:

  • Form 4062(e)-01, used to notify the PBGC of a substantial cessation of operations;
  • Form 4062(e)-02, used to notify the agency of an election to make additional annual contributions;
  • Form 4062(e)-03, used to notify the PBGC of a payment of an additional contribution, termination of obligation for future contributions, or receipt of a funding waiver from the IRS; and
  • Form 4062(e)-04, used to notify the agency of a failure to pay an additional contribution.

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Categories: Industry News

IRS Finalizes Hardship Withdrawal Rules

Fri, 2019-09-20 11:07

The IRS has issued final regulations that amend the rules relating to hardship distributions from 401(k) and other plans. 

The final regulations reflect statutory changes, including changes made by the Bipartisan Budget Act of 2018. The Act called for the Secretary of Treasury to amend regulations to delete the six-month prohibition on contributions to a retirement plan following a hardship withdrawal. The allowance of hardship withdrawals was also extended in the bill to contributions to a profit sharing or stock bonus plan, qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and earnings on the contributions now allowed. In addition, the bill said, “A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.”

The IRS proposed regulatory amendments in November 2018. It also has since issued a Snapshot publication explaining the new mechanics of hardship withdrawals.

In a Client Alert from Cammack Retirement Group, Michael A. Webb, vice president, Retirement Plan Services, says for 403(b) plans that have a remedial amendment deadline of March 31, 2020, The Treasury Department and the IRS are considering a later amendment deadline in separate guidance for the amendments relating to the final regulations.

Webb adds that the final regulations contain no substantive changes from the proposed regulations, but considers some issues worthy of note, including:

  • With respect to employee representation of financial hardship beginning in 2020, an employee can make a representation that he or she has insufficient cash or other liquid assets reasonably available to satisfy a financial need, even if the employee does have cash or other liquid assets on hand, provided that those assets are earmarked to pay an obligation in the near future (e.g., rent);
  • Employee representations may be made over the phone, provided that the call is recorded;
  • The IRS retained the requirement from the proposed regulations that the plan administrator may rely on the employee’s representation, unless the plan administrator has actual knowledge of the contrary;
  • It was clarified that plans could require a minimum amount for hardship distributions, provided the minimum is non-discriminatory;
  • Deferred compensation plans, including 457(f) plans, are not subject to the restriction on the suspension of deferrals, so if there is suspension of deferral language in these plans when a hardship distribution is taken from a 401(k) or 403(b) plan, that language can be retained (plan sponsors also have the ability to it eliminate it); and
  • To be considered using the safe harbor standards for hardship distributions, a plan need not allow hardship distributions for all safe harbor expenses or for expenses of all the categories of individuals described in the regulations.
Text of the final regulations is here. They are scheduled to be published in the Federal Register September 23.

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Categories: Industry News

Funded Status Not a Good Measure for Whether DB Plan Participants Can Sue

Fri, 2019-09-20 10:17

The U.S. Solicitor General and the Pension Rights Center have filed briefs of Amicus Curiae with the Supreme Court in Thole v. U.S. Bank, a pension-focused case arising under the Employee Retirement Income Security Act (ERISA).

Specifically, the Supreme Court will weigh the following questions: Whether defined benefit (DB) plan participants and beneficiaries may seek relief under 29 U.S.C. 1132(a)(3) when the plan is overfunded; whether defined benefit plan participants and beneficiaries may seek relief under 29 U.S.C. 1132(a)(2) when the plan is overfunded; and whether petitioners have demonstrated Article III standing. 

Participants in the U.S. Bancorp Pension Plan filed the lawsuit in 2013. In October 2017, the U.S. 8th Circuit Court of Appeals upheld a lower court’s dismissal of the case based on the fact that, despite some significant investment losses suffered by the plan after investments in affiliated investment funds, the court believed the plan had enough money left over to keep paying benefits. Thus the participants could not prove, in the court’s eyes, that they had the sufficient standing to move ahead on fiduciary breach claims.

Both the U.S. Solicitor and the Pension Rights Center argue that current funded status of a defined benefit (DB) plan is not a proper measure for whether the participants have a right to sue for breaches of fiduciary duties and prohibited transactions under ERISA.

This is the second brief filed for the case by the U.S. The first was requested by the Supreme Court and in it, the Solicitor General recommended the high court take up the case. In the current brief, the Solicitor General notes that the Supreme Court has recognized that ERISA builds on the traditional law of trusts. “By analogy to traditional trust law, a beneficiary of an overfunded defined benefit plan has Article III standing to sue for breach of fiduciary duty (a) on behalf of the plan in a representative capacity; (b) on his own behalf for the invasion of a private legal right; and (c) when the breach results in a materially increased risk of monetary harm,” the brief says.

U.S. Solicitor General Noel J. Francisco points out that under a well-established principle of trust law, a beneficiary may bring such a suit when the trustee is unable or unwilling to do so. ERISA expressly incorporates that principle, assigning to beneficiaries the right to bring such suits. “Because a defined-benefit pension plan suffers a cognizable injury when a fiduciary breach reduces plan assets—whether or not the plan is overfunded—it follows that a plan beneficiary has standing to bring suit to seek recompense for that injury,” he argues.

He adds that such suits are all the more important under ERISA than under traditional trust law because ERISA expands the universe of persons subject to fiduciary duties, making it more likely that a trustee will hold interests adverse to the plan and thus be unwilling or unable to bring suit on behalf of the plan. Francisco also points out that traditionally, courts would entertain suits by trust beneficiaries alleging fiduciary breach with no further inquiry into whether the breach caused any harm other than the breach itself. By analogy, an ERISA beneficiary likewise may maintain a suit for fiduciary breach without demonstrating additional injury beyond the breach. “ERISA expressly incorporates that principle in Section 502(a), bolstering the historical case for standing with congressional judgment,” the brief says.

An ERISA beneficiary also has standing to sue for breach of fiduciary duty when the breach results in a materially increased risk of monetary loss, the brief states. “Whether a breach results in a materially increased risk does not depend on the plan’s funding status; a plan that is underfunded by a dollar has virtually the same risk of future insolvency as a plan that is overfunded by a dollar,” it says. Francisco adds that an ERISA beneficiary of a defined benefit plan also has standing to assert claims based on a future risk of nonpayment or underpayment of promised benefits.

“Nothing in the text or structure of ERISA purports to limit such suits based on the type or funding status of the plan. Section 502(a)(3)expressly authorizes ‘participant[s]’ and ‘beneficiar[ies]’ to bring suit for injunctive and ‘other appropriate equitable relief’ without any limitation based on the type or funding status of the plan,” Francisco says.

In its brief, the Pension Rights Center argues there can be little dispute that the plan itself suffered an injury when it lost hundreds of millions of dollars in value allegedly due to fiduciary breaches. In suing to recover these losses on behalf of the plan, as ERISA expressly permits them to do, the participants have representational standing to assert the plan’s interest in recovering these losses.

The plaintiffs also have standing to assert their own interests, the Pension Rights Center adds.  “As the intended beneficiaries of both the plan and ERISA’s remedial scheme, their interests in the proper management of the plan are harmed when plan fiduciaries, who are charged with protecting their interests, act imprudently, disloyally and in a self-interested manner. In granting them the power to sue plan fiduciaries in such circumstances, ERISA draws from venerable trust law principles. This judgment of Congress, grounded as it is in historic practice, suffices to establish injury in fact,” the brief says.

The Pension Rights Center argues that when the DB plan in which a plaintiff is a participant suffers a loss, here alleged to be at least $748,000,000, the participants’ assurance of receiving the full benefit promised becomes less secure, even in a plan considered fully funded under ERISA’s minimum funding standards.

The center points out that a DB plan’s funding status is a difficult and controversial determination.  It not only may be calculated on several different bases, but is also subject to numerous micro- and macro-economic factors that can quickly turn a fully funded plan into a severely underfunded one whatever funding measure is used.  “For these reasons, funding status is a particularly bad metric of Article III standing, which is meant to answer the simple question whether the parties that have brought suit have a sufficiently concrete interest in the outcome of the suit. The answer to this question should not turn on a calculation that can confound actuaries and a status that can change significantly and numerous times over the course of a lawsuit, much less over the lifetime of a plan. Such a calculation is not a good measure of whether a plan and its participants have been harmed by fiduciary mismanagement,” the brief says.

The Pension Rights Center also points out that the participants have standing to sue for injunctive and other equitable relief, such as an order requiring divestiture of non-diverse or other improper investments and the removal of the fiduciaries. It says this kind of relief is not dependent on a showing of economic harm, and the same is true for a claim seeking restoration of profits to prevent a fiduciary from benefiting from a breach.  “When plan fiduciaries violate their statutory and trust-based duties to the plan and its participants, those participants have a sufficient injury under ERISA to sue to correct these breaches,” the brief states.

Michelle Yau, with Cohen Milstein Sellers & Toll, who is one of the leading attorneys representing the plaintiffs, said, “We are very pleased with the amicus briefs supporting our position. The Solicitor General’s brief explains that ERISA participants’ ability to sue for fiduciary breach is rooted firmly in the common law of trusts, endorsed by Congress, and consistent with Supreme Court precedent. And the brief filed by the Pension Rights Center makes clear why a plan’s funded status ‘is not a sensible measure of injury in fact.’”

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Categories: Industry News

Investment Product and Service Launches

Thu, 2019-09-19 12:57

Art by Jackson Epstein

Franklin Templeton Expands Active Fixed Income ETF Suite 

Franklin Templeton has expanded its active fixed income exchange-traded fund (ETF) lineup with the addition of Franklin Liberty U.S. Core Bond ETF (FLCB), which seeks to provide investors with diversified core fixed income exposure. FLCB is an active ETF that seeks total return through bottom-up fundamental bond selection and top-down sector allocation and is listed on the New York Stock Exchange (NYSE) Arca. 

“We believe active management is critical for achieving long-term returns and managing investment risk, particularly in multi-sector investment grade fixed income,” says Patrick O’Connor, global head of ETFs for Franklin Templeton. “We are thrilled to launch FLCB, which can serve as a core, building block allocation in an investor’s portfolio.” 

Franklin Templeton’s fixed income and quantitative research teams review issuers and assess risks from multiple perspectives, which results in viewpoints on each potential investment. FLCB will be managed by David Yuen, SVP, head of quantitative and multi-sector strategies, Amy Cooper, VP, portfolio manager, Patrick Klein, SVP, portfolio manager, multi-sector strategies, and Tina Chou, VP, portfolio manager, with Franklin Templeton Fixed Income Group.

“The investment team has chosen to manage this fund with a low tracking error to the Bloomberg Barclays U.S. Aggregate Bond Index but has the flexibility to derive alpha through active sector allocation and security selection, providing a truly active core fixed income ETF,” adds O’Connor.

Franklin LibertyShares active fixed income ETF strategies include: Franklin Liberty U.S. Core Bond ETF; Franklin Liberty Investment Grade Corporate ETF; Franklin Liberty Short Duration U.S. Government ETF; Franklin Liberty Municipal Bond ETF; Franklin Liberty Intermediate Municipal Opportunities ETF; Franklin Liberty High Yield Corporate ETF; Franklin Liberty International Aggregate Bond ETF; and Franklin Liberty Senior Loan ETF. 

Industry Veterans Form Equity Strategy Firm 

Cinctive Capital Management (Cinctive) has launched with $1 billion in commitments from multiple investors, including a partnership with leading institutional investors the Employees Retirement System of Texas (ERS) and PAAMCO Launchpad, a subsidiary of PAAMCO Prisma. 

Cinctive, founded by alternative asset industry veterans Richard Schimel and Lawrence Sapanski, is focused on long/short equity strategies.  The firm employs a multi-manager investment approach with sector teams practicing fundamental stock picking and incorporating proprietary quantitative tools backed by a robust approach to risk management.  The firm currently has 11 portfolio managers. 

“Our approach represents a new, evolved version of the multi-manager platform model,” says Schimel, co-founder and co-chief investment officer of Cinctive. “We think our model, which allows portfolio managers the ability to focus on their best ideas and offers incentives based on quality of returns, not the amount of capital allocated, more clearly aligns investor interests with ours. We have a robust pipeline of seasoned investment teams and are in the process of further expanding our capabilities.” 

Robeco Adds Emerging Markets ESG Strategy 

Robeco has launched Robeco Sustainable Emerging Stars Equities. The newly launched high-conviction strategy will reportedly hold a better environmental, social and governance (ESG) profile and environmental footprint than its benchmark (MSCI Emerging Markets Index), while aiming to generate above-benchmark returns. The concentrated portfolio will consist of approximately 35 to 50 holdings, resulting in an active share of above 80%, according to Robeco. 

The strategy selects companies from a sustainable investment universe based on top-down country analysis and bottom-up stock ideas, and also includes voting and engagement, which will be carried out by Robeco’s Active Ownership team. It is also an addition to Robeco’s existing fundamentally managed ‘Stars’ strategy range, consisting of concentrated, high-conviction portfolios.

Jaap van der Hart and Fabiana Fedeli, members of Robeco’s Emerging Market Equity team, will be managing the strategy. 

Fabiana Fedeli, global head of Fundamental Equities and portfolio manager of Robeco Sustainable Emerging Stars Equities, says, “We are excited to launch this new strategy, which builds on and complements our existing emerging markets strategies. Our long history and experience of investing in emerging markets enable us to offer clients a strategy that takes high-conviction positions. This, combined with our leading global position in sustainable investing, makes us confident that we have a great solution for our clients, as we look to achieve their financial and sustainability goals and strive to deliver superior investment returns.”   

The Robeco Sustainable Emerging Stars Equities strategy is available to institutional investors in the United States and Canada, among other key markets.

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Categories: Industry News

Firms Announce Changes to Equity Compensation, ESPP Platforms

Thu, 2019-09-19 10:22

UBS Wealth Management USA announced enhancements to its equity compensation plan services and digital platform.

UBS equity compensation plan clients and their employees now benefit from:

  • An experience that brings their equity awards and personal finances together in one place, irrespective of where those accounts are held;
  • Flat trading commissions as low as $0 for U.S. equity trades completed on its equity compensation plan platform;
  • Personal finance tools to track what they spend, where they save, as well as the ability to set and monitor budgets; and
  • UBS’s digital advice platform which combines UBS’s research with intelligent technology to provide guidance on fine-tuning investments, as well as the ability to set and monitor near and long-term goals.

This platform is offered to equity plan participants alongside access to tailored advice provided by a UBS financial adviser.

“As the workplace continues to evolve, we know the demand for simplicity and affordability is top of mind. Combining our next generation digital participant platform and lower trading fees with advice from our financial advisers aims to enable employees to manage equity awards as part of their overall lives, helping them better value their awards and make more informed financial decisions,” says Michael Barry, head of UBS Workplace Wealth Services.

A Fidelity survey found equity compensation is increasingly used for participants’ financial wellness and retirement.

Carver Edison, a New York City-based financial technology firm, announced that its Cashless Participation technology is now available to all public companies who use E*TRADE Corporate Services to manage their employee stock purchase plans (ESPPs). The firm says this reflects a major advancement in helping employees nationwide access company-sponsored stock plans.

Cashless Participation will be supported by E*TRADE’s platform Equity Edge Online, allowing administrators to seamlessly reconcile and process purchases for ESPPs with Cashless Participation. Carver Edison’s technology can now also be offered globally.

Cashless Participation is an enhancement to ESPPs that allows employees to maximize their ESPP contributions with limited payroll deductions. Essentially, Carver Edison issues an interest-free loan to employees who elect to participate in their ESPP. With that loan, their ESPP administrator purchases additional shares on their behalf at the end of the offering period. The loan is then repaid instantly (this all happens on the backend) and the employee gets a net benefit.

Participating employees own more shares than they would otherwise have been able to afford without seeing their paychecks shrink.

For more details, visit

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Categories: Industry News

Natixis Reports U.S. Drop in Global Retirement Index

Thu, 2019-09-19 09:52

The United States fell two spots among developed nations in the annual Global Retirement Index (GRI) released by Natixis Investment Managers.

Landing in 18th place, the U.S. ranked either the same or lower in all four sub-indices: health, material wellbeing, finances and quality of life. The study pinpoints three global risks—lower interest rates, an increase in longevity and high costs associated with climate change—as responsible for the downshift.

“This is a holistic review for the overall quality of life over the world, and what platforms lead to this overall experience of someone living in different parts of the world,” said Ed Farrington, executive vice president at Natixis, in an interview with PLANSPONSOR. “How comfortable are these participants?”

The study isolates the 2008 financial crisis for introducing interest rate cuts in order to lift global economies during the time. According to the report, reducing these rates in the short-term meant workers had easier access to cash, however as higher priced bonds matured in the long-term, investors could only reinvest in the lower rates.

The study adds that appropriate planning will have to account for investment risk. This includes investing in higher risk assets including equities, even if it means exposing portfolios to volatility.

The aging workforce continues to impact the U.S. economy, as well. Projections from the United Nations show that individuals in developed countries who reach age 60 in 2015 will live an average of 23 more years.

“You’re still seeing for a couple who retires healthy at age 65, there’s a likelihood that one of the two will be alive well into their 90s,” says Farrington.

He adds that a well-designed 401(k) contribution solution and an expansion of workplace retirement plans in every job market can mitigate the complexity served with longevity. One of the easiest tasks retirement plan sponsors can do, he says, is help their employees save money.

Another pressing risk on retirement security is climate change and its financial and health impacts. Mainly viewed with a long-term lens, the study notes the effects of climate change are affecting today’s retirees. For example, older workers are burdened with costs due to natural disasters, including high insurance rates and expenses due to damages. Additionally, the study reports that according to the Environment Protection Agency (EPA), extreme heat in the U.S. has increased the risk of illness among older workers, especially those with chronic illnesses.

“We’re living in climate change, and it could be more severe in older adults,” says Farrington. “Retirees are living in extreme conditions, and it has a direct impact on their health. When that happens, it can lead to dislocation for families, and puts pressure on the government to solve these numbers.”

While climate change is a current driver in security risk, the study notes Millennial workers could be the driving force in weakening its impact. Natixis research shows Millennial investors in the U.S. are more likely than older generations to “align their personal and environmental and social values with investing and purchasing decisions.” And since Millennials will make up 75% of the workforce by year 2025, it’s likely the economy will see its effect.

“They clearly have a desire to have access to more responsible, sustainable investments for their workplace savings and personal savings,” explains Farrington. “[Millennials] are asking more questions, they want to know these things.”

Farrington adds that it’s time for plan sponsors to encourage more sustainably-driven investment options. In past years, these investments were described as “feel-good” options: investors utilized them because it made them feel better about what they were doing for the environment, not because it was sustainably responsible.

“Plan sponsors should be considering them as part of the overall evaluation of investment menus they offer, we should be helping Millennials have more access to responsible, sustainable investments,” he says.

Other factors affecting the U.S. GRI ranking are growing pressures on government resources, such as Social Security and Medicare; economic inequality; a decline in life expectancy compared to top-ranking nations including Japan; and a lower response to quality of life. Nordic countries dominated the top ten in GRI rating, including Iceland, Switzerland and Norway in the top three, as well as Ireland, New Zealand, Sweden and Denmark.

More information about the 2019 study can be found here.

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Categories: Industry News

Health Care a Top Concern to Address in Financial Wellness Programs

Thu, 2019-09-19 09:40

More than twice as many companies are offering workplace financial wellness programs to employees today compared to four years ago (53% vs. 24% in 2015), according to Bank of America’s ninth annual 2019 Workplace Benefits Report.

More than half (55%) of employees today rate their own financial wellness as good or excellent, down from 61% a year ago. Employees who rate their financial wellness positively are more likely to feel that they can effectively manage their day-to-day finances, pay bills while saving for future goals, and that their retirement savings are on track.

According to Bank of America, awareness and understanding of critical health care savings and caregiving support benefits are lacking.

Surya Kolluri, managing director with Bank of America’s retirement and personal wealth solutions group in Boston, says financial wellness should be thought of in the broadest way, with an eye toward how employees live their lives.

“When we think about priorities in life, health care is at the top. It is a financial burden,” Kolluri says. The Bank of America report shows the average person spends $7,700 per year in health care costs. In addition, the survey of 996 employers and 804 employees found 53% of employees have skipped or postponed an activity—going to the doctor, buying a prescription, etc.—to save money on health care.

“As we go from work life to retirement life, health care costs will only go up. If we don’t address health care costs now, it will drive down employees’ feelings of financial security,” Kolluri says. “We should all appreciate that health and wealth are two sides of same coin; If one is not healthy, he may draw on savings to pay for expenses, and if one is not financially well, being unable to get care and the stress of financial burdens can drive up health care costs.

Employers can encourage employees to take advantage of no-cost preventive care, health savings accounts (HSAs) and employer-provided physical wellness programs to get a handle on health care costs now and for the future.

Kolluri says HSAs are emerging as a critical tool to address health care costs. But, HSAs are connected to high-deductible health plans (HDHPs). Bank of America found 90% of employers that offer HDHPs also offer HSAs. More than three-quarters (76%) of employees that have an HDHP are also enrolled in an HSA.

But, the study found 65% of employers say they have a good understanding of HSAs, while only 7% correctly identified four basic attributes of HSAs. Likewise, 57% of employees say they have a good understanding of HSAs, while only 11% correctly identified the attributes.

Kolluri suggests that employers should not only offer HSAs, but provide HSA education. They should inform employees of what health care costs and how Medicare works, as well.


Caregiving is another way of life for many employees that employers may not recognize. According to the Bank of America report, 45% of employees perform caregiving duties for a family member, and 62% of caregiver employees don’t believe their employer knows they’re a caregiver.

In the most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey, roughly half of U.S. investors (53%) report they have provided financial assistance, personal assistance or both to adult children or extended family members—not including school tuition. When asked how much they spent in total in the past year financially supporting adult family members—not including college expenses for an adult child—investors estimate spending $10,000 on average.

Non-retired investors are 11 percentage-points more likely than retired investors to say that providing this monetary help has harmed their finances (31% vs. 20%). Nearly one in four say the time commitment has negatively affected their ability to save for retirement (23%) or their finances more generally (22%).

Kolluri says employers should think about offering caregiving benefits as part of a broader financial wellness program. He suggests offering flexible work hours as well as care consultation programs to give patient’s advice about care, for example. In addition, providing a subsidy for the suggested care needed can help caregivers financially.

He explains that flexible work hours could provide caregivers time for caregiving activities, including implementing legal actions that can put the person they are caring for in a better financial position.

Women’s versus men’s financial wellness

Kolluri says one trend found in the report is the difference between women and men when it comes to financial wellness. “The life journey and financial life journey for women is different from men,” he says.

Bank of America found women are less likely to say they are financially well; 43% of women versus 65% of men. In addition, the median retirement savings for women is $30,000 compared to $100,000 for men.

Kolluri attributes this in part to more women taking time off to raise children or taking time off to be a caregiver. “Overall its’ the right thing to do, but the effect on time and savings is showing up,” he says.

The most recent Wells Fargo/Gallup Investor and Retirement Optimism Index survey shows that women investors are more likely than men to spend time helping a parent or in-law (14% of women versus 8% of men). Women who provide this care are also much more likely than their male counterparts to be the sole caregiver (40% versus 13%).

Diversity and inclusion

The Bank of America reports suggests that diversity and inclusion (D&I) programs contribute to a feeling of financial wellness.

Kolluri says diversity and inclusion impacts wellness, engagement and participation in programs.

“According to studies, corporations with a D&I program perform well,” he adds. “We found only half of employers have D&I programs. Having strong executive sponsorship and strong employee networks can lead to engagement, participation and a feeling of wellness.”

The post Health Care a Top Concern to Address in Financial Wellness Programs appeared first on PLANSPONSOR.

Categories: Industry News

CBO Says Rescue Plan for Multiemployer Pensions Won’t Help

Wed, 2019-09-18 13:47

In an analysis of the Rehabilitation for Multiemployer Pensions Act of 2019, H.R. 397, the Congressional Budget Office (CBO) estimates that the government would disburse $39.7 billion in loans to certain multiemployer pension plans. H.R. 397 would provide federal loans and grants to certain plans that are insolvent or facing insolvency.

Under CBO’s official approach (which excludes grant assistance), the present value of loan repayments would total $7.9 billion, CBO estimates, leading to a net subsidy cost of $31.8 billion. Under the alternative approach (which includes grant assistance), the estimated net subsidy cost would be $5.8 billion because some loans would be repaid using grant assistance.

However, the CBO projects that about one-quarter of the affected pension plans would become insolvent in the 30-year loan period and would not fully repay their loans. (It based its analysis only on the availability of plan assets and did not distinguish between loan forgiveness, renegotiated loan terms, and other reasons for nonpayment.) In addition, most of the other plans would still become insolvent in the decade following their repayment of their loans.

Lawmakers have a sense of urgency for fixing the crisis faced by many multiemployer plans. Given the dire situation of the Pension Benefit Guaranty Corporation’s (PBGC)’s multiemployer plan program, participants in plans that become insolvent could have no benefits.

Last year, a Joint Select Committee on the Solvency of Multiemployer Pension Plans was created and tasked with coming up with a solution by November 30. However, the committee failed to meet that deadline.

In July, the Ways and Means Committee of the U.S. House of Representatives marked up and voted along party lines to advance the Rehabilitation for Multiemployer Pensions Act. And, last month, lawmakers announced the launch of the Retirement Security Coalition to help find a bipartisan solution for the multiemployer plan crisis.

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Categories: Industry News

Safeway, Aon Agree to Settlement of Excessive Fee Suits

Wed, 2019-09-18 13:00

A settlement has been reached in two lawsuits accusing Safeway retirement plan fiduciaries and Aon Hewitt Investment Consulting, Inc. of causing excessive investment and recordkeeping fees to be charged for the plan.

The settlement amount is comprised of $8,000,000.00 that Safeway will pay or cause to be paid to the Settlement Fund, and $500,000.00 that Aon will pay or cause to be paid to the Settlement Fund

According to the settlement agreement, nothing in it “shall be deemed to constitute any finding or admission of any wrongdoing or liability by any of the Defendants.”

In April, a federal judge in the U.S. District Court for the Northern District of California issued an order granting in part and denying in part Safeway defendants’ motions for summary judgement, while also denying as moot defendant Aon Hewitt’s motion for reconsideration.

The lawsuit questioned investment and revenue sharing fee agreements, reached first with J.P. Morgan Retirement Planning Services and later continued with Great-West. Great-West was at one point removed as a defendant in the lawsuits.

In one complaint, the plaintiff alleged that the Safeway defendants “breached their fiduciary duty of prudence by selecting funds that charged higher fees than comparable, readily-available funds, and which had no meaningful record of performance so as to indicate that higher performance would offset this difference in fees; and entering into and maintaining a revenue-sharing agreement with the plan’s recordkeepers … that resulted in excessive compensation to those entities.”

The plaintiff furthered claimed that the “revenue-sharing agreement constituted a prohibited transaction under ERISA for which the Safeway defendants (as fiduciaries) and Great-West (as a party in interest) are both liable.”

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Categories: Industry News

ICMA-RC Fighting for CIT Availability for 403(b)s

Wed, 2019-09-18 11:24

Collective investment trusts (CITs) are gaining popularity in 401(k) plans as low-cost investment options. However, 403(b) plans are not allowed to utilize this low-cost vehicle.

One exception, according to Angela Montez, senior vice president, general counsel and chief legal officer at ICMA-RC, is 403(b)(9) retirement income accounts offered by church plans as they are not subject to the investment restrictions of 403(b)s. Bruce Corcoran, managing vice president/head of 403(b) Business at ICMA-RC, says in these plans, CITs are highly utilized.

Montez explains that 403(b) plans are limited to annuities and mutual funds for investments. CITs used in retirement plans operate under Section 3(c)(11) of the Investment Company Act, which provides an exemption from having to register as mutual funds with the Securities and Exchange Commission (SEC) for collective trusts that hold investments for qualified plans, governmental plans and church plans. Montez adds that the exemption only covers 401(a) plans and government plans other than 403(b)s.

CITs offer a variety of benefits for plan sponsors and participants, according to Montez. The greatest benefit is cost reduction. “Right now, there are estimates that tens of billions could be saved by 403(b) participants from investing in CITs,” she says. “They operate similarly to mutual funds but because they are not mutual funds, some costs are not built in to the product.”

In addition, Montez says, many municipalities that sponsor 457 plans also have 403(b)s. Being able to offer CITs in 403(b) would allow for the same investment options in all plan types. “Having different options in different plans adds to the complexity for boards that have to monitor investments,” she says.

In the last couple of years, ICMA-RC has started working through industry groups to go “up to The Hill” to advocate for a change in securities law that would allow 403(b) plans to use CITs, according to Montez. ICMA-RC has also met with staff of legislators to advocate for standalone legislation or for the ability to use CITs to be included in current legislation being considered. Montez notes that U.S. Senators Ben Cardin, D-Maryland, and Rob Portman, R-Ohio, in December of 2018, introduced the Retirement Security and Savings Act, in which Section 118 calls for CITs to be permitted investments in 403(b)s.

“In addition to our own legislative efforts, we are trying to build support from stakeholders—teachers, providers and other industry groups,” Montez says.

ICMA-RC has also made an attempt to get a private letter ruling from the IRS about offering CITs in 403(b) plans as underlying investments in annuity contracts or other investment vehicles.

Corcoran says plan sponsors have often sought CITs, because they raise the bar for the highest-quality investment menu, and it can streamline administration if plan sponsors have CITs in all plan types. “We’ve heard the need for these investment options in 403(b) plans from advisers, consultants and plan sponsors for decades,” he says. “It is nice in our advocacy efforts to be able to point to people who have the best interest of participants in mind to bring to new level of excellence to their plans.”

“We will continue to help advocate for anything that will help public plans and participants,” Montez concludes.

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Categories: Industry News

U.S. Argues for CalSavers ERISA Preemption in Court Filing

Tue, 2019-09-17 14:05

California’s has joined other states in actually launching an automatic IRA program, but before the program was launched, a lawsuit was filed saying the program is preempted by the Employee Retirement Income Security Act (ERISA).

U.S. Attorneys have filed a Statement of Interest of the United States in the case, offering evidence that the state-run auto-IRA program is preempted.

The document notes that the Employee Retirement Income Security Act (ERISA) is a “comprehensive and reticulated statute” reflecting Congress’s careful policy choices. Among those choices is Congress’s intentional decision to give employers the freedom to choose whether to establish a retirement plan.

“Nothing in ERISA,” the Supreme Court has observed, “requires employers to establish employee benefits plans. Nor does ERISA mandate what kind of benefits employers must provide if they choose to have such a plan,” the statement says, citing Lockheed Corp. v. Spink. “Congress enacted ERISA to ensure that employees would receive the benefits they had earned, but Congress did not require employers to establish benefit plans in the first place,” it says, citing Conkright v. Frommert.

The attorneys argue that the California Secure Choice Retirement Savings Trust Act takes away the freedom of choice that lies at the core of ERISA by forcing employers either to establish their own ERISA plan or to maintain an equivalent plan under the Act. “In taking away this choice, the Secure Choice Act disregards Congress’s careful determination that employers should not be required to maintain employee pension benefit plans. Because the Secure Choice Act disregards and runs afoul of ERISA’s statutory scheme by effectively requiring employers to maintain such plans, it is preempted by ERISA’s broad, express preemption provision that disallows any state laws that ‘relate to any employee benefit plan,’” the attorneys say.

Employers are exempt from participating in the state auto-IRA program if they offer an “employer-sponsored retirement plan” or an “automatic enrollment payroll deduction IRA” that qualifies for “favorable income tax treatment under the federal Internal Revenue Code.” The Secure Choice Act specifically provides that the CalSavers Board shall not implement the program “if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act.”

The U.S. Attorneys argue that this runs afoul of ERISA Section 514(a), which provides that ERISA supersedes any state laws that “relate to any employee benefit plan.” They note that the Supreme Court has identified two separate threads of ERISA preemption—“reference to” preemption and “connection with” preemption.

Under the “reference to” inquiry, the Supreme Court has held preempted a law that “impos[ed] requirements by reference to [ERISA] covered programs.” The attorneys say CalSavers falls squarely in the category of cases holding state laws preempted because of their improper reference to ERISA plans.  They note that ERISA plans are essential to the operation of the Secure Choice Act’s regulatory framework—the Act forces California employers who do not offer the State’s preferred types of ERISA plans (certain tax-favored employer-sponsored retirement programs and automatic enrollment IRAs) to adopt equivalent automatic-enrollment IRAs through CalSavers. Under the Secure Choice Act, California singles-out employers who decline to sponsor the state’s preferred ERISA plans, forcing them to enroll their workers in plans that function just like the plans they have chosen not to offer.

“A state law may not reference ERISA plans in order to trigger ERISA-equivalent coverage. Because the Secure Choice Act does exactly that, this Court should determine that the law is preempted on that basis,” the statement says.

The attorneys argue that the Secure Choice Act is alternatively preempted because an employer’s ongoing maintenance of CalSavers Plans makes them ERISA-covered plans.

They note that ERISA defines a “pension benefit plan” as “any plan, fund, or program . . . established or maintained by an employer. . . to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program—(i) provides retirement income to employees, or (ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond.”  The attorneys’ statement points out that the “intended benefits” are the retirement income from tax-deferred contributions provided by the IRAs required by the Act, the “beneficiaries” are the employees whose wages are withheld, the “source of financing” is the automatic payroll deductions, and the “procedures for receiving benefits” are those provided through the IRA product. “If the identical functions of the CalSavers Board were instead performed by a third party administrator (TPA) and investment manager voluntarily hired by an employer plan sponsor, this arrangement clearly would fall within the scope of ERISA,” the statement says.

The attorneys content that by requiring employers to deduct contributions from eligible employees’ wages on an ongoing basis, and to forward the contributions for deposit into IRAs established for each enrolled employee, the Secure Choice Act requires the employers to maintain an employer-based program providing “retirement income to employees” or resulting “in a deferral of income by employees for periods extending to the termination of covered employment or beyond.” The defendants in the suit, however, argue that these are just ministerial duties.

But, the U.S. Attorneys point to case precedent which found that an employer’s need to make eligibility determinations can be sufficient to establish or maintain an ERISA-covered plan.  They note that employers subject to the Act must make ongoing determinations regarding their eligibility, the eligibility of employees, and the associated contribution rate.  For example, employers must monitor whether any particular employee is or becomes exempt by virtue of the fact that he or she is “engaged in interstate commerce” or whether the employee is or becomes exempt because contributions are required on that employee’s behalf to a multiemployer plan pursuant to a collective bargaining agreement.

“In sum, each private employer that participates in the CalSavers program maintains an employee pension benefit plan covered by ERISA, regardless of the role of the state mandate in creating the withholding arrangements,” the statement says.

The attorneys note that the U.S. District Court for the Eastern District of California previously ruled that “CalSavers does not govern a central matter of an ERISA plan’s administration, nor does it interfere with nationally uniform plan administration.” But they argue that the Act interferes with nationally uniform plan administration by potentially subjecting multi-state employers to numerous disparate retirement plan laws. “In that regard, a decision by this Court to allow the Secure Choice Act to survive would allow for the creation of a patchwork of different state laws regulating the provision of retirement benefits to employees. This danger is exacerbated because the Act applies to employers to the extent they do business in California regardless of where the company is headquartered or specific employees are located. A multi-state employer would not only have to keep track of payroll deductions, rates, and eligibility for CalSavers, but also for myriad other states’ automatic-enrollment IRA programs,” the statement says. “This is exactly the kind of disuniformity that ERISA Section 514(a) was designed to avoid.”

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Categories: Industry News

MassMutual Offers Retirement Plan Enrollment App

Tue, 2019-09-17 10:08

Employers can now enroll in their employer’s defined contribution (DC) plan anytime, anywhere with their smartphones using an enhanced mobile application from Massachusetts Mutual Life Insurance Company (MassMutual).

MassMutual’s RetireSMART Mobile App not only allows users to enroll in their employer’s DC plan, but also determine how much to contribute from each paycheck and then select their investments. Once enrolled, plan participants also can alter their current investment strategy by changing investment options, rebalance existing accounts within different investments, increase their contributions or request assistance in consolidating their retirement savings accounts.

Log in includes state-of-the-art authentication features, including fingerprint and facial recognition.

Participants in retirement plans featuring automatic enrollment that have downloaded the app will be notified by the app of their auto enrollment date, allowing them to decline participation as well. Participants can also access information about automatic contribution increases and make changes as they see fit. The app can be used to access pre-login educational tools such as a savings calculator but allows broader access to information and capabilities once users enroll in their plan.

The RetireSmart app also allows retirement savers to link to, an online site that provides information and tools to help retirement savers reach their goals, and access investment information such as annual reports, prospectus and regulatory publications. Login assistance and contact information is also available through the app.

“Today’s fast-paced work environment and lifestyles can make it challenging to enroll in employer benefit plans, including retirement savings, and then manage those benefits,” says Rob Toole, lead of Digital at MassMutual. “MassMutual’s RetireSMART app has been enhanced with those challenges in mind to encourage workers to enroll in their 401(k) or other retirement savings plan whenever it’s convenient for them to do so.”

The app is available free for Apple and Android smartphones through the Apple App Store and Google Play app store, respectively, to workers whose employer sponsors a MassMutual DC retirement plan. The app can be downloaded by searching “RetireSmart” or “MassMutual” in the Apple or Google app stores.

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Categories: Industry News

Wilmington Trust and Nasdaq Partner on CIT Awareness

Mon, 2019-09-16 14:12

Wilmington Trust and Nasdaq have partnered to offer tickers for over 200 collective investment trusts (CITs) on the Nasdaq Fund Network (NFN).

The two entities look to encourage CIT adoption among investors, a move that they say has stalled due to low awareness of the funds. Comparable to mutual funds, CITs are low-cost investment vehicles accessible via 401(k) plans, but have largely remained unacknowledged in the past due to little understanding in price and performance.

Rob Barnett, head of Retirement Distribution & product leader for Wilmington Trust’s CIT Business, expects the standardized tickers will incite clarity and usage of CITs, especially as investors, employers, and advisers will have access to greater information.

“Our hope is relative transparency,” he tells PLANSPONSOR. “We’re giving broader reach for CITs, so participants and plan sponsors can use it, and so advisers have easier access. This will allow participants to find price and performance by going into NFN’s search engine and typing up the ticker.”

According to a recent report by Cerulli Associates and the Coalition of Collective Investment Trusts, the lower cost associated to CITs is the primary driver of their growth. However, more than 40% of CIT providers identified a lack of knowledge among advisers as a top challenge to their adoption in DC plans, along with a noticed absence of transparency. The small amount of reporting done on CITs contributes to its little adoption, compared to the more common mutual fund. More than half of providers noted a lack of CIT information threatens the fund’s adoption, according to Cerruli.

“If advisers find it difficult to find information on a CIT, they’re going to have trouble recommending it,” says Barnett.

At Nasdaq, the NFN works as a global dissemination service, collecting and spreading data and information on over 35,000 mutual funds, market funds and other investment options to the public. Its aim is to provide detailed, daily analysis on investment funds and products. The Network was relaunched in March 2019 from its previous name, the Mutual Fund Quotation Services (MFQS), and Wilmington Trust will be the first institution to register CITs with the Network.

“It is more important than ever for our clients to understand the various investment vehicles and make informed choices,” says Christopher Randall, head of Retirement and Institutional Custody Services at Wilmington Trust. “As the first institution to register CITs with Nasdaq Fund Network, we are helping overcome a major challenge to widespread adoption of CITs, providing the information advisers, plan sponsors and participants need to make fully informed decisions.”

Barnett believes implementing these tickers will inspire other firms to follow, both in embracing CIT adoption and awareness.

“Our hope is that we’re not just the first, that there are others that adopt this process,” he says.  “That we’re not just the only user, but that we can help create this widespread use of information across all CITs.”

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Categories: Industry News

Avoid Pitfalls to Properly Replacing DC Plan Investments

Mon, 2019-09-16 11:56

“Improving a 401(k)-investment menu by changing out investments isn’t as simple as replacing it with a better-performing fund. 401(k) plan sponsors and advisers should take care to document their justification for changing an investment and conduct a thorough, holistic search for a replacement,” say David Blanchett, head of Retirement Research at Morningstar Investment Management LLC, and Jim Licato, vice president of product management at Morningstar.

A prior analysis by the two of a sample of 3,478 fund replacements across 678 defined contribution (DC) plans found that the future performance of the replacement fund is better than the fund being replaced at both the future one-year and three-year time periods, and that these differences are statistically significant. The outperformance persists even after controlling for expense ratios, momentum, style exposures, and other metrics commonly used by plan sponsors to evaluate funds such as the star rating and quantitative rating.

Licato previously told PLANSPONSOR, “We have found, and believe it is very important, for someone to be keeping an eye on retirement plan investments—whether an investment committee or investment adviser—and make necessary changes. We found not doing so is a disservice to participants.”

Now, Blanchett and Licato have followed up their research with a warning to DC plan sponsors to avoid common pitfalls in monitoring and changing funds in the investment menu.

They says fixating on random time periods that only include certain parts of a market cycle can lead to ill-informed decisions. It’s common for investment strategies to underperform at different times, so it’s important for plan sponsors and their advisers to understand the nuances of these cycles.

For example, they say low-beta funds (funds that hold stocks and are generally less sensitive to market movements) typically underperform during strong markets and seek to minimize loss during weaker markets. Though it may seem appropriate to remove this type of fund during a market upswing, it may seem less sensible when the market turns south.

Blanchett and Licato point out that high-performing funds can come with a considerable amount of risk, so swapping out a lagging fund for a top performer may expose participants to a greater—potentially excessive—amount of risk.  They suggest, rather than just looking at returns, plan sponsors and advisers may consider other return metrics that adjust for risk (such as the Sharpe or Sortino ratios).

A third pitfall to avoid is inaccurately analyzing fees. To ensure fee comparisons are accurate, Blanchett and Licato suggest, for example, plan sponsors and advisers should compare index fund fees to the fees of other index or passive funds, not to the fees of actively managed investments. The apples-to-oranges comparison of active fund fees against passive fund fees could lead to incorrectly removing a fund due to high fees.

Plan sponsors and advisers shouldn’t rely too much on a fund’s objective. Blanchett and Licato point out that some funds may move among styles over time, a concept referred to as style drift. “Although it can be time-consuming, a deep dive into a fund’s holdings can help bring to light an investment’s true style and integrity,” they say.

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Categories: Industry News

Proposed Financial Transactions Tax Would Hurt Retirement, Education Savers

Mon, 2019-09-16 08:47

Modern Markets Initiative (MMI), an education advocacy organization devoted to the role of technological innovation in creating the world’s best markets, released a report about the economic impact of Senate bill S. 1587, the Inclusive Prosperity Act of 2019’s proposed financial transaction tax (FTT).

While politicians are looking at this as mainly a tax on big Wall Street Investors, MMI CEO Kirsten Wegner says it “is in reality, a severe retirement tax on American savers from all income levels.”

MMI’s analysis shows any transaction tax would drastically harm institutions trading large volumes of securities such as pension funds, mutual funds and other institutional investors that directly represent the financial interests of American workers, as well as average Main Street investors with defined contribution (DC) retirement or 529 College Savings accounts.

MMI found the financial implications for average American savers include:

  • $19 million in annual FTT on 529 College Savings plans, or the equivalent of a year of full in-state tuition for 1,900 students at a public university;
  • $24 million in annual FTT for a single public university endowment with $20 billion AUM, or the equivalent of 3,227 college scholarship in a given year;
  • $64,232 in annual FTT over the lifetime of a 401(k) account, or the equivalent of delaying the average individual’s retirement by two years; and,
  • $132 million in annual FTT for the typical state public pension plan with more than $68 billion in assets under management.

Similarly, Vanguard found the proposed tax would require the everyday investor to work roughly two-and-a-half years longer before retiring in order to reach the same retirement savings goals achievable without the tax. The tax would make saving for college more difficult as well. Families could take on debt to make up the difference, with a $7,800 student loan. Or, parents would need to save roughly an additional $250 per year, per child, to achieve the same balance in a college savings account.

“Even outside of saving for retirement or a college education, an investor’s ability to save for any future goal is drastically diminished by the proposed tax,” Vanguard says. It shows that the ending value of an investment of $10,000 in a small-capitalization active equity fund would be reduced by roughly 19% with the proposed tax, after 20 years.

According to Vanguard, the experience of other countries—particularly in Europe—have shown that FTTs distort capital markets. FTTs generally increase risk in the financial system by hurting market liquidity, producing volatility, increasing bid-ask spreads, encouraging financial engineering, and raising costs of capital.

At the same time, FTTs have consistently failed to deliver the promised tax revenues because FTTs shift financial activity to less-regulated markets. For example, Vanguard says, France and Italy did not raise even half the first-year revenue they had projected from the FTTs they enacted in 2012 and 2013, respectively.

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Categories: Industry News

SURVEY SAYS: Financial Know-How Education

Mon, 2019-09-16 04:30

Last week, I asked NewsDash readers, “What financial topics does your company educate employees about, and which of those do you need more education about?”

More than two-thirds (67.9%) of responding readers work in a plan sponsor role, while 21.4% are TPAs/recordkeepers/investment managers, 7.1% are advisers/consultants and 3.6% are attorneys.

Investment basics (67.9%), budgeting (57.1%) and simple strategies for investing properly (42.9%) topped the list for financial topics responding readers’ firms educate employees about.

Here is how other topics ranked:

  • Paying off credit card debt more quickly (39.3%);
  • Wills and estate planning (39.3%);
  • Saving for and paying for children’s education (32.1%);
  • Strategies for creating income in retirement (28.6%);
  • Student loan repayment strategies (14.3%);
  • Paying for caregiving responsibilities (7.1%); and
  • Tax strategies (7.1%).

“None of the above” was selected by 10.7% of respondents, while 7.1% selected “All of the above.”

As for financial topics responding readers need more education about, wills and estate planning (42.9%), strategies for creating income in retirement (32.1%), tax strategies (25%) and paying for caregiving responsibilities (25%) topped the list.

Other financial topics ranked as follows:

  • Student loan repayment strategies (17.9%);
  • Paying off credit card debt more quickly (14.3%);
  • Budgeting (10.7%);
  • Saving for and paying for children’s education (10.7%);
  • Investment basics (10.7%); and
  • Simple strategies for investing properly (10.7%).
“None of the above” was selected by 14.3% of respondents, while 3.6% chose “All of the above.”

Among those who left comments about financial know-how education, several stressed that financial education should be done in school. A couple noted that it is hard to focus people on the long term or get them to change their habits. One argued that employees are expecting employers to do too much, and one pointed out that with competing financial priorities and many employees living paycheck to paycheck, financial discipline can be difficult. Editor’s Choice goes to the reader who said, “We try to teach our employees about simple day-to-day spending habits. Most of our employees are young, single males. Reducing that beer budget is tough!”

A big thank you to all who participated in the survey!


I hate financial topics—they are dry and totally uninteresting. But, like lawyers, they are a necessary evil (I can say that because I am a lawyer). So, I have to force myself to listen to the information and stay awake during the process.

It is hard to teach people the discipline to look long-term.

I need more education on Medicare and supplemental insurance in retirement as well as how to optimize Social Security benefits when both spouses have accrued benefits.

By the time people hit the workforce, it’s almost too late for financial basics. We need to rethink algebra and geometry (when’s the last time you did a geometric proof IRL?) and replace them with topics like calculating interest, understanding credit, banking basics, etc. OK…maybe some geometry is helpful (sometimes you need to be able calculate the area of a space to buy paint or fertilizer)!

We try to teach our employees about simple day-to-day spending habits. Most of our employees are young, single males. Reducing that beer budget is tough!

As far as our participants go, interest in financial education is mixed. Those who need it most should have had it in high school or post-secondary. We can’t force them to engage. The other issue is that wages only go so far, and many employees live paycheck to paycheck. The stress and anxiety this causes, when trying to turn things around and become financially disciplined, living within a budget, can be enormous. Change is difficult.

Financial know-how and education—there is never enough. I just wish time was spent educating people on how to do their job.

I used to volunteer at a local school teaching basic budgeting, taxes, benefits and how to save. Unfortunately, the schools don’t have time to teach those classes now, and it shows.

The cry for financial education is another indication that employees expect employers to do too much. Financial information is available all over the place, but few choose to seek it on their own. All you need to know is: spend less than you make; build an emergency fund; resist debt; and save for retirement. This is not rocket science.

Other than general 401(k) onsite meetings and webinar, we rely on our employees visiting vendors’ sites. More should be done but “we don’t have the resources.” In other words, priorities of Benefits staff are elsewhere.

As a church we provide this education not only to our staff but to our congregation. Reducing financial stress can improve the physical and mental health of our staff and congregation as well as the health of their marriages.

I am fortunate to work for an investment advisory firm, where any information or tools we need regarding our personal finances are at our fingertips. In turn, we pass on our knowledge to our plan sponsor clients and their participants—helping one person at a time become more financial savvy makes a difference!


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

Plan Sponsors Should Address Financial Squeeze Put on Gen X

Fri, 2019-09-13 12:56

Forty-two percent of Gen Xers are more focused on paying off debt than saving for retirement, according to research by Schwab Retirement Plan Services. The nationwide survey of 1,000 401(k) plan participants, including 368 Gen Xers, 315 Millennials and 317 Baby Boomers, found that 70% of Gen Xers feel that they are on top of their 401(k) investments but still experience financial stress while trying to meet their long-term goals.

Asked what is preventing them from saving more for retirement, Gen Xers say unexpected expenses like home repairs (38%), credit card debt (31%), monthly bills (29%), paying for their child’s education (22%) and paying off their student loans (11%).

As to what is causing the most financial stress for Gen Xers, they say it is saving for retirement (40%), credit card debt (27%) and keeping up with monthly expenses (23%).

“Plan sponsors and advisers are primarily focused on Millennials and Boomers, and rightly so, but I am not sure they call out to Generation X to offer them the help and guidance they need,” Catherine Golladay, president of Schwab Retirement Plan Services, tells PLANADVISER. “Gen X is feeling pressure on all sides. While they are in their prime earning years, they are getting close to retirement, and they are taking care of both their children and their parents.”

The first thing retirement plan providers can do to help alleviate Generation X’s financial stress is to make sponsors and advisers aware that this generation needs their help, Golladay says. “Specifically, they are struggling with debt and budgeting and want a holistic view of their finances. Many plan sponsors and advisers are in a position to help Gen Xers with these goals through financial wellness programs that cover paying down debt, budgeting, establishing emergency savings and how to invest their 401(k).” It is also important to offer them advice through managed accounts, Golladay says.

Chad Parks, founder and CEO of Ubiquity Retirement + Savings, and himself a Gen Xer who is also feeling competing financial priorities, says the first place advisers and sponsors can start is by offering Gen Xers account aggregation, so that they can see where their money is going. From there, they can establish a budget. “I would challenge Gen Xers that for the sake of their future, they make retirement savings the first line item in their budget, even if it is only $300 or $500 a month.”

Mark Anthony Grimaldi, Co-Founder of Grimaldi Portfolio Solutions and author of the book, RetireSMART, says that in spite of their competing priorities, Gen Xers should put themselves first, and then their parents and then their children. “There’s an unspoken belief among many retirement planners that Generation X consists of ‘those younger people,’” Grimaldi says. “They’re actually in their 40’s and 50’s, so some are just 10 years away from retirement. They have mortgages, second homes, kids going to college and elderly parents. They’re even thinking about long-term care policies. So, don’t underestimate their competing needs.”

According to Schwab’s research, 58% of Gen Xers say that their 401(k) is their largest or only source of retirement savings. This is true for 68% of Millennials and 48% of Boomers. While Gen Xers saved slightly more in their 401(k)s last year than the other two generations surveyed ($9,499 on average), this is only about half of the 2018 IRS contribution limit of $18,500 for those younger than 50. Boomers saved an average of $9,433 and Millennials, $7,257.

On average, Gen Xers think they will need $1.81 million for a comfortable retirement, while Millennials say the figure is $1.78 million and Boomers, $1.51 million.

Thirty-one percent of Gen Xers have taken out a loan from their 401(k), and of this group, 61% have done so more than once—higher than the other two generations. Forty-one percent do not know which investments in their 401(k) plan to select to have enough for retirement, and only 28% say they are very confident in making 401(k) investment decisions on their own.

They say they want help with calculating how much they need to save for retirement (41%),  determining at what age they will be able to afford to retire (38%) and how to invest their 401(k) assets (37%).

It is critical that financial wellness programs aimed at Gen Xers address the debt they are carrying, Golladay says. And since so many of them have taken out one or more loans from their 401(k), advisers and sponsors need to educate them about the negative ramifications of doing so, and help them create emergency savings.

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Categories: Industry News

Retirement Plan Providers Can Get Plan Sponsor Website Audit

Fri, 2019-09-13 12:19

Corporate Insight announced the launch of its Defined Contribution (DC) Plan Sponsor Digital Audit.

The new audit service provides an in-depth assessment of the digital user experience offered by retirement plan recordkeepers to plan sponsors, measuring their plan sponsor-facing websites against key competitors. The audit identifies competitive strengths, weaknesses and opportunities for improvement, enabling recordkeepers to set the right development priorities and deliver a best-in-class digital experience to sponsors.

Six core categories are featured:

  • Education and Help Resources;
  • Participant Data & Management;
  • Plan Administration;
  • Plan Information;
  • Reporting; and
  • Website Design and Settings

The audit framework, grade definitions and criteria are based on industry best practices identified by Corporate Insight’s Retirement Plan Monitor—Institutional research service, which tracks and analyzes the plan sponsor websites of 15 leading recordkeepers. Its latest survey found 91% of plan sponsors say that the site experience is either of equal or greater importance to the participant site experience.

Andrew Way, director of research, annuity, life and retirement at Corporate Insight, says recordkeepers have put far more work into updating participant websites than they have sponsor websites. “Sponsors hold these websites up to the high quality service they get from non-financial websites, such as Google. If [recordkeepers] don’t offer an intuitive plan health dashboard or haven’t updated it in a few years, they need to do so.”

“When it comes to digital platform importance, our survey found that the quality of the plan sponsor portal can have a greater impact on the choice of recordkeeper than the quality of the participant digital experience,” says Michael Ellison, president of Corporate Insight. “We believe that this audit can play an instrumental role in helping clients optimize their plan sponsor digital experience, leading to greater client retention.”

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Categories: Industry News