RSS Feed for PLANSPONSOR
Note: Content for this RSS feed is provided as a text alternative to inline RSS feeds that may not display on all browsers.
Insight on Plan Design & Investment Strategy
- Cost Strategies and Vendor Contracting Employers’ Top Health Plan Concerns
published on Fri, 22 Sep 2017 19:12:11 +0000
As health care plan utilization places second in rising medical costs, the runner-up still isn’t going unnoticed among plan sponsors. When asked to rank cost-management strategies implemented by group health plans in 2017, survey respondents to a recent survey by the Segal Group listed prescription drug cost management strategies and improved vendor contracting as plan sponsors’ main concerns. “Using specialty pharmacy management; intensifying pharmacy management programs; contracting with value-based providers; increasing financial incentives in wellness design; and adopting a high deductible health plan (HDHP),” were the top five recorded by plan sponsors. The findings, according to the study, demonstrate how sponsors are pushing utilization by encouraging high quality, low cost providers, as well as following strategies to lower costs, including the “use of custom and limited provider networks, expansion of dedicated primary care clinics that are on or near work-sites and, for some industries, continued migration to tax advantaged health savings accounts (HSAs) and HDHPS.” In response to these results, Edward Kaplan, national health practice leader for Segal, suggests sponsors adopt a “three-pronged approach to the challenge of health care cost management that encompasses vendor management, plan design management and population health management.” The latest predictions show a slim rise in medical plan cost trend growth—slightly contrary to 2017 predictions. Study findings revealed price inflation as the driver behind surging medical costs, including 8.8% of prescription drugs. “Health plan cost increases continue to significantly outpace general inflation and average wage increases, underscoring the need to monitor performance targeting cost-management efforts,” says Kaplan. Yet, prescription drugs is not price inflation’s only target. Nearly 3% (2.8%) of physician services and 4.6% of hospital services are affected from the price increase as well. Eileen Flick, senior vice president and director of Health Technical Services at Segal, credits this inflation to an incorrect usage of emergency rooms and urgent care facilities, along with superfluous and pricey diagnostic radiology procedures. In order to prevent inapt and unnecessary practices, Flick advises sponsors to set out on assuring employees are making wise choices regarding health care costs. “Plan sponsors should ensure their plan designs are properly aligned with the costs of care, and that their participants are making smart choices in order to get the right care at the right price with the right provider,” she says. More about the study can be found here.The post Cost Strategies and Vendor Contracting Employers’ Top Health Plan Concerns appeared first on PLANSPONSOR.
- Parents Sacrificing Retirement Savings to Pay for Children’s College
published on Fri, 22 Sep 2017 19:06:07 +0000
T. Rowe Price’s 2017 Parents, Kids & Money Survey, which sampled parents of 8-to-14 year olds nationally, revealed that parents are still willing to scale back their retirement in order to cover their children’s college education.Similar findings have been reported in previous T. Rowe Price surveys. More parents are saving for their children’s college than their own retirement: 53% of parents are saving for their children’s college and 49% are saving for their own retirement. In addition, the study found parents are willing to delay their retirement to cover college costs: 73% of parents agree with the statement, “I’d be willing to delay my retirement to pay for my kids’ college education.”Parents are more likely to pull money from retirement savings than college savings: 44% of parents have pulled money from their retirement savings over the past two years compared with only 32% of parents who have pulled money from their children’s college savings during that time span. Children’s education is the second most common reason parents tap retirement savings: 33% of parents who have pulled money from retirement savings in the past two years did so to cover their children’s college education. This is the second most common reason selected behind paying off debt (35%).Fourteen percent of parents anticipate pulling money from their retirement to cover their children’s college costs.The ninth annual T. Rowe Price Parents, Kids & Money Survey, conducted by Research Now, was fielded from January 18, 2017, through January 26, 2017, with a sample size of 1,014 parents and 1,014 kids ages 8 to 14. A summary of findings can be found here.The post Parents Sacrificing Retirement Savings to Pay for Children’s College appeared first on PLANSPONSOR.
- Retirement Industry People Moves
published on Fri, 22 Sep 2017 16:52:36 +0000
Janus Henderson Investors Hires Global Head of Fixed IncomeJim Cielinski has joined Janus Henderson Investors as the firm’s new global head of Fixed Income. Based in the firm’s London Headquarters, Cielinski will join the firm on November 1.Cielinski brings more than 30 years of investment management experience to the firm. He most recently held the same position for Columbia Threadneedle Investments, where he oversaw more than 165 investment professionals and $190 billion in fixed income assets under management.Prior to joining Columbia Threadneedle in 2010, Cielinski spent 12 years at Goldman Sachs Asset Management as managing director and head of Credit, where he managed the credit exposures across all investment grade portfolios. He’s also served as head of Fixed Income for the Utah Retirement Systems, assistant manager of Taxable Fixed Income for Brown Brothers Harriman & Co, and equity portfolio manager for First Security Investment Management.“Jim brings a wealth of experience managing fixed income investment teams and I am excited to work alongside such an accomplished investment professional,” says Enrique Chang, Janus Henderson global Chief Investment Officer.FS Investments Expands Real Estate Investment EffortsFS Investments Expands Real Estate Investment EffortsAlternative asset manager FS Investments is pushing deeper into the real estate investment space with the launch of FS Credit Real Estate Income Trust, the firm’s first real-estate investment trust (REIT). FS Investments has also hired Rob Lawrence to spearhead the firm’s entire real estate efforts.As managing director and global head of Real Estate, Lawrence will oversee the firm’s real estate initiatives and help manage FS Credit REIT in partnership with its sub-adviser, Rialto Capital Management.He brings more than 25 years of commercial real estate investment experience to his new role. Previously, he served as executive managing director at Singer & Bassuk, a boutique real estate finance firm; and senior managing director at Guggenheim Commercial Real Estate Finance, where he managed the origination platform for commercial mortgage-backed securities (CMBS) and affiliated life companies. Lawrence earned a bachelor’s degree in business administration from the University of Vermont and a master’s degree in real estate investment and development from the Schack Institute of Real Estate at New York University.FS Credit REIT is a publicly registered, non-listed REIT that originates, acquires and manages a portfolio of senior loans secured by commercial real estate primarily in the United States. The daily NAV REIT focuses primarily on floating-rate mortgage loans that are secured by first priority mortgages on transitional commercial real estate properties, and has already closed on initial investments totaling more than $43 million.Franklin Templeton Hires ETF Portfolio VPFranklin Templeton Hires ETF Portfolio VPLouis Hsu has joined Franklin Templeton as the firm’s vice president, ETF portfolio manager. Hsu will assist Dina Ting, vice president, senior portfolio manager for Global ETFs, in managing certain Franklin LibertyShares ETFs.With more than 10 years of investment experience, Hsu joins Franklin Templeton from BlackRock where he spent the past six years as vice president in the Beta Strategies and Multi-Asset Strategies in San Francisco, Hong Kong and Taiwan. He was also responsible for managing various indexed and smart beta portfolios in addition to being involved in multiple fund launches. Hsu holds a master’s degree in finance and a bachelor’s degree in mechanical engineering from Washington University. He is a CFA, CAIA and FRM charterholder.DWC – The 401k Experts to Merge with Hawkins RetirementDWC – The 401k Experts, an organization providing 401(k) plan compliance, defined benefit (DB), and consulting services is uniting with Hawkins Retirement, a Utah-based firm that provides the same services, under the DWC brand.Hawkins Retirement executive Lori Reay will be joining DWC as a partner. Reay, a former recipient of the American Institute of CPAs Women to Watch Emerging Leaders Award, brings more than 16 years of experience as a partner at Hawkins Retirement to her new role.“After talking to Lori about the similarities in our companies’ philosophies and dedication to premium service, I knew that this merger would be a step forward for both companies,” says Keith Clark, partner and co-founder of DWC. “The merger is a huge opportunity for Hawkins Retirement and DWC to come together as a unified company to better serve our network, ensuring continuity and the excellence Hawkins Retirement’s existing clients are accustomed to.”Reay adds, “Hawkins Retirement is known for its service and results, uniting with DWC will strengthen our business models and allow us to deliver even greater results. The best news is clients will see no disruption in services as our service model and infrastructure are similar.” The post Retirement Industry People Moves appeared first on PLANSPONSOR.
- Case Against University of Pennsylvania 403(b) Plan Dismissed
published on Fri, 22 Sep 2017 16:22:02 +0000
U.S. District Judge Gene E. K. Pratter of the U.S. District Court for the Eastern District of Pennsylvania dismissed all claims against the University of Pennsylvania and its vice president of human resources that they violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by causing 403(b) plan participants to pay excessive fees and by offering an array of investment choices, many of which the plaintiff says underperformed.The lawsuit filed last year claims the defendants breached their fiduciary duty by “locking in” plan investment options into two investment companies, allowing administrative services and fees that were unreasonably high due to the defendants’ failure to seek competitive bids to decrease administrative costs, and allowing unnecessary investment fees to be charged while the portfolio underperformed.The court opinion notes that at the end of 2014, the plan had $3.8 billion in net assets and 21,412 participants, making it among the largest 0.02% of defined contribution (DC) plans in the United States based on total assets. In addition, Pratter noted in her opinion that the university’s plan has a diverse array of beneficiaries to serve, from grounds and cleaning crews to renowned Wharton School and Law professors, physicists, anthropologists, hockey coaches and endless others. “These individuals have different goals, risk tolerances, investment acumen and income,” she wrote. “To make it easier for potential investors, plan managers divided the investment options (which ranged between 76 and 118 options) into four tiers. Tier 1 is for the “do it for me” investor; tier 2 is geared toward the “help me do it” investor; tier 3 is designed for the “mix my own” investor; and tier 4 is built for the “self-directed” investor.”“The touchstone of an effective ERISA defined contribution plan is if it ‘offer[s] participants meaningful choices about how to invest their retirement savings,’” Pratter said, citing previous case law. “Such a duty to offer choice is more pronounced in plans as large as Penn’s, which serves a broad array of needs and desires.”Several times in her opinion, Pratter cites Renfro v. Unisys Corp., in which plaintiffs challenged “the selection and periodic evaluation of the Unisys defined contribution plan’s mix and range of investment options” in a 401(k) plan. In upholding the dismissal of the claim, the 3rd U.S. Circuit Court of Appeals held that courts must look to the “mix and range of options and . . . evaluate the plausibility of claims challenging fund selection against the backdrop of the reasonableness of the mix and range of investment options.” Under that framework, the court concluded that in light of the available options—which included 73 investments with fees ranging from 0.10% to 1.21%—plaintiffs had “provided nothing more than conclusory assertions” of fiduciary breach and it affirmed dismissal of the case.The opinion includes a summary of the history of retirement plans and concedes that 403(b) plans pre-date 401(k) plans by about 20 years. It notes that 403(b) and 401(k) plans for years differed dramatically in both scope and structure. For one thing, 403(b) plans initially were limited to annuity contracts. Pratter said that even if governed by ERISA, these salient differences resulted in different management and fiduciary requirements, since the duties by a fiduciary to an annuity contract differs dramatically from the duties of a fiduciary managing mutual funds. However, she noted that 403(b) plans have moved away from annuity offerings to offer a range of options that are similar to those offered by 401(k) plans, and fiduciary requirements by 403(b) plan administrators are nearly identical to those requirements for 401(k) administrators.Addressing the ClaimsThe plaintiff’s first claim is that by “allowing TIAA-CREF to mandate the inclusion of the CREF Stock Account and Money Market Account in the Plan” the defendants committed the plan to an “imprudent arrangement in which certain investments had to be included and could not be removed from the plan” even if the investments underperformed. In support of this assertion, the plaintiff points to a Supreme Court decision in Tibble v. Edison Int’l, in which the court noted that “under trust law, a fiduciary normally has a continuing duty of some kind to monitor investments and remove imprudent ones.”Pratter concluded the plaintiffs’ complaint fails to allege conduct that violates the Tibble principle. The only fact that she pled is that the defendants “locked in” the plan to TIAA-CREF. “This, standing alone, is insufficient to create a plausible inference that this was a breach of fiduciary duty,” Pratter wrote, noting that locking in rates and plans is a common practice used across the business and personal world. Companies often offer better terms to induce customers to “lock in” for a longer period.The next claim is that the defendants allowed TIAA-CREF and Vanguard to charge unreasonable administrative fees in two ways: First, allowing TIAA-CREF and Vanguard to operate as their own recordkeepers (rather than consolidating all funds with a singular third-party recordkeeper) supposedly increased fees; and second, that the plan administrators should have arranged a flat per-person fee rather than an “asset-based” fee.Pratter decided the argument that TIAA-CREF and Vanguard operated as their own recordkeepers fails for similar reasons to the “locked in” claim. What she called “bundling of services” she said is not inconsistent with lawful, free market behavior in the best interests of those involved, including beneficiaries. “Here, it is rational to comply with Vanguard’s requirement that they serve as recordkeeper if that is required to gain access to the desired Vanguard portfolio,” Pratter wrote.But even if this were not true, she said the argument also fails as a factual matter because there is a reasonable “range of investment options with a variety of risk profiles and fee rates,” citing Renfro. In the present case, the fees range from 0.04% to 0.87%, markedly lower than the 0.10% to 1.21% at issue in Renfro. The plan offered 17 investment options with fees lower than the lowest fees in Renfro (0.10%) and only one plan above 0.57%. “With such low fees, it is not inevitable to say that recordkeeping fees were unnecessarily high, especially when there are rational bundling reasons to allow separate recordkeepers,” Pratter wrote. “Even if there were cheaper options available for recordkeeping fees, ERISA mandates that fiduciaries consider options besides cost. Fiduciaries must balance ‘providing benefits to participants and their beneficiaries’ and ‘defraying reasonable expenses of administering the plan,’” again citing Renfro.Rejecting excessive fee and prohibited transaction claimsPratter uses this “fiduciary balance” argument to reject many of the claims in the case, including the claim that the plan should have charged per-participant rather than asset-based fees. “The plan administrators are fiduciaries to every plan member, whether she invests $10 or $10 million. It is not up to courts to second-guess how fiduciaries allocate that cost, only that the fiduciary ‘discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries”’ as a whole,” she wrote.Pratter also said the majority of the “excessive fee” arguments fail to state a claim because the mix and range of fee options included fees as low as 0.04%, which neither side claims is excessive. The strongest argument advanced by the plaintiffs is that the plan contained “retail class” shares, rather than other identical options with lower fees, known as “institutional class” shares. But, the judge decided the plaintiffs overstate their argument. While some shares in the plan are retail shares that could be replaced with institutional shares, nearly half of the shares (37 of 78) are already lower-fee funds. She noted that the plaintiffs’ argument also ignores that these institutional class shares would only be available if significantly more money were funneled into each of them. Switching from retail to institutional shares is not a matter of checking a different box. It requires fiduciaries to balance the menu of options given to plan beneficiaries against the fees. Sometimes, institutional shares are unavailable as an option because investment levels are too low in that fund. And, Pratter points out, institutional investment vehicles also come with a drawback: lower liquidity, citing Loomis v. Exelon Corp. Pratter also rejected the plaintiff’s allegation that defendants “provided a dizzying array of duplicative funds in the same investment style” leading to “‘decision paralysis’ for participants.” She found the plaintiffs have not alleged any participant who was confused by the different options. In addition, the plan administrators broke the options down into four categories based on the participants’ investment acumen to help guide them. “Offering 78 different choices is not an unreasonably high number, especially with the tiered descriptive guidance given to participants,” she wrote.The plaintiffs’ derivative claim, namely that offering duplicative funds was unnecessary, fails as well, Pratter said. On the contrary, duplicative investment options are necessary based on the structure of the plan, and the fact these tiers contained some of the same funds is unsurprising and raises no plausible inference of a breach of fiduciary duty. “Indeed, if there was no overlap there could be greater cause for criticism or frustration,” she wrote.Finally, the plaintiff’s claim that select funds were outperformed by the rest of the market, claiming that 60% of the plan’s investment options “underperformed their respective benchmarks over the previous five-year period.” To begin, Pratter said there is no cause of action in ERISA for “underperforming funds.” The statutory text requires fiduciaries to discharge their duties “with the care, skill, prudence, and diligence under the circumstances then prevailing” when they make decisions. The plan administrator deserves discretion to the extent its ex ante investment choices were reasonable given what it knew at the time, she ruled.In addition, when examined closely, the plaintiffs’ claims do not withstand scrutiny, according to the opinion. A statistical sampling of funds would expect (all things being equal) half of the funds to be above benchmarks and half to be below benchmarks. Here, as opposed to what the simplistic statistical average would show, that 38 (half) of the 76 funds underperformed, the plaintiffs pled that 45 investment options performed below benchmarks. “Such a post hoc analysis of market performance, where only 7 more funds underperformed than would be expected, may be consistent with a breach of fiduciary duty, but does not show that the plaintiffs have nudged their claims across the line from conceivable to plausible.” Pratter wrote.The plaintiff seeks recovery for prohibited transactions under ERISA using the theory that the contractual arrangement with TIAA-CREF and Vanguard constituted a prohibited transaction. The plaintiff argues that paying these companies constitutes a sale of property, a furnishing of services, and a transfer of assets in the plan. “If such an argument were true, then any time plan administrators contracted with another party to provide services to plan participants in exchange for money (which includes the basic elements of retirement plans, including making mutual funds available or recordkeeping services) it would qualify as a prohibited transaction. After all, fees charged by these companies necessarily requires ‘transfer of assets,’” Pratter wrote, noting that the plaintiff claims this all while maintaining that there are no per se ERISA violations in the revenue-sharing arrangement.The post Case Against University of Pennsylvania 403(b) Plan Dismissed appeared first on PLANSPONSOR.
- EEOC Says 74-Year-Old Worker Forced to Retire After Medical Leave
published on Thu, 21 Sep 2017 18:09:32 +0000
S&C Electric Co. in Chicago unlawfully fired an employee on the bases of age and disability, the U.S. Equal Employment Opportunity Commission (EEOC) charged in a lawsuit. As people are living longer and wanting to work longer, the EEOC recently held a meeting about the Age Discrimination in Employment Act (ADEA), and witnesses made suggestions about how regulators and employers can reduce age discrimination and help people work longer. According to the agency’s complaint, S&C committed age and disability discrimination when it terminated Richard Rascher after he was released to return to work after taking an approved medical leave for cancer and a hip fracture. S&C fired Rascher, who was 74, after 52 years of service to the company. “After an approved leave, S&C refused to allow an employee with over a half century of service to simply return to work,” says Julianne Bowman, the EEOC’s district director in Chicago. “Our investigation revealed Mr. Rascher was fully cleared to return to work, but that S&C insisted he ‘retire’ instead.” Such alleged conduct violates the Americans with Disability Act (ADA) and the ADEA. The agency said it filed suit after first attempting to reach a pre-litigation settlement through its conciliation process. The case is EEOC v. S&C Electric Co., Civil Action No. 17-cv-6753, in the U.S. District Court for the Northern District of Illinois. The lawsuit seeks both monetary and injunctive relief. Gregory Gochanour, the EEOC’s regional attorney in Chicago, adds, “It is illegal for an employer to insist an employee retire when returning from an approved medical leave when the employee is cleared to go back to work. This is classic discrimination, based on both age and disability.”The post EEOC Says 74-Year-Old Worker Forced to Retire After Medical Leave appeared first on PLANSPONSOR.
- Wagner Law Group Offers Assistance in Absence of Determination Letter Program
published on Thu, 21 Sep 2017 18:05:01 +0000
Following the Internal Revenue Service’s (IRS)’s elimination of its determination letter program for tax-qualified retirement plans, The Wagner Law Group developed its Private Determination Letter Program (PDLP) to assist plan sponsors.For decades, the IRS’s letter guided sponsors and helped them make sure they met tax-qualification requirements as the laws and regulations governing tax-qualified plans changed. The PDLP aims to address plan sponsors’ concerns that their plan documents remain compliant with the law as it evolves.The Wagner Law Group notes that several document providers have announced they will no longer maintain custom plan documents, including their own. Such providers will cease offering operational, statutory and/or regulatory amendments for the plan documents they previously maintained.The Wagner Law Group says its attorneys can prepare legally-compliant plan documents and appropriate amendments to reflect applicable changes to the law. The firm can also review plans under the PDLP and confirm that design changes made to a plan meet all requirements under the Employee Retirement Income Security Act (ERISA), the firm says.The Wagner Law Group extends these services to plan sponsors including for-profit, tax-exempt and government entities who administrate 401(k) plans, profit sharing plans, defined benefit (DB) pension plans, money purchase pension plans, cash balance plans and employee stock ownership plans (ESOPs).Since the determination letter program was abandoned, several firms including Trucker Huss and Hanson Bridgett have offered support. Still, there are several points plan sponsors should consider when deciding what to do in the absence of determination letters.For more information concerning The Wagner Law Group’s qualified plan services, visit www.wagnerlawgroup.com.The post Wagner Law Group Offers Assistance in Absence of Determination Letter Program appeared first on PLANSPONSOR.
- Singles Have More Retirement Concerns Than Married Couples
published on Thu, 21 Sep 2017 17:21:35 +0000
Being single as opposed to having the support of a spouse puts a person at a financial disadvantage in many ways, TD Ameritrade found in a survey of 2,000 adults ages 37 and older.While 44% of single people are saving for retirement, this jumps to 63% among married people. Just more than one-third, 34%, of singles expect to be very financially secure in retirement, compared to 52% of married people. Forty-six percent of unmarried people worry about running out of money in retirement, compared to 38% of married folk. Thirty-six percent of singles do not think they will be able to afford to fully retire, compared to 29% of married people.Thirty percent of singles are not saving for anything, compared to 17% of married people. Twenty-seven percent of singles have an emergency fund, compared to 39% of married people. But even in tough times, 40% of singles would not cut back on eating out, and 25% would not give up coffee or take-out.Singles also earn less than couples; their average income is $52,900, compared to $61,700 of married people—a difference of $8,800. However, a large percentage of both singles (40%) and married people (37%) are not saving anything each month and spending their entire paycheck.“While an increasing number of Americans are finding that remaining single can have its virtues, there is one key area making the single life potentially more difficult: money,” says Lule Demmissie, managing director of retirement and long-term investing at TD Ameritrade. “Having a spouse to split the mortgage, household expenses and insurance can make basic living costs more manageable. On top of that, for couples who file jointly, marriage can help reduce their tax burden.”The post Singles Have More Retirement Concerns Than Married Couples appeared first on PLANSPONSOR.
- Voya Extends Framework Retirement Program to Tax-Exempt Market
published on Thu, 21 Sep 2017 16:00:25 +0000
Framework, the mutual-fund based retirement program by Voya Financial, is now available to plan sponsors across all full-service retirement plan markets served by the firm. These include sponsors servicing 403(b) and 457(b) qualified retirement plans for government, health care, non-profit and higher education employers, as well as those running non-qualified plans. The program offers recordkeeping services and an open-architecture design providing access to investment options from more than 250 best-in-class fund families. These include active and passive target-date funds (TDFs) managed by Voya Investment Management. The firm says an open platform also offers the ability to work with nearly any fund traded through the National Securities Clearing Corporation (NSCC).Framework also offers optional features including access to third-party services that manage 3(21) and 3(38) investment fiduciary responsibilities. These services are becoming ever more important as portions of the Department of Labor’s Fiduciary Rule undergo implementation.In addition, Voya’s program offers an in-plan retirement income option, as well as advisory and managed account services.“We want to make it easier for our partners to work with Voya as they grow their business and demonstrate value to clients” says Heather Lavallee, president of Tax-Exempt Markets for Voya Financial. “While every sponsor has different needs and goals for their benefits programs, one constant is the opportunity to increase access to workplace savings plans and to improve individual savings rates through flexible, comprehensive solutions. Extending our Framework product from the 401(k) space to all workplace retirement plan markets is a way to partner more closely with plan advisers and third-party administrators as we work toward these objectives. This is also an example of how Voya is bringing its strategic business investments to life through products and services that simplify the process for our clients and partners, and provide a more seamless, end-to-end experience for our customers.”Voya’s Framework specifically is designed to support plans that have between $1 million to $75 million in plan assets.For more information, visit Voya.com.The post Voya Extends Framework Retirement Program to Tax-Exempt Market appeared first on PLANSPONSOR.
- Millennials Face Same Gender Challenges As Older Generations
published on Wed, 20 Sep 2017 19:50:44 +0000
Kristi Mitchem joined Wells Fargo Asset Management a little more than a year ago, and among her passion projects since joining the firm has been analyzing the gaps that have emerged in the Millennial generation between the financial literacy and confidence of women compared with men.As part of this effort, Mitchem and several colleagues revealed new survey data at a press lunch in New York. The survey findings match many of the common themes one hears about the unique footprint of Millennials in the work force—they value flexibility and a sense of purpose at work over base salary or benefits, and they want access to investments that are socially and environmentally conscious. But it also reveals that the youngest generation of workers is not all that different from the older generations, at least in one crucially important way.“Among all full-time employed Millennials, just as we see with the older generations, women are earning a median personal income that already significantly trails that of men, and they are saving less on a monthly basis,” Mitchem warned. “So it seems that we have to draw the troubling conclusion that, while Millennials are more aware about the gender pay gap issue, a solution is still not forthcoming.” For men in the survey sample of Millennials, which Mitchem noted does in fact skew more towards the affluent than the general U.S. population, the median income is $63,000 and the median monthly savings for retirement is $500. For women in this generation, the figures are just $43,000 and $200, respectively.“These figures are striking and they surprise a lot of people who identify the Millennial generation with an idea of being much more socially progressive and concerned with equality,” Mitchem explained. “But what we see clearly is that Millennials are in fact following in the footsteps of previous generations in terms of gender pay equity challenges. It makes sense because these are major, systematic challenges that have existed for some time. This fact has a direct impact on the work we should be doing as an asset manager and retirement plan provider.”The survey data shows men are “more likely to say they are in their preferred career and are more confident in their financial security than women,” but the picture changes positively for Millennial women who say they have “taken greater action and control around their finances.” Naturally there is some evidence that more affluent Millennial women are more financially engaged and confident in their working future simply as a result of having more money to invest in the first place, but looking across the income levels in the sample, this factor does not explain the whole picture.“We also see there are important distinctions in confidence and positive investing decisions when we look at women who say they compartmentalize the financial portion of their lives versus those women who say they engage honestly, directly and regularly with their financial challenges,” Mitchem said. “The same is true to a large extent for men as well and across the generations. Success is not always about making the most money—it’s about engaging directly with your finances and being willing to sit down and make a plan.”Fred Axsater, executive vice president and head of strategic business segments for Wells Fargo Asset Management, echoed many of Mitchem’s arguments during the press meeting, suggesting environmental, social and governance (ESG) programs “are a great pathway to get both young men and women involved and engaged in the retirement savings effort.” “The percentage of total Millennials who are not investing in the market today is far too large,” he concluded. “We must address this challenge straight on by showing the value of saving and investing for the long-term, both in personal terms and in societal terms. We see the group that is taking action with their money is more likely to be invested appropriately in the market and to say that the stock market is the best place to invest. But even with this group, women trail men in terms of their overall participation. More Millennials, and particularly women, should be in the market with a long-term strategy in place.” The post Millennials Face Same Gender Challenges As Older Generations appeared first on PLANSPONSOR.
- Gucci Retirement Plan Sued for Charging Excessive Fees
published on Wed, 20 Sep 2017 19:19:42 +0000
A plaintiff in the Gucci America, Inc. Retirement and Savings Plan is accusing the plan sponsor and its benefits committee of breaching fiduciary duties, as well as other violations of the Employee Retirement Income Security Act (ERSA).According to The Complaint, the defendants are accused of charging excessive administrative and investment fees to plan participants. In particular, the plaintiff claims the defendants failed to “fully disclose to participants the expenses and risks of the Plan’s investment options; breached their fiduciary duties under ERISA by allowing unreasonable expenses to be charged to participants for administration of the Plan; and breached their fiduciary duties under ERISA by selecting and retaining opaque, high-cost, and poor-performing investments instead of other available and more prudent alternative investments.”The complaint states that Gucci America was “particularly egregious” in regards to offering proprietary funds from its service provider Transamerica Retirement Solutions as investment options for participants. The plaintiff argues, “Transamerica has successfully utilized Plan assets in a manner that has been detrimental to the Plan and beneficial to Transamerica insofar as it maximized fees often at the expense of participants’ return.” The plaintiff also accuses the defendants of allowing Transamerica to engage in transactions that posed conflicts of interest, thereby breaching their fiduciary duty.The complaint alleges that Gucci America failed to monitor plan investments to ensure they “provided adequate available returns” or were not excessively priced, “as were the majority of investments in the plan.”According to the complaint, the plaintiff seeks “relief for all losses and/or compensatory damages; attorneys’ fees, costs and other recoverable expenses of litigation,” as well as “a permanent injunction against Defendants prohibiting the practices described herein and affirmatively requiring them to act in the best interests of the Plan and its participants.”The post Gucci Retirement Plan Sued for Charging Excessive Fees appeared first on PLANSPONSOR.
- Company Stock Outside of 401(k) Can Help With Financial Wellness
published on Wed, 20 Sep 2017 19:19:36 +0000
Fewer employers are offering company stock in their 401(k) plans and fewer plan participants are investing in company stock, an analysis from Fidelity Investments finds.The percentage of employees with company stock in their 401(k) has dropped by almost half, from 41% in 2005 to 23% in 2016. More than one in four employers (28%) still offered company stock through their 401(k) in 2016, dropping from 39% in 2005. Nine percent of employee 401(k) assets were in company stock in 2016, down from 16% in 2005.Meghan Murphy, director, Thought Leadership at Fidelity, tells PLANSPONSOR many employers have been working to simplify the administration of their retirement plans, and some employers who were maintaining multiple retirement plans (from perhaps mergers/acquisitions) have worked to consolidate those plans so now they only need to offer a single company stock fund. In addition, she says, “Other employers have reduced/removed company stock offerings from their plans to decrease fiduciary risk and in some cases are giving their employees an alternate opportunity to purchase company stock via an ESPP.”Murphy explains that decreased participant usage is likely due to plan administration changes seen since the implementation of Pension Protection Act (PPA). She says 94% of participants are in plans that use a target-date fund as the default investment option. “This automated default means fewer participants are making decisions regarding where to invest their assets. In fact, 68% of Millennials are 100% invested in a target-date fund. In addition, fewer employers are mandating that company match contributions be invested in company stock.Alternative Way to Use Company StockHowever, a growing number of U.S. workers are taking advantage of their company’s employee stock purchase plan (ESPP) to purchase company stock, with the percentage of employees participating in their ESPP increasing to 28% in 2016, up from 23% in 2014. Because stock purchased through an ESPP is held outside of an employee’s 401(k), shares are more accessible and can be used to help address a variety of financial needs, Fidelity says. Employees say they use company stock acquired through their ESPP—which can often be purchased from their employers at a discount—to help pay down debt, add to their retirement savings, finance real estate or home improvement projects, or simply set aside for a rainy day.Employees who participate in their company’s ESPP are three times more likely to sell company stock for emergency cash rather than take a loan from their 401(k), and more than half (52%) said it was “highly unlikely” they would tap their 401(k) if they needed cash.Fidelity found that 83% of employees who participate in their company stock plan expect the value of their company’s stock to increase over the next few years. More than half of employees surveyed (52%) said they expect the value of their company’s stock to increase at a modest rate, and more than one in five (21%) employees expect the value to increase substantially in the next 24 months.“Making company stock available to employees is a great way for companies to motivate their workforce and give workers a sense of ownership in their company, as well as help attract and retain talented individuals,” says Mark Haggerty, head of Stock Plan Services for Fidelity Investments. “However, employees should remember that their company’s stock, just like any other stock, should be part of a balanced and diversified investment portfolio, especially if it’s part of their 401(k).”The post Company Stock Outside of 401(k) Can Help With Financial Wellness appeared first on PLANSPONSOR.
- More HSA Account Holders Have Funds to Roll Over
published on Wed, 20 Sep 2017 18:52:23 +0000
Enrollment in high-deductible, health savings account (HSA)-eligible health plans was estimated to be between 20.2 to 22.6 million policyholders and their dependents, and covered nearly three in 10 employees in 2016, according to the Employee Benefit Research Institute (EBRI) HSA Database, which contained 5.5 million accounts with total assets of $11.3 billion as of December 31, 2016.Similarly, there were an estimated 20 million HSAs as of the end of 2016. Most HSAs in the EBRI HSA Database are relatively new; more than three in four (77%) have been opened since 2013.Two-thirds of account holders ended 2016 with positive net contributions, meaning annual contributions were higher than annual distributions. More than 90% of HSAs with individual or employer contributions in 2016 ended the year with funds to roll over for future expenses.As of the end of 2016, the average HSA balance among account holders with individual or employer contributions in 2016 was $2,532, up from $1,604 at the beginning of the year. Only 3% of HSAs had invested assets (beyond cash).On average, individuals who made contributions in 2016 contributed $1,986 over the year and HSAs receiving employer contributions in 2016 received $935. But only 13% of account holders contributed the fully allowable annual amount.Three-fourths of HSAs with a 2016 contribution also had a distribution during 2016. Of the HSAs with distributions, the average amount distributed was $1,766, less than the average contribution, resulting in balance increases. The presence of individual or employer contributions were associated with an increase in account balances in 2016—even if account holders took a distribution.Investors (beyond cash) had much higher account balances than non-investors. While it might be expected that individuals who invested their account balance were using the account solely as a long-term savings vehicle, the opposite appears to have been true, EBRI says. Both investors and non-investors used their HSAs to self-fund current uninsured medical expenses.Investors were more likely than non-investors to take a distribution (69% and 63%, respectively). In addition, when distributions were taken, investors took larger distributions ($2,451) than non-investors ($1,740) during 2016. However, EBRI notes the larger distributions may have been because investors had larger account balances.The full EBRI Issue Brief may be downloaded from here.The post More HSA Account Holders Have Funds to Roll Over appeared first on PLANSPONSOR.
- Court Finds ESOP Fiduciaries Had No Good Reason to Delay Diversification
published on Wed, 20 Sep 2017 18:09:04 +0000
A federal court has found that an employee stock ownership plan (ESOP) document’s plain language makes the plan sponsor’s decision to not implement participants’ diversification elections in a timely manner “arbitrary and capricious.”The Case Dave and Vikki Bryant were participants in Community Bankshares ESOP, when in April 2009, they met age and participation requirements to diversify a portion of employer stock in their ESOP accounts. Since Bankshares’ stock was not publicly traded, the plan also allowed them to exercise a put option to sell the shares to the company for cash. The put option was based on the preceding year’s annual stock valuation.According to the court opinion, both Bryants elected to have their allowed portions of their ESOP accounts rolled over to an individual retirement account (IRA) and exercised put options. The previous year’s valuation was $11.00 per share. The Bryants were sent letters informing them that their elections would be completed by June 30, 2009.However, that deadline came and went. Instead, Bankshares suspended implementation of the diversification elections until after an interim valuation revealed that in September 2009 the stock’s worth had plummeted to $2.30 per share, and Bankshares and the Federal Reserve Bank in November 2009 had entered into a written agreement that prohibited Bankshares from redeeming put options.In November 2009, Bankshares offered to issue stock in satisfaction of the diversification elections but informed participants that it would not honor the put options. Bankshares also gave participants the option to change their 2009 diversification elections in light of this new information; however, the Bryants contend that this offer to receive the illiquid stock of a failing bank and the resultant tax liability presented no choice at all. However, they made new elections to keep the stock in the plan.Chief U.S. District Judge W. Keith Watkins of the U.S. District Court for the District of Alabama, noted in his opinion that Bankshares deprived the Bryants of their rights under the plan to receive a distribution of shares and to exercise a put option, which would have required Bankshares to buy back the shares based upon the preceding year’s stock valuation of $11.00 per share. The stock is now worthless, at 15 cents per share.The plan administrator defends its decision, contending that, given Bankshares’ deteriorating financial condition, it acted in the best interests of all plan participants by refusing to honor 2009 diversification elections, which under the plan would have been subject to put options at the preceding year’s stock valuation. It further contends that, in November 2009, the Bryants voluntarily submitted new diversification elections to keep their stock in the plan and that these new elections voided their April 2009 diversification elections.The Court’s ArgumentsWatkins found that Sections 5.8 and 8.3 of the ESOP plan document work together, and he looked at the plain language of the plan. In summary, an eligible participant—one who had participated in the plan for ten years and had attained the age of at least 55 years—could make a diversification election within the 90-day period following the close of each plan year in the six-plan-year qualified election period. For the first five 90-day annual election periods, the plan gave an eligible participant the option to diversify 25% of his or her account balance that was invested in employer securities, reduced by any amounts previously diversified. During the sixth and final 90-day election period in the qualified election period, an eligible participant could diversify 50% of stock shares in his or her account balance, reduced by amounts previously diversified. The value of the account balance was its value on the Annual Valuation Date.Because Bankshares’ stock was not publicly traded on an established market, it was bound by Section 5.8(b) of the plan document, which says when a participant received a distribution of Bankshares stock pursuant to a diversification election, the participant could exercise the put option within 60 days after the distribution of the stock or during the first 60 days of the following plan year. The price of the shares for purposes of the put option was the fair market value of the shares on the Annual Valuation Date preceding the year in which the participant exercised the put option.Watkins found that the timeliness of the Bryants’ diversification elections is not an issue, and there is no dispute that the Bryants properly exercised their rights under the plan to make a diversification election. He also found there is no plan language in Section 5.8 of the plan document that permits Bankshares to use a date other than the Annual Valuation Date when placing a value on Bankshares’ stock for purposes of buying back the shares under a put option.The plan administrator cited Section 8.4 of the plan which said the plan administrator had a general fiduciary obligation to exercise its authority for the benefit of all plan participants when offering its reasons for not honoring the Bryants’ elections. The court rejected them all.Watkins found the decisions conflict with the clear, specific, and mandatory terms of the plan governing stock valuation, a participant’s right to make a diversification election, and a participant’s right to exercise a put option on distributed shares and. The decisions also construe the plan in a manner that contravenes the governing federal regulations, he said. The Internal Revenue Code requires that, if an employer’s stock is “not readily tradeable on an established market” then the company that sponsors the ESOP must provide a put option right to the participant to sell the shares of stock back to the company.Defendants’ argument that the June 30 deadline was a self-imposed, rather than a contractual, deadline surfaced for the first time in this litigation. The court did not assign much weight to that, noting that the plan administrator’s construction of the plan to permit a special valuation in times of Bankshares’ financial crisis clearly conflicts with the plan language. “Notably, the Plan could have made an exception for an alternative valuation date or other contingency plan in unexpected times of financial stress, but it did not,” Watkins wrote. In addition, he found that the plan administrator consistently interpreted June 30 as a mandatory deadline, beginning in February 2009 and continuing through the Bryants’ administrative review process.Watkins conceded that the fact of an oral prohibition from a federal regulatory agency would seem to be a significant reason to relay to participants to explain a plan administrator’s suspension of a put option, had that fact actually motivated the decision. However, the written agreement between the Federal Reserve Bank and Bankshares, which prohibited Bankshares from purchasing or redeeming its stock shares, did not take effect until September 16, 2009, several months after the June 30, 2009 deadline had passed.Finally, the judge said the Bryants’ November 2009 diversification elections to keep their shares in the plan could not explain or justify Bankshares’ decision not to implement the diversifications by the June 30, 2009, deadline for the obvious reason that the November 2009 diversification elections were non-existent in June. “It was not reasonable for the Plan administrator to conclude that the Bryants’ November 2009 diversification elections amounted to waivers of their previous invocation of their rights to pension benefits,” Watkins wrote. And, he found that communications to the Bryants did not effectively give then notice that they were waiving their rights to the benefits.Awards to ParticipantsThe court found that Bankshares, as the plan administrator, is liable under the Employee Retirement Income Security Act (ERISA) for the benefits that plaintiffs did not receive as a result of Bankshares’s failure to distribute the shares of stock in satisfaction of plaintiffs’ diversification elections by June 30, 2009. Those benefits encompass the put option, which would have permitted the Bryants to obtain cash in lieu of stock shares at the $11.00 share price fixed by the December 31, 2008, annual valuation. Section 8.3 of the plan entitled Mr. Bryant to diversify 50% of the employer securities in his account, which would have equaled approximately 4,599 shares of stock. Exercising the put option at $11.00 per share, Mr. Bryant would have received $50,589. Mrs. Bryant was entitled to diversify 25% of the employer securities in her account, which would have equaled approximately 220 shares of stock. Exercising the put option at $11.00 per share, Mrs. Bryant would have received $2,420.25. Accordingly, the court ruled the Bryants are entitled to an injunction ordering Bankshares to pay benefits in the foregoing amounts.In addition, the court found plaintiffs are entitled to an award of prejudgment interest. Prejudgment interest will permit them to receive full compensation for their losses and will ensure that thepPlan administrator does not obtain “a windfall as a result of its wrongdoing.” The Bryants assert that they are entitled to an award of prejudgment interest at a rate of 1.5% per month (18% per annum), and the court found that rate appropriate.“Accordingly, prejudgment interest will be calculated at the rate of 18% per annum for the time period during which Plaintiff was wrongfully denied benefits under the policy. To account for this delay, the court finds that the unique circumstances of this case justify an accrual of prejudgment interest from the date that the Bryants initiated the administrative claims process. That process began by letters dated March 12, 2014, in which Plaintiffs’ counsel submitted a written claim to the Plan administrator, contending that the plan administrator had breach its contractual obligation to diversify the Bryants’ accounts,” Watkins ruled.The post Court Finds ESOP Fiduciaries Had No Good Reason to Delay Diversification appeared first on PLANSPONSOR.
- Health Care Costs, Social Security Concerns Near-Retirees
published on Wed, 20 Sep 2017 17:34:39 +0000
Future retirees do not have a positive outlook for their life during their golden years, the Nationwide Retirement Institute found in a survey.Only 21% expect that life will be better in retirement. Among recent retirees, 28% said life is worse. Among this group, 78% said it is because of income, and 76% said it is because of the cost of living. Seventy-eight percent are worried that the Social Security Administration will run out of funding in their lifetime, according to the survey of 1,012 adults age 50 and older. Fifty-two percent think the Trump Administration will cut Social Security benefits.“With growing uncertainty and looming potential changes, Americans in or nearing retirement need help navigating the complexity of the program,” says Tina Ambrozy, president of sales and distribution for Nationwide. “When and how Americans file for Social Security is one of the most important financial decisions they will make in their lifetime.” Future retirees expect to wait until age 65 to begin collecting Social Security benefits, but recent retirees, on average, starting collecting these benefits at age 62. Future retirees expect to receive $1,578 in monthly Social Security benefits, but the average for recent retirees is $1,487. For those who retired more than 10 years ago, it is $1,208. Fifty-three percent of future retirees and 59% of recent retirees expect Social Security will cover half of their expenses in retirement, but the program is designed to cover only 40%. Twenty-five percent of retirees said their benefits were less than they had expected. Future retirees expect to use 19% of these funds for housing, 23% for groceries and 20% for health care. However, 59% of recent retirees say they are likely to use these funds to pay for health care, and 56% for housing. “Many Americans nearing retirement have misconceptions when it comes to planning for and spending their Social Security, and their assumptions don’t match the reality of how current retirees use their funds,” Ambrozy says. “Our fourth annual survey uncovers the importance for many of maximizing their Social Security benefits to better prepare for planned—and unplanned—expenses in retirement.” Among those who have retired, 37% say they are grappling with health issues. Among this group, 75% said these problems occurred earlier than they had expected, and 24% said health care expenses are keeping them from living the life they had anticipated in retirement.Ninety-one percent said they don’t know how to maximize Social Security benefits. Seventy-nine percent of future retirees who work with a financial adviser said they would switch advisers if the new adviser would give them guidance on maximizing Social Security benefits. However, only 17% of future retirees have received advice about Social Security from an adviser. People who have worked with a financial adviser report receiving $1,584 in Social Security benefits, compared to $1,290 among those who have not worked with an adviser.The post Health Care Costs, Social Security Concerns Near-Retirees appeared first on PLANSPONSOR.
- Essentia Health ERISA Suit Survives Motion to Dismiss
published on Wed, 20 Sep 2017 15:02:37 +0000
The U.S. District Court for the District of Minnesota has tossed Essentia Health’s motion to dismiss an Employee Retirement Income Security Act (ERISA) lawsuit accusing plan fiduciaries of various failures related to both 401(k) and 403(b) plan administration.Plaintiffs, in their original complaint, suggest their employer should have allowed a single recordkeeper to service its traditional defined contribution (DC) plan and its 403(b) plan—and that it permitted excessive fees by paying for distinct administrative services for each.The complaint contains many of the elements that have become wearingly familiar to PLANSPONSOR readers; participants claim their employer failed to negotiate fair fees from a variety of service providers during the class period, and that excessive fees paid by participants were effectively used to subsidize the employer’s own costs in offering/running the plans. But it also is distinct because of the history of the two retirement plans described in detail in the text of the complaint, including a 403(b) plan that has some important distinctions from a typical 401(k). “Though the plans were operated as two separate entities, this should not have diminished their combined bargaining power, as defendants had control of both plans,” plaintiffs suggest. “A prudent fiduciary would have offered service providers the ability to service both plans as a way to attract their business and ultimately demand lower rates.”Turning to the decision on the motion to dismiss, it is important to acknowledge this is still only a preliminary step towards a resolution. When considering a motion to dismiss under Rule 12(b)(6), courts “look only to the facts alleged in the complaint and construe those facts in the light most favorable to the plaintiff.” Against that standard, the court examined the defendants’ contention that no claims are adequately stated in the compliant, finding the various arguments wanting.Specifically, defendants contend that plaintiffs’ claims of breach rest solely on allegations that the plans paid more in recordkeeping fees than what was available to a single plan of similar size, and, as the decision states, defendants further contend that this argument “compares apples to oranges, contains fatally flawed reasoning, and is contradicted by the documents relied upon in the First Amended Complaint.”Learning from the failed motion One interesting fact to point out about these proceedings is that, to argue their side of the motion, Essentia Health submitted some 639 pages of attachments to their memorandum in support of the motion to dismiss. The documents included excerpts from annual fee disclosures sent to participants, as well as copies of excerpts from Form 5500s and amended Form 5500s from the plans. Not only did plaintiffs not take issue with these submissions, the court explains, but they actually submitted their own additional 454 pages’ worth of the attachments to the Form 5500.However, the court more or less rebukes the parties for this flood of additional paperwork.“Because all of these additional documents are either clearly embraced by the First Amended Complaint and/or available public records, the Court could, if it chose to, consider them without converting the present Motion to Dismiss under Rule 12(b)(6) into one for summary judgment under Rule 56,” the decision explains. “However, the documents defendants submitted … are submitted explicitly to refute factual allegations made in the First Amended Complaint. To encourage this court to consider their exhibits and make factual findings in the context of the motion presently before this court, defendants cite Chicago Dist. Council of Carpenters Welfare Fund v. Caremark, in which the Seventh Circuit in reviewing a ruling on a motion to dismiss, considered contracts which had been attached to the complaint, and the Seventh Circuit stated: To the extent that the contracts contradict the complaint, the contracts trump the facts of allegations presented in the complaint.”However, Chicago Dist. Council of Carpenters Welfare Fund, in addition to not being binding on the Minnesota District Court ruling here, is “easily distinguishable from the present case.”“In that case, the contracts were attached to the complaint itself; here, defendants are attempting to submit additional documents outside of the First Amended Complaint to rebut and undermine factual allegations made in the First Amended Complaint,” the decision states. “Defendants provide no case law from within the Eighth Circuit which allows them to do so despite the well-established standards set forth above confining Rule 12(b)(6) analysis to facts alleged within the four corners of the complaint (or which do not contradict the complaint), which must be taken as true.”In light of this well-established standard, the court declined to consider the extra exhibits submitted by both parties in conjunction with the Rule 12(b)(6) motion to dismiss.On the matter of whether the challenge can be time-barred under ERISA, as defendants also argued, the court observed the following: “Although the case presently before this court involves a duty to pay reasonable recordkeeping fees and not a duty to evaluate retention of investments, both duties are continuing, and the Supreme Court’s reasoning in Tibble vs. Edison applies here as well.”The full text of the complaint, including further detail on the court’s consideration of the “separation of the duty to monitor from the duty of prudence,” among other topics, is available here.The post Essentia Health ERISA Suit Survives Motion to Dismiss appeared first on PLANSPONSOR.
- Voya Sued for Charging Excessive Fees to Small Retirement Plan
published on Tue, 19 Sep 2017 18:48:05 +0000
A participant in the Cornerstone Pediatric Profit Sharing Plan has filed suit against Voya Financial and its subsidiary Voya Retirement Insurance and Annuity Company for violating the Employee Retirement Income Security Act (ERISA) by the way it charged fees.According to the complaint, the participant is bringing the lawsuit on behalf of the Cornerstone plan and all other similarly situated plans seeking the return of undisclosed and unreasonable asset-based fees charged by Voya for recordkeeping and administrative services.In a statement, Voya Financial said, “Voya denies the plaintiff’s claims and we plan to vigorously defend this matter.”The complaint cites a survey by NEPC, a firm that advises on health care institutions’ defined contribution (DC) plan assets, which found the median recordkeeping cost of 113 plans was $64 per participant. It alleges that as a result of Voya’s asset-based fees, in 2014 the plan paid $30,790 for recordkeeping services for 21 participants, translating to $1,466 per participant, and in 2015, the plan paid $34,568 for 19 participants, translating to $1,819 per participant. “VOYA’s fees are 36 times more than the reasonable amount of compensation that should have been charged to the Cornerstone Plan,” the complaint says.The lawsuit alleges that Voya charged the Cornerstone plan “an unreasonable asset-based fee of between 0.67% and 1.86% of the net assets invested in the various mutual funds offered as investment options.” It goes on to say Voya concealed the true amount of its fees in disclosures to participants by adding its asset-based fees to the operating costs of the mutual funds.The plaintiff extrapolates this to the $175,780,000 in retirement plan assets Voya had under management as of the end of June this year, and says based on the fees charged to the Cornerstone plan, Voya potentially earns more than $1 billion a year “in excessive compensation at the expense of the individual plans and their participants.”The complaint also states that Cornerstone plan fiduciaries engaged in a prohibited transaction by entering into the Voya contract. However, it does not name any person or committee of the plan as defendants.The post Voya Sued for Charging Excessive Fees to Small Retirement Plan appeared first on PLANSPONSOR.
- Lincoln Retirement Plan App Available on Apple Watch
published on Tue, 19 Sep 2017 18:40:04 +0000
Lincoln Financial Group’s Retirement Plan Services business announced that the Lincoln Financial Mobile App is now available on the Apple Watch through the Apple App Store.Participants can check their account balances and view their retirement income projection, as well as see their asset allocation and three most recent transactions on the watch.The firm notes that its 2017 Retirement Power Participant Study showed the more competing priorities a participant reports, the less money they contribute to their retirement plan. Only 36% of individuals with eight or more competing priorities are contributing 10% or more to their retirement plan.“The Apple Watch gives us one more way to cut through the clutter and connect with participants, to encourage them to take action to help meet their retirement goals,” says Sharon Scanlon, head of customer experience, retirement plan services. “A participant could see the income projection and decide to increase their contribution, or remember that it’s time to schedule their annual meeting with a Retirement Consultant—both positive actions that can help them save more for their retirement.”The post Lincoln Retirement Plan App Available on Apple Watch appeared first on PLANSPONSOR.
- Plaintiffs Target DST Systems and Ruane Advisory for Fiduciary Failures
published on Tue, 19 Sep 2017 18:09:20 +0000
Yet another Employee Retirement Income Security Act (ERISA) challenge was filed in the U.S. District Court for the Southern District of New York, this one naming a host of defendants including the advisory committees of the DST Systems Inc. profit sharing and 401(k) plans.The suit also names the advisory firm Ruane Cuniff & Goldfarb, Inc., as a defendant, as well as the compensation committee of the DST Systems board of directors.Plaintiffs are participants in the DST Systems profit sharing and 401(k) plans, and they suggest their retirement program, with more than $1 billion invested, is in the top 1% in the U.S. in terms of assets. In terms of specific allegations, the text of the suit is similar to lawsuits filed against the Disney Corporation and FMC Corporation that have emerged in 2017.“Defendants pursued an exceptionally imprudent investment strategy with respect to a significant portion of the plan’s assets,” plaintiffs claim, “They invested without any input or oversight by participants in the plan, and they failed to adequately monitor the investments of the plan and the fiduciaries pursuing this investment strategy. As a direct result and consequence of these imprudent investment decisions and related misconduct, the plan has suffered losses well in excess of $100 million.”According to the text of the compliant, defendants “also breached their fiduciary duties by allowing unreasonable expenses to be charged to the plan for administration and selected/retained high-cost and poor-performing investments instead of other available and more prudent, alternative investments … These breaches of fiduciary occurred, at least in part, as a result of severe conflicts of interest between and among the fiduciaries of the DST plan that resulted in repeated prohibited transactions and acts of self-dealing, in violation of Section 406 of ERISA.”Plaintiffs bring their action on behalf of the whole class of plan participants under ERISA Sections 409 and 502, to recover the following relief:A declaratory judgment holding that the acts of defendants described violate ERISA and applicable law;A permanent injunction against defendants prohibiting the practices described and affirmatively requiring them to act in the best interests of the participants;Disgorgement and/or restitution of all payments and other compensation improperly received by Defendants, or, alternatively, the profits earned by defendants in connection with their receipt of such unlawful payments and other unlawful compensation;Compensatory damages, attorney fees and other recoverable expenses of litigation; andSuch other and additional legal or equitable relief that the Court deems appropriate and just under all of the circumstances.Defendant Ruane Cuniff & Goldfarb, Inc., the text of the ERISA challenge explains, is a Delaware-based corporation and registered investment adviser with its principal place of business in New York. The firm is an investment firm that served as an adviser and fiduciary to the DST Systems plan until approximately August, 2016, when its services to the plan were terminated.According to plaintiffs, Ruane’s flagship fund, the Sequoia Fund, contained more than $25 billion in assets “until Ruane engaged in a misguided and reckless investment strategy that was focused upon pursuing investments in Valeant Pharmaceuticals International, Inc.”More from the text of the complaint Additional background detail shows, at all pertinent times, the DST Systems retirement program consisted of two components: a 401(k) portion, which is participant-directed, and a profit sharing account (PSA), in which the assets were invested by the trustee of the plan, as advised by the investment advisory firm. Plaintiffs suggest the DST plan also included an investment option that permitted participants to invest in DST stock. The PSA was terminated in 2016 when the plan terminated the services of Ruane, at which time all of the investments in the plan became participant-directed.The PSA was allegedly “structured by DST to provide a projected level of benefits through contributions by the company invested in a manner that DTS, the advisory committee defendants and Ruane (as the investment adviser to the PSA) had supposedly determined would achieve a desirable, aggressive, long-term rate of return—in essence, an investment strategy akin to that of a DB plan—without the obligation for the company to make any contributions in the event of an investment return short-fall or provide any guaranteed benefit.”In sum, with respect to the retirement savings of plan participants, the complaint argues Ruane (under the oversight and with the consent of DST and the advisory committee defendants) “gambled with these plan assets by failing to appropriately diversify the investment of the plan’s assets and pursuing risky, inappropriate investment strategies, while the compensation committee defendants failed to fulfill their duties to supervise the advisory committee defendants. In addition, the plan participants were not provided with meaningful and timely guidance regarding the nature of the investments held in the PSA or any specific or meaningful and timely information regarding the investment objectives or investment components of the PSA.“Instead, participants in the plan simply received periodic, post-hoc reports regarding the performance of the PSA that provided generalized information regarding the return (or lack thereof) achieved in connection with the investment of the PSA.”Important to the thrust of the complaint is that, according to plaintiffs, DST serves as the registrar and shareholder servicing agent for the Sequoia Fund.“DST provides investor recordkeeping, performance communications and other information to shareholders of the Sequoia Fund and has other administrative responsibilities with respect to the Sequoia Fund. Ironically, while the Sequoia Fund is fully transparent to investors due, in part, to DST handling shareholder communications, the PSA is highly opaque,” the complaint argues. “Since the Sequoia Fund was designed as an investment vehicle for high net worth individuals with ample funds to gamble and lose, Ruane’s decision to simply mimic the investments of the Sequoia Fund in the PSA was reckless and imprudent because Ruane gave absolutely no consideration to the fact that the PSA contained retirement funds and, therefore, the investment objectives of the PSA necessarily should be tailored to recognize that plain fact. Likewise, DST and the advisory committee defendants breached their fiduciary duties by failing to adequately supervise RCG and insist upon an appropriate investment strategy for the PSA, while the compensation committee failed to fulfill its duties to supervise these defendants.”The full text of the complaint is here: FergusonvRuaneCuniffComplaint.The post Plaintiffs Target DST Systems and Ruane Advisory for Fiduciary Failures appeared first on PLANSPONSOR.
- PBGC Proposes Changes to Form 5500 Reporting by DB Plans
published on Tue, 19 Sep 2017 17:59:55 +0000
The Pension Benefit Guaranty Corporation (PBGC) intends to request that the Office of Management and Budget (OMB) extend for three years its approval of information collection on the annual Form 5500 filing required by defined benefit (DB) plan sponsors.The collection of information has been approved by the OMB through August 31, 2020.In its Notice of Intent, the PBGC is proposing two modifications to the 2017 Form 5500 Schedule MB (Multiemployer Defined Benefit Plan Actuarial Information) instructions and one modification to the schedule SB (Single Employer Defined Benefit Plan Actuarial Information) instructions.With regard to the Schedule MB instructions, the agency is proposing to change the instructions to require new attachments in two situations:If any of the contributions reported in Line 3 (Contributions Made to Plan) include amounts owed for withdrawal liability, PBGC is proposing to require plan administrators to report for each reported contribution (on an attachment to Line 3), the aggregate amount of withdrawal liability payments included in such contribution. The agency says separating withdrawal payments from contributions will assist in projections of future ongoing contributions and also will provide information regarding withdrawing employers.For multiemployer plans for which Code C (Critical Status) or Code D (Critical and Declining Status) is entered on Line 4b), the current Schedule MB instructions require that plans report the year a troubled multiemployer plan is projected to become insolvent or emerge from troubled status on Line 4f. The PBGC is proposing that basic supporting documentation be included as an attachment to Line 4f. Such plans would be required to report in the attachment year-by-year cash flow projections for the period ending with whichever is applicable, the year the plan is projected to emerge from Critical or Critical and Declining Status or the year the plan is projected to become insolvent; and a summary of the assumptions underlying these projections. The agency says it is proposing the addition of this information to enable it to better project the impact on participants and PBGC’s insurance system.With regard to the Schedule SB instructions, PBGC is proposing to change the instructions related to an attachment that is currently required of plans for which the Internal Revenue Service (IRS) has granted permission to use a substitute mortality table. The current instructions for Schedule SB, item 23, describe the information that is to be included in the attachment. Those instructions reflect the current IRS regulation on the use of substitute mortality tables, but the PBGC’s proposed changes to the Schedule SB are based on amendments to the IRS mortality table regulations that are proposed to become effective 1/1/2018. If the regulations are not effective on 1/1/2018, then the proposed changes to the Schedule SB will be deleted from the final Form 5500 instructions. The agency says the addition of information will allow it to reconstruct the substitute table for which the plan has sought IRS approval, which will enable it to better predict future funding requirements and the impact on participants and the insurance system.The Notice of Intent includes a request for public comments.The post PBGC Proposes Changes to Form 5500 Reporting by DB Plans appeared first on PLANSPONSOR.
- MassMutual Launches Tool to Gauge DB Plan Health
published on Tue, 19 Sep 2017 17:42:12 +0000
Massachusetts Mutual Life Insurance Co. (MassMutual), as part of a broader strategy to expand its share of the defined benefit (DB) pension market, is introducing an analysis tool to help employers gauge the relative health of their pension plans and manage them accordingly.MassMutual’s PensionSmart Analysis tool is available to pension plan sponsors through financial advisers and consultants who serve the pension recordkeeping, investments and actuarial marketplaces. The PensionSmart Analysis tool provides plan sponsors with a diagnosis or assessment of their plan’s health, including insights on funding levels, administrative efficiencies and expense savings, improved communications to participants and design recommendations. The analysis also examines funding, investment and de-risking strategies to help sponsors make the best long-term decisions about managing their pension plans.As part of the analysis of pension investments, the PensionSmart Analysis tool can examine different investment “glide path” options to help sponsors achieve specific goals related to funding and liability matching, according to Michael O’Connor, leader of MassMutual’s Defined Benefit Pension unit. MassMutual can also asses and recommend de-risking strategies as more sponsors look to reduce liabilities from pensions.With the results of the tool’s analysis in hand, MassMutual’s pension experts can then assess the pension plan’s health and make recommendations to the sponsor about appropriate options.In addition, advisers and consultants can use the PensionSmart Analysis tool to generate a listing of pension plans in their area and determine which plan sponsors might benefit the most from a health analysis. The PensionSmart Analysis tool displays information about the sponsor, type of plan, size of the pension in assets and number of participants, funding level, status and service model.The post MassMutual Launches Tool to Gauge DB Plan Health appeared first on PLANSPONSOR.