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Insight on Plan Design & Investment Strategy
- Tax Reform Linked to More Retirement Confidence
published on Fri, 16 Feb 2018 19:19:48 +0000
Americans’ report monthly paychecks have increased by an average of $130.76 in February due to the new 2018 tax plan changes, according to LendEDU’s newest survey.The survey of 1,000 Americans found 35.7% of respondents are going to use the money to pay down debt faster, 12.8% are going to use the money to save more for retirement, and 3.5% are going to use the money to invest in the stock market.Asked what types of debt they are going to pay down faster as a result of additional take-home pay, 62.18% of respondents selected “Credit card debt” and 25.77% selected “Student loan debt.”In addition, nearly half (47.66%) of respondents said they believe they will be able to retire sooner as a result of the tax reform. Research from Willis Towers Watson found more than one-quarter (26%) of 401(k) plan sponsors have already or are planning or considering increasing their contributions to their plans. Still, 39.06% of respondents to LendEDU’s survey said they don’t believe they will be able to retire sooner.More than half (55.3%) said they are more confident in their financial future.More results from the survey can be found here.The post Tax Reform Linked to More Retirement Confidence appeared first on PLANSPONSOR.
- Allegations Against Northrop Grumman Pared Down in Excessive Fee Suit
published on Fri, 16 Feb 2018 18:45:50 +0000
A federal judge has found that Northrop Grumman was not a fiduciary with respect to acts specified in an excessive fee suit regarding its 401(k) plan.U.S. District Court Judge Andre Birotte Jr. of the U.S. District Court for the Central District of California noted that the document governing Northrop Grumman’s 401(k) plan designates two committees—an “Administrative Committee” and an “Investment Committee”—which, along with their members, are administrators and named fiduciaries of the plan. Each committee is comprised of three members, to be appointed by Northrop’s Board of Directors.According to the original complaint, the defendants—including Northrop—“acted to benefit themselves and Northrop by paying plan assets to Northrop purportedly for administrative services Northrop provided to the plan, which were not necessary for administration of the plan or worth the amounts paid. Defendants also caused the plan to pay unreasonable recordkeeping fees to the plan’s recordkeeper and mismanaged the plan’s emerging markets equity fund.”The plaintiffs also accuse the plan and its administrative and investment committees of allowing its recordkeeper to receive fees from an agreement with Financial Engines to provide participants with investment advice.Generally, the defendants argue the plaintiffs fail to specify how Northrop or the individual defendants—members of the committees—acted in a fiduciary capacity with respect to their claims. The defendants seek dismissal of the breach of fiduciary duty claims against Northrop because they claim Northrop is not a named or functional fiduciary with respect to the duties of loyalty and prudence the plaintiffs allege were violated. The plaintiffs concede Northrop is not a named fiduciary under the plan, but argue it has sufficiently alleged Northrop is a functional fiduciary under the Employee Retirement Income Security Act (ERISA).Birotte notes that the power to appoint, retain and remove plan fiduciaries constitutes discretionary authority over the management or administration of a plan within the meaning of ERISA Section 1002(21)(A), but, a fiduciary’s duties are limited to the extent “it retains or exercises any discretionary authority over the management or administration of a plan.” For example, Birotte says in his opinion, “the board of directors may be responsible for the selection and retention of plan fiduciaries. In such a case, members of the board of directors exercise ‘discretionary authority or discretionary control respecting management of such plan’ and are, therefore, fiduciaries with respect to the plan. However, their responsibility, and, consequently, their liability is limited to the selection and retention of fiduciaries.”The plaintiffs argue that Northrop retained authority over the management and administration of the plan because it appointed its own employees to serve on the committees. They contend that since Northrop can act only through its employees, the employees’ actions are attributable to Northrop. Birotte found this unpersuasive. “A Plan sponsor does not become or remain a fiduciary merely because it appoints its own employees to serve on fiduciary committees,” he wrote in his opinion.He granted the defendants’ motion to dismiss Counts I through VI against Northrop, “because Plaintiffs have had numerous opportunities to state the basis for holding Northrop liable as a fiduciary but has consistently failed to do so.” For this reason, Birotte decided further amendment would be futile and the dismissal is with prejudice.However, Northrop did not escape the failure to monitor fiduciaries complaint. Birotte found allegations that Northrop failed to “evaluate their [appointees’] performance, or to have a system in place for doing so,” and “ensure that the monitored fiduciaries had a prudent process in place for evaluating the plan’s administrative fees and ensuring that the fees were competitive,” and “remove appointees whose performance was inadequate” are sufficient to state a claim for failure to monitor. So, he denied the defendants’ motion to dismiss Count VII against Northrop.Birotte found the plaintiffs have sufficiently alleged that the individual defendants are ERISA fiduciaries. The complaint alleges facts or circumstances from which it can be inferred that the individual defendants’ actions may have set in motion the circumstances for which the plaintiffs complain. They allege that the individual defendants may have exercised discretionary authority over the plan and the committees during the class period, and Birotte found this sufficient at this stage of the proceedings. He said, “fiduciary status must be determined in the context of the specific fiduciary duties asserted to have been breached. Because the timing of the alleged fiduciary breaches as well as the extent of the Committee members’ knowledge, participation or involvement in some of the acts that led to the breach of fiduciary claims is at issue, dismissal is premature at this time.Birotte struck the plaintiffs’ demand for a jury trial.The post Allegations Against Northrop Grumman Pared Down in Excessive Fee Suit appeared first on PLANSPONSOR.
- Retirement Industry People Moves
published on Fri, 16 Feb 2018 18:34:27 +0000
Athena Grows West Coast Presence Athena Capital Advisors, a privately owned, independent registered investment adviser (RIA), has expanded its national presence to include a new office in California.Located in San Francisco’s Ferry Building, the office serves the firm’s existing West Coast clients and deepens relationships with the extensive network of Bay Area investment managers used in client portfolios. The office is led by William McCalpin, managing partner, Impact Investments.Athena Capital was established in San Francisco in 1993 and later relocated its headquarters to Lincoln, Massachusetts. The firm also has an office in New York City. Its clients include tax-exempt institutions.Commenting on expanding to the West Coast, Lisette Cooper, Athena Capital’s founder and managing partner, says, “Returning to San Francisco is the perfect complement to celebrating Athena’s 25th anniversary in 2018. We are delighted to join the Bay Area’s dynamic business environment and partner with individuals and institutions that seek risk-managed and customized investment solutions to achieve long-term goals. Our presence on the West Coast will also advance our impact investing practice as we further integrate into a community of solution-oriented entrepreneurs and investors.”“Among asset owners on the West Coast, there is growing interest in addressing some of the most pressing global social and environmental challenges with investment capital,” McCalpin says. “Athena has more than a decade of experience working with clients that are committed to this approach. From our new office in San Francisco, we look forward to contributing to the further development of the impact investing community on the West Coast.”Nationwide Hires Lead for Retirement Institute Nationwide announced that Kristi Rodriguez will lead the Nationwide Retirement Institute. The Retirement Institute provides thought leadership on issues affecting retirement, including long-term care, health care and Social Security to help simplify today’s most complex retirement challenges.“Nationwide has built a reputation as an expert partner to advisers and plan sponsors,” said John Carter, president of Nationwide’s retirement plans business. “Kristi’s extensive experience in the financial services and health care industries, marketing and consumer research will be assets as we continue to invest in growing our businesses and expanding our thought leadership programs.”Rodriguez joined Nationwide in 2015, most recently serving as vice president of retirement plans marketing where she led a team of professionals focused on creating educational content, overseeing participant and plan sponsor communications, and supporting acquisition and retention efforts.Prior to joining Nationwide, Rodriguez served as a senior marketing director for Aetna. Before working at Aetna, she held several marketing and management roles at UnitedHealth Group. She earned her undergraduate degree in finance from Hampton University and holds a consumer marketing strategy certificate from the Kellogg School of Management at Northwestern University.She replaces Kevin McGarry, who was named the sales leader for Nationwide Funds in November 2017.Voya Employs Executive for Large Corporate Markets Voya Retirement has recently hired Jeff Zyonse as an account executive for the company’s Large Corporate Markets business.Based in Tampa, Zyonse will be responsible for generating new business and building key distribution relationships in the Southeastern part of the country. He will be working within Corporate and Tax Exempt markets that serve employers with plans from $75 million up to $1 billion in assets.Most recently, Zyonse held the position of regional vice president for Institutional Sales at TransAmerica, where he covered market sales for Georgia, Florida and Alabama. With more than 15 years of experience in the financial services industry, he specializes in helping companies construct and implement successful retirement plans.“Jeff’s experience helping his clients achieve their retirement goals through a seamless business experience is a natural fit for our team,” notes Steve Keating, senior vice president of Sales for Voya’s Large Corporate Market. “At Voya, we are dedicated to providing an easier business experience for the companies in which we do business with, and we look forward to Jeff supporting us with our commitment.”Zyonse graduated from Michigan State University with a Bachelor of Arts in marketing.T. Rowe Price Offers Financial Engines Services to ClientsFinancial Engines has expanded its strategic relationship with global investment management organization T. Rowe Price to now offer Financial Engines’ full suite of advisory services and deliver an improved user experience to plan participants who have T. Rowe Price as their recordkeeper.“As the demand for independent advisory services grows, we are excited to offer a best-in-class integration enabling us to deliver a broader set of services to participants and take our longstanding relationship to the next level,” says John Bunch, executive vice president and chief operating officer at Financial Engines. “Together, we’re bringing high-quality, independent financial help and an elevated user experience to more of T. Rowe Price’s recordkeeping clients, allowing us to help more people reach their financial goals.”Under the expanded agreement, Financial Engines can deliver its full suite of advisory services to T. Rowe Price plan sponsor clients. In addition to Online Advice and Professional Management, the expanded services now include:Personal Advisor — personalized professional management for all accounts (401(k), IRA and taxable accounts), comprehensive financial planning and a dedicated adviser, available by phone or in-person at more than 140 adviser centers nationwide;Retirement income – including Income+, Financial Engines’ in-plan retirement income planning solution designed for 401(k) participants and Social Security claiming guidance through Financial Engines’ Social Security Planner; andFinancial Guidance and Wellness—education and digital content to complement programs offered by T. Rowe Price, including Financial Engines’ new college and health care expense planners.Additionally, T. Rowe Price and Financial Engines now have a stronger, integrated web experience that includes enhanced single-sign-on capabilities, seamless transaction capabilities, and dynamic, personalized web messaging.Voya Investment Management Names Head of Multi-Asset StrategiesVoya Investment Management, the asset management business of Voya Financial, Inc., announced that Amit Sinha has joined as head of Multi Asset Design for the firm’s Multi-Asset Strategies and Solutions (MASS) team. Sinha, who is based in New York, reports to Jody Hrazanek, head of Strategy Design and Implementation.In this new role, Sinha will be responsible for researching and developing multi-asset investment solutions for Investment Management’s existing and prospective clients in response to their investment needs.Prior to joining Voya, Sinha founded Focus 262 Advisors LLC, a consulting firm that provided technology based investment solutions to institutional investors. Previously, he led the multi-strategy and liability driven investment businesses at JP Morgan and Pacific Life. Sinha is a graduate of Franklin and Marshall College where he earned a BA in Business and Systems Modeling.Wells Fargo Asset Management Adds to Multi-Asset Solutions TeamWells Fargo Asset Management (WFAM) announced that Peter Weidner will join the firm as head of Factor Solutions within the Multi-Asset Solutions team and Mark Brandreth will join as a senior portfolio manager within the Multi-Asset Solutions team. Both will be based in London, and both join the firm from the Schroders multi-asset team.In their new roles, Weidner and Brandreth will focus on designing solutions with a specific emphasis on portfolio construction and the use of risk and alternative risk premia for clients who seek retirement income strategies, wealth preservation, and downside risk protection. Weidner and Brandreth will report to Dan Morris, global head of Portfolio Solutions.At Schroders, Weidner was head of the advanced beta group and managed a range of systematic investment strategies across asset classes. Before joining Schroders, he was a partner and portfolio manager responsible for managing systematic investment strategies at Auriel Capital. His experience in building and managing factor-based portfolios includes equities; fixed income; FX; and environmental, social, and governance (ESG). Weidner earned a master’s degree in finance from the University of Florida’s Warrington College of Business.As head of portfolio construction and trading systems at Schroders, Brandreth developed a pan-asset-class portfolio management and trading system for the multi-asset team. Prior to joining Schroders, he was with BlackRock as a managing director in the scientific equities group. Brandreth also was head of quantitative investment processes, head of the European active equity business, and, before that, head of active U.K. equities at Barclays Global Investors. He earned a master’s degree in business administration from Warwick Business School and a master’s degree in natural sciences from Cambridge University.Altigro Acquires DC Business From Pro-PlansAltigro Pension Services, a retirement plan services firm, announced the addition of more than 190 401(k) and other defined contribution (DC) plans from Pro-Plans, Inc. dba Professional Retirement Planners.With this agreement, Altigro also adds Pro-Plan’s staff to its expert team to enhance administrative capacity for growth.Altigro works with financial advisers and national platform providers to provide more than 900 401(k), cash balance, defined benefit and other retirement plan strategies for employers across the country.Altigro and Pro-Plans both use FIS Relius Administration for retirement plan recordkeeping and administration which is expected to help drive a seamless migration for client plans. Altigro also uses PensionPro workflow technologies and will introduce data collection features that make it easier for employers to securely receive and provide periodic information. The company has also announced it intends to maintain current fee structures and service deliveries in place for Pro-Plan clients.The post Retirement Industry People Moves appeared first on PLANSPONSOR.
- ERISA Does Not Preempt State ‘Slayer’ Laws
published on Fri, 16 Feb 2018 16:59:15 +0000
The Employee Retirement Income Security Act (ERISA) does not preempt the Illinois slayer statute, and that statute bars even those found not guilty by reason of insanity from recovering from the deceased, the 7th U.S. Circuit Court of Appeals ruled, affirming a lower court decision.Anka V. Miscevic murdered her husband Zeljko, who was a participant in the Laborers’ Pension Fund. The fund asked a court to determine the proper beneficiary of Zeljko’s pension benefits. Anka claims she is the proper beneficiary, but the estate of Anka and Zeljko’s minor child says she is barred from recovering from the fund due to the Illinois slayer statute, which provides that “a person who intentionally and unjustifiably causes the death of another shall not receive any property, benefit, or other interest by reason of the death.”The appellate court’s opinion notes that a judge determined that state established each element of first-degree murder beyond a reasonable doubt; however he also found that Anka established “by clear and convincing evidence” that she was insane at the time.The 7th Circuit first noted that ERISA’s preemption clause states that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Citing a previous 7th Circuit decision, the appellate court said “some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law ‘relates to’ the plan.”Anka argues that a Supreme Court ruling in Egelhoff v. Egelhoff compels that the Illinois slayer statute is preempted by ERISA. But, the appellate court was unpersuaded. The Egelhoff case questioned whether ERISA preempted a Washington state statute that provided that a dissolved or invalidated marriage would revoke earlier beneficiary designations, but the Supreme Court determined that ERISA held plan administrators to a particular choice of rules regarding beneficiary status and the state law “interfered with nationally uniform plan administration.” The 7th Circuit noted that in that same decision, the Supreme Court acknowledged that ‘slayer’ statutes could revoke the beneficiary status of someone who murdered a plan participant. The high court said that “the principle underlying the statutes—which have been adopted by nearly every State—is well established in the law and has a long historical pedigree predating ERISA.”The appellate court also cited U.S. District Court cases in which it was found that ERISA did not preempt slayer statutes, and agreed with them. The court said in its opinion that slayer laws are an aspect of family law, a traditional area of state regulation. It also said, “As courts have stated, ‘Congress could not have intended ERISA to allow one spouse to recover benefits after intentionally killing the other spouse.’”The 7th Circuit looked further at the Illinois slayer statute and noted that although Anka was found not guilty by reason of insanity, the slayer statute applies to anyone who “intentionally and unjustifiably causes the death of another”—which the trial court judge found was proven. The appellate court concluded that the Illinois slayer statute bars Anka from getting Zeljko’s pension benefits.The post ERISA Does Not Preempt State ‘Slayer’ Laws appeared first on PLANSPONSOR.
- Can DB Plans Offer a Better TDF Selection and Monitoring Framework?
published on Thu, 15 Feb 2018 19:12:12 +0000
A new white paper published by P-Solve presents a simplified framework to help retirement plan fiduciaries improve the effectiveness and efficiency of target-date fund monitoring—comparing the choices of TDF managers with the established practices of major defined benefit (DB) pension plans.According to the research, despite the complexity of target-date funds (TDFs), there are some major features common to most TDFs’ structures that should form the basis of ongoing comparisons and analysis. These are the TDF asset allocation, especially the overall level of equity exposure and the quality of equities held; the management style, including active and passive management decisions, use of proprietary funds, and strategic versus tactical asset allocation; and finally, the fairness of fees.If these factors are not evaluated carefully and on a manager-by-manager basis, this could result in a mismatch between an employer’s goals and participant investment results, researchers warn.Concerning the monitoring of asset allocations, the researchers observe how the largest TDF managers “take very high levels of stock market risk in longer-term funds, ensuring that participants will bear the full brunt of any market downturn.” Even shorter-term funds have relatively high levels of stock exposure, researchers explain, higher than what is typically found in DB pension funds.“While appropriate for some participants, heavy reliance on equities is almost certainly not suitable for as many 401(k) participants as the allocation of the largest TDF managers suggests,” P-Solve argues. “TDFs are built mainly for favorable economic and market environments.”According to P-Solve, the typical DB pension fund, intended to operate in perpetuity, allocates approximately 60% to 70% of its assets to equities and riskier, growth-oriented asset classes, and the remainder to more conservative asset classes, including government and corporate bonds. Longer-dated TDFs, however, routinely allocate 80% or more to equities, the researchers note.“The premise behind high-equity allocations for younger investors is reasonable: stocks tend to go up over time as the economy and company earnings grow, and investors with longer-horizons can, in theory, tolerate even sizable market declines providing recovery follows,” the paper explains. “And investors should diversify their relatively high stock of ‘human capital’ with other investments, like stocks. In some cases though, TDF stock exposure may be too high. Consider that pension funds, unlike individual 401(k) plan accounts, are intended to operate indefinitely, and can in theory take more risk than any individual.”Researchers point out that the typical pension fund participant is approximately 50 years old and eligible to retire in about 15 years, and that the assets invested on their behalf are allocated roughly 65% to riskier investments. The same investor, if assigned to a 2030 or 2035 vintage TDF, would be exposed to 70% to 75% equities—a meaningful overweight to stocks relative to DB plans.As the paper lays out, in 2008, when the broad U.S. stock market declined by about 37%, this overweighting harmed retirement prospects. Indeed, as the researchers note, TDF losses in 2008 were, on average, equal to or greater than those experienced by the S&P 500, despite their diversification.Researchers go on to observe that few professionally-managed DB pension funds employ active management exclusively.“Recognizing that some asset classes are more fertile ground for a skilled active manager than others, DB plan sponsors tend to use a blend of active and passive management,” the paper states. “The largest TDF managers by assets, other than Vanguard (naturally), have reached the opposite conclusion however: they use mostly active management.”Researchers celebrate the fact that TDF fees continue to fall, benefitting the marketplace as a whole.“At the end of 2016, the average asset-weighted expense ratio was 0.71%, according to Morningstar, while as recently as 2011, the average was 1%,” P-Solve notes. “This improvement is due in part to the increased use of passive funds, but also to fee reductions. The trend is positive, but on average TDF remain as, or more, expensive than actively-managed mutual funds. The average 401(k) equity mutual fund management fee is about 0.48%, and the average bond fund fee 0.35%. The average TDF fee of about 0.70% thus seems high relative to any blend of stock and bond funds, even accounting for strategic asset allocation advice, rebalancing and other features.”TDF fees should continue to decline as assets grow, researchers conclude.The conclusion in the paper is that the “typical TDF takes high levels of equity risk, attempts market timing that is unlikely to be rewarded on average, uses much more active management than most pension funds, and is expensive.”“High equity exposure forced many to delay retirement, or accept a reduced standard of living in retirement, during the market crash that accompanied the Global Financial Crisis of the last decade,” P-Solve warns. “Though a repeat of this episode seems unlikely, even a less-severe downturn could result in permanent losses for those on the cusp of retirement. Retirement plan sponsors should give strong consideration to TDF managers that avoid extreme reliance on equities, refrain from excessive tactical tilts unlikely to be rewarded on average, and charge fees that are reasonable considering expected performance.”To request a copy of the full white paper, contact article author Marc Fandetti of P-Solve at firstname.lastname@example.org.The post Can DB Plans Offer a Better TDF Selection and Monitoring Framework? appeared first on PLANSPONSOR.
- Case Study Warns of Effect of Move From Public DB to Public DC
published on Thu, 15 Feb 2018 19:11:57 +0000
Since 2009, nearly every state modified its retirement systems to ensure long-term sustainability, most often by increasing employee contributions, reducing benefits or both, according to the National Institute on Retirement Security (NIRS).During these deliberations, some retirement systems faced pressure to move from defined benefit (DB) pension plans to defined contribution (DC) 401(k)-type individual accounts, in part or whole. Advocates of switching from DB to DC plans position the change as reducing employer costs for unfunded liabilities, but the move to DC accounts does nothing to reduce plan liabilities on its own. At the same time, significantly reduced retirement benefits under the DC savings plan create other workforce challenges, such as difficulty in recruiting and retaining public employees, NIRS says.The NIRS studied the case of Palm Beach, Florida, which it says offers “an important cautionary tale on the detrimental impacts of switching public employees from DB pensions to DC accounts.” In 2012, the Palm Beach Town Council closed its existing DB pension systems for all employees, including police and fire. Going forward “combined” retirement systems offered police officers and firefighters dramatically lower DB pensions and new individual DC retirement accounts. The move was made because financial markets experienced severe investment losses during 2001 to 2002 and 2008 to 2009. For the DB pensions of Palm Beach, this caused a dramatic increase in the town’s costs for its employee pension funds, which increased by over 600%, from $1.1 million in FY02 to $7.5 million in FY10, the NIRS explains.According to the NIRS’ report, from the town’s budget perspective, the changes to the pension plan cut costs about 45%. According to a report by the Palm Beach Civic Association, which supported the changes, the pension reforms were anticipated to save taxpayers $6.6 million in 2012, and the annual savings would grow to $10.2 million in 2020. While the Civic Association’s study concluded that employees still would have a meaningful retirement plan, many public safety employees felt differently.The police union calculated based on the pension reform proposal that the amount of pension income paid to future police officers would be $20,094 compared to the average benefit provided under the existing plan of $56,263.The NIRS reports that the reaction of existing protective service officers to seeing their pension benefits frozen was swift. Retirements accelerated dramatically. Because the only way younger public safety officers could obtain a better pension was to leave the town’s police and fire departments, those existing employees who did not retire looked for opportunities in nearby local jurisdictions. The town’s two public safety pensions had covered 120 employees at the end of 2011. In addition to the 20% of the town’s workforce that retired after the change, 109 other protective officers left before retirement in the next four years. Mid-career public safety officers departed the forces in unprecedented numbers, with 53 vested police officers and firefighters departing Palm Beach’s forces from 2012 to 2015, compared to just two such experienced employees in the four years from 2008 to 2011.The town did not anticipate the financial impact of the high attrition. For example, the NIRS firefighters had to work extremely high levels of overtime to fill staffing gaps. Also, the unprecedented loss of new and experienced public safety officers caused the town’s training cost to soar likely reaching upwards of $20 million, based on an “all in” cost estimate of $240,000 per officer to bring a new police officer through the rookie period in Florida.The Town Council voted in 2016 to abandon the DC plans and improve the DB pensions for police officers and firefighters by raising benefits substantially and lowering the retirement age. The Council offset the cost of the police and fire DB pension improvements by increasing employee contributions and eliminating the DC plan with its employer match.A previous report from the NIRS showed how three states’ switch from a defined benefit pension to a defined contribution plan exacerbated pension underfunding.The post Case Study Warns of Effect of Move From Public DB to Public DC appeared first on PLANSPONSOR.
- Plaintiffs Win Class Certification in NYU 403(b) Lawsuit
published on Thu, 15 Feb 2018 17:00:37 +0000
The U.S. District Court for the Southern District of New York ruled this week to certify a sizable class of plaintiffs in the Employee Retirement Income Security Act (ERISA) lawsuit targeting two 403(b) retirement plans at New York University.The claims in the case are similar to those filed against many other 403(b) retirement plans run by U.S. universities and colleges large and small. According to the third amended complaint—the one ruled on here—instead of using the NYU plans’ bargaining power to reduce expenses and exercising independent judgment to determine what investments to include in the plans, the defendants squandered that leverage away by allowing the plans’ conflicted third-party service providers—TIAA-CREF and Vanguard—to dictate the plans’ investment lineup, to link their recordkeeping services to the placement of investment products in the plans, and to collect unlimited asset-based compensation from their own proprietary products.There are seven named plaintiffs, members of the NYU faculty and research staff, and with this week’s ruling these seven will represent a putative class of at least 20,000 individuals, defined as follows: “All participants and beneficiaries of the NYU School of Medicine Retirement Plan for Members of the Faculty, Professional Research Staff and Administration and the New York University Retirement Plan for Members of the Faculty, Professional Research Staff and Administration from August 9, 2010, through the date of judgment, excluding the defendant and any participant who is a fiduciary to the plans.”The mechanics of these retirement plans and the participants’ allegations are examined in some depth in prior coverage of the initial filing of the case and the subsequent filing of multiple amended complaints. Considered in more depth in this decision are the requirements of what it takes to establish class certification and standing under ERISA’s strict terms.As the court lays out, it is merely a “preponderance of evidence” standard against which a plaintiff seeking preliminary certification of a class must prove that its proposed class meets the requirements of ERISA Rule 23(a) and, if those requirements are met, that the class is maintainable under at least one of the subdivisions of ERISA Rule 23(b). Ruling precedence on these matters is given in two previous decisions, Wal-Mart Stores, Inc. v. Dukes (2011), and Teamsters Local 445 Freight Div. Pension Fund v. Bombardier Inc. (2008).Because the plaintiffs here seek certification under Rule 23(b)(1), they had to prove the following, again merely by the preponderance of the evidence available at this still-early juncture: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.”Once this is established, Rule 23(b)(1) allows certification if the following condition(s) is also met: “Prosecuting separate actions by or against individual class members would create a risk of (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.”Per the Walmart case, plaintiffs here bear the burden of demonstrating affirmative compliance with the requirements of Rule 23. According to the district court decision, they have done this effectively. Without repeating all the detail available in the text of the decision, the basic conclusion of the court is that the participants amply establish that these 20,000-plus participants are numerous enough to make individual trials an impossibility, and that they are “common” and “typical” enough in their positioning with respect to the relevant questions of fact and law to make common remediation or rejection of the claims a proper outcome.One quote from this numerosity/commonality/typicality deliberation certainly bears repeating, laying out in quite clear language what is really at stake here: “The core questions in this lawsuit are common to all participants—whether defendant breached its fiduciary duties by taking actions or failing to take actions that resulted in improperly high fees, and whether certain investment options were properly included. In addition, plaintiff has proffered sufficient facts supporting that the discovery at issue in this case will ‘generate common answers apt to drive the resolution of the litigation.’”The decision goes into some detail when considering the defendants’ arguments that the plaintiffs here do not “adequately” represent the class they have successfully established.“NYU and the co-defendants put forth three arguments in support of their assertion that the named plaintiffs are not adequate representatives,” the decision states. “First, NYU argues that plaintiffs’ Amended Complaint proposes a flat-fee payment system for the plans rather than a revenue-sharing system; as a result, the recordkeeper’s compensation would not change due to an increase in assets. Defendant contends that a flat-fee structure would create class conflicts, since members of the class with lower salaries than the named plaintiffs might not benefit from this type of payment structure, as $30 (or some other flat fee) might be more than they would pay in a revenue-sharing arrangement.”The court is not much convinced: “The Amended Complaint does not simply propose this structure as the preferred outcome. Rather, it alleges that a flat fee structure does ‘not necessarily mean that every participant in the pan must pay the same $30 fee.’ Instead, the fiduciary could implement a ‘proportional asset-based charge,’ for which each participant pays the same percentage of his or her account balance. As such, the suggestion of a flat-fee system as one of several ways to bring the plans into compliance with ERISA does not, in and of itself, create a conflict between the named plaintiffs and other class members, as there are several variations of this system, some of which may not create conflicts. And in any case, this speculation on the part of NYU does not defeat adequacy, as it does not present a ‘fundamental’ conflict, per Denney v. Deutsche Bank AG (2006).”NYU further argues that removing the CREF Stock and TIAA Real Estate Accounts from the Plans—two accounts that plaintiffs allege were imprudently included in the plans—would create class conflicts because some participants would be hurt by the funds’ removal. However, the court has ruled, “defendant here focuses on the merits of the breach of fiduciary duty claim. It argues: (1) that those funds are important for diversification, as they offer some features that other funds do not; and (2) the CREF Stock and TIAA Real Estate Accounts had strong returns at different points in time, and the variance in performance was beneficial for some participants. That may well be the case, but those arguments go to the merits of the funds’ inclusion in the plans and whether or not they were prudent inclusions. If, in fact, plaintiffs are correct that the inclusion of these funds was a breach of the duty of prudence, then no plan participant would have a legal interest in continuing to invest in a plan that was adjudged imprudent.”Finally, NYU claims that the named plaintiffs are inadequate representatives because they are unaware of the facts underlying the dispute. For example, NYU relies on deposition testimony to demonstrate that a number of the named plaintiffs do not know what their investments are or how they have performed; what revenue sharing is; and whether NYU attempted to negotiate fees. Instead, the named plaintiffs rely on counsel for information.The court rules simply on this matter that plaintiffs “are entitled to rely on their counsel for advice.” As long as the class representatives “fairly and adequately protect the interests of the class,” adequacy is satisfied.The full text of the decision includes detailed discussion of the plaintiffs’ successful effort to meet the subsequent requirements of ERISA Rule 23(b)(1)—as well as consideration of some important issues of standing and ERISA’s statute of limitations, all of which the plaintiffs have overcome at this early juncture.The post Plaintiffs Win Class Certification in NYU 403(b) Lawsuit appeared first on PLANSPONSOR.
- Investment Products and Services Launches
published on Thu, 15 Feb 2018 16:27:48 +0000
EPIC Incorporates StoryLine to PlatformStadion Money Management, provider of participant level, customized retirement solutions, announced that EPIC Advisors added StoryLine, Stadion’s 401(k) managed account solution, to its retirement platform.StoryLine, built with SPDR ETFs, is a retirement planning solution built specifically for 401(k) participants in adviser-sold plans. StoryLine offers plan level customization with the option of participant level customization, which Stadion sees as a distinct improvement over “one size fits all” target-date strategies.Through StoryLine’s participant-centric web interface, employees will be encouraged to define their individual investment paths based on personal risk profiles, expectations, and goals. StoryLine will also allow— at the employee’s discretion—the inclusion of outside assets to facilitate more comprehensive retirement planning. The end goal of this is to have each participant on a retirement path personalized to their own circumstances and needs.“StoryLine has made significant inroads in the delivery of participant-friendly, customized retirement planning, a much-needed solution given the potential retirement savings gap facing many Americans,” says Manny Marques, president of EPIC. StoryLine helps financial advisers deepen their relationships with sponsors and participants by engaging them at the plan level with tailored solutions. In turn, sponsors are able to offer their employees access to individual personalized planning that goes beyond typical age- and risk-based investment strategies.Sterling Capital Adds R6 Share Class to Select Mutual Funds Sterling Capital Management LLC announced that its Capital Funds have added the R6 share class for seven of its mutual funds, which offers eligible clients a share class without shareholder servicing fees or sales charges. In addition to the R6 share class, all 25 Sterling Capital mutual funds are available in A, C and Institutional share classes.As of February 1, 2018, the R6 share class is available for the following mutual funds:Sterling Capital Behavioral Large Cap Value Equity Fund (STRAX)Sterling Capital Behavioral Small Cap Value Equity Fund (STRBX)Sterling Capital Behavioral International Equity Fund (STRCX)Sterling Capital Equity Income Fund (STREX)Sterling Capital Special Opportunities Fund (STRSX)Sterling Capital Mid Value Fund (STRMX)Sterling Capital Total Return Bond Fund (STRDX)“We are very excited about launching our R6 share class,” says John W. McAuley, CIMA, head of Sales and Client Service. “We look forward to bringing this new investment option to market within the defined contribution space.”This new share class is available to eligible employer-sponsored retirement plans such as 401(k) plans, 457(b) plans, 403(b) plans, profit-sharing plans and money purchase pension plans, defined benefit (DB) plans, and nonqualified deferred compensation (NQDC) plans.PAAMCO Launches Alternative Beta Tool Pacific Alternative Asset Management Company, LLC (PAAMCO) launched PAAMCO Alternative Beta, the latest tool in the firm’s suite of institutional liquid alpha solutions. PAAMCO Alternative Beta offers a portfolio of alternative risk premia diversified across strategies, asset classes and implementations. It aims to have little directionality to traditional markets at a lower cost than traditional hedge fund investments.Lisa Fridman, CFA, CQF and Philippe Jorion, PhD are co-heads of PAAMCO Alt Beta. Fridman will also continue in her role as Global Head of Research for PAAMCO; Jorion will remain head of Risk Management for PAAMCO. “Passive management has transformed the asset management industry with index funds. The next wave of innovation was ‘smart beta’ funds. Now, ‘alt beta’ funds are primed to be the next step,” says Jorion. “We believe alt beta products can be harnessed to add value to investor portfolios through proper component selection and structuring.” “We believe PAAMCO is in a strong position to provide a diversified alternative beta solution,” says Fridman. “We see investors looking for diversifying sources of returns to traditional asset class allocations while focusing on costs. I am thrilled that we are able to add PAAMCO Alt Beta to the suite of tools.”The post Investment Products and Services Launches appeared first on PLANSPONSOR.
- Equity Compensation Recipients Seek Financial Wellness Help
published on Thu, 15 Feb 2018 16:17:24 +0000
Equity compensation can serve many important functions in participants’ overall financial strategies. While employees utilize their benefits in multiple ways, they are most likely to do so to get needed cash (35%), make a large purchase (28%) or help prepare for retirement (11%), according to a survey from Schwab Stock Plan Services.The average total value of their equity compensation is $72,245, and approximately two-thirds (63%) of employees are fully vested. The study also reveals approximately three-quarters (76%) of respondents consider equity compensation part of their long-term financial plan, and most say their equity compensation helps them feel less stressed about their finances (76%) and more prepared for retirement (63%). Boomers (84%) and Gen Xers (81%) are most likely to consider equity compensation as part of their long-term plan, compared to 31% of Millennials who expect to use their equity compensation in the short-term.But the survey demonstrates that many equity compensation participants could use help in making the most of their benefit. Only half of respondents are confident in their ability to make the right decisions about their plan on their own.According to the nationwide survey of 1,000 equity compensation plan participants who receive incentive stock options, restricted stock awards and/or participate in employee stock purchase plans (ESPPs), just 24% have exercised employee stock options or sold shares that are part of their equity compensation. Fear of making a mistake is a concern for nearly half (48%). Among those who have never exercised or sold their equity compensation or ESPP, 34% admit to being worried about selling under the wrong market conditions and 34% say they are afraid of potential tax implications of making a wrong decision.Eighty percent of all respondents say they would be much more confident with the help of a financial adviser. Respondents would like advice on the tax implications of their decisions (50%), using the benefit to help prepare for retirement (44%) and knowing when to exercise or sell their equity awards (35%).Additionally, survey participants say they would take advantage of a financial wellness program—which would provide education, tools and resources to help with their overall financial health—if it were offered by their employer. Two-thirds of respondents who have access to this benefit take advantage of it, and most participants (96%) find it helpful when making equity compensation decisions. But, only 43% of respondents’ employers currently offer a workplace financial wellness plan.When considering the components of a financial wellness program they value the most, respondents say they want a holistic plan that goes beyond just equity compensation advice. They are looking for resources to help them with planning for retirement (65%), a free or discounted consultation with a financial adviser (51%), help with personal wealth building (45%) and help with developing savings goals (44%).“Employers offer equity compensation to reward employees, drive engagement and improve recruiting and retention. The good news for employers is that it’s working. Employees clearly place a high value on these programs, but they are also asking for more help. Delivering that help is the next best step employers can take to further increase the effectiveness of their equity compensation programs,” says Marc McDonough, senior vice president, Schwab Investor Services. Detailed results can be found here.The post Equity Compensation Recipients Seek Financial Wellness Help appeared first on PLANSPONSOR.
- Medicare and Social Security Guides Updated by Manning & Napier
published on Wed, 14 Feb 2018 17:51:46 +0000
Every New Year brings changes to tax laws, Social Security benefits, healthcare requirements, and more—and in many cases, this information can be difficult for individuals to locate or understand.With this in mind, Manning & Napier created a set of reference guides to break down exactly what individuals need to know about the new tax law, Social Security, Medicare, and long-term care going into 2018.One important point shared in the Social Security Guide reminds readers that, while the more recent Tax Cuts and Jobs Act of 2017 did not have a direct impact on the Social Security system, the Bipartisan Budget Act of 2015 put an end to “File and Suspend” and “Deemed Filing” strategies. The closure of the “Deemed Filing” loophole only affects individuals who reached age 62 after December 31, 2015.“Therefore, a limited portion of the population can currently take advantage of the deemed filing loophole—filing for and receiving spousal benefits while allowing benefits on your own work record continue to grow,” experts explain.Manning & Napier experts further point out, according to the Congressional Budget Office, Social Security outlays have exceeded revenues each year beginning in 2010. Based on the current trajectory, the balance of the retirement portion of the Social Security trust fund is projected to be exhausted in 2031.“Change is inevitable to ensure the continuation of Social Security benefits,” they warn. “Given the passing of the recent Tax Cuts and Jobs Act, many speculate that reforms for Social Security and other social programs may be next on the docket. Future changes to Social Security could include pushing back the retirement age, reducing benefits/benefit caps, raising taxes, increasing eligibility requirements, means testing, and others.”All four updated guides from Manning & Napier are available for download here.The post Medicare and Social Security Guides Updated by Manning & Napier appeared first on PLANSPONSOR.
- Participant Trust in Providers Could Be Much Improved
published on Wed, 14 Feb 2018 16:51:51 +0000
Cerulli Associates’ latest reporting offers a deep dive into the differences in investor preferences measured across those who seek out and prefer traditional, in-person advisory relationships, compared with those who prefer Web-based advisory programs.According to Cerulli, in most cases, those who identify as online enthusiasts opt to take control away from financial advisers because they believe financial firms are not looking out for them. To combat this belief, providers are working to be “more transparent with fees and offer products and services that are a fair trade-off for the client’s and the firm’s interests.”Cerulli finds investors who identify as “traditionalists” are marginally more trusting that financial services firms look out for their best interests, at 55%, as of 3Q 2017. While the average outlook on trusting financial services is improving over time, Cerulli warns that a lack of trust remains a lingering and potentially debilitating issue for close to half of traditionalist investors.Interesting to note, while they are less trusting of their advisers and providers, online enthusiasts over time have increased the amount of market risk they are taking, as 7% overall described their investment strategy as “aggressive” in 2015 compared with 12% in 2017. As Cerulli sees it, allowing technology to manage or aid in managing investments as a byproduct may desensitize investors from taking either inappropriate high or low risk.“A move toward greater acceptance of portfolio risk is an overall positive, especially among younger investors, but providers must ensure that clients understand the implications of these decisions when facing what could be peak equity markets,” Cerulli warns.Cerulli data shows traditionalist investors’ self-reported risk tolerance has remained “remarkably consistent” during the past two years. These investors generally prefer to outsource portfolio management to their advisers rather than keeping abreast of market developments. As such, they are less likely to have dynamic risk tolerances in the short term.“Providers should use the opportunity presented by current equity market highs to revisit portfolio allocations with these investor households to make sure that they remain properly allocated with respect to the investor’s goals,” Cerulli suggests. “If certain goals have already been achieved, the situation may warrant a reduction in portfolio risk.”More information about obtaining this research and other Cerulli data is available here.The post Participant Trust in Providers Could Be Much Improved appeared first on PLANSPONSOR.
- Participation in Retirement Plans Increases Focus on Financial Future
published on Tue, 13 Feb 2018 18:42:43 +0000
An analysis from Pew Charitable Trusts of data from a nationally representative internet survey of private-sector workers shows a correlation between access to and participation in workplace-based retirement savings programs and more planning and saving. Overall, workers with access to an employer-sponsored retirement plan were much more likely to report that they had tried to figure out in the previous two years how much retirement income they would need (41%), compared to those with no access (16%). Past participation in a workplace savings program also is associated with a greater likelihood of retirement planning: among workers who do not currently participate, 30% of those who do not currently have access and 33% of those with access but who do not participate report planning for retirement. That’s about twice as high as those who never participated, regardless of access. Even when accounting for other worker characteristics, such as education, race/ethnicity, gender, household income, unemployment history, and age, those who have never participated in employer-sponsored retirement plans are much less likely to plan for retirement than those who have participated or are currently participating. During a media call, John Scott, director, The Pew Charitable Trusts’ retirement savings project, said, “Most do not determine retirement savings need. A higher level of education is associated with greater planning and men tend to plan more than women—a disturbing finding given that women tend to live longer than men.” A history of plan participation appears to play a role in the resources used. For example, those workers who have never taken part in an employer-sponsored plan are significantly less likely than those who currently do or have done so in the past to say they have used a financial professional or automated statements from financial providers. They also are much more likely to “guesstimate,” or make informal calculations. Moreover, 28% of those who have never participated in an employer-sponsored plan have only guesstimated, compared to 14% of workers who have ever taken part and 8 percent of those who currently participate. Workers who have participated in a workplace plan use more rigorous tools to determine retirement income needs. For example, 58% of those who currently participate in a workplace retirement plan have used online tools or calculators to determine retirement income needs, as well as 46% of those who have ever participated in a workplace retirement plan. Thirty-nine percent of those currently participating in a workplace retirement plan have used a financial professional to determine retirement income needs, as well as 43% of those who have ever participated. Only 16% of those who have never participated in a workplace retirement plan have used a financial professional to calculate future income needs. “Getting these resources into workers’ hands will very likely result in an increase in their use,” Scott said. Having any retirement savings does not mean that respondents actively contribute to such a plan. For example, a person might have contributed money or rolled over a prior retirement account to an IRA but is not currently making contributions. When asked, 38% of workers who have any savings but do not have access to an employer-sponsored plan said that they had not contributed in the past two years; 3% said they were not allowed to contribute. Among those currently participating in employer- sponsored plans, only 8% did not contribute or had decreased their contributions, compared with 45% to 52% of all others regardless of current access or participation history. Asking how workers would use a hypothetical $10,000 windfall can help reveal savings and spending priorities, Pew says. On average, those without access to a retirement plan would allocate $1,580 toward retirement, more than those with access to a plan who are not currently participating, possibly because they cannot save at work. Workers are more likely to use the hypothetical money to pay down debt or build liquid savings than to boost retirement savings, which suggests that these factors may be more pressing concerns for many workers. “Paying down debt was the top response for all survey participants. Retirement savings should be viewed in the context of workers’ broader financial situation. Policymakers may consider combining retirement savings with help with other financial priorities,” Scott said. The Pew Charitable Trusts survey report is online here.The post Participation in Retirement Plans Increases Focus on Financial Future appeared first on PLANSPONSOR.
- Employers Don’t See HDHPs As Best to Make Employees Health Care Consumers
published on Tue, 13 Feb 2018 17:25:02 +0000
Aside from reducing their own health care costs, one impetus for employers to adopt high-deductible health plans (HDHPs) was to put the onus on employees to pay for more costs of medical procedures in order to encourage them to shop for best value at the lowest prices—but that is not what employers are seeing happen.Only 3.4% of respondents to a survey from Change Healthcare identified HDHPs as the best approach for converting passive patients into active health care consumers. In fact, they seem to be having the opposite effect—spurring more care avoidance than shopping.All of the following tactics were higher on the list:Offer incentives for health behaviors – 25.4%;Establish provider and patient partnering programs – 23.7%;Promote health care literacy – 14.1%;Leverage health risk assessments/health management programs – 12.4%;Gamification to motivate and change behaviors – 8.5%; andOffer price transparency tools – 7.9%.The survey asked respondents how they are using marketing to enhance member engagement. “Few would argue that listening to health care consumers is not a cornerstone to a successful engagement strategy. Equally important, however, is persuading consumers to become active participants in their own health care,” the survey report says.Asked how they are pursuing these complementary goals, the most common method mentioned, by 83% of survey participants, was creating and distributing educational materials. A majority of participants also said they are using social media (62.5%) to promote and socialize their consumer engagement materials. What are they promoting? Most are developing and promoting health care literacy materials (58.8%), and translating that engagement content into other languages (55.6%) to maximize relevance.The majority are identifying and responding to members’ communications preferences (53.2%) to help give consumers what they want when they want it. Techniques in the minority include the use of wellness coaches (48%), telehealth (36%), navigators (26.9%), and instant messaging (11.9%).Change Healthcare says the tools for engaging patients and incentivizing them, and helping them understand health care, are often not very good. Consumers need quick, convenient access to accurate price and quality information they can understand—which is rarely the case.The research draws from more than 2,000 healthcare leaders, 52% VP and above, including Change Healthcare customers, HealthCare Executive Group (HCEG) members, and Health Plan Alliance members. The researchers targeted the leaders of these organizations, 27% of whom are at the president or C-suite level. The complete Industry Pulse survey results can be accessed here.The post Employers Don’t See HDHPs As Best to Make Employees Health Care Consumers appeared first on PLANSPONSOR.
- Couples Fail to Discuss Savings and Retirement
published on Tue, 13 Feb 2018 17:04:57 +0000
Only half of couples who participate in their workplace retirement plan discuss retirement savings and investment decisions with their spouse or partner all or most of the time, Lincoln Financial Group learned in a survey.While 64% of couples in their 20’s discuss retirement savings and investment decisions with their spouse or partner all or most of the time, this drops to 56% for those in their 30’s and only 48% for those 40 and over.“Our Retirement Power study showed that people participating in their employer-sponsored retirement plan are more confident and more optimistic today than they were just five years ago, and that most understand how much they need to save to be on track for retirement,” says Jamie Ohl, president, retirement plan services, Lincoln Financial Group. “Now they need to start having conversations with their significant others about savings, and what they envision for their retirement.”The survey also found a disconnect between the sexes when it comes to their belief that they work with their spouse or partner to manage retirement planning for their household; 49% of women say that they do, but only 37% of men say the same.The post Couples Fail to Discuss Savings and Retirement appeared first on PLANSPONSOR.
- DOL Reaches Settlement for Plans Affected by Fraudulent Loans
published on Tue, 13 Feb 2018 16:02:24 +0000
The U.S. Department of Labor (DOL) has entered into a settlement agreement with U.S. Fiduciary Services and three of its subsidiaries that provides for payment of more than $7 million to 42 retirement plans that suffered losses as a result of investments in fictitious loans made by Florida-based First Farmers Financial LLC (FFF).The agreement and anticipated future payments from a pending receivership estate case involving FFF are expected to compensate the retirement plans fully for approximately $16 million in losses.FFF created the fictitious loans and forged documents stating that the loans were guaranteed by the U.S. Department of Agriculture. Forty-two retirement plans invested in a fund exposed to the fraudulent FFF loans through subsidiaries of U.S. Fiduciary Services.The DOL’s Employee Benefits Security Administration (EBSA) conducted investigations of the subsidiaries—Salem Trust Company, Pennant Management Inc., and GreatBanc Trust Company—for potential violations of the Employee Retirement Income Security Act (ERISA) in connection with the plans’ investments in a fund exposed to the fictitious FFF loans.After its investigations, the DOL entered into the settlement agreement with U.S. Fiduciary Services and the three subsidiaries, resolving its claims of ERISA violations. Representatives of the ERISA-covered retirement plans that are due to receive settlement proceeds were also parties to the settlement agreement.“Fiduciaries must work solely in the interest of participants and beneficiaries,” says Jeffrey A. Monhart, EBSA Regional Director in Chicago. “The Department of Labor conducts investigations and undertakes enforcement actions to protect Americans’ hard-earned benefits. This settlement restores vital benefits that rightfully belong to employees.”The post DOL Reaches Settlement for Plans Affected by Fraudulent Loans appeared first on PLANSPONSOR.
- (b)lines Ask the Experts – Using Hours of Service to Calculate Eligibility
published on Tue, 13 Feb 2018 12:00:05 +0000
“Our recordkeeper is calculating some individuals as having met their service requirement prior to their second anniversary with the firm. How is that possible?” Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: Assuming that your recordkeeper is calculating service correctly in accordance with the terms of the plan, the Experts may be able to point you in the right direction here. As usual, looking at the relevant regulatory guidance is often quite helpful in arriving at an answer. Here are the relevant sections of the Code and ERISA; the boldface text is the Experts emphasis: Code Section 410(a)(3) Definition of year of service.— 410(a)(3)(A) General rule.—For purposes of this subsection, the term “year of service” means a 12-month period during which the employee has not less than 1,000 hours of service. For purposes of this paragraph, computation of any 12-month period shall be made with reference to the date on which the employee’s employment commenced, except that, under regulations prescribed by the Secretary of Labor, such computation may be made by reference to the first day of a plan year in the case of an employee who does not complete 1,000 hours of service during the 12-month period beginning on the date his employment commenced. ERISA Regulation, §2530.202-2 (a)Initial eligibility computation period.—For purposes of section 202(a)(1)(A)(ii) of the Act and section 410(a)(1)(A)(ii) of the Code, the initial eligibility computation period the plan must use is the 12-consecutive-month-period beginning on the employment commencement date. An employee’s employment commencement date is the first day for which the employee is entitled to be credited with an hour of service described in §2530.200b-2(a)(1) for an employer maintaining the plan. (For establishment of a reemployment commencement date following a break in service, see §2530.200b-4(b)(1) (iii) and (iv)).(b)Eligibility computation periods after the initial eligibility computation period.—In measuring years of service for purposes of eligibility to participate after the initial eligibility computation period, a plan may adopt either of the following alternatives:(1)A plan may designate 12-consecutive-month periods beginning on the first anniversary of an employee’s employment commencement date and succeeding anniversaries thereof as the eligibility computation period after the initial eligibility computation period; or(2) A plan may designate plan years beginning with the plan year which includes the first anniversary of an employee’s employment commencement date as the eligibility computation period after the initial eligibility computation period (without regard to whether the employee is entitled to be credited with 1000 hours of service during such period), provided that an employee who is credited with 1000 hours of service in both the initial eligibility computation period and the plan year which includes the first anniversary of the employee’s employment commencement date is credited with two years of service for purposes of eligibility to participate. As you can see, the initial eligibility computation period for the initial year of service in your plan is fairly straightforward—the first 12 months of employment from date of employment to the anniversary of date of employment is used. A participant would be credited with a year of service in your plan during the first eligibility computation period if he/she works at least 1,000 hours during the first twelve months of employment. It is in the second year (and beyond, in some cases) where things get a bit trickier. After the first twelve months of employment, the plan may elect to continue to utilize the same 12-month period beginning on each anniversary of employment. However for some plans, this can be difficult for their operating systems to handle, since each employee not hired on the same day would have a different eligibility computation period for hours of service and eligibility. Thus, the regulations permit a plan to switch the eligibility computation period, beginning with the plan year that includes the employee’s first anniversary of employment (i.e., the last day of the first 12-month eligibility computation period), so that all employees will eventually have the same timeframe (the plan year) for hours and eligibility calculation. The Experts believe that this option is what may have been elected in your plan; you can confirm by reviewing the eligibility section of your plan document. Here is an example as to how the plan year election can cause an employee to satisfy a two-year service requirement prior to his/her second anniversary. Let’s say Jane has the following service record for a plan with a calendar-year plan year. Date of Hire: 4/15/2016 # of hours worked 4/15/2016-4/14/2017: 1,500# of hours worked 1/1/2017-12/31/2017: 1,600 In a plan that elected a plan year calculation following the initial year of service, Jane would satisfy the two-year service requirement on 12/31/2017, even though her second anniversary will not occur until 4/15/2018. NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.The post (b)lines Ask the Experts – Using Hours of Service to Calculate Eligibility appeared first on PLANSPONSOR.
- Plan Sponsors Pushing Boundaries of Auto Features
published on Tue, 13 Feb 2018 10:30:19 +0000
Availability and use of automatic enrollment has increased dramatically the last 10 years—from 35.6% of plans using the feature in 2007 to 59.7% using it in 2016—according to the Plan Sponsor Council of America’s (PSCA) 60th Annual Survey of Profit Sharing and 401(k) Plans, reflecting 2016 plan experience.Three percent of pay was the most common default deferral rate for auto enrollment for years, but plans have started moving to higher default rates in an effort to help increase savings rates and boost overall participant outcomes. In 2016, 35.2% of plans used a 6% default rate, and 40.2% used a default rate of more than 6%.The number of plans using automatic deferral escalation has also increased—from 49.7% in 2007 to 73.4% in 2016, the survey shows. Twelve percent auto escalate for all under-contributing participants only, and one-third auto escalate only if the participant elects it.Three-quarters of plans auto escalate by 1% each year, while 8.6% auto escalate by 2% and 5% auto escalate by 3%. More than four in ten (41.8%) cap auto increases at 10%, while 19.4% cap it at more than 10%.Ninety percent of employees at respondent companies are eligible to participate in their defined contribution plans. About two-thirds of companies allow part-time employees to participate. The average percentage of employees who have a plan balance is 88.7%, and an average of 84.9% of participants made a contribution to their plans in 2016. The average percentage of salary deferred (pre- and post-tax) was 6.8%.Nearly 35% of respondent companies offer investment advice to participants. Providers of investment advice used include a registered investment adviser (30.8%), a certified financial planner (28.8%) and a third-party web-based provider (20.2%). The most common delivery methods for advice are one-on-on counseling (68.5%), internet providers (45.7%) and telephone hotlines (48.7%). One-fourth of participants use advice when it is offered.The 60th Annual Survey of Profit Sharing and 401(k) Plans also covers topics such as recordkeeping, monitoring investment policy statements, company stock, plan loans, distribution and withdrawals, participant education and communication, and plan expenses. The survey reflects the 2016 plan-year experience of 590 DC plan sponsors. The full printed survey is available for pre-order, or electronic copies are available for order here.The post Plan Sponsors Pushing Boundaries of Auto Features appeared first on PLANSPONSOR.
- Financial Wellness 360 Unveiled by Securian Financial
published on Mon, 12 Feb 2018 17:49:33 +0000
Now available to all current and prospective Securian group insurance employer customers is the new Financial Wellness 360 program, comprised of three underlying solutions aimed at improving employees’ ability to manage money, both today and into the future.First, the program delivers SmartDollar, a well-known online program that takes a holistic approach to financial wellness. As Securian puts it, SmartDollar “acts as an online personal financial coach.” The program helps navigate “seven baby steps for greater financial security.” The Financial Wellness 360 program next features Advisor Connection, a program that offers “convenient worksite seminars allowing employees to learn about financial principles that are relevant to them, including personal finance and retirement strategies.” The in-person experience allows employees to learn directly from program-certified, registered financial advisers. A built-in “takeaway tool” for each participating employee outlines key concepts with an invitation to schedule a “complimentary, no obligation consultation” with the adviser.The final part of the Finanical Wellness 360 program is Lifestyle Benefits, a suite of self-service resources that help employees “address today’s financial challenges and prepare for tomorrow.” Available online and by phone 24/7, employees can access planning tools as they are needed. Services include confidential financial counseling and support; financial assessments; articles and tips; objective beneficiary financial counseling; will preparation guidance; and legal and grief counselling to help with the impacts of significant life events.“Financial stress distracts employees and can hurt an organization’s bottom line by lowering productivity, increasing turnover and harming workers’ health,” warns Elias Vogen, Securian’s director of group insurance client relationships. “By implementing Financial Wellness 360, employers can enhance their benefit packages, provide employees with strategies for long-term financial success and potentially even reduce health care costs.”More information about Securian Financial Group is available here.The post Financial Wellness 360 Unveiled by Securian Financial appeared first on PLANSPONSOR.
- To Prioritize Retirement Saving May Not Be Best for All Workers
published on Mon, 12 Feb 2018 16:28:39 +0000
If you’re encouraging all of your employees to put as much as they can into their defined contribution (DC) plan, I hate to break it to you, but you may be causing more harm than good.The fact is, the DC option might not be the best place for many of your employees to put their discretionary income, especially if they don’t have an emergency fund or they’re up to their eyeballs in high-interest debt.For exactly that reason, it’s important to make sure you go beyond encouraging higher and higher DC plan contributions—which only some employees can manage—and, instead, meet your entire work force where it is, with more empathetic, targeted and holistic financial guidance.So What Does This Look Like? In an ideal world, you’d be able to pair up each one of your employees with a savvy and charming financial guru who could look at their unique financial situation and give tailored recommendations on how they should spend their free dollars—i.e., money left over after basic living expenses are covered. But there’s a good chance you don’t have a budget for that.The good news? For exactly zero money, you can make your DC plan’s messaging way more useful by highlighting some typical, less-than-perfect financial situations and giving advice accordingly. As a result, your employees can latch onto the situation closest to their own and feel more confident in their choices.Here’s what this kind of targeted advice might look like, say, in an email you send to your work force:Putting money away for your retirement is important, but how important depends on the financial boat you’re in right now. Here are three common employee scenarios—and some financial food for thought, for each. Example 1) Joan, the prepared Joan has a few thousand dollars saved for emergencies and no high-interest credit card debt. So, for Joan, it makes sense to fund her DC plan up to the company match and beyond—as much as she can afford. Why? Her short-term financial situation is secure, so she’s in a position to focus on her long-term goals. For context, the average 401(k) contribution rate at Vanguard in 2016 was 6.2% of total salary; at Fidelity, the average was 8.4%. However, most advisers suggest putting away 15% of your paycheck if you can. Example 2) Dave, who has no emergency fundDave lives paycheck to paycheck and doesn’t yet have an emergency fund. For Dave, it would make more sense to set money aside for unexpected emergencies before he starts focusing on his DC plan, even if his company offers a match. Why? If Dave finds himself suddenly with an unexpected expense—e.g., having a broken transmission or a flooded basement—and doesn’t have cash saved up, his options for paying off this bill are to: a) raid his existing DC plan account and pay a penalty; b) take out a loan against his account, reducing his after-tax earnings by paying back principle and interest; or c) use a high-interest credit card. Each of these options would cause him to lose money beyond the cost of the surprise expense. Not great for Dave!Example 3) Greg, who’s got a safety net, but who’s saddled with lots of high-interest debtAs Greg has an emergency fund, it makes sense for him to contribute to his DC plan until he reaches the employer match—he just can’t beat a 100% return on his money. However, as he has high-interest credit card debt, he probably should contribute no more than to the match until his debt is repaid.Why? He would lose more money than he’d gain if still carrying that debt. Specifically, his 401(k)-related gains—7% through 9% annually, on average—would most likely be less than the losses he would take on his credit card—let’s say, 13% through 17%.After You’ve Educated Your Employees, Make It Easy for Them to Act You could add the examples above to your general DC plan messaging and call it a day. But why stop there? If you’re truly invested in helping your employees not only plan for retirement, but also create savings and dig out of debt, take these three steps to boost their chances of actually getting there:Reiterate your 401(k) messaging whenever employees get a raise, bonus or promotion. There’s no better time to discuss what workers should do with their “free dollars” than when they have just landed more, courtesy of payroll.Share links to reputable personal finance blogs and podcasts. Remind your employees about these resources regularly by highlighting one each month. The more visibility you give such tools, the more likely your employees will try them.Highlight apps that put saving on autopilot. In the same way DC plans use automated deposits to make retirement saving easy for employees, mobile apps use automation to help people build an emergency savings fund, pay down credit card debt, and invest in smart, manageable and automatic ways.Making your employees aware of these tools doesn’t guarantee they’ll use them, of course. But it will show that you have their best interests in mind—which, when it comes to creating change, is half the battle.Bob Armour, chief marketing officer (CMO) of Jellyvision, makers of ALEX, an interactive communication software used by more than 8 million employees to make better decisions about their health care benefit options, DC plan allocations and financial wellness. This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Strategic Insight or its affiliates.The post To Prioritize Retirement Saving May Not Be Best for All Workers appeared first on PLANSPONSOR.
- Bill Aims to Expand HDHP Coverage for Chronic Disease Management
published on Mon, 12 Feb 2018 16:26:31 +0000
The Chronic Disease Management Act of 2018 has been introduced in both the Senate and House of Representatives.The bill notes that a small number of chronic diseases account for the majority of health care spending in the U.S., and targeted interventions prevent the need for additional, more costly therapies for chronic diseases.In the absence of an expansion to the preventive care safe harbor, whereby preventive care is covered before any deductible is met by a health benefit plan participant, the bill would permit high-deductible health plans (HDHPs) to provide chronic disease prevention and treatment, subject to certain limitations, prior to participants having met their deductible.Specifically, the bill says, “A plan shall not fail to be treated as a high deductible health plan by reason of failing to have a deductible for care related to the treatment of any medically complex chronic condition which: is substantially disabling or life threatening, has a high risk of hospitalization or other significant adverse health outcomes, and requires specialized delivery systems across domains of care.”The writers of the bill say amending regulations in this way promotes the concept of value-based insurance design. A report from UBS Wealth Management says value-based care is growing as a way to reduce health care costs for both employees and employers. In addition, a white paper from HealthyCapital suggests that effectively managing health conditions can save money for employees, and if that savings is invested in retirement plans, generate more income in retirement.“We strongly support these efforts to address the real culprit in our health care system: rising costs,” American Benefits Council President James A. Klein says. “A principal problem is the high unit cost of health services and the disconnect between the price and the value of many services.”The post Bill Aims to Expand HDHP Coverage for Chronic Disease Management appeared first on PLANSPONSOR.