Industry News

TRIVIAL PURSUITS: From Where Did the Phrase Passed With Flying Colors Come? - Mon, 2020-02-24 13:19

From where did the phrase “passed with flying colors” come?

It derives from when ships would return home with their “colors” (another word for flags) flying to show they had been victorious.

A ship that had been unsuccessful would take down its flags.

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Categories: Industry News

High Court Rules Seizure of Property From Puerto Rico Catholic Churches Was Wrong - Mon, 2020-02-24 13:16

The U.S. Supreme Court has decided that a court in Puerto Rico was wrong to order the seizure of property from Catholic entities in order to fulfill a court judgment to pay $4.7 million in pension benefits to both retired and active teachers.

Following a decline in enrollment in Catholic schools as residents left the territory because of a 12-year recession, and the exacerbation of the problem after Hurricane Maria, in 2016, the archdiocese notified several hundred teachers that their pension payments were being stopped because payouts exceeded contributions. The teachers filed a lawsuit and, in 2018, a judge ordered the archdiocese to pay $4.7 million to both retired and active teachers.

According to a petition for writ of certiorari with the U.S. Supreme Court filed by the Roman Catholic Archdiocese of San Juan, following the court decision, the Puerto Rico Supreme Court proceeded to declare every single Catholic entity in Puerto Rico—including the Roman Catholic Archdiocese of San Juan, five separate Roman Catholic dioceses, all 338 parishes and all other Catholic entities on the island—part of one monolithic (and, in both church doctrine and secular reality, nonexistent) entity dubbed the “Roman Catholic and Apostolic Church in Puerto Rico.” Most of these entities did not participate in the Church Pension Plan.

The archdiocese alleged that, based on a refusal to defer to the separate nature of the various Catholic entities on the island, a sheriff was ordered to “open doors, break locks or force entry … night or day” into Catholic churches throughout Puerto Rico and seize and sell off artwork, furniture and anything else of value unless and until the nonexistent “Roman Catholic and Apostolic Church in Puerto Rico” supplied $4.7 million to fund the pension obligations of three Catholic schools whose pension plan had run out of money.

The petition asked the U.S. Supreme Court to answer the question: “Whether the First Amendment empowers courts to override the chosen legal structure of a religious organization and declare all of its constituent parts a single legal entity subject to joint and several liability.”

According to the high court’s order, the archdiocese argued that the Free Exercise and Establishment Clauses of the First Amendment require courts to defer to “the church’s own views on how the church is structured.” Thus, in this case, the courts must follow the church’s lead in recognizing the separate legal personalities of each diocese and parish in Puerto Rico.

The U.S. Supreme Court called for the solicitor general’s views on the petition. The solicitor general contended that the Puerto Rico Supreme Court violated the fundamental tenet of the Free Exercise Clause that a government may not “single out an individual religious denomination or religious belief for discriminatory treatment.”

The high court did not address either the question in the petition or the solicitor general’s argument because it found that the lower court lacked jurisdiction to issue the payment and seizure orders. On February 6, 2018, after the Supreme Court of Puerto Rico remanded the case to the lower court to determine the appropriate parties to the preliminary injunction, the archdiocese removed the case to the U.S. District Court for the District of Puerto Rico. The U.S. Supreme Court noted that once a notice of removal is filed, “the state court shall proceed no further unless and until the case is remanded.” The state court “loses all jurisdiction over the case, and, being without jurisdiction, its subsequent proceedings and judgment [are] not … simply erroneous, but absolutely void.”

The lower court issued its payment and seizure orders after the proceeding was removed to federal district court, but before the federal court remanded the proceeding back to the Puerto Rico court.  The high court said, at that time, the lower court had no jurisdiction over the proceeding, so its orders are therefore void.

“We think the preferable course at this point is to remand the case to the Puerto Rico courts to consider how to proceed in light of the jurisdictional defect we have identified,” the U.S. Supreme Court concluded.

The order can be found starting on page 27 of this document.

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Categories: Industry News

Hilton Hotels Allegedly Has Vesting Issues - Mon, 2020-02-24 12:28

Former participants and a beneficiary of a former participant in the Hilton Hotels Retirement Plan have asked for class certification in a lawsuit alleging that Hilton Hotels and plan fiduciaries have breached and are breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by failing to make vesting determinations in compliance with ERISA, the regulations and a prior District Court decision.

The lawsuit was filed on behalf of more than 220 individuals who followed the claim procedures ordered by the U.S. District Court for the District of Columbia, and affirmed by an appellate court, in Kifafi, et al., v. Hilton Hotels Retirement Plan, et al.

According to the amended complaint filed in 2018, on May 15, 2009, the District Court ruled in Kifafi that Hilton had systematically not properly counted periods of employment with Hilton in determining whether employees had enough years of service for a vested right to a pension benefit as modified by ERISA. 616 F.Supp.2d 7, 29-32. The District Court found that while Hilton “initially asserted that it complied fully with the plan’s vesting provisions that allowed employees to earn a year of vesting credit by completing 1,000 hours of service, the record is replete with uncontested evidence that Hilton failed to properly implement the 1,000 hours standard for calculating employees’ vesting credit, often because it lacked the necessary records to do so.”

To remedy the vesting violations, the District Court on September 7, 2010, ordered the “870/750 ‘hours worked’ equivalency to be applied in lieu of the 1000 hours of service standard where an employee’s records are sufficient to indicate the hours worked.” Under the “hours worked” equivalency, an employee is credited with a year of service if he has 870 hours worked during a 12-month period (or 750 for a salaried employee). The court said if the records of hours worked are unavailable (or where a record indicates 500 hours of service as a placeholder), a “190 hours of service per month equivalency” is to be used.

In their complaint, the plaintiffs say Hilton has denied the appeals of at least 57 individuals on the ground that: “a portion of your employment history with Hilton was prior to January 1, 1976. Prior to 1976, vesting credit is calculated using an elapsed time method. The elapsed time method calculates service by measuring the time, in years and fractional years, between the date you began employment and December 31, [1975]. The amount of service credited does not depend on the hours worked during a time period, but rather depends on the years and fractions of years during which you were employed by Hilton prior to January 1, 1976.”

According to the complaint, the District Court in Kifafi specifically rejected Hilton’s elapsed time approach because it leaves “some participants with fractional years of vesting service.” As an example, the complaint notes that Hilton credited named plaintiff Valerie White with 3.52957 years for her service at the Washington Hilton from June 21, 1972, to December 31, 1975, and then with six years for service from January 1, 1976, to March 26, 1982, giving her a total of 9.52957 years of vesting service. The plaintiffs say Hilton’s application of elapsed time before January 1, 1976, does not take into account the District Court’s decision on fractional years or the Department of Labor (DOL) and Treasury regulations on transitioning from an elapsed time method to an hours of service method for service. “Without the transition between elapsed time and hours of service required by the District Court and the regulations, a fractional 0.52957 year for Ms. White will be frozen forever in place, and the only way she can attain the additional 0.47043 year of vesting service would be to earn another full year of vesting service. This would mean that participants actually would need more than 10 calendar years of employment for [their] pension to vest,” the complaint states.

The plaintiffs also pointed out that the District Court in Kifafi ruled in August 2000 that the plan’s definition of “Related Companies” encompasses any “Hilton Property,” which is defined in the plan document as any property in which Hilton “has an interest or with which it has a contractual relationship for hotel management.” Thus, the District Court ruled that the plan’s definition of “Related Company” encompasses all related or affiliated Hilton properties–whether or not they participate in the plan. The District Court’s May 5, 2009, decision also held that “employers are required to count all of an employee’s years of service for calculating his or her years toward vesting.”

Despite the District Court’s rulings, the plaintiffs allege, Hilton is not counting service at “non-participating” properties and has stated that it is only counting service “at either a participating employer or related company for vesting credit.” The plaintiffs argue that this not only contradicts the District Court’s ruling, but that Hilton has not provided any documents in response to their requests to identify any non-participating properties that are not “Related Companies.” For example, the complaint says, Hilton’s records show that named plaintiff Eva Juneau worked for the Reno Hilton from April 22, 1991, until May 16, 1996, and then at the Flamingo Hilton from May 17, 1996, until February 21, 1997. Hilton is crediting Ms. Juneau with four years of service between August 1, 1992, and February 21, 1997, but is not counting her service before the date the Reno Hilton began participating in the plan.

In their third count, the plaintiffs allege Hilton has denied appeals submitted by the beneficiaries of at least 28 deceased participants through the vesting claim process ordered by the District Court without regard to whether the participant had sufficient years of service to be vested, but solely on the grounds that the claimant is “not the surviving spouse.” For example, named plaintiff Peter Betancourt, the son of deceased participant Pedro Betancourt, who worked at the New York Hilton from October 3, 1947, to January 13, 1979, and who died in 1985 at the age of 71, appealed his vesting denial in July 2015. Pedro Betancourt’s spouse died in 1998 at the age of 78. Peter Betancourt is their only child.

According to the complaint, documents provided by Hilton show that Hilton is crediting Pedro Betancourt with 19 years of vesting service. But Hilton has denied his son Peter’s vesting appeal not on the grounds that his father did not have more than enough years of vesting service, but solely “because you [Peter Betancourt] are not the surviving spouse of P. Betancourt.” Hilton’s November 18, 2015, denial letter states that “the plan document does not provide for a death benefit to anyone other than a spouse.”

The plaintiffs note that in Kifafi, the District Court ruled on August 31, 2011, that “back payments for deceased participants shall be made in a manner that is consistent with Section 4.13(e)(6) of the 2007 plan, which provides that any additional benefits payable to the participant shall be payable to the surviving beneficiary or beneficiaries, if any, under the optional form of benefit, if any, elected by the participant, or, if there is no such surviving beneficiary, to the participant’s surviving spouse or, if there is no surviving beneficiary or surviving spouse, to the participant’s estate.”

Peter Betancourt claims he is due the back benefits due his mother before her death as well as the six years of back benefits due his father before his death.

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Categories: Industry News

Dated Mortality Assumption ERISA Lawsuit Will Proceed to Trial - Mon, 2020-02-24 11:53

The U.S. District Court for the Eastern District of Virginia has ruled in the case of Herndon vs. Huntington Ingalls, in which the plaintiffs allege their employer is violating the Employee Retirement Income Security Act (ERSIA) by using severely outdated mortality data and inaccurate interest rate assumptions while calculating the value of non-default pension benefits.

Covering just nine pages and recounting the results of a hearing held February 18, the ruling rejects Huntington Ingalls’ arguments that the case should be dismissed for a failure to state an actionable claim under ERISA. The ruling states that the complaint at this stage need not include fully detailed factual allegations as long as it pleads “sufficient facts to allow a court, drawing on judicial experience and common sense, to infer more than the mere possibility of misconduct.”

Allegations in the lawsuit, which now proceeds to discovery and—barring settlement—a full trial, match those included in an emerging class of cases filed against large employers across the United States in the last year. Although each case has its nuances, the basic argument being put forward in the suits is that these employers are failing to pay the full promised value of “alternative benefits,” in that they are failing to ensure different annuity options made available in a retirement plan are actuarially equivalent to the plan’s default benefit, as required by ERISA.

The Huntington Ingalls complaint states that the defendants calculate an annuity conversion factor—and thus the present value of the non-single life annuities—for the legacy part of their pension plan using a so-called “1971 Group Annuity Mortality Table.” Beyond projecting that both men and women will live shorter lives in retirement compared with newly prepared tables, the 1971 table assumes 90% of the company’s employees are male and that 90% of contingent annuitants are female—all while using a 6% interest rate.

“Using the 1971 table, which is based on data collected roughly 50 years ago, depresses the present value of non-single life annuity [SLA] annuities, resulting in monthly payments that are materially lower than they would be if defendants used reasonable, current actuarial assumptions,” the complaint alleges. “By using outdated mortality assumptions to calculate non-SLA annuities under the legacy part, defendants improperly reduce plaintiff’s benefits.”

The ruling observes that life expectancy and interest rates change over time—facts to which both the plaintiffs and the defendants readily consent—and that a straightforward and plain reading of the statute and regulations stipulates that ERISA fiduciaries must use “reasonable” data to ensure that beneficiaries are receiving benefits that are equivalent to a single life annuity.

“The use of mortality data that is over 40 years old could, plausibly, be unreasonable,” the ruling states. “Further, hearing this case on the merits will not require [us] to sit as a legislature. The legislature has already spoken on this issue. The question is whether defendants complied.”

The new ruling goes on to state that the fact that the 1971 table is listed in certain tax laws and regulations as a “standard mortality table” does not make it a reasonable table to calculate plaintiffs’ benefits. Further, the decision concludes, although reasonableness is a range, not a point, that fact does not mean that plaintiffs have not pleaded a case. Thus, plaintiffs’ allegations are not deemed conclusory and rise to the plausibility standard.

The full text of the ruling is available here.

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Categories: Industry News

Retirement Industry People Moves - Fri, 2020-02-21 13:00
National Sales Director Joins Aspire

Aspire Financial Services LLC has hired Matt Drummond as national sales director, Individual Accounts

Drummond reports to Pete Kirtland, CEO of Aspire, a division of PCS Retirement LLC. In this role, he is responsible for growing Aspire’s position in this marketplace while driving additional product innovation.

Drummond began his career in the financial services industry in 2001 as an AXA Advisor financial consultant for public school employees. In 2010, he moved into a role focused on helping AXA grow its tax-exempt markets across the country. Most recently, Drummond was managing director, head of Tax-Exempt Sales and Business Development for AXA Equitable and was responsible for sales, government relations, key accounts and strategy.

Aspire is a provider of retirement plan solutions in the individual tax-exempt retirement plan market with a focus on 403(b) and 457 plans.

“I am thrilled to join the PCS|Aspire team. Their low-cost, fee transparency and adviser-friendly platform are features that I have always admired. Aspire is in a wonderful position to help reshape the non-ERISA [Employee Retirement Income Security Act] retirement plan market and I am proud to be a part of it,” Drummond states.

HealthSavings Administrators Appoints Exec to Expand HSA Traction

HealthSavings Administrators, a health savings account (HSA) provider, announced the appointment of Britt Trumbower as senior vice president of sales.

With decades of experience in the consumer-directed health plan (CDHP) space, Trumbower will help lead HealthSavings’ continued mission to increase HSA traction and help people save tax-free for a healthy, happy future.

Having earned both Advance Chartered Benefits Consultant (A.C.B.C.) and HSAe designations, Trumbower brings extensive knowledge of private- and public-sector benefits initiatives and CDHPs to his new role at HealthSavings. As senior vice president of sales, he will be responsible for cultivating deeper relationships with strategic partners and growing the company’s market reach. 

Prior to joining HealthSavings, Trumbower served as a regional sales director at HealthEquity, where he established and grew HSA adoption with brokers, partners and large employers in the New York region.

Trumbower earned his bachelor’s degree in business administration from Bloomsburg University.

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Categories: Industry News

Extending Financial Wellness Into Retirement - Fri, 2020-02-21 12:29

U.S. employees’ financial well-being has improved, but many still live paycheck to paycheck, overspend and remain worried over the future state of their finances, according to a survey of 8,000 U.S. employees by Willis Towers Watson.

The Global Benefits Attitudes Survey found 43% of U.S. workers are satisfied with their financial situation, an increase from 35% in 2017. Employee satisfaction with their finances has now recovered to levels seen between 2011 and 2015. Additionally, four in 10 (42%) say their financial situation has improved over the past two years, and nearly six in 10 (58%) believe their finances are heading in the right direction.

However, the survey also revealed 70% of employees are saving less for retirement than they think they should. Nearly two-thirds (64%) believe their generation is likely to be much worse off in retirement than that of their parents.

Charles Schwab research findings show that these pre-retirees are nearly as anxious about what the future looks like as the present, with 65% feeling overwhelmed by saving enough now for retirement and 52% feeling overwhelmed by how they will ultimately manage their different income sources once they take the leap into retirement.

Many of the things people on the cusp of retirement are concerned about are similar to issues addressed in employer financial wellness programs regarding current finances, including:

  • Managing different income sources and accounts in retirement (52% of pre-retirees are worried);
  • Knowing how to invest (50% find it difficult); and
  • Managing unexpected expenses (59% find it difficult).

Pre-retirees also find managing the tax implications of withdrawing from multiple accounts (54%) and projecting how long their savings will last (57%) difficult.

The question is, how do employers extend the financial wellness theme into retirement? That is, how can financial wellness confidence today translate into confidence about retirement?

Addressing Current Issues

In its report on findings from its Driving Plan Health study, Principal says, “Putting in the time now to support retirement income planning needs may pay off as it’s likely to become even more critical as later generations transition into retirement with diminished expectations of relying on pension or Social Security.”

The study found nearly one-third of pre-retirees are not participating in their 401(k) plans. Of those who do, less than half save 10% of their income, including the employer match. However, Principal finds that to overcome the gap between those workers who want to use their 401(k) plans for retirement and those who really do, there are ways plan sponsors can help pre-retirees. Plan design provides the foundation for improvements, supported by educational materials in the form of participant communications and online tools and resources, it says.

Influential plan design features include automatic enrollment with a re-enrollment feature, default deferral rates of 6% or more, a diversified investment option default such as a target-date fund (TDF) and optimizing the employer match formula to encourage employee contributions of 8% to 10%.

According to the Principal study, employer match remains a significant driver of participation, especially among older workers. Total employer contribution is about 20% more strongly associated with participation rates among pre-retirees than overall participant population.

In addition, digital plan design tools encourage participants to plan and save more. Thirty-five percent of respondents say they interacted with an online calculator to explore the effect of making changes. Of those, 46% changed their deferral rate during that same online session.

Shane Bartling, senior director, retirement, Willis Towers Watson, based in San Francisco, says a struggle with controlling spending is at the heart of current financial wellness efforts crowding out the ability to save for retirement.

He notes that the top tools for financial wellness tend to be for budgeting and modeling for long-term retirement, but the research is showing those tools, while they may help to inform participants, don’t necessarily help to resist urges to spend, especially when people have high amounts of stress and a lack of social connections. “Difficulty in planning and being thoughtful about how to spend and to avoid urges to spend on things that make you feel better is very human,” Bartling says. “Perhaps the biggest mistake made in financial wellness programs is expecting humans to be logical. Especially under stress, we don’t behave in logical ways.”

He adds that the implications for how plan sponsors present their wellness solutions and design retirement plans are significant. “When we looked at the portion of survey respondents that have higher confidence in their finances, across the board they indicated they have more supportive social connections and a broad array of employer resources. The takeaway for employers is employees can’t hear supportive messages from too many people or in too many different ways,” Bartling says.

He adds that another key implication would be that financial wellness programs should at some point shift focus away from traditional budgeting and education techniques to much more powerful in-the-moment approaches—approaches that are emotionally impactful and easy to understand.

For example, Bartling says employers could send a targeted message about tax refunds—using the money to pay off debt or establish an emergency savings fund rather than upscaling one’s lifestyle—and a tool to help employees do so quickly. “It may be less rewarding in the short term but can vastly improve an employee’s financial situation. And it can make employees feel better about resisting the urge to spend on lifestyle,” he says.

Addressing Future Worries

Good savings and spending habits employees learn during their working careers can be carried over into retirement years.

Nathan Voris, managing director of strategy at Schwab Retirement Plan Services in Richfield, Ohio, notes that the retirement plan industry has made big strides in financial well-being, but, by and large, education and programs are still focused on debt, budgeting and emergency savings so people can become a retirement saver. “Financial wellness is still so much accumulation-driven. But let’s assume we’ve done that well. What happens at age 60 when people start to think about how to replace that paycheck they’ve been getting for 40 years?” he queries. “We’ll still haven’t cracked the nut on extending the financial wellness theme into decumulation.”

Voris says Schwab’s view is that it’s a very personalized and customized process. He says the majority of employees today are going to see from calculators that they are vastly underprepared for retirement and need to save more, make compromises and plan for how to live on potentially less. Voris says it often takes the guidance of another human to help employees with a customized plan and give them confidence in their financial future. This should be blended with scalable, low-cost tools to meet pre-retiree challenges.

An example of a tool to help pre-retirees is Schwab’s in-plan third-party advice and managed account engine. At the age of 55, the user experience starts to pivot toward decumulation rather than accumulation. The tool gives sustainable spending suggestions across an individual’s “buckets” of potential income—Social Security, in-plan savings, out-of-plan savings—and provides an individual with a guide for how to withdraw from a combination of taxable, tax-deferred and Roth-enrolled accounts in a tax-smart and efficient way.

“Employers also need to connect pre-retirees to the right person as a resource—an adviser or expert in guaranteed income, for example,” Voris says.

And the Schwab study found particular education is needed for pre-retirees. Some plan sponsors have reported they offer special events or resources for people nearing retirement, and Voris says Schwab’s own sessions for pre-retirees are very well-attended.

According to the Schwab study, 70% of pre-retirees know nothing/not a lot about required minimum distributions (RMDs), and the same percentage know nothing/not a lot about the tax implications of retirement account withdrawals. Nearly half (48%) are worried about paying too much for advice on managing retirement income. “The key is teaching them to translate education into action,” Voris says.

As for pre-retirees’ concerns about managing unexpected expenses, Voris says that tenant of financial wellness applies throughout life. The idea is a retiree will have “buckets” of retirement savings and one will only be touched in an emergency.

He says people who have developed the habit of saving and investing in life will likely continue that into retirement. “We’ve seen plenty of folks who have more money at age 80 than at age 60,” he notes.

Managing money in retirement is a complex topic and in-plan solutions are definitely growing, but Voris says there is a need to use outside solutions.

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Categories: Industry News

Reasons to Communicate Regularly With Employees About Retirement - Fri, 2020-02-21 06:00

A lot has been written about employees’ financial stress and how it affects their productivity and your organization’s profitability. Fortunately, when it comes to retirement planning, many plan sponsors have made saving for retirement easier than ever before. Features such as auto-enrollment and auto-escalation help people save money and increase their savings over time. Even target-date funds offer auto-investing to help people’s money stay diversified.

But will a set-it-and-forget-it approach really help your employees feel more confident about their financial well-being? Probably not. Communicating with your employees year-round, however, will help them get the most from your plan. Here are five reasons why.

1. Reiterating the value of your retirement benefits will help people appreciate them.

The more you communicate with your employees about their financial benefits, including retirement, the more likely they’ll be aware of what their benefits actually are. All too often, plan sponsors work hard to design and review their retirement plans, investments and other planning tools, but information about the features of the plan are buried in hard-to-read plan documents. If you want people to appreciate the benefits available to them, you have to remind them what those benefits actually are—and why you even offer them in the first place.

2. Your employees’ lives are constantly changing.

People need to know where to find information about their benefits—optimally, your benefits website. But first you need to get them in the habit of going there. And you do this through push communications—messages you send out, such as emails, home mailers and social media posts, among others. Through push communications, you build awareness of how and where to find information when it’s needed. This is crucial for employee benefits. Needs can change quickly. When they do change, you want employees to be in the habit of going to your benefits website for the information they need. This will help them feel empowered and supported, and they’ll appreciate your benefits more as a result.

3. Repetition builds financial acumen.

Retirement planning is complicated. It requires us to think about topics we’d often prefer to avoid, including aging, money and death. That’s precisely why it’s important to start engaging with employees on retirement planning early on—and to do so often. Ask employees to do just one thing at a time—such as reviewing how much they’re saving or how they’re invested. Align these communications with events in their lives or times of year when finances are top-of-mind, such as when your organization offers annual pay increases or when annual contribution limits are increased. Not only can this help ingrain healthy habits, but it can also help your employees build their financial capability.

4. People are super busy and super distracted.

It’s no secret that we’re oversaturated with information and pressed for time. So how do you compete for your employees’ attention? Take a page from consumer marketing and apply the rule of seven. This concept refers to the number of times someone needs to receive a message before they decide to make a purchase. And while you aren’t necessarily trying to get employees to buy something, you’re often trying to get them to take action. But you’re competing with technology, which allows marketers to send repeated, sophisticated and targeted communications in just one day alone. So it now takes even more efforts to get your message to resonate with employees.

5. Reminding employees why they’re saving may help prevent them from cashing out their accounts or withdrawing too early.

Enrollment and investing can require little input from employees if they’ve been auto-enrolled into your plan’s default fund. You need to make sure they understand what you’re trying to help them accomplish—creating a source of income for when they eventually stop working. One of the new requirements within the SECURE [Setting Every Community Up for Retirement Enhancement] Act—including lifetime income estimates in annual statements—should help with this. But you’ll want to connect people’s emotions to the purpose of their retirement account, so it doesn’t become a source of ready money when they need cash. You’ll also want to remind your employees of the broad array of benefits you offer to help them manage their financial well-being—from discounts to health savings accounts to subsidized child care and more. Helping employees save in other areas could free up some much-needed cash and prevent them from raiding their retirement accounts and missing out on the value of compounding.

Communicating regularly to employees about retirement and other financial benefits has lasting advantages for employees and your organization. It will help ensure employees get the most from the resources you provide and can help them—and their families—value what you offer, while simultaneously reducing their financial stress and helping them—and your organization—thrive.


Megan Yost is a vice president and engagement strategist at Segal Benz, a provider of human resources and employee benefits communications. Contact her at

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

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Categories: Industry News

Friday Files – February 21, 2020 - Fri, 2020-02-21 03:30

Stages of eating ice cream, secret life of pets, upping the dad game, and more.

What would you think if you logged on to your financial account and saw a zero balance? If you have a retirement or other account with Fidelity Investments, you may have been one of those who panicked Wednesday when its website said you had $0 in your account—or had no account at all. Multiple news reports say Fidelity reported technical issues which are resolved now.

In Croydon, New Hampshire, the town board voted to eliminate its one-man police department and move to 100% coverage by the New Hampshire State Police. The police chief, who was at the meeting, was told to turn in the key to his cruiser, his guns and his uniform immediately. According to the Associated Press, he went into an office he shared with town officials and took off his clothes before the board chairman. He said that as he took off his clothes, the board chairman said he didn’t have to do that. But the police chief said those were the orders. He didn’t have spare clothes or a ride home. He walked nearly a mile in a snowstorm before his wife picked him up.

In Bern, Switzerland, Swiss President Simonetta Sommaruga is turning 60 on May 14 and has invited all Swiss citizens who share her birthday to her party. The AFP says there were 94,372 births in Switzerland in 1960—the year Sommaruga was born—meaning that the average maximum number of invitees would be around 258. Prospective celebrants must submit a copy of their passport through the presidency website. The location of the party is not being disclosed publicly.

In Bellefonte, Pennsylvania, a 68-year-old man is facing a host of criminal charges as police say he was under the influence while trying to flee from them. The police chase took a while because police say the suspect was driving so slowly. According to police court testimony, the man was driving while high on marijuana and kept driving for 15 miles with seven police cars involved before he was halted with stop sticks deployed on the roadway. According to the local NBC News station, police say after the man was stopped, he said “all this for just a DUI and smoking a little marijuana. I hope you are happy with yourself.”

The stages of eating ice cream. If you can’t view the below video, try

The secret life of pets. If you can’t view the below video, try

This guy stepped up the dad game. If you can’t view the below video, try

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Categories: Industry News

Reliance Trust ESOP Lawsuit Clears Dismissal Motion - Thu, 2020-02-20 21:01

A new Employee Retirement Income Security Act (ERISA) lawsuit ruling has been issued in a case filed by the acting U.S. Secretary of Labor, alleging the Reliance Trust Co. violated the act’s fiduciary standards during its facilitation of an employee stock ownership plan (ESOP) transaction.

The order, issued in the U.S. District Court for the District of Arizona, sides against the defendants’ dismissal motion, which sought to bar the lawsuit based on a failure to state an actionable claim, per the Federal Rule of Civil Procedure 12(b)(6). In addition to the Reliance Trust Co., defendants in the case include a mix of individual, trust and corporate entities, including RVR Inc., a management consulting company that engaged its co-defendant, among other entities, to effectuate an ESOP transaction.

Collectively, RVR and the individual and trust defendants sought dismissal of five claims detailed in the underlying complaint, which alleges various failures and points of wrongdoing associated with sale of company stock to employees.

In sum, the Department of Labor (DOL) alleges that the individual defendants breached their fiduciary duty to monitor the plan trustee (i.e., Reliance Trust Co.), as imposed by ERISA; that the individual defendants are liable for Reliance’s breaches as co-fiduciaries pursuant to ERISA; and that the individual defendants are liable for their allegedly knowing participation in Reliance’s breaches of its fiduciary duty, regardless of their own respective fiduciary statuses. These specific alleged fiduciary breaches stem from the overarching allegation that Reliance, as trustee, caused the ESOP to pay “tens of millions of dollars too much” to the individual defendants for all of the then-outstanding stock of RVR. According to the DOL, the transaction which the individual defendants negotiated with the trustee resulted in them maintaining their positions as controlling officers and sole members of the board of RVR—despite the ESOP having allegedly paid a control premium for RVR.

For their part, the defendants argue that each of these three claims is infirm for the same reason—because the plaintiff has failed to allege sufficient facts that would show their knowledge that a certain ESOP transaction was illegal under ERISA.

As explained in the text of the ruling, in basic terms, a dismissal under Rule 12(b)(6) for failure to state a claim can be based on either the lack of a cognizable legal theory or insufficient facts to support a cognizable legal claim. At the same time, when analyzing a complaint for failure to state a claim for relief under Federal Rule of Civil Procedure 12(b)(6), well-pled factual allegations are taken as true and construed in the light most favorable to the nonmoving party—though legal conclusions couched as factual allegations are not entitled to the assumption of truth.

In reasoning through the factual allegations in this case, the District Court has determined that dismissal at this early stage would be inappropriate. Its rationale is explained as follows: “From these allegations, taken as true and viewed in the light most favorable to plaintiff, the court can draw an obvious inference that the individual defendants, controlling RVR and its actions and communicating directly with trustee Reliance and appraiser SRR, controlled and therefore knew of the information both Reliance and SRR received in valuing the company and evaluating the fairness of stock price for the plan. … The court can infer that defendants knew how the information was being used and the price their shares ultimately would fetch. And the court can infer from the allegations that the individual defendants, as the senior officers, sole directors and sole shareholders of RVR, knew its approximate value at least.”

The decision continues: “The court can infer from the allegations that the transaction was rushed and completed according to the individual defendants’ dictated timeline, that there was inadequate review and scrutiny of the transaction by the trustee and its agent appraiser. These inferences, drawn from the allegations in the complaint, would establish the actual knowledge of circumstances demonstrating breach by the trustee. The allegations are thus adequate to state a claim for breach of a fiduciary’s duty to monitor. Whether the evidence ultimately developed supports these allegations and inferences at the summary judgment stage or at trial is a wholly different question and one this court does not approach.”

The same explanation is given for why the other claims should proceed, and, in closing, the ruling states that RVR is a necessary party to these proceedings and therefore cannot be dismissed as a defendant.

The full text of the ruling is available here.

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Categories: Industry News

Court Advances Suit Regarding Delta Air Lines’ Offset of Pension Benefits - Thu, 2020-02-20 14:13

A federal judge has denied dismissal of a lawsuit in which five former employees of Delta Air Lines allege Delta and its administrative committee improperly reduced their pension benefits from the Northwest Airlines Pension Plan for Contract Employees.

According to the court order, while employed by Delta, the plaintiffs suffered workplace injuries and filed claims for workers’ compensation benefits under Minnesota law. Delta settled these claims, paying each plaintiff a single lump sum. The plaintiffs have since retired and begun to receive their pensions. Citing a provision of the plan that requires Delta to offset pensions by the amount of other income-replacement benefits, Delta has reduced each plaintiff’s monthly pension by an amount calculated in his workers’ compensation settlement agreement.

Relevant points in the case include that although the agreements calculated the settlement amount from each plaintiff’s potential entitlement to permanent total disability benefits, not all the plaintiffs claimed they qualified for permanent total disability. The settlement agreements were structured to take into consideration the plaintiffs’ potential entitlement to disability benefits under the Social Security Act, which provides Social Security Disability Insurance (SSDI) to qualified individuals.

Also, Delta notified each plaintiff that it was reducing his monthly pension benefit “to account for workers’ compensation benefits paid to [him] due to loss of wages with respect to a period of time after age 65.”

In her order, U.S. District Judge Joan N. Ericksen of the U.S. District Court for the District of Minnesota noted that the 8th U.S. Circuit Court of Appeals assesses five factors when deciding whether an Employee Retirement Income Security Act (ERISA) administrator interpreted a plan reasonably: (1) whether the interpretation was consistent with the goals of the plan, (2) whether the interpretation renders any language of the plan meaningless or internally inconsistent, (3) whether the interpretation conflicts with the substantive and procedural requirements of ERISA, (4) whether the words at issue were interpreted consistently, and (5) whether the interpretation is contrary to the clear language of the plan.

The committee argued that because the lump sums “represent” a monthly payment for the rest of each plaintiff’s life, they are equivalent to retirement income. For example, in plaintiff Leighton’s settlement agreement, his lump sum of $52,000 “represents” an amount of $225.81 per month for the rest of his life. The committee determined that it should deduct $225.81 per month to avoid Leighton receiving both his pension and that additional income each month. The committee performed a similar reduction for all five plaintiffs.

Ericksen said one problem with this reasoning is that the plaintiffs agreed to a single payment, not an income stream that would supplement their pension. In other words, they are not receiving a monthly workers’ compensation entitlement in addition to their monthly pension. She pointed out that the plaintiffs’ entitlement to workers’ compensation actually was never determined because the parties settled without stipulating to liability.

In addition, Ericksen found that the settlement calculations do not reflect the type of workers’ compensation entitlement claimed by each plaintiff. For example, although Leighton only claimed to be entitled to “temporary partial disability,” the stipulation calculated his settlement based on his potential entitlement to “permanent total disability.” She noted that had the calculation reflected his claim, it would have calculated the payments based on his potential entitlement to temporary partial disability. “This mismatch between the payment calculation and the underlying claim suggests that the calculation was made for some purpose other than to create a periodic workers’ compensation entitlement,” she wrote in her order.

Ericksen found that the stipulations made a monthly calculation to account for SSDI payment offsets and to maximize the plaintiffs’ pre-retirement SSDI income. They did not unfairly supplement the plaintiffs’ monthly pensions. Therefore, the committee’s decision to deduct the “represented” monthly payment did not support the plan’s goal of preventing duplicative retirement income. Instead, it reduced the plaintiffs’ pensions by an amount calculated to accommodate SSDI benefits.

Regarding the second factor in the 8th Circuit’s assessment, Ericksen said the committee’s interpretation of the plan renders the term “periodic” meaningless. The plan defines workers’ compensation benefits as “any periodic benefit payable.” The committee argues that because the one-time lump-sum payment settles a claim for a periodic benefit, that one-time payment is also periodic. “Under this reading, any settlement for a workers’ compensation claim would be periodic, making the phrase ‘periodic benefits payable’ identical to ‘benefits payable’ and rendering the word ‘periodic’ meaningless. This factor weighs in favor of plaintiffs,” Ericksen wrote in her order.

She did find that nothing in the committee’s interpretation appears to conflict with the substantive or procedural requirements of ERISA. The statute allows employers to determine what, if any, pension benefits they offer and to offset pension amounts by other income streams. An offset is valid under ERISA if it is authorized by the plan. Therefore, she said this factor weighs in favor of the defendants.

Ericksen found the fourth factor also weighed in favor of the defendants. Based on the administrative record, the committee and Delta appear to have consistently interpreted the plan language to require an offset for lump-sum workers’ compensation settlement payments.

However, she found the committee’s interpretation violates the clear language of the plan by concluding that a settlement payment is the same as a payable workers’ compensation benefit. The committee defined payable as something “that may, can or must be paid,” and argued that because Delta paid the settlement, the underlying workers’ compensation benefit was something that “can” be paid. Despite this assertion, a payment made to settle a legal claim is not the same relief as the payment Delta would have owed had the plaintiffs ultimately succeeded in their workers’ compensation actions.

“Because Delta challenged plaintiffs’ workers’ compensation claims and the parties stipulated to the dismissal of those claims, the underlying benefit was never ‘payable.’ … Nothing in the plan contemplates workers’ compensation settlements and nothing in the stipulations contemplates the pension plan. This mutual silence suggests that nothing in the clear language of either document supported the committee’s conclusion. Therefore, this factor weighs in favor of plaintiffs,” Ericksen wrote.

Based on the record before the court, Ericksen concluded that the committee did not reasonably interpret the plan and denied the defendants’ motion with respect to the plaintiffs’ ERISA Section 502(a)(1)(B) denial of benefits claim.

However, she agreed with the defendants’ argument that the plaintiffs’ ERISA Section 502(a)(3) claim for equitable relief should be dismissed because it is duplicative of their claim for benefits. Ericksen noted that ERISA Section 502(a)(3) permits actions against fiduciaries who breach their fiduciary duties, and although the plaintiffs may not ultimately obtain duplicate recoveries under both Section 502(a)(1)(B) and (a)(3), they can plead alternate theories of liability under both provisions. “Breach of fiduciary duty and wrongful denial of benefits are distinct causes of action so a plaintiff may pursue both under ERISA,” she said.

The plaintiffs allege that the committee denied their claims because it consulted with the Workers’ Compensation Department, a party alleged to have an interest adverse to participants. But Ericksen found that this allegation fails to state a claim for breach of fiduciary duty because the plan and federal regulations require the committee to apply the plan provisions consistently to similarly situated claimants. In order to fulfill that obligation, the committee had to communicate with the department that offsets employee pensions to learn about its past practices. The committee also had a fiduciary obligation to follow these plan requirements. “While it is theoretically possible that the committee made its decision for the purpose of putting Delta’s financial interests over the interests of the beneficiaries, plaintiffs failed to plead facts that support such an inference. Therefore, plaintiffs failed to state a claim for breach of fiduciary duty,” Ericksen wrote. She dismissed the plaintiffs’ ERISA claim for equitable relief.

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Categories: Industry News

SECURE Act Guaranteed Income Safe Harbor Provides Assurance to Plan Sponsors - Thu, 2020-02-20 13:19

During a webinar sponsored by Faegre Drinker called “The SECURE Act: A Discussion of the Safe Harbor for Selecting Guaranteed Income,” ERISA [Employee Retirement Income Security Act] attorneys from the law firm spoke about how the legislation could pave the way for retirement plans to offer guaranteed products—but also aspects of the bill that could be a concern for sponsors and advisers.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act has a checklist of factors sponsors should consider when selecting an insurance carrier to offer a guaranteed lifetime income product, said Bruce Ashton, a partner with the Employee Benefits and Executive Compensation Practice Group at Faegre Drinker. Ashton said he expects that insurance carriers will have this information ready for any prospective customer.

The information covers such things as “[if] they are licensed to offer guaranteed income products; that at the time of the selection of the product and in the immediate years following, it operates under a certificate of authority in the state where it is located; that it has filed all of its audited statements; that it has all of the required reserves; and that it is not operating under an order of liquidation,” Ashton said.

In addition, the carrier must undergo an examination by its state insurance commission at least every five years, he continued. “And they must ensure that they will notify plan sponsors of any changes in these representations,” Ashton said.

In addition to this, plan sponsors are required to attest that “after receiving these representations from the insurance company and before making any decision with respect to selecting a contract, that they have not received any adverse notice to suggest the representations are not true,” Ashton said.

These representations relieve plan sponsors from having to “delve into the financial status” of a carrier, he said.

The best way for sponsors to assess this information is with the help of a retirement plan adviser specialist, Ashton said.

This checklist should be a relief to plan sponsors that want to offer guaranteed income products because it provides real clarity on how to assess carriers, said Brad Campbell, a partner with Faegre Drinker. “The safe harbor that the DOL [Department of Labor] issued on guaranteed income products in 2008 to sponsors was, ultimately, not useful because it was too difficult for them to know if they were within the conditions that needed to be met to know that the carrier would be able to carry out the contract,” Campbell said. “The DOL received a long series of complaints that this safe harbor was too nebulous and did not enumerate who to hire to assess a carrier’s solvency.”

On top of this, when the financial crisis of 2008 occurred, “the validity of the rating agencies was called into question,” Campbell continued. The SECURE Act “provides clarity,” he said.

However, Ashton said, before asking for the checklist from a prospective carrier, sponsors first need to investigate the various carriers and products in the market.

In addition to concentrating on the marketplace overall and the solvency of the carrier, sponsors and advisers must find a product that has a reasonable cost, Campbell said. The best way to get a good handle on costs is to issue requests for proposals (RFPs) to seven to eight carriers, he suggested. As with all other fiduciary decisions related to a retirement plan, the key is to “show a process and document it,” Campbell added. In his experience, guarantees wrapped around target-date or balanced funds range from 60 to 100 basis points.

Besides RFPs, “benchmarking reports will be an important element of comparing the different costs in relation to product features and services,” Ashton said. “GMWB [guaranteed minimum withdrawal benefit] products all have different features. It is important not only to look at the cost but what you are getting for that cost, which is where a benchmarking service would be extremely useful for advisers.”

Sponsors and advisers should also be comforted with the added assurance that recordkeepers, in the interest of protecting their own companies and brands, will perform due diligence on insurance carriers on their own, said Fred Reish, a partner and chairman of the Financial Services ERISA Team at Faegre Drinker.

And the SECURE Act is not the final answer on offering guaranteed lifetime income products in retirement plans, Campbell said. As new products and solutions come to market, this will “put pressure on DOL and other regulators to allow QDIAs [qualified default investment alternatives] to accommodate these products.”

As to whether the SECURE Act will result in retirement plans offering in-plan annuities and other guaranteed lifetime income products, Ashton said he expects that will eventually happen, but in the near term, both sponsors and participants will need to be sold on the idea of owning an annuity.

Josh Waldbeser, a partner with Faegre Drinker, agreed, saying, “It’s a step in the right direction, but there is still a lot of work to be done. There is still a lot of mistrust of annuities and insurance companies and a lack of understanding of their benefits, among sponsors and participants.”

Ashton said that to get sponsors and participants on board, it will take first convincing advisers of the benefits of annuities, since they are “the gateways to retirement plan committees. If I were in the insurance industry and I had a really good product that was high quality and institutionally well-priced, I would spend time now educating retirement plan advisers about these benefits.”

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Categories: Industry News

Investment Product and Service Launches - Thu, 2020-02-20 12:12
American Beacon and Asset Management Firm Launch Bond Fund

American Beacon Advisors Inc. has launched the American Beacon TwentyFour Short Term Bond Fund (A Class: TFBAX; C Class: TFBCX; Y Class: TFBYX; R6 Class: TFBRX). The fund’s shares became available on February 18.

American Beacon serves as the manager of the fund, while TwentyFour Asset Management (US) LP serves as the sub-adviser. TwentyFour is a boutique investment firm specializing in fixed-income strategies for institutional and high-net-worth investors.

The fund’s objective is to seek a positive return based on a combination of income and capital growth. The investment team of the fund takes a genuine long-only approach, with an unlevered bond strategy, designed to keep volatility low. 

“We look forward to working with American Beacon to support this new fund, especially at a time when yields are low, volatility is likely to rise and investors are looking to improve risk-adjusted returns,” says Mark Holman, CEO of TwentyFour Asset Management. 

The American Beacon TwentyFour Short Term Bond Fund is the second American Beacon investment product sub-advised by TwentyFour; the American Beacon TwentyFour Strategic Income Fund launched in 2017.

Hartford Funds and Wellington Management Release ETF

Hartford Funds has launched Hartford Core Bond ETF (CBOE: HCRB), a new exchange-traded fund (ETF) sub-advised by Wellington Management, which seeks to provide long-term total return by investing primarily in investment-grade fixed income securities. HCRB expands the firm’s product suite to five actively managed fixed income ETFs.

HCRB is designed to provide investors with fixed income exposure from diversified sources of return across multiple perspectives, investment styles and time horizons, including U.S. government, credit and securitized instruments. The fund seeks to achieve its objective by investing primarily in investment-grade fixed income securities. 

“Hartford Core Bond ETF is designed to satisfy an increasing investor appetite for high quality core bond offerings, especially in ETF vehicles,” says Ted Lucas, head of Investment Strategies and Solutions at Hartford Funds. “With the prospect of increasing market volatility, we believe this offering is particularly relevant for investors seeking options that aim to provide returns while managing risk.”

Joseph Marvan, Campe Goodman and Robert Burn, the same portfolio management team that sub-advises Hartford Total Return Bond ETF (NYSE: HTRB) and similar mutual fund products, will serve as portfolio managers of the Hartford Core Bond ETF. HCRB’s estimated current expense ratio is 0.29%.

Vanguard Announces Lower Expense Ratios on Select ETFs

Vanguard has reported lower expense ratios on four ETFs, including the $8.3 billion Vanguard Extended Market ETF, the $21.9 billion Vanguard Short-Term Bond ETF, the $12.6 billion Vanguard Intermediate-Term Bond ETF, and the $4.8 billion Vanguard Long-Term Bond ETF. Vanguard also reported lower expenses on three mutual fund share classes of Vanguard Extended Market Fund.

In aggregate, these changes represent $12.9 million in savings returned to investors, bringing the total 2019 fiscal year client savings to $85.1 million. The accompanying table shows a full list of expense ratio changes by fund.


Fund Name

2018 Fiscal Year End Expense Ratio

2019 Fiscal Year End Expense Ratio

Change (in basis points)

Short-Term Bond ETF




Intermediate-Term Bond ETF




Long-Term Bond ETF




Extended Market ETF




Extended Market Index Fund Admiral




Extended Market Index Fund Institutional




Extended Market Index Fund Institutional Plus





According to Vanguard, the 2018 expense ratios listed above reflect figures published in each fund’s last annual report and prospectus. Updated 2019 figures will not be reflected in the funds’ online profiles until each fund files its next prospectus.

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Categories: Industry News

DST Systems Lawsuit Defendants Move to Disqualify Plaintiffs’ Attorneys - Thu, 2020-02-20 12:01

Defendants in a lawsuit questioning the fiduciary prudence of investing DST Systems Profit Sharing Plan assets in the Sequoia Fund, distributed and advised by Ruane, Cunniff & Goldfarb & Co. have asked that the counsel for the plaintiffs be disqualified.

A Memorandum of Law in Support of the DST Defendants’ Motion to Disqualify Conflicted Counsel says the plaintiffs’ counsel concurrently represent approximately 420 participants in the DST Systems Inc. 401(k) Profit Sharing Plan together with three plan fiduciaries whom they allege in these and other actions committed a series of Employee Retirement Income Security Act (ERISA) violations that caused losses to the plan accounts of their other clients. “In other words, plaintiffs’ counsel represent three individuals that they accuse of wrongdoing at the same time as they represent the supposed victims of that very alleged wrongdoing,” the memo states.

“Neither the law nor ethical rules permit plaintiffs’ counsel to represent at the same time the adverse interests between, on the one hand, non-fiduciary plan participants and, on the other, the interests of the plan fiduciaries whose decisions plaintiffs’ counsel allege violated ERISA,” the memo argues.

The plaintiffs alleged in their lawsuit that a portion of the plan’s assets are invested in the DST Systems Inc. Master Trust. The investment manager of the Master Trust was and/or is defendant Ruane, Cunniff & Goldfarb & Co. Inc. DST disclosed that, in contravention of the fiduciary obligations owed by those with discretion and control over the profit sharing plan, it was not properly diversified. In fact, rather than minimize the risk of large losses to the plan, the complaint said, the plan’s fiduciaries caused and/or allowed plan assets to be invested imprudently in the stock of Valeant Pharmaceuticals International Inc.

According to the complaint, at the end of 2014, approximately 30% of the profit sharing plan consisted of Valeant stock, which constituted a clear breach of the defendants’ duty to diversify plan assets in an appropriate and prudent manner. The complaint also said that not only did the DST Defendants retain Ruane, they continued to follow Ruane’s advice, knowing that such advice was flawed and unsuitable.

The memorandum in support of the motion to dismiss plaintiffs’ counsel says they represent three former members of the DST Advisory Committee—the named fiduciary of the plan. And its members owed fiduciary duties to plan participants, including the plaintiffs’ counsel’s other clients, to oversee the plan in the best interests of the participants. The memo points out that all the alleged conduct occurred during the period between 2010 and 2013 when the plaintiffs’ counsel’s clients served on the Advisory Committee.

However, the plaintiffs’ counsel now assert that their claims are supposedly limited to “breaches occurring in or after 2014”—three months after the last of their three clients ended their service on the Advisory Committee. Yet, the memo says, the complaint obviously alleges “misconduct that began and continued prior to 2014—whether the selection and retention of Ruane, supposedly excessive fees, the investment strategy employed by Ruane or the Valeant investment itself—during the time when plaintiffs’ counsel’s clients were plan fiduciaries.”

The defendants say that, far from justifying their conflict, the plaintiffs’ counsel’s effort to time-limit their claims highlights the disqualifying nature of their conflict. That is, “if they abandon the pre-2014 allegations in their complaint, they are sacrificing the claims brought by certain of their clients in an effort to mitigate the impression that they are directly attacking the three former plan fiduciaries that they also represent. Sacrificing the apparent interests of one group of clients to favor another proves even more than the mere ‘appearance of representing conflicting interests’ that the Second Circuit has held warrants disqualification.”

The defendants argue that the plaintiffs’ counsel’s clients will suffer no prejudice from barring their counsel from continuing in their conflicted representation. They point out that there already are two representative actions before the same court featuring substantially similar allegations against the same defendants which seek to recover on behalf of all plan participants, including the individuals represented by the plaintiffs’ counsel in the present case.

“The lawyers in those cases—Department of Labor [DOL] attorneys and private lawyers representing the plan as a whole—do not suffer from the conflicts of interest that infect plaintiffs’ counsel’s representation. While the DST defendants believe that the claims asserted in all the actions are without merit, the only individuals who have a real interest in avoiding disqualification are plaintiffs’ counsel themselves—who seek to extract unnecessary and unmerited fees from clients whose interests already are being represented in other actions,” the memo states.

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Categories: Industry News

Public-Sector Employers Have Incentive to Keep Retiree Benefits Viable - Wed, 2020-02-19 14:48

Roughly half of public-sector employees surveyed (46%) are worried that the health care benefits they were promised in retirement will evaporate when they need them most, according to the 2020 Keeping Benefit Promises Study by Willis Towers Watson.

The public-sector employees expressed the importance of retiree health care coverage, with 58% saying it was extremely or highly influential in their decision to work in the public sector. In addition, a National Institute on Retirement Security (NIRS) Issue Brief says 78% of Millennials working in state and local government said their health care benefits is one reason they chose a position in the public sector. And if those benefits were cut, 77% say they would be more likely to leave their jobs.

In the Willis Towers Watson study, almost two-thirds (64%) of public-sector employees said their financial security in retirement depends on the promise of employer-sponsored health care coverage. Forty-one percent said they would give notice if their benefits were reduced, and more than half (54%) expect to be supported in retirement because they served their community.

However, the company notes that retiree health care is becoming an unsustainable financial burden on public-sector organizations, with state unfunded retiree health care liabilities nationwide reaching $700 billion. Many organizations are reacting by cutting retiree health care altogether or adopting short-term solutions, such as reducing spousal benefits or requiring more years of service to qualify.

“When balancing their budgets, public-sector organizations are stuck between a rock and a hard place,” says Jon Andrews, managing director, Benefits Delivery and Administration, Willis Towers Watson. “They do not want to increase taxpayer burden nor deprive employees of the benefits that initially attracted them to the job. The good news is a solution exists. Employers should consider an often-overlooked remedy: providing funding via a health reimbursement arrangement and allowing retirees to shop for health plans (with these funds) on the individual Medicare marketplace.”

Willis Towers Watson explains that the individual Medicare marketplace—or Medicare exchange—is a marketplace that provides affordable plan options for retirees through a defined contribution (DC) model while making retiree health care sustainable for plan sponsors.

According to the NIRS report, most Millennials in state and local government (80%) believe they could earn a higher salary working in the private sector. When it comes to retirement benefits, they said their retirement benefits are more competitive than salaries. Ninety percent see their public-sector retirement benefits as competitive.

Millennials working in state and local government are highly supportive of pensions. Nearly three-fourths of Millennials in state and local government (73%) indicated that pensions also are a significant reason they selected their job. Similarly, a high number of Millennials (84%) said a pension benefit is the reason they stay in a state and local government job. Most Millennials (85%) in state and local government said they plan to stay in their job until they retire or can no longer work.

Similar to health care benefits, most Millennials (71%) said cutting their pension benefits would make them more likely to leave their state or local government job.

The NIRS report notes that a few states have considered switching public employees from defined benefit (DB) pensions to defined contribution (DC) plans. However, the report recalls that some states did so and had to reconsider the change when they found costs were not lower and/or teachers were falling far short in their retirement savings targets. More than three-fourths of Millennial state and local employees (77%) said they prefer pensions over 401(k) accounts.

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Categories: Industry News

Prudential Adds Debt Management Services to Financial Wellness Offering - Wed, 2020-02-19 14:11

Recognizing the negative impact of household debt on long-term financial security and retirement readiness, Prudential is partnering with national nonprofit GreenPath Financial Wellness to introduce debt management advice and tools to its suite of workplace financial wellness solutions.

GreenPath offers a free session with a certified financial counselor to establish goals and explore debt repayment options. For a fee, employees or members who participate can also choose to enroll in a formal debt management plan designed to pay off outstanding balances in five years or less.

Nine organizations, including Prudential, have committed to the service, which continues to draw interest. It will be available to all institutional employers in the second half of 2020.

Prudential offers a broad suite of workplace financial wellness offerings, including solutions designed to help individuals plan for unexpected expenses and better manage debt. To learn more about Prudential’s workplace financial wellness offerings, visit

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Categories: Industry News

New Models Continue to Be Introduced for 403(b) Plans - Wed, 2020-02-19 11:37

Some players in the K-12 403(b) plan marketplace say the traditional model—in which plan participants have individual relationships with advisers and the majority, if not all, of their retirement savings is in individual annuity contracts or custodial accounts—needs a revamp.

This camp says the traditional model leaves plan sponsors with an unworkable number of retirement plan providers serving the same plan. Participants also have too much choice and responsibility for investments and providers, and investment costs to participants are higher.

These same arguments have been used in lawsuits that target university 403(b) plan sponsors. In addition, the Securities and Exchange Commission (SEC) and the New York State Department of Financial Services (NYDFS) are investigating annuity sales practices for 403(b) plans.

When 403(b) regulations were finalized in 2007, many 403(b) plan sponsors moved to consolidate vendors to make adhering to the rules less cumbersome. One way vendor consolidation is working in the K-12 public school space is through a consortium—a group that bands together to leverage quality and price of services.

For example, the Illinois Public Pension Fund Association (IPPFA) is a not-for-profit organization with the primary function of educating and training all Illinois public pension fund trustees. By leveraging the buying power of hundreds of public sector employers, IPPFA built a co-operative that public sector employers are able to join at no cost—the Wise Choice for Educators Combined 457(b)/403(b) Plan. In addition, the Florida Model Plan is a program designed to streamline 403(b) plan management for the more than 350,000 K-12 educators across the state.

Colleges and universities have also turned to multiemployer plans (MEPs) to streamline administration and create a better experience for participants. In 2016, Transamerica Retirement Solutions introduced the HigherEd Retirement Consortium, a 403(b) MEP. In 2018, 14 Virginia private colleges announced they were joining a newly created MEP with the expectation of reducing their administrative burdens and cutting costs while helping employees prepare for retirement. The schools are members of the Council of Independent Colleges in Virginia (CICV), an umbrella organization representing 28 private, nonprofit institutions.

The Council of Independent Colleges in Virginia was the first higher education MEP of its kind and is currently the largest. Now, Independent Colleges of Indiana (ICI), the state’s member association of 30 private nonprofit colleges and universities, is launching one of the largest 403(b) MEPs among private colleges in the United States.

The ICI MEP will include 12 institutions and cover more than 4,048 employees with $600 million in assets. The projected savings are estimated to reach nearly $500,000 each year.

Service providers for the ICI MEP are:

  • TIAA: plan record keeper;
  • PlanPilot: 3(38) fiduciary, plan investment adviser;
  • Pentegra: 3(16) fiduciary, taking on day-to-day plan management;
  • Millennium Advisory Services: participant education through individual and group meetings; and
  • ICI: staff will coordinate meetings and facilitate communications between MEP members and providers.

The ICI MEP will expand the plan in phases throughout the next year starting with two institutions—Indiana Tech and Manchester University.

The announcement of the Indiana MEP shows new 403(b) plan models continue to be introduced to meet the needs of plan sponsors and participants and in an effort to improve plan governance.

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Categories: Industry News

Vanguard Offers Equity Comp Services Integrated With DC Plan Portal - Wed, 2020-02-19 09:26

Vanguard has partnered with EQ, a shareholder services company, to provide equity compensation services to plan sponsor clients and their participants.

Employers will be able to seamlessly integrate their employee equity compensation plan with their existing defined contribution (DC) plan and provide participants with a one-stop platform designed to simplify administration, streamline transactions and inform financial decisions.

Plan sponsors who elect to add equity compensation services will benefit from EQ’s technology platform, which features real-time financial analysis, modeling tools and support of multiple languages and currencies, integrated within Vanguard’s existing participant web portal. Redesigned in 2017, Vanguard’s personalized online participant experience provides capabilities such as the Retirement Readiness Tool and Personalized Participant Journeys, which are intended to help participants balance their financial goals and save for the future.

“Our partnership with EQ underscores our mission of helping millions of individuals save for a secure retirement by providing participants with a comprehensive suite of tools they need to achieve their financial goals,” says Martha King, managing director of Vanguard’s Institutional Investor Group.

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Categories: Industry News

John Hancock Offers Emergency and College Savings Tools - Wed, 2020-02-19 03:30

John Hancock has introduced two tools designed to help solve the challenges of unexpected expenses and planning for and funding higher education costs, in an effort to help retirement plan participants work toward retirement readiness.

A national survey from the Federal Reserve reported that 40% of people can’t afford a $400 emergency expense such as a car repair or replacing a broken appliance, and John Hancock’s most recent Financial Stress Survey showed one-quarter of respondents had no emergency savings at all. 

Now, with the click of a button on John Hancock Retirement’s participant site, participants can create an emergency savings account. Once a savings goal is entered, the participant links his checking account and sets up weekly recurring deposits.

Participants can track progress toward the savings goal and are able to withdraw funds at any time with no fees. The company says this can help participants prepare for unexpected financial needs and may prevent them from tapping into their retirement account.

Patrick Murphy, CEO, John Hancock Retirement, tells PLANSPONSOR the emergency savings solution can be made available to all participants in retirement plans served by the company, but it is up to each plan sponsor client whether to make it available to their plan’s participants.

When it comes to college planning, while more than half of American households are currently saving for college, planning for college remains a top worry among parents, according to Sallie Mae. In addition, fewer than one-third of parents say they have the knowledge needed to guide their children through the application and decision-making process, an American Student Assistance report says.

The Education Planning Center, not affiliated with John Hancock, is also available on the company’s participant site and allows participants to estimate the costs of higher education and help define funding gaps in current savings strategies. The portal offers resources to help with college selection, scholarships and financial aid, navigation of the college application process and more. In the complimentary Education Planning Center, participants can:

  • Get expert step-by-step guidance based on the prospective student’s age;
  • Search for schools that best fit a student’s academic profile, and compare school details such as admissions and tuition costs;
  • Prep for standardized tests; and
  • Find scholarships.

“Everyone’s journey to retirement readiness is different,” says Sosseh Malkhassian, head of participant experience, John Hancock Retirement. “By offering resources that are easy to access and use, we’re making it easier for our participants to make well-informed decisions, manage multiple priorities and take action in their financial lives. And that sets them up to build and meet long-term retirement readiness goals.”

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Categories: Industry News

Brokers Being Asked to Do More to Cut Health Benefit Costs - Tue, 2020-02-18 13:53

Helping employees choose the right health benefit plan for their needs can result in cost savings for both employees and employers.

Findings of a DirectPath survey show benefits brokers are being relied on to help with the enrollment process, as 45% said their employer clients “highly rely” on them for help managing open enrollment. In particular, brokers said their employer clients are looking for more help with benefits communications (92% in 2020 versus 81% last year), engaging employees on benefits choices (87% vs. 80%), and selecting the right plans for employees (81% vs. 73%).

Brokers are also seeing an increased demand for personalized benefits education and enrollment and benefits communications services—97% and 96%, respectively, which are increases from last year.

“With benefits literacy at a low, it’s not surprising that benefits communications are a significant concern to employers. Benefits information needs to be conveyed using as much plain, easy to understand—which can be difficult when you consider all the technical jargon surrounding health insurance and other employee benefits language. And if benefits communications are confusing, it’s going to make it harder to engage employees on their benefits choices, since they won’t fully understand their coverage,” DirectPath says in its survey report.

But help with communications is not the only way employers are asking benefits brokers to help control costs. Eighty-three percent of brokers say clients “highly rely” on them to contain health care costs—an increase from 66% last year.

In addition, employers are demanding help from brokers in achieving better price transparency. Eighty-four percent of brokers are seeing moderate to high demand for transparency services, up from 74% last year. Sixty-two percent of brokers say they’re adding new product and service offerings to meet the increased demand for price transparency.

The survey results reflect a changing broker model. Seattle-based Dave Chase, co-founder of Health Rosetta, which promotes reforms for the U.S. health care system, says there is an ongoing move away from traditional benefits brokers to benefits consultants. He says employers should strive for a transparent broker relationship, high performance plan design and a good administrator of benefits, and he suggests questions employers should ask their benefits brokers.

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Categories: Industry News

Franklin Templeton Acquires Legg Mason - Tue, 2020-02-18 11:29

Franklin Resources Inc., a global investment management organization operating as Franklin Templeton, has entered into a definitive agreement to acquire Legg Mason Inc. for $50 per share of common stock in an all-cash transaction. The company will also assume approximately $2 billion of Legg Mason’s outstanding debt.

The acquisition of Legg Mason and its multiple investment affiliates, which collectively manage more than $806 billion in assets as of January 31, will establish Franklin Templeton as one of the world’s largest independent, specialized global investment managers with a combined $1.5 trillion in assets under management (AUM) across one of the broadest ranges of investment teams in the industry. The combined footprint of the organization will significantly deepen Franklin Templeton’s presence in key geographies and create an expansive investment platform that is well balanced between institutional and retail client AUM.

In addition, the combined platform creates a strong separately managed account business.

“This is a landmark acquisition for our organization that unlocks substantial value and growth opportunities driven by greater scale, diversity and balance across investment strategies, distribution channels and geographies,” says Greg Johnson, executive chairman of the board of Franklin Resources Inc. “Our complementary strengths will enhance our strategic positioning and long-term growth potential, while also delivering on our goal of creating a more balanced and diversified organization that is competitively positioned to serve more clients in more places.”

Jenny Johnson, president and CEO of Franklin Templeton, says, “This acquisition will add differentiated capabilities to our existing investment strategies with modest overlap across multiple world-class affiliates, investment teams and distribution channels, bringing notable added leadership and strength in core fixed income, active equities and alternatives. We will also expand our multi-asset solutions, a key growth area for the firm amid increasing client demand for comprehensive, outcome-oriented investment solutions.”

During a conference call, Jenny Johnson said Franklin Templeton spent a significant amount of time reviewing its options and determined Legg Mason was the best fit for its strategic plan. The company has been working with Legg Mason on the agreement for several months. It is part of a multiyear strategic plan for which Franklin Templeton identified key growth initiatives.

She added that the transaction brings together two especially complementary platforms. “We realized multiple strategic objectives in one transaction—acquiring several companies as well as a holding company,” Johnson said.

Joseph A. Sullivan, chairman and CEO of Legg Mason, says, “The incredibly strong fit between our two organizations gives me the utmost confidence that this transaction will create meaningful long-term benefits for our clients and provide our shareholders with a compelling valuation for their investment. By preserving the autonomy of each investment organization, the combination of Legg Mason and Franklin Templeton will quickly leverage our collective strengths, while minimizing the risk of disruption. Our clients will benefit from a shared vision, strong client-focused cultures, distinct investment capabilities and a broad distribution footprint in this powerful combination.”

With this acquisition, Franklin Templeton will preserve the autonomy of Legg Mason’s affiliates, ensuring that their investment philosophies, processes and brands remain unchanged. The company says it has spent significant time with the affiliates and there is strong alignment among all parties in this transaction and shared excitement about the future of the company.

For example, Terrence J. Murphy, CEO of ClearBridge Investments, a Legg Mason affiliate, says, “As part of Franklin Templeton, we are confident that we will retain the strong culture that has defined our success as a recognized market leader in active equities. Their commitment to investment autonomy, augmented by the scale and reach that the combined organization will provide, will allow us to deliver for our existing clients and expand our ability to deliver our investment capabilities in new channels and regions. We are very pleased to join the team at Franklin Templeton and excited about what we can do together.”

Western Asset Management Co. and Brandywine Global Investment Management, affiliates of Legg Mason, bring high assets in fixed income to the deal, and Clarion Partners brings real estate investments. “We are third overall in separately managed accounts,” Johnson said during the teleconference.

“Given all the strategic benefits and new capabilities, it makes the resulting company not only larger but far stronger. We will be a true leader in multiple asset categories,” she stated.

“We will have a wide range of strong performing strategies,” Johnson said, noting that 86% of Legg Mason assets under management have been beating their benchmarks. In addition, the deal transforms Franklin Templeton’s institutional business to meet the size of its retail business—creating a 50/50 institutional/retail mix. “Clients will have a broader range of investment choices,” she added.

As with any acquisition, the pending integration of Legg Mason’s parent company into Franklin Templeton’s, including the global distribution operations at the parent company level, will take time and will commence only after careful and deliberate consideration.

Johnson pointed out to teleconference attendees that Franklin Templeton has a history of large acquisitions, meaning it “understands the complexity involved in successful execution. She said Greg Johnson will play a key role in the execution of the deal.

Following the closing of the transaction, Johnson will continue to serve as president and CEO, and Greg Johnson will continue to serve as executive chairman of the Board of Franklin Resources Inc. There will be no changes to the senior management teams of Legg Mason’s investment affiliates. Global headquarters will remain in San Mateo, California, and the combined firm will operate as Franklin Templeton.

However, EnTrust Global, a Legg Mason affiliate that provides alternative investment solutions, and Franklin Templeton jointly agreed that it was in their best interest that EnTrust repurchase its business, which will be acquired by its management at closing. EnTrust will maintain an ongoing relationship with Franklin Templeton.

Franklin Templeton notes that while cost synergies have not been a strategic driver of the transaction, there are opportunities to realize efficiencies through parent company rationalization and global distribution optimization. These are expected to result in approximately $200 million in annual cost savings, net of significant growth investments Franklin Templeton expects to make in the combined business and in addition to Legg Mason’s previously announced cost savings. The majority of these savings are expected to be realized within a year, following the close of the transaction, with the remaining synergies being realized over the next one to two years.

The transaction has been unanimously approved by the boards of Franklin Resources Inc. and Legg Mason Inc. It is subject to customary closing conditions, including receipt of applicable regulatory approvals and approval by Legg Mason’s shareholders, and is expected to close no later than the third calendar quarter of 2020.

Johnson noted during the teleconference that the deal also offers growth in international markets, such as the UK, Japan and Australia. “Our focus is to grow for many years to come,” she said.

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