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Plaintiff in UPenn 403(b) Suit Asks for Amicus Briefs to Not Be Accepted

Plansponsor.com - Thu, 2018-04-26 12:12

The plaintiff in a case challenging the management of the University of Pennsylvania’s 403(b) plan has filed an opposition against amicus curiae briefs filed in support of the university.

According to the court document, these briefs, if accepted, would greatly expand the scope of the factual and legal arguments that the plaintiffs must address within the 6,500-word limit allowed for their reply brief. “Instead of responding to a single 11,592-word brief, Plaintiffs would have to respond to briefs totaling nearly 28,000 words,” it states.

The plaintiff argues that under Federal Rules of Appellate Procedure, typically, the option of filing a reply brief provides the appellant more total words than the appellee. Accepting the briefs would provide defendants with an 8,000-word advantage.

The court document notes that although a 3rd U.S. Circuit Court of Appeals decision in Neonatology Assocs., P.A. v. Commissioner disapproved a “restrictive” approach to granting leave to file amicus briefs, at issue there was a motion for leave to file a single amicus brief. “That opinion did not address the potential prejudice to the opponent of allowing numerous amicus filings which effectively multiply the arguments on one side of an appeal while diluting the opponent’s ability to adequately respond,” it states.

In addition, the plaintiff argues that all three proposed briefs seek to inject irrelevant issues that are not before the court because they were not raised in the defendants’ opening brief. The opposition document says TIAA’s proposed filing simply disputes the truth of the plaintiffs’ allegations regarding TIAA’s products and services, and thus is irrelevant to the legal sufficiency of the plaintiffs’ allegations.

The plaintiff says the proposed brief of the American Council on Education argues for a fiduciary standard that is inconsistent with the standard advocated by the defendants. The opposition document contends that the council suggests that, in light of historical differences between 403(b) plans commonly offered by universities and 401(k) plans commonly offered by for-profit companies, courts should apply a different Employee Retirement Income Security Act (ERISA) fiduciary standard to fiduciaries of 403(b) plans.

The plaintiff argues that the proposed Chamber of Commerce brief urges the court to extend to ERISA fiduciary breach claims the “same approach to pleading” adopted in the context of “antitrust, retaliation, supervisory liability, RICO, and securities,” and the defendants do not advocate for the adoption of pleading standards developed in disparate areas of law, so the proposed brief is irrelevant.

The post Plaintiff in UPenn 403(b) Suit Asks for Amicus Briefs to Not Be Accepted appeared first on PLANSPONSOR.

Categories: Industry News

Alight Solutions Introduces Customized Investment Product for DC Plans

Plansponsor.com - Thu, 2018-04-26 10:46

Alight Solutions has introduced WealthSpark, a new solution that combines highly customized investment portfolios designed by AllianceBernstein (AB) with Personal Capital’s digital wealth management tools that offer greater into people’s financial picture. WealthSpark’s initiatives are to create easier means for workers to plan, save and invest smarter.

“We believe WealthSpark will be a bridge to connect people’s financial realities with their financial goals to truly help them thrive,” explains Alison Borland, executive vice president of defined contribution [DC] solutions at Alight. “Most default investment options do not recognize and appreciate the complexities of people’s individual financial situations or the competing priorities they face through the course of their lifetimes.”

WealthSpark’s investment recommendations are based on up to 18 individualized data points cultivated through Personal Capital’s technology, including individual financial situations, investment accounts outside their retirement plan, their partner’s financial situation and obligations like paying for a child’s college or elder care. The platform also helps workers better understand and make decisions about their personal finances from everyday budgeting to managing life events like paying back student loans, saving to buy a home or planning for retirement. WealthSpark can serve as the qualified default investment alternative (QDIA) in the employer-provided savings plan.

“We have more than a decade of experience designing custom glide paths for many of the largest U.S. defined contribution plans, and are excited to partner with two leaders in their respective fields to deliver this innovative solution,” says Jennifer DeLong, head of defined contribution at AB. “The solution combines asset allocation with technology to deliver a more personal participant experience. By better understanding a participant’s individual circumstances, we can create a series of optimized glide paths to tailor outcomes to participants’ unique financial objectives.”

More information about WealthSpark can be found here.

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Categories: Industry News

Increased Savings Rates and Auto Escalation Can Boost Retirement Income

Plansponsor.com - Thu, 2018-04-26 09:55

Americans are on track to replace 64% of their income in retirement, according to a report from Empower titled, “Scoring the Progress of Retirement Savers.” This figure includes projected Social Security benefits, both defined benefit (DB) and defined contribution (DC) plan assets, personal savings, home equity and business ownership.

Asked what source will provide income for their household in the first five years of retirement, 71% said Social Security, 56% said their DC plan, 38% said personal savings, 29% said employment, and 19% said a DB plan.

Sixty-seven percent said at least one earner has a workplace retirement plan available to them, but 33% said they are not offered a plan. Among those with a plan, they are on track to replace 79% of their income; for those without one, the figure is 45%. “Clearly, providing access to a tax-deferred retirement savings plan is one of the most important first steps any employer can take to put people on the path to future security,” Empower says.

Younger workers are on track to replace a higher percentage of their income, most likely because they have had access to a workplace retirement plan for their full career, whereas early Baby Boomers did not. Thus, Millennials are on track to replace 75% of their income; Gen X, 61%; late Boomers, 61%; and early Boomers, 55%. Men are on track to replace 71% of their income in retirement, and women, 59%.

Those who are contributing less than 3% to a retirement plan are on track to replace 59% of their income in retirement, whereas those who contribute 10% or more are on track to replace 128% of their income. Additionally, when a DC plan includes auto escalation, participants are on track to replace 107% of their income.

Among those with a retirement plan, 79% are confident they are making the most of the plan to build retirement income, up from 70% in 2016. Empower says it is important for employers to educate participants about how much income their savings is projected to supply them with.

Thirty-two percent of participants said they would increase contributions to their retirement plan if they paid down the debt they owe. Another 22% said they would increase contributions if they received a raise, 12% if they reduced their spending, 10% if they achieved the maximum employer match, and 5% if they learned what their peers are contributing.

Participants who work with a traditional or online adviser are on track to replace 116% of their income. Those working with any paid adviser, 91%, and those with no adviser, 51%.

Empower’s findings are based on a survey of 4,038 adults between the ages of 18 and 65, conducted in conjunction with NMG Consulting last December and January. The full report can be downloaded here.

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Categories: Industry News

Motion for Class Certification Filed in American Airlines Stable Value Fund Suit

Plansponsor.com - Thu, 2018-04-26 09:50

Plaintiffs in a case challenging American Airlines’ (AA) decision not to include a stable value fund in its 401(k) investment menu has filed a motion for class action certification.

According to the original complaint, the plan does not offer a stable value fund as its “income producing, low risk, liquid fund.” Instead, it offered during the class period the AA Credit Union Fund, which yielded “tremendously” poor returns throughout the relevant time period.

“The AA Credit Union Fund effectively delivered, at all material times, the returns of a poorly managed checking account. The AA Credit Union Fund consistently failed to outpace inflation and was at all times thus a categorically imprudent retirement investment under ERISA [Employee Retirement Income Security Act]. Therefore, Defendants violated their duties of prudence under ERISA by including it as a retirement investment option in the Plan’s menu of investment options,” the complaint states.

The complaint notes that as of November 5, 2015, the one-month return for the AA Credit Union Fund was 0%. As of November 29, 2015, the one-month return for the fund was 0.07%, and as of January 3, 2016, the one-month return for the fund was 0%. At the same time, the AA Federal Credit Union has an actual checking account option called a “Priority” checking account that, according to the AA Federal Credit Union Internet site, is currently paying interest rates of up to 2.27%.

The plaintiffs allege that stable value funds are commonly used by large 401(k) plans like the American Airlines’ plan and typically offer more in return than the AA Credit Union Fund.

“In light of stable value funds’ clear advantages and enhanced returns compared to the AA Credit Union Fund, when deciding which fixed income investment option to include in a defined contribution plan, a prudent fiduciary would have included a stable value fund—and not the AA Credit Union Fund,” the complaint states. “Had the funds invested in the AA Credit Union Fund instead been invested in a stable value fund returning average benchmark returns, as represented by the Hueler Index during the proposed class period here, Plaintiffs and other Plan participants would not have lost tens of millions of dollars of their retirement savings, and would not continue to suffer additional losses as a result of the AA Credit Union Fund being retained in the Plan.”

Last November, U.S. District Judge John McBryde of the U.S. District Court for the Northern District of Texas denied American Airlines’ motion to dismiss the case saying, “The court is satisfied that plaintiffs have met their pleading burden. The arguments defendants make go to the merits of the claims and would more properly be presented by motions for summary judgment.”

The post Motion for Class Certification Filed in American Airlines Stable Value Fund Suit appeared first on PLANSPONSOR.

Categories: Industry News

Access to Planning Information Correlates With Retirement Readiness

Plansponsor.com - Thu, 2018-04-26 08:40

Nearly one-fifth of all Americans approaching retirement are at the low end of the readiness spectrum (not ready at all), having saved 20% or less of the money they will need for retirement, according to a survey by the Indexed Annuity Leadership Council.


More than 40% of those surveyed report they are worried, with 13% very worried, about retirement.


Overall, American workers are satisfied with the amount of information their employer provides about retirement options. However, workers at small companies (fewer than 50 employees) are two times more likely than employees at larger companies to feel their employer is not helpful at all with retirement planning. Access to planning information correlates with retirement readiness: compared to workers who feel very ready for retirement, unprepared workers show disappointment with the retirement information provided by their employers.


Those pre-retirees who feel most prepared for retirement are almost three times as likely as unprepared workers to have access to pensions. Fifty-nine percent of those prepared have access to a 401(k) plan, compared with 39% of unprepared workers. Further, pre-retirees who feel most prepared are five times as likely to have individual retirement accounts (IRAs), eight times as likely to have mutual funds and 10 times as likely to have an annuity.


Overall, 64% of workers feel satisfied with retirement options provided by their employers. Those in larger companies tend to have higher satisfaction rates regarding the retirement options provided by their employers than those at smaller companies. More than half of all of America’s workforce reports their access to retirement plans and products has either stayed the same or decreased in the past 10 years.


The most common savings mistakes and regrets among survey respondents are not saving earlier (40%), making bad financial decisions (19%), not saving enough (17%) and having personal issues that impacted their ability to save (8%). Personal issues often cited include divorce, marital choice, career path and family illnesses. Ongoing challenges like high daily living expenses (26%) and elevated debt level (24%) also hinder the ability to save.


Workers who are unprepared for retirement are five times as likely as those who are prepared to cite high living expenses as a barrier to retirement planning. They are also seven times as likely to have too much debt. In contrast, 71% of prepared workers don’t face these barriers.


The survey finds pre-retirees are already taking steps to be more prepared for retirement. More than 40% have already adjusted their lifestyle choices/expenses; nearly 14% are taking on multiple jobs to support their retirement savings goals; and nearly 10% have switched jobs for better retirement benefits. The research shows that workers are, above all, looking for lifetime income (78%). This goal is quickly followed by having stability of income (76%) and principal protection (71%). However, having a diversified portfolio was only cited by less than 60% of workers surveyed.


The survey report, “America’s Workforce: The Reality of Retirement Readiness,” may be downloaded from here.

The post Access to Planning Information Correlates With Retirement Readiness appeared first on PLANSPONSOR.

Categories: Industry News

Individuals Expect More From Social Security Than What Reality Shows

Plansponsor.com - Thu, 2018-04-26 08:14

Results of a new survey conducted by Harris Poll on behalf of Nationwide show nearly two in three workers admit they are not confident in their knowledge of Social Security.

The data was drawn from among more than 1,000 U.S. adults ages 50 or older who are retired, or plan to retire in the next 10 years. Among this group, more than half (55%) say Social Security will be their main source of retirement income. This is followed far behind by just 18% of older adults relying on their pension.

“A quarter of U.S. adults in retirement say their social security payment is less than expected, and one in four future retirees believe they can live comfortably in retirement on Social Security alone,” observes Tina Ambrozy, president of sales and distribution at Nationwide. “It is problematic that so many people are planning to rely solely on Social Security for income in retirement. There is a major disconnect between what consumers think their Social Security benefit will be, and cover, compared to reality.”

The survey identifies a number of Social Security misconceptions. For example, most adults think they are eligible for Social Security benefits sooner than they actually are. One positive note: A little more than half of the adults not currently collecting Social Security don’t plan to start collecting early, as future retirees expect to collect Social Security benefits at age 66, on average. Despite those plans, Nationwide says, the most common age at which retirees start collecting Social Security is 62—the earliest age a person can do so.

According to the survey, future retirees expect to receive $1,628 on average as a monthly payment from Social Security. This is almost 30% more than what current retirees say they collect ($1,257).

There are also key differences between how future retirees anticipate spending their Social Security compared to how current retirees actually do,” Ambrozy says. “Four in ten older adults do not expect to spend any of their Social Security income on health care, yet 58% of recent retirees report spending their benefit on health care.”

Retired Americans who decided to draw early report doing so to pay living expenses (52%) and to supplement their income (43%). Other reasons for early filing given to Nationwide include being laid off or otherwise becoming unemployed (24%), having no other source of income (22%) and because of health issues (16%).

“Concerning, nearly nine in 10 older adults don’t know what factors determine the maximum Social Security benefit an individual can receive,” Ambrozy warns. “One of the best ways people can understand what their benefits will cover, and how they can maximize them, is by consulting a professional for advice.”

The survey findings suggest just 13% of older adults say they have a financial adviser who provides them Social Security advice.

“It’s not that they don’t want the advice. In fact, nearly three in four future retirees currently working with a financial adviser say they would likely switch financial advisers to work with an adviser that can help them maximize their Social Security benefits,” Ambrozy notes. “It’s easy to see why. Those working with a financial adviser report receiving over 20% more in Social Security benefits than those who don’t ($1,500 vs $1,234).”

Most current retirees getting Social Security say they relied on the Social Security Administration prior to retiring to identify their maximum monthly benefit. However, Social Security filing strategies are more effective when highly personalized, Nationwide says.

“Social Security is undoubtedly one of the most complex retirement topics facing American workers, and most are likely unable to grasp the thousands of rules that apply to Social Security,” Ambrozy concludes. “Preparing for retirement holistically by working with advisers and online tools can help adults maximize their benefit and achieve personal goals.”

The full results of the survey are available here. Nationwide has also made publicly available the Social Security 360 Analyzer tool.

The post Individuals Expect More From Social Security Than What Reality Shows appeared first on PLANSPONSOR.

Categories: Industry News

Charles Schwab Experts Debunk Passive TDF Myths

Plansponsor.com - Wed, 2018-04-25 12:51

As a senior multi-asset class portfolio strategist for Charles Schwab, Jake Gilliam is regularly called on to help formulate the strategic direction and management of multi-asset class portfolios across Charles Schwab Investment Management and Charles Schwab Bank.

Recently, this work has involved the creation of a new white paper on the timely topic of passive target-date funds (TDFs), dubbed “Passive target-date funds: Separating myth from reality.” Sitting down to review the research with PLANSPONSOR, Gilliam stressed the importance of retirement plan officials and fiduciaries taking time to build a more erudite understanding of the evolving TDF marketplace, especially as it pertains to the often misleading terminology of “active versus passive.”

As he explains it, the term “passive TDF” refers specifically to portfolio implementation, rather than the overall TDF design. His point is that a TDF may invest its assets into index-based securities that do not make tactical adjustments as the markets change—but the act of managing even an index-based portfolio according to a glide path that ramps down equity risk over time will always be at least in part fundamentally “active.”

“Just as with active TDFs, passive TDFs vary widely in risk/reward profile based on the many decisions that go into portfolio design and glide path design,” Gilliam says. “Passive TDFs can offer an effective retirement investment solution for many investors, but it is important to follow a TDF evaluation process that assesses how strategy choice aligns with investors’ specific needs, not focus solely on cost.”

According to Gilliam and paper co-authors John Greves, head of multi-asset strategies, and Natallia Yazhova, senior research analyst, all passive, active, and blended TDFs offer pros and cons that plan sponsors should consider when deciding which TDF makes the most sense for their specific needs.

“All TDFs have tremendous freedom in terms of design and portfolio construction,” Gilliam notes. “Glide path, slope, sub-asset class allocation, underlying index selection, investment vehicle, and use of security lending are all active decisions that can have a significant impact on a TDF’s risk/reward profile. As such, the only things truly passive in a so-called passive TDF are the strategies used in implementation.”

Gilliam and his Schwab colleagues stress that prudent TDF selection is about process, not just pricing.

“Selecting the lowest cost TDF should not lure plan fiduciaries into a false sense of security,” he adds. “There is no free pass when it comes to TDF evaluation—active, passive, or blended—the choice must be prudent. Simply going passive and low cost may seem like the easy choice, but it does not absolve fiduciaries of their due diligence and ongoing monitoring responsibilities. Fees are certainly an important consideration in this process, but not the only one.”

The analysis goes on to offer a series of questions plan officials can post to make sure they “know what they own.” These include the following: “What are the TDF’s asset class and sub-asset class allocations, and how do they shift throughout the glide path? Is the TDF implementation all active, all passive, or a blend of both? Why? How steep is the equity slope and when does it begin its descent? Does the TDF use third-party managers, proprietary funds, or a mix? What is the equity allocation at the target date and end date? How are underlying strategies selected and monitored, and have any ever been removed/replaced? Why, and what was the process?”

Other questions to ask include, what is the allocation to international and emerging market equities near and in retirement? And how much security overlap is there among holdings? Are there other riskier exposures to consider? What is the portfolio management tenure and assets of underlying strategies? How many years of roll-down does the TDF provide after the target date? What is the manager’s reasoning for these decisions? How have they affected drawdown risk (particularly near retirement), returns in various market cycles and long-term retirement outcome potential?

Gilliam also encourages plan officials to study the phenomenon of “blended TDFs.”

“Blended implementation combines the two approaches by investing in both low cost index funds as well as active managers to gain select market exposures,” he explains. “Typically, active managers are utilized to expand asset class diversification or to boost return potential in more inefficient markets where active managers tend to outperform, for a generally modest fee increase over a pure passive implementation approach. Using both types of strategies can allow the TDF manager to refine active risk levels at different parts of the glide path and may also provide diversification as markets cycle.”

The Charles Schwab experts conclude that “open architecture processes with thorough institutional governance” become increasingly important when a TDF utilizes more active exposures in implementation.

“Actively managed strategies have greater discretion around investment decisions, and it is crucial to select a skilled manager with a demonstrated ability to take appropriate investment actions as markets evolve,” Gilliam notes. “Combining different active sub-advisers or strategies into a single solution creates a diversity of thought and intellectual capital that can be lacking in a proprietary active solution. Furthermore, it may reduce the headline risk or conflict of interests associated with investing all assets with a single firm.”

Gilliam adds that Charles Schwab Investment Management has long been an advocate for offering a range of investment solutions.

“We believe that passively implemented TDFs can be a very effective retirement investment solution for many investors. However, it is important to remember that when the term passive is applied to a TDF, it can be misleading as it refers specifically to portfolio implementation,” he concludes. “Glide path design, including asset class exposure within the glide path, is the most important decision and is always the result of active choices by the manager. Because of this, a passive TDF approach does not necessarily reduce risk or offer more reliable performance on its own. Nor does it automatically offer a safer fiduciary choice.”

The post Charles Schwab Experts Debunk Passive TDF Myths appeared first on PLANSPONSOR.

Categories: Industry News

Court Affirms DB Plan Sponsor Owes Excise Taxes on Non-Deductible Contributions

Plansponsor.com - Wed, 2018-04-25 10:23

The 8th U.S. Circuit Court of Appeals has affirmed a tax court’s decision that Pizza Pro Equipment Leasing owes excise taxes and additions to tax related to its defined benefit (DB) plan.

The Commissioner of Internal Revenue concluded that from 2002 to 2006, Pizza Pro incorrectly calculated the limitation on the plan’s annual benefit and therefore made non-deductible contributions to the plan. The Commissioner charged the plan an excise tax of 10% of the non-deductible contributions and then imposed additions to tax for Pizza Pro’s failure to file a return of excise taxes and timely pay the excise tax.

The appellate court noted that, in finding that the plan’s annual benefit exceeded the applicable limitation, the tax court applied a Treasury Department regulation that states a plan benefit beginning before the normal retirement age is adjusted to the “actuarial equivalent” of a benefit beginning at normal retirement age. According to the 8th Circuit’s opinion, Pizza Pro has not challenged the validity of this regulation.

Because the regulation does not define actuarial equivalence, the tax court looked to general practice in the field of actuarial science to determine the proper method for determining the limitation on the annual benefit. It found that the Commissioner’s report, which was prepared by an actuary, was in line with actuarial practice, while Pizza Pro’s report, not prepared by an actuary, was not. The appellate court agreed with this.

The 8th Circuit also agreed that Pizza Pro did not make an election under Internal Revenue Code Section 4972(c)(7), which says, “in determining the amount of non-deductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except to the extent that such contributions exceed the full-funding limitation.” Pizza Pro points out that two actuarial groups suggested to the Internal Revenue Service (IRS) that a taxpayer’s failure to file the excise tax form should be considered sufficient evidence that it made such an election, but the appellate court noted that the IRS did not adopt this suggestion and the 5th U.S. Circuit Court of Appeals rejected a similar argument in a different case.

The 8th Circuit agreed with the Commissioner of Internal Revenue’s conclusion that Pizza Pro’s failure to file the form stemmed from its belief that it made no excess contributions and owed no excise taxes.

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Categories: Industry News

Judge Rules on DOL ESOP Challenge with Mixed Results

Plansponsor.com - Wed, 2018-04-25 09:32

The U.S. District Court for the Western District of Virginia has issued a mixed ruling on a lawsuit filed by the U.S. Department of Labor (DOL) against the fiduciaries of a Virginia-based employee stock ownership plan (ESOP), offered to employees of Sentry Equipment Erectors Inc.

The DOL lawsuit alleges the defendants failed to protect the assets of the plan as it purchased nearly $21 million in company shares from an executive of Sentry Equipment Erectors Inc., who was also a trustee of the ESOP. The firm’s executive Adam Vinoskey and several other defendants are called out by name for fiduciary violations relating to the sale of company stock to the ESOP at an inflated price in 2010. The overpayment, according to DOL, caused a direct loss to the plan and constituted a prohibited transaction under the Employee Retirement Income Security Act (ERISA). DOL investigators also sought to prove the sale directly injured plan participants who had already earned Sentry stock, as the value of their stock declined because of the company’s substantially increased debt load.

The mixed decision comes after DOL Secretary Alexander Acosta moved for summary judgment on these claims. The defendants responded by moving to exclude key testimony from a DOL expert on the doctrine of “adequate consideration,” crucial to the settlement of this matter. Additionally, some of the defendants have individually moved for summary judgment—to be carved out of the lawsuit for not in fact being fiduciaries.

The decision lays out the following conclusions of the court with respect to these cross motions: “The court will partially exclude the Secretary’s expert testimony because portions of his damages theory are novel and underdeveloped. Concomitantly, the court will grant the defendants’ motions for summary judgment on the claims the Secretary no longer has expert testimony to support. The court will also grant one of the alleged fiduciaries’ motions because no reasonable jury could find he is a de facto fiduciary.”

The district court also “will deny the parties’ motions on the remaining claims because factual disputes (namely whether reliance on a valuation report was reasonable) remain.”

Explaining the reasoning for the partial exclusion of the DOL’s expert commentary, the court highlights how the expert calculates two categories of damages allegedly suffered by the ESOP. First, the amount overpaid for Sentry shares, and second, the loss in value to existing plan participants’ shares because of the structure of the purchase.

The decision clarifies the matter as follows: “The expert’s report calculates the first category of damages by determining a fair market value for Sentry stock and then asking how much more than that the ESOP actually paid. The court finds the expert’s testimony concerning this category of damages will be partially admissible. The expert’s second category of damages is calculated by multiplying the amount allegedly overpaid per stock by the existing shares held by plan participants. These damages are supposed to represent a separate harm: the loss in value to the existing shares because of the transaction’s structure. Because the court finds this methodology is unreliable and underdeveloped, it will be excluded. The defendants’ other objections to the admissibility of the expert’s testimony will be overruled.”

On the first point, the court observes that the expert calculated the damages by subtracting his calculation of the fair market value of the shares purchased by the ESOP from the price the ESOP actually paid. “This is a common approach,” the decision states. “The expert determined the fair market value of Sentry shares with a discounted cash flow model and a comparison to a guideline company. Other courts have accepted the use of these models.”

The expert’s second category of damages, i.e., the damages the ESOP allegedly suffered from a decrease in the value of the Sentry stock it already owned, “suffers from a more fundamental problem.” The expert calculated these losses by multiplying the alleged overpayment per share from his first category of damages by the number of shares existing at the time of the transaction.

“This calculation falters for two primary reasons,” the decision states. “First, it double counts the losses allegedly caused by the defendants. The defendants correctly demonstrate that any reduction or increase in the first category has a proportional effect on this second category. This is problematic because it effectively claims the ESOP overpaid twice: once for the shares it was purchasing in this transaction and once for the shares it already owned. The expert is never able to sufficiently explain why he is applying the overpayment damages to the shares the ESOP already owned. … Second, despite the Secretary’s allegations of loss in stock value to the existing employees, the account balances of the existing Sentry plan participants increased as a result of the transaction. … It is difficult to see how the existing shareholders could have incurred this second category of damages if their accounts increased. Even if they hypothetically did incur some damage, for example, if their accounts would have increased more without the transaction, the expert’s methodology does not provide any basis to figure out what those damages would be.”

The DOL briefly raises other defenses concerning the relevance of its calculations and the tax ramifications of the deal’s structure. But “none of these arguments, even if credited, can rehabilitate the problems with reliability identified above.”

“The Secretary has not provided any examples of this methodology being used or accepted elsewhere, and the court has found none,” the decision states. “Accordingly, the court concludes the methodology used to calculate the second category of damages is unreliable, and so it will be excluded here. The court addresses the defendants’ remaining objections insofar as they concern the first category of damages.”

After substantial reflection on all these matters, the court concludes that, in sum, the majority of the expert’s testimony is still both reliable and relevant: “He is qualified to testify; he considered sufficient data to provide helpful testimony (even if his failure to adequately consider certain portions of the record should lead the court to discount some of his conclusions); he used a reliable methodology to calculate damages arising from overpayment for Sentry stock; and he reliably applied most of his methods. However, the court will limit his testimony in two respects: He will not be able to present the methodology used to calculate damages to the existing shareholders or utilize the market comparable methodology in his valuation of Sentry’s market value.”

The decision goes on to consider the cross-motions for summary judgement, also in great detail, before reaching the following conclusion: “The court will grant New’s motion for summary judgment [to be carved out of the case]. Otherwise, the motions concerning Counts I through III will not be granted. Based on the above determination to partially exclude the Secretary’s expert testimony, the defendants’ motion for summary judgment on Count IV will also be granted.”

Readers will benefit from reviewing the full text of the decision, in which the court summarizes the record before working through each of the claims.

Restating the conclusion of the decision, the court lays out the following in its conclusory statement: “The expert testimony will be admitted in part; he will be allowed to testify on everything except his second category of damages and his market comparable approach. The court will exclude that testimony as unreliable. New’s motion for summary judgment will be granted because reasonable factfinders would agree he is not a fiduciary. This is largely due to the Lenoir’s supervisory role. Summary judgment will be denied, for both Evolve and the Secretary, on Counts I and II. This is because of remaining factual disputes concerning the reasonableness of Evolve’s reliance on Napier’s appraisal. The Secretary’s motion for summary judgment against Vinoskey will be denied because Count III requires a breach by another fiduciary, something that is still disputed. Evolve’s motion for summary judgment on Count IV will be granted, however, based on the exclusion of Messina’s second category of damages.”

The post Judge Rules on DOL ESOP Challenge with Mixed Results appeared first on PLANSPONSOR.

Categories: Industry News

Certain Factors Critical to Wellness Program Engagement

Plansponsor.com - Wed, 2018-04-25 09:22

Employers implement wellness programs, in part, to address health benefit costs and costs from lost productivity.

However, often there is a lack of engagement in wellness programs by employees. HealthAdvocate surveyed large employers to get a sense of best practices to drive and sustain employee engagement in health and well-being. Survey participants made it clear that fragmentation is a major challenge, creating administrative headaches for HR and confusion for employees. Further, integrating and simplifying benefits programs enhances both access and utilization. Finally, while technology plays an important and growing role in today’s benefits programs, the human touch is still critical for success.

When asked what approaches benefits leaders currently used to optimize employee engagement in health and well-being benefits, about one-quarter mentioned a unified integrated benefits management platform, while another 25% specifically said mobile applications and social media were starting to play a larger role than in previous years. The majority cited more conventional approaches including regular communications via newsletters and blogs (78%); events/meetings (67%); contributions to flexible spending accounts (FSAs), health savings accounts (HSAs) or health reimbursement accounts (HRAs) (65%); and incentives (54%). Incentives most commonly used to encourage engagement included HSA contributions (49%), reduced insurance premiums (44%) and cash/gifts (39%).

Employers that use multiple providers for health and well-being benefits cited several challenges. At the top of the list at 44% was “disjointed, confusing for employees.” Next, at 43%, was fragmentation of vendor/partner/internally developed tools, with several numbers to call. Another problem, said 40%, was the lack of utilization, and 35% felt technology issues with integrating systems was a challenge. Some organizations mitigate this by having one expert or one number to call to help navigate the various benefits from a multitude of vendors. HeatlhAdvocate says this expert would have to be educated on all of an employee’s options in order to effectively help them get the right help when they need it.

“By reducing the amount of effort required on the part of the employee to access programs and information, the more likely the employee is to engage in their health and take advantage of the programs available to them,” the survey report says.

Eight out of ten survey respondents confirmed that having some level of high-touch human support increases employee engagement with their benefits. A majority (78%) offer employees access to live support to help with health goals and benefits navigation.

HealthAdvocate’s report, “Driving Benefits Engagement: Strategies to Optimize Employee Health and Well-Being Programs,” is here.

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Categories: Industry News

Vanguard Announces Enhancements to DC and NQ Plan Service Offerings

Plansponsor.com - Wed, 2018-04-25 07:00

Vanguard has enhanced certain service offerings for 401(k) and non-qualified plan sponsors and participants.

It has decided to partner with TD Ameritrade to offer a self-directed brokerage account. Martha King, Vanguard managing director and head of the Vanguard Institutional Investor Group, tells PLANSPONSOR that Vanguard has been offering brokerage windows in 401(k) plans for years. “The majority of plans don’t offer them, but even if they do only a small group of participants use them. Still, we don’t want to ignore their needs,” she says.

King notes that an important differentiator of the TD platform from Vanguard’s platform is that advisers will have access to participant accounts. “It is not uncommon for participants to have relationships with advisers,” she says.

This new service will give registered investment advisers access to the TD Ameritrade institutional account management and trading platform for RIAs—called Veo. Using this service, advisers who work with Vanguard 401(k) plan participants can view and manage client accounts individually or collectively. Participants will still need to verify their financial advisers’ access as part of the enrollment process.

The difference is that when using Vanguard Brokerage Services, participants could grant account access and management to their personal advisers; however, advisers are limited in that they have to manage each client account individually and cannot download/transfer information to their own proprietary software. Vanguard Brokerage Services was tailored to its primary user—the do-it-yourself retail investor.

New retirement readiness tool

As part of its participant website enhancements, Vanguard is offering the Retirement Readiness Tool to provide actionable advice about retirement savings. It can aggregate participants’ 401(k), pension, individual retirement account (IRA) and projected Social Security benefits to offer a full retirement savings picture. Participants may need to input information about outside assets.

In addition, the tool uses assumptions, such as future contributions and forecasts from the Vanguard Capital Markets Model, to project how savings will grow over time. Applying a customizable 4% withdrawal rule, the tool is then able to produce an estimate of future monthly retirement income. The information can also help plan sponsors calculate the projected income replacement ratios for their participants through Vanguard’s new Retirement Readiness Plan Assessment.

According to King, knowledge gleaned from the retirement readiness tool helps with Vanguard’s new Personalized Participant Journeys offering. “Plan sponsors can use the knowledge they’ve gained from analytical capabilities to utilize personalized messages/nudges so they can get participants engaged [in retirement planning],” she says.

More about this offering can be found here.

Non-qualified plan administration

Vanguard has also decided to partner with Newport Group, a provider of non-qualified (NQ) plan administration, which specializes in the complexities of NQ plans. King explains that Newport’s recordkeeping system will be used by Vanguard, but Vanguard will continue to be in front of relationships—participants will speak to Vanguard and so will plan sponsors. “We are leveraging significant investment in the technology Newport offers,” she says.

“In any of our businesses, we can never just stand still. We consistently evaluate offerings, systems and what we’re providing clients,” King says. “In the course of our review, we saw opportunities for better service experiences for clients. We can build some capabilities ourselves, and we can partner with others to bring things to market more quickly.”

More information about all of the changes can be viewed here.

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Categories: Industry News

Helping Retirement Savers Feel Confident

Plansponsor.com - Tue, 2018-04-24 11:58

The 2018 Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI) revealed retirees’ confidence in their ability to live comfortably in retirement remains higher than employees’ confidence, with 32% of retirees very confident and 44% somewhat confident.

However, retirees are less likely than last year to feel confident in their ability to handle basic expenses and feel less confident in their ability to handle medical expenses.

In addition, as fewer employees plan to rely on defined benefit (DB) plans for retirement income and fewer trust that Social Security will be there for them, the RCS found many employees are showing interest in guaranteed income products.

During a media call about the RCS, Lisa Greenwald of Greenwald & Associates said, “While overall confidence is statistically unchanged over last year, confidence in specific factors are lower.”

Craig Copeland, EBRI senior research associate, pointed out that defined contribution (DC) plan ownership is an important factor in Americans’ confidence in the ability to live comfortably in retirement. The RCS found 76% with a DC plan are confident versus 46% without a DC plan. However, four in ten survey respondents say debt affects their ability to save for retirement.

Asked what plan sponsors and advisers can do to improve Americans’ retirement confidence, Copeland said helping them calculate how much overall will be needed to cover expenses in retirement is important. Plan sponsors should offer participants access to financial advisers.

In addition, financial wellbeing programs—including debt counseling—can improve retirement confidence, Copeland said.

He pointed out that plan sponsors are still not embracing in-plan guaranteed lifetime income products due to fiduciary fears; they are not sure what fiduciary due diligence is needed. He also noted that annuities have gotten a bad rap in the media. However, Copeland feels adoption of in-plan products may increase as participant balances grow higher.

Greenwald added that estimating and planning for health care costs is a critical element in retirement planning. The RCS found that, even among near retirees, fewer than half have done this calculation. Seven in 10 employed workers and six in 10 employed retirees say workplace education on health care planning for retirement would be helpful. Greenwald said employers and advisers need to help participants plan for health care costs.

She also said the findings speak to a growing role for health savings accounts (HSAs) in saving for retirement and employees investing their HSA dollars.

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Categories: Industry News

MassMutual Introduces New Report to Guide DB Plan Sponsors

Plansponsor.com - Tue, 2018-04-24 10:51

Massachusetts Mutual Life Insurance Co. (MassMutual) is introducing a new quarterly market update and commentary about economic and regulatory conditions and their impact on managing pension obligations.

MassMutual’s Defined Benefit Market Update and Commentary is designed to support its DB plan sponsor clients and potential clients in the ongoing management of their plans. The quarterly report includes data on interest rates, bond and equity markets, and commentary on economic and regulatory matters to help sponsors make informed decisions.

“Movements in interest rates, regulatory changes in the pension space, and the performance of the asset markets have a deep impact on the risk and performance of pension plans,” says Sumit Kundu, Director and Pension Consulting Actuary at MassMutual’s Institutional Solutions unit. “In tracking the funded status of their plan, plan sponsors are particularly concerned with issues that impact contribution requirements, risk and volatility.”

The tracking report is being generated by MassMutual’s Defined Benefit actuarial and investment consultants with the goal of helping sponsors maintain an integrated actuarial and investment policy to manage their plan. MassMutual’s pension consultants then help plan sponsors to review the data and examine implications on individual plans.

The Update and Commentary is designed to be a quarterly snapshot of the economic environment and its implications for pension plans:

  • Providing updates of recent market returns and trends, movements in interest rates and the impact on pension funding rates and accounting discount rates;
  • Assessing the potential impact of the economy on pensions, including active, closed or frozen, and the impact of volatility on asset returns;
  • Reviewing specific plan’s current asset allocations in collaboration with the plan’s actuarial and investment consultants with the goal of reducing volatility on funding status;
  • Reporting recent movements in the pension accounting discount curve for both MassMutual’s own yield curve as well as the Citigroup Pension Discount Curve for sample pension plans; and
  • Tracking interest rate trends.
The inaugural report is here.

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Categories: Industry News

Teachers’ Group Issues Report About Gun Manufacturer Investments

Plansponsor.com - Tue, 2018-04-24 10:37

The American Federation of Teachers (AFT) released a special edition of its “Ranking Asset Managers” report, which creates a watch list of investment managers that invest millions of dollars in companies that make assault weapons.

“Educators, parents and students need safe and welcoming schools, and educators have a right to assume their deferred wages are not being invested in the companies that make the military-style assault weapons used to injure and kill them and their students in countless school shootings,” says AFT President Randi Weingarten. “When companies produce a dangerous product that creates a national public health and safety crisis, that company becomes a high-risk investment and people have the right to know. This report is about exposing that risk and providing pension trustees and investment managers with the tools they need to demand meaningful action.”

The report highlights actions several pension funds have taken to reduce their risk exposure. It also calls on all investors to “use their power to compel those gun manufacturers to take meaningful action to address these risks.” It creates a list of specific steps pension funds and financial institutions can take to mitigate their risks, including signing a gun safety code of conduct and limiting—or putting stricter stipulations on—their relationships with gun manufacturers.

The report identifies asset managers and several states’ public pension systems as institutions that have all taken steps toward this goal, and it names other financial institutions and public pension systems that have not yet acted in response to the gun violence epidemic.

In March, a bill was filed with the Massachusetts Legislature that would require the state’s public pension fund to divest from companies that manufacture guns and ammunition. In April, BlackRock issued a statement about its approach to firearm manufacturers.

The AFT report is here. It is being sent to pension plan trustees.

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Categories: Industry News

ETF Investment Flourishes in Institutional Market

Plansponsor.com - Tue, 2018-04-24 10:19

The Greenwich Associates 2018 U.S. ETF Study highlights increased use of exchange-traded funds (ETFs) alongside the shift to a rising interest-rate environment and increased equity market volatility.

Some 180 institutions participated in the 2018 edition of the ETF Study. This group increased their use of ETFs in 20 of the 21 equity and fixed-income product categories covered in the research. 

“As they ready their portfolios for the end of the Goldilocks market, U.S. institutions are integrating ETFs more deeply into their portfolio management and investment strategies,” says Andrew McCollum, Greenwich Associates managing director. “Driving this expansion is ETF versatility. ETFs are being adopted in portfolios alongside, and in some cases in place of, individual stocks and bonds, mutual funds and derivatives as a source of primary beta exposures for use in a wide variety of active and passive investment strategies.”

According to Greenwich Associates, institutional investors are making greater use of ETFs in “strategic portfolio functions.”

“They are using ETFs to obtain investment exposures in core portfolio allocations, and as building blocks in top-down strategies that create alpha through asset allocation, as opposed to security selection,” the analysis states. “They are also employing ETFs to guard portfolios against volatility—a task growing numbers of institutions are addressing with smart beta ETFs.”

Data in the report shows the share of study participants investing in non-market-cap-weighted/smart beta ETFs increased to 44% in 2017, up from 37% in 2016.

“Meanwhile, institutions continue relying on ETFs as a liquid, fast and relatively low-cost tool in a wide range of tactical tasks, such as managing cash flows and making tactical changes to their portfolios,” Greenwich Associates reports.

Overall, about a third of current ETF users in the study plan to increase allocations to the funds in the coming year, and significant shares of non-users say they are likely to start investing in ETFs in the next 12 months.

“Institutions are planning the biggest allocation increases in fixed income, where they are using the funds to enhance liquidity and otherwise prepare for a new era of quantitative tightening,” McCollum concludes. “These results point to continued growth in institutional ETF investment in the remainder of 2018 and into 2019. That growth could actually accelerate if continued increases in volatility place a premium on ETF features, including enhanced liquidity, operational efficiency and lower costs.”

Additional findings and other research reports are available at https://www.greenwich.com/

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