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We are delighted to introduce you to Barb Myers, our newest consultant at Highland Consulting Associates.

While Barb may be new to Highland, she has over 30 years of experience. She is a pro in the world of investment management, especially in the areas of research, asset allocation and portfolio construction for institutional and individual investors.

In her longstanding role as head of investments and portfolio management of KeyBank’s nonprofit group, Barb managed the bank’s largest institutional accounts, select private clients, and a team of portfolio managers, overseeing more than $5 billion in assets under management. In recent years, Barb expanded her investment responsibilities further to include the bank’s wealth management clients nationwide. As Chief Portfolio Strategist she developed the portfolio construction process for the private bank and managed the team of multi-strategy research analysts.

The central complaint of lawsuits filed against ERISA plan sponsors since 2006 has shifted with the financial markets like a seesaw.

When the markets were anemic and participants’ savings suffered, lawsuits alleging failures in diversification and offerings of poor-performing funds soared. When participant accounts began to benefit from bull-market returns, complaints shifted to allegations of excessive fees.

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Following the January 2018 meeting of the American Economic Association (AEA), the Wall Street Journal and other business publications ran these alarming headlines:

Major Problem Reported With 401(k) Auto Enrollment

Downside of Automatic 401(k) Savings: More Debt

401(k) Auto-enrollment Doesn’t Stop Workers from Taking on More Debt

And the sub-headings were nearly as alarming. Consider this one: “New research finds employees auto-enrolled in retirement plans borrow more than they otherwise would have, offsetting savings.” We’d like to propose another headline that our interpretation of the research would support: 401(k) Auto Enrollment Increases Net Worth.

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403(b) investment arrangements were simple at their inception in 1958.

403(b) arrangements were originally created to be tax-sheltered, personal investments to supplement pensions of employees in public schools, nonprofits (hospitals, private educational institutions, etc.) and churches. These 403(b) arrangements operated largely outside of the purview of employers, without employer match contributions or required minimal employer involvement. Relationships were typically established directly between employees and retirement investment service providers.

Consequently, most of these arrangements were exempt from ERISA (Employee Retirement Income Security Act of 1974) requirements. Today, an estimated 60% of 403(b) assets are not held in ERISA plans.

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Just days ago, On May 22, 2017, Labor Secretary Alexander Acosta published a commentary in the Wall Street Journal that stated that there is no “legal basis to change the June 9 date,” for the Department of Labor’s (DOL) final rule defining a “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) and related exemptions.

The final rule, six years in the making, will go into effect on June 9.

Let’s recap recent events and why this action may matter to you and other sponsors and participants in retirement savings plans.

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UPDATE: On February 3, 2017 President Trump issued a memorandum directing the Department of Labor (DOL) to consider revising or rescinding the DOL Fiduciary Rule. (This rule, some 1,023 pages in length, expands the definition of an “investment advice fiduciary” and significantly increases the universe of those legally and ethically bound by the Employee Retirement Income Security Act of 1974 (ERISA) standards that govern fiduciaries.)

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In 2016, a trio of renowned universities received unwelcome publicity. Yale University, New York University and the Massachusetts Institute of Technology were each sued for breaches of fiduciary duties related to their 403(b) plans.

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An employee stock ownership plan (ESOP) is an employee benefit plan that provides employees with ownership interest in their company. The ESOP is implemented via a trust, where the trust is the owner of the company shares and employer ESOP plan participants are the beneficiaries of the trust.

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On April 8^th 2016 the US Department of Labor (DOL) released a final regulation which redefines a retirement plan “fiduciary.” The final rule follows several years of discussion and debate and affects plan sponsors in important ways.

But you’re probably wondering:

“Is this a game-changer and what does the final language of the new fiduciary rule mean to me or to my Plan?”

In a few cases, plan sponsors may have to take action to avoid additional liability risk. Most significantly, the rule more broadly defines fiduciaries to include additional types of service providers. Many advisers who historically had not been subject to fiduciary liability in the past will now be subject to that liability going forward. As a result, plan sponsors can expect many advisers and consultants to alter their advice models to comply with the new requirements. Despite these changes, however, possibilities for conflicts of interest remain. The rule’s approach to conflicts of interest still favors the management of conflicts over their systemic elimination.

Retirement plan sponsors should still ask detailed questions of their advisers to understand the potential for biased or conflicted advice.

In this white paper we summarize key features of the rule, highlighting issues which may directly impact plan sponsors. Finally, we suggest several questions plan sponsors should ask their consultants to improve transparency.

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Just a few months ago, UPS announced to 70,000 non-union workers that their pension benefits would be frozen. In order to manage a deficit in U.S. pension obligations of nearly $10 billion, affected workers will stop accruing pension benefits on January 1, 2023. On that date, the package carrier will instead begin contributing 5-8% of salaries into 401(k) savings accounts.

UPS is not alone in making difficult decisions that impact defined benefit (DB) plan funding, and in turn, corporate earnings, balance sheet stability, and the futures of thousands of long-serving employees. With collective unfunded pension obligations among S&P 1500 companies totaling $391 billion at the end of February 2017 (Mercer) and interest rates languishing at historic lows, a majority of employers are reckoning with the same dilemma.

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