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From time to time, we have conversations with clients and prospective clients about unsolicited contact from someone informing them that their retirement plan has a deficiency. Sometimes solicitors suggest that the deficiency rises to the level of a breach of fiduciary duty. Worse, some solicitors have suggested the deficiency may make the plan sponsor’s retirement plan committee members personally liable.

If you are a plan sponsor who has received this kind of communication, you know how disconcerting it can be, but Highland can help. Let’s consider how to interpret advice that can be unnecessarily alarming. 

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Managing Pension Risk in a Volatile Interest Rate Environment

The persistent decline in interest rates has presented challenges for pension plan sponsors, especially those with a funding deficit. The most obvious challenge is the upward pressure on liabilities. The other is the difficulty of managing the asset portfolio with continuing expectations of lower market returns. In the absence of fixed-income investments that offer attractive yields, plan sponsors have been forced to “reach for yield” to close the funding gap by investing in asset classes that offer the potential for higher returns, albeit with significantly greater risk. As we recover from an economy affected by a global pandemic and resulting shutdowns, what might higher inflation and rising interest rates mean for your defined benefit pension plan?

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A Rational Response to a Wild Ride

(Or, keep your seatbelts fastened until the ride comes to a complete stop.)

How a Policy Prescription Guards against Emotional Decision-making, and Leads to Positive Outcomes.

Over the past two years, financial markets and the economy have been on an unprecedented wild ride, taking investors along to experience heights of exuberance to depths of fear (and back) several times. Adrenaline rushes and roller-coaster rides are hardly what pension plan sponsors line up for. But chills and thrills was what much of 2018 through 2020 had in store for investors. We witnessed how that kind of environment can elicit strong emotion responses. And also how emotional decision-making can lead investors far afield of the outcomes they’d wanted.

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UNTAPPED: Despite CARES Act Provisions, Retirement Savers Leave Balances Untapped and Benefit from Staying the Course

In March 2020, Congress passed the $2 trillion relief package “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) to provide emergency assistance for individuals, families, and businesses affected by the coronavirus pandemic. Among other provisions, the CARES Act made accessing a retirement saver’s qualified plan balances easier and less costly.

Through December 2020, individuals can take a coronavirus-related distribution (CRD) from their 401(k) account of 100% of their account balances (up to $100,000) without incurring the usual 10% penalty. Not only that, the CARES Act has allowed individuals up to three years to pay the taxes owed on the withdrawal, softening what otherwise could be a major tax blow. The act also permits repayment of the withdrawal to the plan (if the plan allows it) or an IRA to avoid taxes.

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The CARES Act: A Checklist of Considerations for Retirement Plan Sponsors

The Coronavirus pandemic overtook our daily lives and thriving economy like a violent storm. Almost as quickly, Congress reacted with legislation to lessen its impact on American workers by passing the Coronavirus Aid, Relief and Economic Security (CARES) Act. Providing nearly $2 trillion in economic relief, the Act included temporary provisions to help employees access their retirement funds if they’d been impacted directly by COVID-19.  One of the benefits offered is an unmitigated win for those 70½ years old and older: 

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SCHOOLED: The SECURE Act Passed the House with Flying Colors. Why it’s Failing in the Senate. (And why that matters.)

On May 23rd, in a blue moon, bi-partisan, super-majority effort, the House passed a bill intended to encourage retirement savings. It appeared to be that simple. Even elementary. Given the passage of the bill by a vote of 417 to 3, the Setting Every Community Up for Retirement Enhancement (SECURE) Act, seemed a sure thing for quick approval in the Senate.

But…Not. So. Fast. The bill has been suspended in the Senate due to “holds” placed by several Republican senators which have stalled its expedited passage under “unanimous consent” and, instead, re-routed it through committee consideration and a more typical schedule of floor debates and votes. And why would Senator Ted Kruz (among others) object to the bill?

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What Keeps You Up At Night? Mind your Ps and get some Zzzs.

If your personal finances keep you up at night, you’re not alone. Bankrate research conducted in 2018 reported that seven in 10 Americans have occasional sleepless nights due to worry. Concern over money was a concern for more than a third of worriers.  By the way, the number one cause of worry (41%) was relationships. The phone calls we received over that last year corroborate those findings. We fielded calls and emails asking:

  • Will the deep state bring down our country?
  • Will Congress ever work together for a common good again?
  • Will changing social values and norms weaken families?
  • Will rising debt, foreign crises and world economics erode our financial markets—and with them, our financial security?

Few (if any) of the questions were rooted in hope for the future. Instead, most of the questions were incited by a steady stream of sensationalized headlines meant to breed fear. We realized that the questions weren’t truly about the deep state and global market meltdowns. The underlying question was this: “How can I deal with the anxiety I’m feeling about the future?” Now that’s a million dollar question. It’s a question that can keep you up at night if your planning isn’t built with the three Ps: proper Perspective, established Process and enduring Principles.

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Surprise! (Surprise Again!) Three factors pension plan sponsors should consider as the IRS makes (another) surprise move on lump sum payouts.

In a surprise move during the summer of 2015, the Treasury Department and the IRS announced that defined benefit (DB) plan sponsors would be restricted from offering lump sums to retirees receiving annuity payments. The reasoning behind this move seemed clear. Asking retirees to choose between continued annuity income and a lump sum, given the retirees’ general informational disadvantage, seemed to introduce potential conflicts. During that time and under President Obama’s administration, the IRS expressed concern about participants being shortchanged on the value of their vested benefits if they switched from life-long monthly payments to a lump-sum distribution once payouts were underway. This protection also kept the investment and longevity risks of pension plans squarely on the shoulders of plan sponsors. So while the suddenness of the move was unexpected, the rationale was consistent with the protective stance that U.S. regulators have adopted with regard to DB plans.

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3(21) or 3(38). Whatever it Takes. Understanding Fiduciary Responsibility.

 

In the 1983 film Mr. Mom, Michael Keaton plays a downsized auto engineer named Jack who tends the homefront while his wife, Caroline, goes to work as the family breadwinner. When Caroline’s boss arrives to pick her up for a business trip, Mr. Mom, chainsaw in hand, leads him to the renovations ongoing in the house. He asks Jack if he’ll be wiring the house for 220 volts, and Jack replies with the movie’s signature line: “Yeah, 220, 221—whatever it takes.”

ERISA plan management is increasingly complex (and sometimes litigious). It’s no wonder a plan sponsor might say their investment adviser is serving as a fiduciary—yeah, a 3(21) or 3(38) fiduciary. Whatever it takes. The understanding of the two may be unclear, but it’s not unimportant.

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Highland Welcomes Barbara Myers, CFA

Barbara Myers

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.

Barb has joined Highland to apply her experience and know-how doing what she loves most, and that’s “the important work of helping organizations grow their resources to accomplish their objectives and achieve their goals—whatever those may be.”

Barb sees her role as a catalyst, giving lift to the important work of the clients she serves. “I’ve been privileged to witness the amazing work done by so many generous people,” said Barb. “My hope is to positively impact the financial resources of those charitable organizations, corporations, and individuals so they may contribute in greater ways to their communities, the lives of their employees, or the worthy causes to which they’re dedicated.”

We do hope you’ll have the opportunity to meet her. Welcome to Highland, Barb. [Click to Continue Reading...]