October 1, 2014 (PLANSPONSOR.com) - Bristol-Myers Squibb Company announced it will settle $1.4 billion in pension obligations through the purchase of a group annuity contract from The Prudential Insurance Company of America.
The
move affects approximately 8,000 U.S. retirees and their beneficiaries who
started receiving their monthly retirement benefit payments on or before June
1. Bristol-Myers Squibb’s U.S. Retirement Plan is in a strong financial
position, and the obligations associated with this transaction will require no
additional cash contributions by the company. There will be no change to the
monthly retirement benefit payments currently received by retirees and their
beneficiaries. All other plan participants will stay in the company’s plan.
According
to the company, “The transaction reduces risk in the plan and better manages
the ongoing variations in cost associated with its maintenance, while entrusting
current retirees’ and their beneficiaries’ pensions to a financial institution
with expertise in the long-term management of retirement benefits.”
The
company’s pension committee engaged Fiduciary Counselors Inc., an independent
fiduciary services firm, to represent the plan and all of its participants and
their beneficiaries, including those remaining in the plan, to objectively
select the safest available annuity as defined by the U.S. Department of Labor (DOL)’s standards. Fiduciary Counselors selected a Prudential contract that provides an
additional safeguard by segregating assets in a separate account dedicated to
the payment of benefits to plan retirees and their beneficiaries.
All other
participants and their beneficiaries in the company’s plan with accrued
benefits will remain in the current plan, including retirees who participate in
collectively bargained plans or the Puerto Rico plan, as well as certain
retirees with variable benefit payments. The transfer to Prudential is expected
to occur in December and is subject to the satisfaction of closing conditions.
Retirement Plan Investors Eye PIMCO Total Return With Caution
September 30, 2014 (PLANSPONSOR.com) - Outsized
redemptions from PIMCO’s $221.6 billion flagship fund are a concern for
retirement plan advisers, sponsors and participants.
Any immediate redemptions following Friday’s sudden departure of the fund’s portfolio manager, Bill Gross, will be driven by
individual participants, Jeff Holt, an analyst with Morningstar, tells PLANSPONSOR.
The next, possibly more critical pressure on the fund’s
assets would be retirement plan sponsors removing the PIMCO Total Return fund
from their investment lineups, he says. This is a lengthy process that starts
with retirement plan sponsors and their advisers first putting the fund on
watch, reviewing it in investment committee, and, if deciding on a change, then
issuing a 30-day notice to participants.
“Realistically, these outflows won’t be apparent until 2015,
and they will come at different times as plan sponsors reach their decisions,”
Holt says. “Other plan sponsors may give PIMCO a longer leash” and delay a decision
to replace the fund until many months from now.
Nonetheless, reviews are inevitable, Holt says: “The PIMCO
Total Return Fund is common in most defined contribution [DC] plans—it looks like
it represents $100 billion in DC plans—so it is a big piece of the pie, and a
lot of participants have exposure.”
Fund reviews triggered by the departure of a prominent
portfolio manager happen all of the time, but because Bill Gross was the most
famous bond fund manager of the biggest bond fund in the world, the news has
put sponsors on alert, says Dan Peluse, director of corporate plan services at
Wintrust Wealth Management in Chicago. As a result, some plan sponsors may
hasten their review process. “With every investment policy statement, you want
discretion over odd circumstances, so some sponsors could probably move out
more quickly than they normally would,” he tells PLANSPONSOR.
In the meantime, as far as the data on outflows
and the fund’s net asset value since Gross’ departure on Friday, Holt says it
is too early to determine a pattern, but Morningstar will be paying close
attention to these figures and making them available to advisers, sponsors and
participants. Since May of last year, investors have redeemed $68.8 billion
from the fund.
No Immediate Decisions
Retirement plan advisers say they will be paying close
attention to redemptions from the PIMCO Total Return fund, along with its
performance and management—but they will not be making any immediate
recommendations to replace it. “With all
but one exception, my clients are cool, calm, collected and rational and not
looking to immediately put the fund on watch or alert, “ one adviser tells PLANSPONSOR, speaking on condition of anonymity. “We are standing by PIMCO. Our
clients are standing by PIMCO.”
Linda Lubitz Boone, president of Lubitz Financial Group of
Miami, issued similar commentary on Gross’ departure to her clients, saying: “We
are not going to take a knee-jerk reaction and sell out of this fund, because
the underlying bonds in the fund have been selected for a good reason. In the
short term, if there are large withdrawals, PIMCO has advised us that due to
their current secular and cyclical outlooks, they had raised their liquidity
position so the impact on the share price should not be impacted significantly
should they have to liquidate to raise cash in an unfriendly environment.”
A call to a PIMCO spokesperson for remarks on the impact of
Gross’ departure on retirement plans and participants—as well as the firm’s
capability of handling a high volume of redemptions—was not returned by press
time. However, Michael Herbst, director of active strategies research at
Morningstar, notes in commentary on the firm’s website that “at least a third
of the fund’s holdings is in highly liquid securities—before you even account
for cash or coupon payments into the fund.” However, Herbst adds, “that
situation could change as we start to see flow data.”
Although Morningstar downgraded the Total Return Fund from a
five-star gold rating to a four-star bronze rating Monday night, Morningstar
notes that the three managers who have replaced Gross on the Total Return fund
are well-experienced and have been well-known to the research firm for more
than a decade. The new managers had been providing bottom-up analysis for the
flagship fund as well as several other of the 26 funds that Gross ran, and also
served on the PIMCO investment committee, Herbst says. “This is not a gloom and
doom situation for PIMCO by any stretch, but the things we will be watching
very closely are flows and personnel departures,” he says.
Lipper Senior Research Analyst Jeff Tjornehoj expects a “whole
spectrum of reactions” from plan sponsors, but one thing he does believe is that
large redemptions are inevitable. “Bill Gross was so closely associated with
management of this portfolio that investors are going to feel inclined to
restart the core bond fund search again,” he says. “For plan sponsors, it is
more than just performance they are concerned about. They look at management
and other personnel moves, and PIMCO has had a lot of those this year. It is
going to be a trying time for PIMCO to retain some of those assets, because
plan sponsors do care a lot about the structure and management of an investment
firm, and if they sense any amount of disorder, that causes the hairs on the
back of their necks to rise.”
Already on Watch
Given the management turbulence at PIMCO that led to the
departure of the man who co-founded the company in 1971, some advisers had
already put the Total Return fund on watch. Another adviser speaking
anonymously says, as PIMCO began to replace management and research teams on
the star fund manager’s funds in the past year, Gross’ departure “is a
situation that we anticipated. We started moving out of PIMCO Total Return”
when it became obvious that PIMCO was building a foundation for Gross’
replacement. Additionally, “unstable management was an issue.” And—“the fund
was simply too big, and it could not outperform the market because it became the market.”
In commentary to its clients, Ascende Wealth
Advisers (AWAI) of Houston said: “For 401(k) plan fiduciaries, this is an
important development. AWAI and Ascende’s retirement team have had the entire
PIMCO fund family on watch for several months. Going forward, it will be moved
to an ‘alert’ status.”