Benefits April 22, 2008

403(b) Summit: 403(b) Move to ERISA-like Structure not a Bad Thing

April 22, 2008 (PLANSPONSOR.com) - Amelia Island, FL - A written plan document, coordination of distribution and transfer activity, contribution limits and remittance timing: under the new IRS regulations 403(b) plan structure and administration will look much like that of their Employee Retirement Income Security Act (ERISA)-governed 401(k) counterparts. Will this work for the 403(b) plan model?
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On a positive note, Stephen P. DesRochers, Wealth Management Advisor, Merrill Lynch Private Client Group, suggested to attendees of PLANSPONSOR’s first 403(b) Summit in Amelia Island, Florida, that this “ERISA-fication” of 403(b) plans will provide an opportunity for sponsors to provide a good benefit to employees to help them retire. Emile Schoffelen, CEO, Cammack LaRhette Consulting, added that sponsors will need the services of experts to facilitate the process of transforming their 403(b) programs, and “the faster sponsors can get over any anger or fear they are feeling about the new rules, the faster these facilitators can help.”

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David Levine, Attorney, Groom Law Group, Chartered, said ERISA-fication is an expansion of sponsors’ liability and involves figuring out inconsistencies in their programs’ processes and evaluating providers. Levine agreed sponsors will need help; however, he noted: “It is possible to address these issues without it being the end of the world.” Providers offer approaches so that plan sponsors won’t “break the bank” by going to legal counsel or an adviser, he added.

Paul Hebert, Area VP, Compliance, Gallagher Retirement Services, continued the positive tone started by DesRochers by saying the ERISA-fication of 403(b) plans will educate and help tax-exempt employers move from their current plan model to something more manageable.

Prudence

ERISA panel members said 403(b) plan sponsors should look to the standard of prudence. Hebert told 403(b) sponsors that “just because you’re not subject to ERISA doesn’t mean you don’t have this higher standard.” He added that sponsor decisions will still be judged by what is reasonable and whether a prudent man would have done the same, just as ERISA-governed plans are. Sponsors should use this prudent man standard to give themselves some protection.

Levine agreed that ERISA is a good “gold standard” of prudence, but sponsors also need to look to state laws on contracts and investments because, if a plan is not governed by ERISA, these laws govern. He added that prudence in maximizing the plan benefit to participants includes controlling plan fees and costs.

Adding to the point that 403(b) sponsors will need help in the process of complying with new regulations and ongoing, Schoffelen noted that, although advisers or consultants cannot take away the fiduciary responsibility assigned to sponsors, they can share the responsibility. Levine added that a good consultant knows all processes and can help keep a plan in compliance.

DesRochers pointed out that advisers have been working with providers to ERISA plans and can be a liaison to these providers for non-ERISA plans. Advisers can also help 403(b) sponsors establish processes and documentation sponsors can use to defend these processes, as well as take on tasks for sponsors such as participant education, he said.

Schoffelen agreed it is a good idea to bring in an adviser for certain tasks because 403(b) sponsors will need help most 401(k) sponsors do not need. He noted, for example that participant education and enrollment meetings will have to take place in multiple locations for public school employers and may need to take place at multiple times for employers such as hospitals who have workers for different shifts.

Administration April 21, 2008

AMR Unloads American Beacon Money Management Unit

April 21, 2008 (PLANSPONSOR.com) - Saying it felt the need to concentrate on its core air carrier business, the parent company of American Airlines has hammered out a $480-million deal to sell its asset management subsidiary to two private equity firms.
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A news release from the Fort Worth-based AMR said its deal to offload American Beacon Advisors, Inc., is with Lighthouse Holdings, Inc., which it said is owned by   investment funds affiliated with Pharos Capital Group, LLC and TPG Capital. According to the announcement American Beacon will continue to handle AMR’s pension plan, 401(k), and other health and welfare plans as part of its continuing relationship with the money manager.

“However, to ensure that continuing relationships between American Beacon and American’s pension, 401(k), and other health and welfare plans after closing satisfy the fiduciary duties and other rules that apply to these plans, an independent third party has been engaged to review and approve any such continuing relationships,” AMR said in the news release.

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American Beacon currently provides a number of services for AMR and its affiliates, including cash management for AMR and investment advisory services and investment management services for American’s pension, 401(k), and other health and welfare plans. 

AMR said by selling the asset manager, it can reap the biggest value from American Beacon and focus on its airline. According to the announcement, Monday’s deal is mostly cash, but will involve AMR keeping a 10% equity stake in American Beacon.

American Beacon currently serves as the investment manager of the American Beacon Funds, a mutual funds family with both institutional and retail shareholders, and provides customized fixed income portfolio management services. American Beacon Advisors has grown average assets under management to $65 billion in 2007.  For 2007, on a separate company basis, American Beacon’s gross revenue was $101 million and income before taxes was approximately $48 million, both of which increased approximately 40% over 2006.

“What started out more than 20 years ago as a smart way to manage AMR’s benefit plans and cash has evolved and grown significantly into a successful financial management and advisory firm that is fully capable of standing on its own and is well positioned to pursue further growth opportunities outside of AMR.” said AMR Chairman and CEO Gerard Arpey, in the announcement. 

AMR expects to close the sale this summer subject to satisfactory completion of customary closing conditions as well as the approval of the Board of Trustees of the American Beacon family of mutual funds, shareholders of the American Beacon family of mutual funds, and consents from other American Beacon clients.

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