Benefits April 22, 2008

403(b) Summit: New 403(b) Guidelines Require a Strategy

April 22, 2008 (PLANSPONSOR.com) - Amelia Island, FL - The new 403(b) guidelines create the need for the evaluation of existing 403(b) programs and a strategy for programs going forward. To create consensus among plan decisionmakers it is a good idea to establish a plan and investment committee.
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Vince Rainforth, VP, Tax Exempt Market, Principal Financial Group, told attendees of a panel discussion at PLANSPONSOR’s first 403(b) Summit in Amelia Island, Florida, that individuals who choose plan investments and make plan decisions are plan fiduciaries. They should be educated about what it means to be a fiduciary and should be informed of the prudent man rule.

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Panel member Palmer Whitney, National Managing Director for Non-Profit Markets, U.S., MassMutual, explained that the committee for hospitals and charitable organizations will include an executive, a representative from HR, benefits managers, controllers, and perhaps an outside director. For schools, the committee will likely include the chairman of the board of education or university president, a representative from HR, and different department heads, he said.

Once the committee is established, Rainforth said, its first step should be to examine the existing 403(b) program to see what, if anything, is already in compliance with the new regs and what needs to be changed. Michael Morris, Director, Institutional Consulting at RSA, added that the committee should be about best practices. The committee should first define what the program should look like, establish processes for administration and monitoring, and then begin the search for vendors, he said.

Morris also suggested the committee establish an Investment Policy Statement (IPS). The IPS will include what types of investments should be chosen and guidelines for benchmarking and ongoing evaluation of the investments. The IPS can also tell the committee when and how to fire an investment provider and establish guidelines for notifying participants of investment decisions, according to Morris. He said the commit should put as much into the IPS as possible to mitigate liability.

Hiring an adviser is another suggestion Morris had for plan and investment committees. He said an adviser can help benchmark providers and get the best prices, benchmark the 403(b) program itself, and provide education to the sponsor and participants.

All the suggestions by panel members will help create consensus among plan decisionmakers, but sponsors may find some objections by plan participants. Rainforth suggested sponsors meet with employees and ask them for their top four reasons they want the program to stay the same, predicting no one will be able to list four. He also told sponsors they should explain that participants will now get a higher standard of plan monitoring and participant level recordkeeping for their accounts.

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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