Compliance September 13, 2018

Congressional Democrats Continue Butch Lewis Act Advocacy

The Butch Lewis Act offers a way to preserve union retiree pension benefits through an emergency loan program funded with proceeds from Treasury bonds; the legislation this week received a 10-year CBO cost assessment of $34 billion.

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The Congressional Budget Office (CBO) has finalized its estimate of the cost of implementing the Butch Lewis Act legislation aimed at solving the multiemployer pension underfunding crisis.

The CBO analysis suggests the Butch Lewis Act would cost approximately $34 billion to implement over the 2019 to 2028 period. According to Democrats in the Senate and House of Representatives, this amount is less than half of what they estimate to be the likely cost of propping up the Pension Benefit Guaranty Corporation’s (PBGC) severely stressed multiemployer pension insurance program, should no other corrective actions be taken. 

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Rather than allowing more multiemployer pension plans to fail and start drawing benefits from the PBGC’s already stressed multiemployer pension insurance pool, the Butch Lewis Act would see Congress dedicate a specific “legacy fund within PBGC to ensure that multiemployer pension plans can continue to provide pension benefits to every eligible American for decades to come.” Specifically, the Butch Lewis Act offers a way to preserve retiree pension benefits through an emergency loan program funded with proceeds from Treasury bonds. The revenue that would be redirected to help keep multiemployer pensions from failing would be generated by closing “certain tax loopholes that allow the wealthiest Americans to avoid paying their fair share of taxes.”

For context, in December 2014, Congress approved and President Obama signed a spending bill that included provisions that allow for dramatic cuts to financially troubled multiemployer pensions. Under these provisions, the pension benefits of retirees could be cut by 30% or more, and this has already occurred. Before the law was changed, it was illegal for an employer to cut the pension benefits retirees have earned. But even with this new avenue for cutting benefits being made available, numerous union pension plans are still on a path towards collapse. One recent report published by the Society of Actuaries (SOA) identifies more than 100 such plans “that are meant to be representative of the larger problem.” The estimated unfunded liability of these plans is $107.4 billion when measured at a 2.90% discount rate. The report identifies some 21 plans with approximately 95,000 participants that are projected to become insolvent by 2023, and 48 plans with approximately 545,000 participants are projected to become insolvent by 2028. 

The Congressional Democrats base their savings arithmetic on the fact that PBGC Director Thomas Reeder last year testified before the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions. During his testimony, Reeder noted that the PBGC’s multiemployer program is “already projected to fail with a deficit of over $67 billion.” Considering other potential costs, when the PBGC multiemployer program fails, it will cost $78 billion just to make the PBGC whole, he testified. Previously, according to Congressional Democrats, the CBO has estimated the cost of backstopping the PBGC should it fail could be as much as $101 billion dollars over 20 years.

The Congressional Democrats say the Butch Lewis Act is a far better approach to this problem than just letting the PBGC multiemployer pension program continue to deteriorate, and not least because, on average, only about two-thirds of the pension benefits are guaranteed by the Pension Benefit Guaranty Corporation. While the union pensions would in effect be receiving a taxpayer funded bailout through this legislation, innocent plan participants would not lose promised pension benefits. In addition, Democrats argue, the participants would not need additional public services to compensate for the loss of pension income.

Products September 13, 2018

Investment Product and Service Launches

Securian Incorporates Custom Investment Models and American Century Expands ETF Suite.

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To help financial advisers stand out from competitors in today’s competitive retirement plan marketplace, Securian Financial is adding unitized model portfolios to its suite of 401(k) investment solutions.

Securian Financial’s program, offered in conjunction with Mid Atlantic Trust Company, integrates custom investment models with Securian’s recordkeeping services, resulting in a platform featuring valued services for advisers’ clients. There is no asset minimum, making this typically large client service available to plans of all sizes.

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“Unitized model portfolios are for professionals interested in taking target-date funds [TDFs] to the next level by building customized risk-based solutions for participant usage,” says Kent Peterson, a retirement solutions vice president with Securian Financial. “They provide a value proposition and competitive differentiator to retirement plan specialist advisers who focus on investments as part of their practice. Wealth management firms that, in addition to working with individual investors, offer retirement plan consulting to small businesses find unitized model portfolios particularly appealing and highly efficient.”

American Century Expands ETF Suite

American Century Investments has announced  another expansion of its suite of exchange-traded funds (ETFs). In particular, the American Century Quality Diversified International ETF (QINT), the American Century STOXX U.S. Quality Growth ETF (QGRO) and the American Century Diversified Municipal Bond ETF (TAXF) are now available to clients and investors and are listed on the NYSE ARCA. STOXX is a registered trademark of STOXX Ltd.

“We are building a lineup of ETFs that apply our unique insights to solve common investment problems and help investors achieve their goals,” says Edward Rosenberg, senior vice president and head of ETFs for American Century Investments. “We are excited to launch these additional funds.”

The American Century Quality Diversified International ETF and the American Century STOXX U.S. Quality Growth ETF utilize American Century Investments’ Intelligent Beta methodology, which systematizes many of the same attributes that fundamental research and security selection seek to identify, but in a rules-based, indexed approach.

The American Century Quality Diversified International ETF is a foreign large blend fund that seeks to enhance core international exposure. Its rules-based approach analyzes each stock’s quality, growth and value characteristics to select individual securities. It also dynamically adjusts exposures in an effort to take advantage of prevailing market conditions.

The American Century STOXX U.S. Quality Growth ETF is a large-cap growth fund that seeks to enhance the core growth component of investor portfolios. The fund features a rules-based approach to identify stocks that feature a combination of quality and growth. The methodology distinguishes between stable growth and pure growth companies, dynamically allocating to each category and adjusting sector exposures, depending on the market environment.

Both funds will be managed by senior vice president and portfolio manager Peruvemba Satish and ETF portfolio manager Rene Casis. Satish leads American Century Investments’ global analytics team and joined the firm in 2014. Casis joined American Century Investments in early 2018 after serving in ETF portfolio management roles with BlackRock, Barclays Global Investors (BGI) and 55 Institutional.

The third fund, American Century Diversified Municipal Bond ETF, is an actively managed municipal bond fund that combines investments in thoroughly researched high yield and investment grade municipal bonds. Designed for investors seeking current income, the fund dynamically adjusts investment grade and high yield exposures based on prevailing market conditions. Senior Vice President and Portfolio Manager Steven Permut and Vice President and Portfolio Managers Joe Gotelli and Alan Kruss are managing the fund. The firm’s municipal team averages 24 years of industry experience coupled with an average tenure of 21 years with the firm.

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