Compliance March 7, 2019

Investment Adviser Sentenced for Defrauding Pension Plan

The Department of Labor found the investment adviser made 63 fraudulent requests to Transamerica for lump sum benefit checks for participants not entitled to plan benefits, in total transferring $2 million from the pension plan to his own accounts.

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After a U.S. Department of Labor Employee Benefits Security Administration (EBSA) investigation of a multi-million dollar pension risk fraud, the U.S. District Court for the Southern District of Florida has sentenced William H. Minor to 42 months in prison, three years of supervised release and a special assessment of $100, as well as to repay $1,636,604 restitution.

Minor, operator of Multi Financial Insurance Corp., a West Palm Beach, Florida, provider of investment advice and administrative services for pension plans, pled guilty in September 2018 to one count of mail fraud. EBSA investigators found that starting in 1991 until June 2016, Minor transferred approximately $2 million from the Rehabilitation Center for Children & Adults Inc. Pension Trust to accounts he controlled.

In October 1991, Minor moved plan assets to Transamerica Life Insurance and Annuity Co., with which he was registered as an insurance agent. Minor falsely told the center and plan trustees his company would work with Transamerica to administer the plan, even though Transamerica had no partnership with Minor and did not conduct any administrative or recordkeeping services for the plan.

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Having achieved control of the plan through his deception, he directed one plan trustee to endorse benefit checks from Transamerica to his company, with the understanding that he would them redirect those funds to certain plan participants. Minor then forged the trustee’s name on additional checks.

EBSA determined that Minor made 63 fraudulent requests to Transamerica for lump sum benefit checks for participants not entitled to plan benefits, in total transferring $2 million from the pension plan to his own accounts.

“Theft of pension plan assets jeopardize the benefits of workers,” says Employee Benefits Security Administration Regional Isabel Colon, in Atlanta. “This case reaffirms the U.S. Department of Labor’s commitment to protect workers’ benefits by identifying criminal activity wherever and whenever it occurs.”

Administration March 7, 2019

Stretch Match Could Lead to Lower DC Plan Deferral Rates

Analyzing a group of plans, pairing certain plans with others that had match formulas that mimic or simulate the stretched match strategy, Vanguard found the former had participation rates that are 20% to more than two times higher than the latter.

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Studies have shown an employer matching contribution is a motivator for employees to save in their defined contribution (DC) plans, and many choose a deferral level that maximizes their matching contributions.

This has led to the idea that stretching the match—e.g. matching 50% of 8% of pay instead of 100% of 4% of pay—will encourage participants to contribute more to their plan. But, a study from Vanguard suggests this may not be true.

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The study is based on 328 voluntary enrollment plans with 452,783 eligible non-highly compensated employees (NHCEs) in 2016. Each of these plans has a single- or multi-tier match formula, and Vanguard limited its study to eligible employees in voluntary enrollment plans, because the defaults chosen in automatic enrollment plan designs have a strong effect on plan participant behaviors. Absent a case study of a plan that stretched the match, Vanguard analyzed a group of plans, pairing certain plans with others that had match formulas that mimic or simulate the stretched match strategy. For example, 100% on 3% of pay paired with 50% on 6% of pay, 100% on 4% of pay paired with 50% on 8% of pay, and 100% on 5% of pay paired with 50% on 10% of pay.

Controlling for employee demographic variables, plan design features and employer characteristics, Vanguard found that higher match thresholds are typically associated with lower employee saving rates. The 100% match plans had participation rates that are 20% to more than two times higher than the plans that stretch the same match value to a higher threshold.

NHCEs had higher predicted employee-elective deferral rates in 100% match designs than in the paired stretched match designs. Elected deferral rates were 73% higher in designs with a 5% match value, 67% higher in the 4% match value plans, and 31% higher in the 3% match value plans. The estimated deferral rate for the 100% match designs results in participants’ receiving more of the full promised match. Plan contribution rates, which include the value of the employer match, were more than double in designs with a 5% or 4% match value and about 40% higher in the 3% match value plans.

Vanguard concludes that stretching a match may have unintended consequences for NHCEs. “Alternatively, strategies such as automatic enrollment with strong initial default deferral rates and automatic annual deferral rate increases, coupled with stretched matches, could be used to improve saving rates,” it says.

Vanguard’s study report is here.

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