Vanguard will introduce environmental opportunities fund, while Lincoln Financial and Stadion Money Management partner on StoryLine Dynamic, a qualified default investment alternative program.
Vanguard to Introduce Environmental Opportunities Fund
Vanguard has announced its plan to launch the Vanguard Global Environmental Opportunities Stock Fund.
The actively managed fund will hold a concentrated portfolio of companies that are involved in the process of decarbonization and derive at least half of their revenue from activities deemed by the fund’s adviser to contribute positively to environmental change. The fund will be managed by Ninety One, an active investment manager with experience in environmental, decarbonization and global investing.
Founded in 1991, Ninety One manages approximately $160 billion globally. The Global Environmental Opportunities Stock Fund takes a structured, research-driven approach to investing that targets companies seeking to accelerate the transition to a low-carbon world. Ninety One’s investment philosophy is focused on the conviction that there are structural growth opportunities resulting from trends in regulation, technology and consumer preferences, which are driving a multi-decade energy transition. The firm believes that companies that successfully navigate this transition are likely to create value for investors over the long term. This will be the first Vanguard fund advised by Ninety One.
The fund is designed for environmentally conscious investors who have a high tolerance for risk and want to augment a broadly diversified portfolio with a satellite position. The fund is expected to launch in the fourth quarter of this year with a competitive expense ratio of 0.75% for investor shares and 0.60% for admiral shares. The fund’s minimum investments are $3,000 for investor shares and $50,000 for admiral shares.
Lincoln Financial and Stadion Money Management Launch StoryLine Dynamic
Lincoln Financial Group has announced the launch of Stadion’s StoryLine Dynamic, a qualified default investment alternative program built in collaboration with Stadion Money Management.
The QDIA program is designed to evolve with plan participants and transition their investments to a more personalized allocation strategy as they near retirement age. Built with Stadion’s technology, this solution combines a target-date fund for younger individuals with Stadion’s StoryLine managed account service for participants age 50 and older.
“This new offering will allow plan sponsors to offer a more robust, customized retirement solution for participants who are not as actively engaged in making investment decisions to help them achieve better retirement outcomes,” says Ralph Ferraro, senior vice president, head of retirement plan services at Lincoln Financial Group.
Through this solution, plan participants can benefit from professional asset allocation that can adapt to their specific needs as they near retirement. According to research from Lincoln Financial, more than a third of plan participants report not understanding what investments to choose or how to manage investments as they age.
Stadion Money Management (recently acquired by Smart, a global savings and investments technology provider) is a managed account provider offering personalized retirement services to plan sponsors and their participants.
In Private Letter Ruling, IRS Permits DB-to-DC Asset Transfer
The ruling only applies to the case at hand, but there are still lessons to be learned from an employer’s successful appeal to transfer excess assets from a terminating pension to three open DC plans.
The IRS has published a new private letter ruling that addresses an employer’s request to transfer excess assets from a terminating pension to a set of open defined contribution plans.
The employer’s request specifically asks the IRS to weigh in on the proper treatment of the assets under Section 4980 of the Internal Revenue Code. As recounted in the private letter ruling, the pension plan in question is a defined benefit pension plan that is designed to be a tax-qualified plan under IRC Section 401(a). It was established in 1987 via the merger of several DB pension plans.
Effective in 2004, all newly hired employees of the employer were generally excluded from participating in the pension plan. More recently, in September 2021, the employer adopted a resolution to terminate the pension, and the process is expected to be completed this year. As the IRS ruling notes, the pension plan will have excess assets remaining in its trust after it satisfies all of its liabilities to its participants and their beneficiaries.
According to the IRS, the resolution terminating the pension plan authorized the transfer of all or a portion of the plan’s excess assets to a series of three qualified replacement plans under IRC Section 4980(d)(2), one of which operates in Puerto Rico.
“The amount to be transferred to each of the receiving plans will be based upon the projected future funding obligations for nonelective employer contributions (or other types of permissible employer contributions under section 4980(d)(2) of the Code) in each of the receiving plans,” the private letter ruling states. “Taxpayer will place the entire amount of excess assets transferred to each receiving plan in a suspense account, and then allocate assets from the suspense account to the participants’ accounts no less rapidly than ratably over the seven-plan year period beginning with the plan year of the transfer.”
The total amount of excess pension plan assets that will be transferred to the receiving plans will exceed 25% of the total amount of excess assets under the pension plan, the IRS ruling explains, and each active participant of the pension plan will be an active participant in one of the receiving plans.
The terms of the receiving plans will be amended to provide for the creation of a suspense account and a minimum allocation of assets from the suspense account for each plan year over an allocation period of seven plan years in an amount equal to a ratable portion of the assets in the suspense account at the beginning of the plan year, the ruling says. However, for the plan year that includes the initial transfer of excess assets from the pension plan, the ratable portion allocation will be based on the amount of the excess assets transferred to the receiving plan as of the date of the transfer.
The required minimum allocations for each plan year will be used to provide nonelective and other permissible employer contributions under each receiving plan for each plan year in the seven-year allocation period.
Having set out these details, the letter ruling notes that the employer in this case has asked the IRS for a number of rulings on potentially sensitive taxation issues pertaining to the transfer of the assets. For example, the employer requested that the aggregate amount transferred will not be included in the gross income of the employer as a taxpayer. The employer also asked that the aggregate amount transferred will not be treated as an employer reversion for purposes of IRC Section 4980, and thus that the asset transfer will not be subject to normal excise tax under that section of the IRC.
After weighing the applicable laws and regulations, the IRS approved these and other requests related to the asset transfer.
“Section 4980(d)(2)(B)(iii) provides that in the case of the transfer of any amount under section 4980(d)(2)(B)(i) from a terminated plan, that amount is not includible in the gross income of the employer, no deduction is allowable with respect to the transfer, and the transfer is not treated as an employer reversion for purposes of section 4980,” the ruling states. “In this case, the pension plan will transfer more than 25% of the excess pension plan assets that would otherwise be a reversion to the taxpayer to Plan 1, Plan 2 and Plan 3, considered collectively to be a qualified replacement plan. Therefore, the direct transfers from pension plan to the receiving plans of a selected transfer amount that is in excess of 25% of the maximum amount that the taxpayer could receive as an employer reversion from pension plan will not be included in the gross income of the taxpayer, no deduction will be allowable with respect to the aggregate amount transferred, and the aggregate amount transferred will not be treated as an employer reversion for purposes of section 4980. As a result, [the employer/taxpayer] will not be subject to excise tax under section 4980 with respect to the amount transferred.”
Following the publication of the private letter ruling, attorneys with the law firm Grant Thornton published their own analysis of its contents. As the attorneys pointed out, IRC Section 4980(a) generally provides for a 20% excise tax on any reversion from a qualified retirement plan. They noted that an employer reversion is generally defined as “the amount of cash and the fair market value of any other property received—directly or indirectly—by an employer from a qualified retirement plan.”
The excise tax is increased to 50% unless the employer either establishes or maintains a qualified replacement plan, or unless the terminating plan provides for certain benefit increases. The Grant Thornton attorneys wrote that a QRP must meet certain conditions including, but not limited to, maintaining at least 95% of the active participants in the terminating plan who remain as employees of the employer after the termination as active participants in the QRP and transferring at least 25% of the total excess assets from the terminating plan to the QRP.
“To the extent the excess assets are transferred to a QRP, including assets in excess of the 25% minimum amount, the excess assets are not includible in the taxable income of the employer, are not deductible by the employer and are not treated as an employer reversion subject to either the 20% or 50% excise tax under Section 4980,” the attorneys explained. “In contrast, any excess assets received by the employer (i.e., not transferred to the QRP) would be subject to the 20% excise tax and includible in the employer’s taxable income.”
The attorneys said the IRS’ new ruling determines that the three receiving DC plans have collectively met the conditions to be treated as a QRP—even though they did not separately meet the conditions.
“For example, each of the receiving plans had less than 95% of the active participants in the terminating pension plan, but collectively had at least 95% of the active participants in the terminating plan,” the attorneys wrote. “Similarly, the total amount transferred to the three receiving plans would exceed 25% of the total amount of the excess assets of the terminating plan.”
