Products May 20, 2021

Investment Product and Service Launches

NTAM announces new ESG score; Vanguard expands access to private equity; and MSCI builds private infrastructure modeling service.

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Art by Jackson Epstein

NTAM Announces New ESG Score 

Northern Trust Asset Management (NTAM) has introduced the Northern Trust ESG Vector Score, a measurement that assesses publicly traded companies in the context of financially relevant environmental, social and governance (ESG)-related criteria that could impact their operating performances.

It can be used in constructing and managing investment portfolios and stewardship activities.

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The ESG Vector Score focuses on the magnitude and direction of key ESG-related business issues likely to have a financial impact on companies and a portfolio’s performance. It provides a methodology to gain greater clarity when building and managing sustainable portfolios.

“The score aligns with the firm’s philosophy that investors should be compensated for the risks they take—in all market environments and any investment strategy,” NTAM president Shundrawn Thomas says. “We consider this an essential tool to measure how a company is managing its ESG business risks.”

NTAM’s approach marries two sustainability disclosure standards and frameworks—the Sustainability Accounting Standards Board (SASB)’s standards, which are industry-specific sustainability disclosure standards focused on financial materiality, and the Task Force on Climate-related Financial Disclosures (TCFD)’s recommendations. NTAM says the design enables more purposeful and transparent integration of ESG considerations into investment processes, addressing the need for a consistent way to measure and report on ESG investments. 

The firm’s recently launched exchange-traded funds (ETFs) in Europe, the Middle East and Africa (EMEA) incorporate the ESG Vector Score. Further, it plans on integrating the score into new equity and fixed-income ESG investment strategies it is building.

“A full multi-asset suite of products with a consistent sustainability methodology across asset classes is a current gap in the marketplace. The score marks an important foundational step in filling it,” says NTAM head of global product Sheri Hawkins.

Hawkins further explains that “NTAM plans on using the ESG Vector Score to assist in prioritizing its corporate engagement, thus further aligning our sustainable investment platform and stewardship. This allows us to lead more deliberate engagements, as well as track progress over time with a consistent metric.”

Vanguard Expands Access to Private Equity 

Vanguard has announced plans to broaden access to private equity. 

 The company entered the private equity market last year with an initial focus on institutional advised clients, including pensions, endowments and foundations. In continued partnership with HarbourVest, Vanguard will provide qualified individual investors with access to private equity this summer.

“Private equity has the potential to improve long-term investment outcomes of a broadly diversified portfolio,” says Vanguard CEO Tim Buckley. “Over time, we will expand access to this asset class, which has traditionally been reserved for the wealthiest investors, to the many qualified investors at Vanguard.” 

Vanguard is taking a structured approach to opening private equity access to individual investors. Eligibility requirements include certification as a qualified purchaser and accredited investor. The strategy will initially be available to eligible non-advised Vanguard clients and is expected to be made available to eligible advised clients of Vanguard Personal Advisor Services in the near future.  

“We look forward to providing our qualified individual investors access to our partnership with HarbourVest, one of the industry’s premier private equity providers,” says Matt Benchener, managing director of Vanguard Retail Investor Group. “Our extensive private equity research suggests that investors who can access high-quality, broadly diversified strategies with top private equity managers can potentially realize significant financial benefits over long time horizons.” 

MSCI Builds Private Infrastructure Modeling Service

MSCI has launched its private infrastructure modeling service to profile the risk of complex private infrastructure holdings and provide data-driven insights to inform investment decisions.

The Private Infrastructure Modelling Service is a response to growing investor demand for private assets. Built using private infrastructure data provided by The Burgiss Group and MSCI Real Estate, the service is designed to give investors tools to further expand their private asset portfolios and benefit from the return and diversification potential of private infrastructure investment opportunities.

The firm says the launch reinforces MSCI’s commitment to provide investors with industry-leading knowledge and insight, and builds on its strategic partnership with Burgiss, a market-leading provider of data, analytics and technology solutions for investors of private capital, announced in January 2020. 

“The private asset class has emerged as a critical component in the construction of long-term portfolios,” says Jorge Mina, head of analytics at MSCI. “Today, investors are looking at private assets differently, expanding and shifting the role the investments play within a multi-asset class portfolio. While capital inflows to private assets have increased incrementally, investor appetite and confidence has been restricted by a lack of transparency and data. At MSCI, we’re committed to powering better investment decisions and we view this modeling service as a crucial milestone driving the next wave of investor demand for private assets.

“Today’s announcement signals the strength of MSCI’s and Burgiss’ partnership and displays how our cross-sector expertise can be utilized to provide industry-leading solutions,” says Jay McNamara, president at Burgiss. “Burgiss’ data and solutions allow investors to drill down at a granular level into the performance and exposures of private capital portfolios across asset classes, including infrastructure. This launch forms the first part of wider plans to bring enhanced transparency to private markets and create an investment experience that mirrors public markets. We are committed to meeting client demands and look forward to expanding our product portfolio to encompass additional asset verticals in future.”

Administration May 20, 2021

You’ve Overpaid Retirement Benefits to a Participant … Now What?

Overpayments are more common than many sponsors think; they should understand the steps they can take to get the money back.

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Running a retirement plan is challenging enough. Plan sponsors’ added responsibility of trying to claw back benefit overpayments from participants just adds to the headache, experts say.

However, there are steps sponsors can take to better manage their plan data to prevent overpayments from happening in the first place, and the Internal Revenue Service (IRS) suggests four approaches a sponsor can take to rectify an overpayment if one does happen.

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“Overpayments to plan participants are a very pervasive problem that can cost companies millions of dollars each year,” John Bikus, president of PBI Research Services, a provider of death data audits, tells PLANSPONSOR. “Many organizations are relying on internal processes and incomplete data sources to validate deaths of participants.”

Continuing to pay benefits to a deceased person is one of the most common reasons a sponsor overpays benefits, and it is, perhaps, the most troubling because it requires the sponsor to step in to make the plan whole since the recipient is deceased and unable to pay, says Eric Gregory, a lawyer with Dickinson Wright who has written a blog about the options sponsors have to correct overpayments.

The most important step sponsors can take to prevent overpayments of benefits is ensure the data in their retirement plan files is correct, Bikus says. “The best thing that plan sponsors can do is address the source of the problem upstream and invest in cleaning up their data and putting a stop to overpayments in the first place,” he says.

Bikus says overpayments have been a bane for many sponsors since 2011, when the Department of Labor (DOL) made changes to data accessible via the Social Security Administration’s Death Master File (DMF).

“This resulted in plan sponsors being able to identify an average of only 23% of deaths among their participants,” he explains. “Without a singular source of reliable information, companies have been left to aggregate and validate data on their own, using sources such as obituaries with personal identifiable information [PII] and the risk of false positives. The increase in disparate data sources, coupled with the complexity of those supplementary sources, makes finding and verifying deaths more challenging and burdensome than ever.”

Bikus says his firm offers an audit solution called CertiDeath that uses artificial intelligence (AI) to cull through 26,000 databases. This enables PBI’s clients to find 95% of deceased participants. Last year alone, he says, PBI’s service prevented clients from making more than $50 million in overpayments.

Sponsors also make the mistake of overpaying benefits to participants because of systemic errors or the incorrect application of a plan provision, such as the definition of compensation, Gregory says.

Should an overpayment occur, he says, “a plan sponsor has an obligation to recover overpayments on behalf of the retirement plan to protect the plan’s tax-qualified status and comply with the sponsor’s fiduciary responsibilities under ERISA [the Employee Retirement Income Security Act].”

The IRS’ Employee Plans Compliance Resolution System (EPCRS) addresses the issue of overpayment of benefits and outlines four options a sponsor can use to rectify this problem, Gregory says.

The first is to ask the participant to return an overpayment in a lump sum with earnings, he says, though he adds that this might be impractical for many sponsors. The second is for the sponsor to step in and repay the funds, with earnings. If the overpayment was the result of  a vendor’s mistake—the plan’s recordkeeper, for instance—the sponsor could ask the vendor to step in and make the plan whole.

If the participant is slated to receive ongoing future benefits, the sponsor could reduce each of those payments until the overpayment is returned in whole. “Of course, the risk here is that the participant could pass away prior to full recoupment, which obligates the plan sponsor to repay the remaining amount to the plan,” Gregory notes.

Finally, if the mistake was made because the plan wasn’t being run the way the plan documentation specified that it should, in some circumstances, the sponsor could simply amend the plan document retroactively, he says.

He notes that in a recent case, Zirbel v. Ford Motor Co., a participant had been overpaid nearly $250,000 in retirement plan benefits over the course of a decade. Ford asked the participant for the money back, a right specifically provided to it in the plan document.

Instead, the participant appealed to an administrative committee, which denied her appeal but offered her a hardship reduction, which required full disclosure of her finances. She rejected that option and, instead, sued Ford, seeking a declaration that she was entitled to keep the money. The district court granted summary judgment to Ford, and the participant appealed to the U.S. 6th Circuit Court of Appeals, which affirmed the lower court’s decision in Ford’s favor.

In conclusion, Gregory says, “because overpayments are a frequent problem for plan sponsors, it is wise for sponsors to be prepared for them ahead of time. Like Ford, plan sponsors should consider explicitly providing in the plan document that the plan administrator or other fiduciary has the power to collect overpayments. Although this power has been implied by some courts, the best practice is to be explicit. It also is wise, like Ford, to establish a policy and process for reviewing overpayments and permitting participants and beneficiaries to apply for some level of hardship relief, if appropriate.”

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