Products July 19, 2018

Investment Product and Service Launches

Northern Trust Creates Private Equity and Hedge Fund Service Group; Impax Introduces ESG-Focused Fund; OneAmerica to Offer Russell Investments Managed Accounts; and more.  

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ProShares has created its Online Retail exchange-traded fund (ETF), an effort to invest in larger retailers selling through online or other non-store channels, from Amazon to Alibaba.

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“Retail shopping is increasingly moving away from bricks-and-mortar stores and going digital, and the companies driving sales in this rapidly growing marketplace present an opportunity for investors,” says Michael Sapir, co-founder and CEO of ProShare Advisors, LLC, the adviser to ProShares. “Rather than investing in an individual company, investors can now get exposure to Amazon, Alibaba and other global leaders in online retail with a single ticker: ONLN,” Sapir said.

ONLN expands ProShares’ lineup of Retail Disruption ETFs, including ProShares Decline of the Retail Store (EMTY) and ProShares Long Online/Short Stores ETF (CLIX).
 

ONLN tracks the ProShares Online Retail Index, designed to measure the performance of publicly traded companies that principally sell online or through other non-store channels, such as mobile or app purchases, rather than through brick-and-mortar store locations. The index uses a modified market-capitalization weighting approach. The ProShares Online Retail Index’s constituents may include U.S. and non-U.S. companies listed on a U.S. stock exchange. Companies in the index must: be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems; have a market capitalization of at least $500 million; and have a six-month daily average value traded of at least $1 million and meet other requirements.
 

Northern Trust Creates Private Equity and Hedge Fund Service Group

Northern Trust has launched North America Alternative Fund Services, a new group establishing private equity and hedge fund service businesses to address complex operational and strategic needs of the alternative asset management industry.

North America Alternative Fund Services provides fund administration, accounting and data solutions to hedge funds, private equity managers and managed account platforms. It offers specialized expertise in complex valuations, cash, collateral and liquidity management, as well as analytics and transparency into portfolios that increasingly combine hedge fund strategies with fund structures traditionally used by private equity firms.

The group will be led by Peter Sanchez, head of Northern Trust Hedge Fund Services since 2011. Jeff Boyd has been promoted to lead Hedge Fund Services in North America, reporting to Sanchez.

“Investment managers face new operational challenges as they move across asset classes to more complex portfolio construction approaches – incorporating private equity, real estate, infrastructure as well as hedging strategies in the search for yield,” says Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust. “Under Peter’s proven leadership, our North America Alternative Fund Services group provides a sophisticated technology platform, operational expertise and service model that delivers unrivalled support to the most innovative asset managers and their clients.”

Impax Introduces ESG-Focused Fund

Impax Asset Management LLC, investment adviser to Pax World Funds, has launched Pax Global Opportunities Fund (PXGOX), sub-advised by its London affiliate, Impax Asset Management Ltd. This is the first product introduction since Pax World Management was acquired by Impax Asset Management Group plc in January.

The Pax Global Opportunities Fund seeks to deliver capital growth by investing in companies positioned to benefit from the transition to a more sustainable global economy. Impax believes that demographic change, resource scarcity, inadequate infrastructure and environmental constraints will disrupt private-sector markets profoundly in the coming years, creating opportunities for well-positioned companies and increased risk for companies unable or unwilling to adapt.

The fund aims to identify and invest in companies that possess sustainable competitive advantages and track records of consistent returns on investment. Environmental, social and governance (ESG) analysis is an integral part of Impax’s investment research and process, providing risk mitigation and important insight into the character of a company.

“We have two proprietary tools to help us identify companies well positioned to benefit from the transition to a more sustainable economy. A series of financial tests helps us find companies that we believe offer consistent, predictable returns, while the Impax Sustainability Lens provides us with unique insights into evolving trends and involves deep analysis of the risks involved in the transition to a more sustainable economy. It is a framework that facilitates the discovery of the best growth companies where the opportunities outweigh the risks,” says Kirsteen Morrison, co-portfolio manager for the Pax Global Opportunities Fund.

The investment managers intend to take a five-year view of a company’s prospects before investing, hold a concentrated portfolio of 35 to 45 companies, and run the fund with a low level of turnover. The portfolio has broad geographic and sector exposure and is overweight to mid-cap companies relative to the MSCI ACWI benchmark. In addition to the U.S. mutual fund, Impax Asset Management Ltd. has begun offering the strategy to European institutional and wholesale investors.

OneAmerica to Offer Russell Investments Managed Accounts

Global asset manager Russell Investments has reached an agreement with OneAmerica to distribute Russell Investments’ Adaptive Retirement Accounts (ARA) on behalf of defined contribution (DC) plan clients. The managed account option will be available to the OneAmerica open architecture trust business, which includes U.S. corporations, nonprofit organizations and public-sector entities. 

“This alliance with Russell Investments to bring ARA to the OneAmerica platform means a customized solution for individual retirement plan participants and more options for retirement plan sponsors,” says Terry Burns, assistant vice president of Products and Investments for OneAmerica Retirement Services. “It’s a new option to help participants optimize their pursuit of retirement income.” 

 

According to Andrew Scherer, senior director, defined contribution at Russell Investments, the tool may work for those benefiting of customized investment strategies geared towards future targeted replacement income, as ARA considers retirement accounts and assets outside of the plan sponsor’s retirement plan, along with factors catered to participants.

Each participant’s customized asset allocation is assessed quarterly and adjusted as needed based on progress toward his or her targeted retirement income goal. The ARA option is scheduled to be available in the fourth quarter 2018 to new and existing clients. 

Compliance July 19, 2018

Independent Contractors’ ERISA Lawsuit Fails to State Actionable Claim

The dispositive question is not whether the claimants were employees but whether, considering them as employees, they were eligible to participate in an ERISA plan according to the specific terms of the plan under consideration.

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The United States District Court for the Northern District of Georgia has ruled in favor of defendants’ motion to dismiss an Employee Retirement Income Security Act (ERISA) lawsuit filed against Flowers Foods, Inc., and Flowers Baking Co. of Villa Rica (FBC).

The plaintiffs are or were distributors for FBC, which utilizes distributors to sell and distribute its fresh baked goods. According to the text of the decision, FBC enters into a Distributor Agreement with each of its distributors, which outlines the terms of their relationship. In this Distributor Agreement, FBC’s distributors are labeled as independent contractors, which the plaintiffs contend is an “intentional misclassification for the purpose of avoiding overtime compensation obligations under the FLSA [Fair Labor Standards Act].”

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The text of the decision shows Flowers Foods sponsors various benefits plans for eligible employees. One such benefits plan is its 401(k) Retirement Savings Plan, which is administered and maintained as an employee welfare benefit plan subject to ERISA. Important to the course of this litigation, Flowers Foods is the plan sponsor of the 401(k) plan, while FBC does not offer any 401(k) plans. The plan contains various requirements to be eligible for participation. For example, to be able to participate, an individual must be considered an “Eligible Employee,” as defined by the terms of the plan. The plaintiffs have not been permitted to participate in the plan.

On March 6, 2017, the plaintiffs filed a proposed class and collective action complaint, asserting the following claims: (1) violation of the FLSA due to the defendants’ failure to provide proper overtime compensation; and (2) violation of ERISA based upon the defendants’ failure to provide the plaintiffs benefits that they are entitled to under the terms of the plan. On July 19, 2017, the parties stipulated to the dismissal without prejudice of the plaintiffs’ FLSA claim due to the pendency of a similar, earlier-filed FLSA action in the U.S. District Court for the Middle District of Florida.

Leading to this decision, the defendants successfully moved for summary judgment as to the sole remaining claim for violation of ERISA—arguing their case on two grounds. First, they argued that the plaintiffs are expressly ineligible for benefits under the terms of the plan, even if they are ultimately deemed to be common law employees. Second, the defendants argued that even if the plaintiffs are eligible for benefits under the plan, they nonetheless failed to exhaust administrative remedies under the plan.

Weighing these arguments, the court concludes that the plaintiffs’ ERISA claim in fact fails because they have not shown that they are eligible for benefits under the plan.

“Therefore, it is unnecessary to address whether the plaintiffs were required to exhaust their administrative remedies,” the decision explains.

The text of the decision points out that, to assert a claim under ERISA, a plaintiff must be either a “participant” or a “beneficiary” of an ERISA plan. A participant is defined as “any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from the ERISA plan.” Thus, ERISA requires a plaintiff to satisfy two requirements to establish participant status, the decision explains. First, the plaintiff must be a common law employee. Second, the plaintiff must be, according to the language of the plan itself, eligible to receive a benefit under the plan.

“An individual who fails on either prong lacks standing to bring a claim for benefits under a plan established pursuant to ERISA,” the court concludes.

The first requirement, whether the plaintiff is a common law employee, requires an independent review by the court of the employment relationship. Relevant here, the Supreme Court has instructed “that the term ‘employee’ as used in the ERISA statute refers to the common law analysis, which distinguishes between employees and independent contractors by examining at least 14 factors.”

“With this analysis, the parties’ description of their employment relationship is one consideration in determining whether a plaintiff is an employee, but it is not dispositive,” the decision states. “However, even assuming that the plaintiffs prove that they are common law employees, their ERISA claim nonetheless still fails because they cannot meet the second requirement that they are eligible for benefits under the terms of the plan. The second prong—whether the plaintiff is eligible for benefits—is an examination of the terms of the company’s ERISA plan. This requirement is necessary because companies are not required by ERISA to make their ERISA plans available to all common law employees.”

As highlighted in the decision, in fact, nothing in ERISA requires employers to establish employee benefits plans. Instead, the plaintiff in this situation must show that he or she is eligible for benefits under the terms of the plan.

“ERISA’s limitations on who employers can exclude from ERISA plans are very narrow,” the decision states. “The law prohibits an employer from denying participation in an ERISA plan on the basis of age or length of service. Other than that, any bases for exclusion from a plan are permissible. Here, even if the plaintiffs have a plausible argument that they are common law employees of the defendants, their ERISA claim nonetheless fails because they have not shown that they are eligible for benefits under the terms of the plan. The dispositive question is not whether the claimants were employees but whether, considering them as employees, they were eligible to participate in an ERISA plan according to the specific terms of the plan under consideration. There is no dispute of fact that the plan language explicitly excludes the plaintiffs from coverage.”

The full text of the lawsuit, which includes substantially detailed argumentation on the conclusions drawn above, as well as an informative discussion by the court of the different classifications of employment that plaintiffs have brought to bear, is available here.

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