Products April 2, 2015

Legg Mason Rolls Out Credit CIF

The Hands Benefit & Trust long-duration credit collective investment fund (CIF) from Legg Mason is benchmarked to the Barclays Long Credit index.
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Legg Mason’s credit collective investment fund (CIF), sub-advised by Western Asset, is designed to allow eligible retirement plans the efficiency and flexibility to better align assets with their liabilities. 

Under normal circumstances, the fund generally invests in a diverse portfolio of primarily investment-grade credit bonds, but may also make other opportunistic investments, including limited investments in high-yield, emerging markets and mortgage-backed securities. Western Asset’s investment process combines a traditional fundamental value orientation with credit research-driven ideas in an effort to exceed benchmark indices. Western Asset aims to add incremental value by exploiting inefficiencies in the corporate bond market.

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With more than 25 years managing long-credit assets, Western Asset believes active management is a critical element to keep pace with the liabilities of an Employee Retirement Income Security Act (ERISA) plan, according to Ryan Brist, head of U.S. investment-grade credit at Legg Mason and the fund’s manager.

According to Doug Hulsey, head of U.S. corporate relationships/liability-driven investment (LDI) solutions at Western Asset, the new vehicle is an efficient and cost-effective investment solution for clients and prospects focused on managing to their liabilities. “It should be particularly attractive for smaller pension plans and outsourced chief investment officers (OCIO) providers,” Hulsey says.

Hands Benefit &Trust (HB&T) is the trustee, responsible for establishing, maintaining and operating the fund. It is also responsible for retention and oversight of the sub-adviser and other service providers for the CIFs.

“The conversion of the Long-Duration Credit strategy from a separately managed account to a CIF reflects the broader industry trend of increased demand for the CIF structure,” says Stephen Hand, president at HB&T. “The ability to bring the defined benefit (DB) space cost-efficient access to Western Asset’s experienced team and strong track record was attractive from HB&T’s perspective.”

Brist’s co-manager on the fund is Blanton Keh, who will be supported by Western Asset’s global credit team.  

Compliance April 2, 2015

Records to Keep for Loans and Hardship Withdrawals

The IRS reminds retirement plan sponsors it is up to them to track loans and hardship withdrawals.
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“Even if you use a third-party administrator (TPA) to handle participant transactions, you’re still ultimately responsible for the proper administration of your retirement plan. Make sure you’re keeping up with the recordkeeping requirements,” the Internal Revenue Service (IRS) tells plan sponsors on its website.

Failure to have these records available for examination is a qualification failure that should be corrected using the Employee Plans Compliance Resolution System (EPCRS).

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For hardship withdrawals, the plan sponsor should retain the following records in paper or electronic format:

  • Documentation of the hardship request, review and approval;
  • Financial information and documentation that substantiates the employee’s immediate and heavy financial need;
  • Documentation to support that the hardship distribution was properly made in accordance with the applicable plan provisions and the Internal Revenue Code; and
  • Proof of the actual distribution made and related Forms 1099-R.

The agency says it is not sufficient for plan participants to keep their own records of hardship distributions, and electronic self-certification is not sufficient documentation of the nature of a participant’s hardship. IRS audits show that some TPAs allow participants to electronically self-certify that they satisfy the criteria to receive a hardship distribution. While self-certification is permitted to show that a distribution was the sole way to alleviate a hardship, self-certification is not allowed to show the nature of a hardship.

A plan sponsor should retain the following records, in paper or electronic format, for each plan loan granted to a participant:

  • Evidence of the loan application, review and approval process;
  • An executed plan loan note;
  • If applicable, documentation verifying that the loan proceeds were used to purchase or construct a primary residence;
  • Evidence of loan repayments; and
  • Evidence of collection activities associated with loans in default and the related Forms 1099-R, if applicable.

If a participant requests a loan with a repayment period in excess of five years for the purpose of purchasing or constructing a primary residence, the plan sponsor must obtain documentation of the home purchase before the loan is approved. Again, the agency says participant self-certification of loan eligibility is not sufficient.

This information and additional resources are available on the IRS website.

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