Compliance July 24, 2023

PBGC Issues FAQ on Acceptable SFA Investments

Permissible return seeking assets are normally SEC-registered common stock, and investment grade fixed income includes investment-grade bonds and US treasuries.

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The Pension Benefit Guaranty Corporation last week clarified in an FAQ what investments qualify as “return seeking assets” and “investment grade fixed income” for pension funds investing money received from the Special Financial Assistance fund.

Multiemployer plans receiving Special Financial Assistance under the American Rescue Plan must invest all of the money they receive from the PBGC into IGFI investments if they applied under the interim rule issued in July 2021. If they applied under the final rule, issued in July 2022, they can invest up to 33% in RSAs, and the remaining 67% must be in IGFI.

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Though the PBGC wrote in the FAQ that it believes “the meaning of these terms is well understood by sophisticated investors,” they acknowledged some confusion among pension managers.

“Investment grade” is defined in Section 4262.14 of the SFA regulations as “securities for which the issuer (or obligor) has at least adequate capacity to meet the financial commitments under the security for the projected life of the asset or exposure,” according to the FAQ. Credit ratings from credit agencies cannot be used in this determination under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Some examples of IGFI investments include securities issued by the U.S. government, investment-grade municipal bonds, money market funds and cash or cash equivalents. Debt which pays a fixed amount or rate, is denominated in U.S. dollars, originates from an SEC-registered issuer and meets all investment grade criteria, also qualifies.

Mutual funds, exchange-traded funds and collective funds can be vehicles for IGFI, depending on their composition.

The PBGC wrote that if an ETF or mutual fund abides “by an investment policy that restricts investment predominantly to permissible IGFI securities,” it would qualify as IGFI and “generally, the types of investment grade securities included in a typical aggregate U.S. bond index fund are permissible IGFI securities, except fixed-to-float securities or those resold in reliance on the SEC’s Rule 144A,” which defines certain qualified investors for private placements.

As for permissible RSAs, the PBGC explained that these investments typically include common stock registered with the SEC and offered on a U.S. exchange. This can include foreign stock and real estate investment trusts.

The PBGC also offered several examples of investments that are not permissible as return-seeking assets, including stocks traded over the counter, stocks traded on foreign exchanges, funds invested in foreign markets, high-yield bonds and alternative investments—including private credit and “direct real estate or hedge funds and investments with or that create leverage.”

The PBGC also said it does not provide “upfront advice” or pre-approval of an investment strategy or asset class. Certain investments may be found non-compliant in an audit, though the PBGC did not elaborate.

Benefits July 24, 2023

Employer-Sponsored Retirement Plans Continue to Be Valued by US Workers

American workers are more likely to remain with their current employer if offered an employer-sponsored retirement savings plan and at a higher rate than revealed in October 2022, Voya research found.

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More than seven out of 10 (71%) employed Americans were more likely to stay with an employer that offered an employer sponsored a 401(k), 403(b) or 457 retirement savings plan, an increase from 60% in a 2022 survey, according to the “Voya Consumer Omnibus Research: Retirement Report Q2 2023” from Voya Financial.

The figure was significantly higher for respondents with a managed account (85%), as compared with all others (64%), the survey found.

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If plan sponsors were not already aware of the evidence that employees are choosing to work for and remain employed for longer periods by employers that offer a retirement plan benefit, Voya Financial found that employers remain a critical source for retirement savings support, as revealed by participants’ responses.

Voya found that 51% of employed Americans were more likely to stay with their current employer if offered education, guidance, tools and resources to help them reach their retirement goals, and that this is higher among those with student loan debt (63%), compared with those with no student loan debt (48%).

The SECURE 2.0 Act of 2022 permits employers an optional retirement plan provision to make retirement plan matching contributions to 401(k), 403(b), 457(b) and SIMPLE IRA accounts for participants who pay down student loan debt instead of contributing to a retirement plan.

Since the COVID-19 pandemic, workers have increasingly expected their employers to provide a retirement benefit, Vestwell research published earlier this year showed.

Similarly, when Voya asked respondents, “What impact, if any, would each of the following have on your likelihood to stay with your current employer?” it found that employed Americans said they are more likely to stay with their current employer if offered:

  • Competitive salary/compensation package: 75%;
  • Flexible work hours: 70%;
  • Ways to improve their overall financial wellness: 61%;
  • Physical health benefits/programs: 61%; or
  • Financial wellness benefits/programs: 61%.

 

The findings come from a Voya Financial Consumer Insights & Research survey conducted June 12 and 13 on the Ipsos eNation Omnibus online platform among 1,004 U.S. adults aged 18 and older, including 483 working full-time or part-time, according to Voya.

 

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