Benefits August 28, 2024

Prudential to Complete Industry’s 1st Multiemployer Pension Risk Transfer

The $221 million transaction will secure pension benefits for retirees and beneficiaries at Sound Retirement Trust, a multiemployer plan for grocery workers in Washington state.

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In what is thought to be an industry first, Sound Retirement Trust, a multiemployer pension plan based in Seattle, has selected the Prudential Insurance Co. of America to complete a pension risk transfer—the first PRT to involve a multiemployer plan.

The $221 million transaction will provide pension benefits for approximately 8,700 retirees and beneficiaries.

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Sound Retirement Trust is a joint labor-management board of trustees that provides retirement benefits to grocery workers of contributing employers across Washington.

Multiemployer pension plans are retirement programs jointly offered by contributing employers and labor unions and are often referred to as Taft-Hartley plans. The employers in these types of plans are usually in the same or related industries, and the plans are run by a board of trustees, with an equal number of employer and union trustees.

Under these plans, union workers can transfer from job to job with minimal disruption in retirement plan participation, as long as their employers have bargained to contribute to the same retirement plan, according to Prudential.

The Sound Retirement Trust was formed in 1965 under collective bargaining agreements between the Retail Clerks International Association, Local Union No. 1105, and Food Industry Inc. The fund reported having 155,238 participants, including 93,701 active participants, as well as $2.6 billion in assets for the 2022 plan year, according to data on its Form 5500.

“The decision to purchase a group annuity contract to cover 8,700 United Food and Commercial Workers retirees of the Sound Retirement Trust was determined over a year of careful due diligence and deliberation,” said Faye Guenther, union trustee and president of UFCW Local 3000, in a statement. “Prudential was selected because of its historic track record as one of the safest annuity providers to guarantee pension benefit payments in the United States.”

Agilis served as the annuity placement consultant to the board on the transaction, led by Michael Clark, the chief commercial officer at Agilis, and Joe Anzalone, head of its PRT business. Clark says unlike corporate PRT transactions that are primarily motivated by cost savings or as the result of a plan termination, this multiemployer plan transaction was motivated primarily by benefit security.

“By transferring the 8,700 retirees to Prudential, those retirees now have their benefits backed by one of the leading insurers in the PRT industry,” says Clark. “For the remaining participants in the multiemployer plan, they benefit from improved net cashflows going forward, which will continue to aid in the strong funded status position of the Sound Retirement Trust.”

Clark adds that many non-corporate pension plans have a large portion of retirees compared with the rest of their participant populations. He says when factoring in the present value of administrative costs—something not always captured in liability calculations—the gap between the total liability and the annuity purchase cost can narrow substantially.

Under the terms of the transaction agreement, Prudential will assume resume responsibility for paying retirement benefits to the retirees and beneficiaries, beginning September 1.

Prudential has also entered into large PRT deals this year with Verizon Communications Inc. and Shell USA Inc.

Compliance August 27, 2024

Siemens Targeted in New Forfeiture Lawsuit

The technology and manufacturing company is the latest accused of misusing forfeited retirement funds to pay for future employer contributions.

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A new 401(k) plan forfeiture lawsuit has been filed against multinational technology and manufacturing company Siemens Corp., accusing the firm of working out of self-interest by using forfeitures to reduce employer contributions.

In Cain v. Siemens Corp., filed on August 23 in U.S. District Court for the District of New Jersey, Jim Cain, a participant in the Siemens Savings Plan, alleges that Siemens violated the Employee Retirement Income Security Act by using the assets of the plan “in its own interest.”

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According to the complaint, Siemens 401(k) plan documents give the company options with respect to reallocating forfeitures, which are unvested employer contributions that revert to the plan when a participant’s employment is terminated.

The first option allows the company to use forfeitures to reduce the company’s contributions to the plan. The lawsuit alleges that this option is always in Siemens’ best interest because it lowers the company’s contribution costs, but it also might be in the participants’ best interest if there is a risk that Siemens would default on its obligation to the plan.

The second option allows Siemens to use forfeitures to pay plan expenses, which the plaintiff argues is in the best interest of the plan participants because it reduces or eliminates the amounts charged to their individual accounts to cover such expenses.

However, the complaint states, “In choosing between the options for using forfeitures in the plan, [Siemens] had a conflict of interest because they stood to benefit financially from choosing the first option and therefore had an incentive to choose the first option over the second option.”

Siemens is also accused of failing to undertake any investigation into which option was in the best interest of the plan’s participants. For example, the complaint alleges that Siemens did not investigate the possibility that Siemens could default on its contribution obligation if forfeitures were used to pay plan expenses.

The firm also “failed to consult with an independent non-conflicted decisionmaker to advise them in deciding upon the best course of action for allocating forfeitures,” the lawsuit alleges.

Although the Siemens plan permits the use of forfeitures to pay plan expenses, the firm “consistently and reflexively declined to use any forfeitures for that purpose,” the complaint states.

“Throughout the class period, Siemens was in a sound financial position and was under no risk of defaulting on its contribution obligation to the plan,” the complaint states. “Nevertheless, defendants have consistently chosen to use all plan forfeitures to reduce the company’s contributions to the plan and none of the forfeitures to defray the plan expenses borne by participants.”

According to the IRS, which reaffirmed its position in 2023, 401(k) plan forfeitures can be used for any of three permitted purposes: to pay plan expenses, to reduce employer contributions or to make an additional allocation to participants.

Several companies, however, have been targeted in recent litigation in the last three months for their use of forfeitures. These companies include Nordstrom Inc., Bank of America Corp., Intuit Inc., Qualcomm Inc. and Wells Fargo.

The Siemens Savings Plan had $8.9 billion in assets, according to the firm’s 2023 Form 5500 filing, and 41,010 participants as of December 31, 2023. Siemens did not respond immediately to a request for comment.

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