Deals and People June 8, 2023

Putnam CEO Reynolds Will Remain with Great-West Post Merger

The CEO will stay at Great-West Lifeco with part of his focus on the firm's ongoing relationship with Franklin Templeton following the deal.

Reported by

Putnam Investments CEO Bob Reynolds will not go to Franklin Templeton as part of its pending $925 million acquisition of Putnam, according to a spokesperson.

Reynolds, who had been at the helm of Putnam since 2008, will instead remain at Great-West Lifeco Inc., a Power Corp. of Canada firm, where he was CEO and president of its financial division through 2019 in addition to his CEO role at Putnam. Reynolds will keep running Putnam until the acquisition is closed, which is expected to happen in this year’s fourth quarter. He will also maintain his position as chair of Great-West Lifeco at least through the transition.

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Franklin Templeton, a division of Franklin Resources Inc., announced on May 31 it had agreed to purchase Putnam in a “strategic partnership” that gives Great-West Lifeco a 6.2% stake in Franklin. Reynolds’ new role will be involved with the Franklin Templeton partnership, but the spokesperson did not have further details on his position or title. “In remaining with Power Corp. and Great-West Life Co., Bob will in part be focused on the Great-West Life Co. Franklin Templeton relationship,” the spokesperson said.

Reynolds will remain chair of PanAgora Asset Management Inc., a quantitative investment firm owned by Power Corp. that was not part of the Franklin deal, according to the spokesperson. He will also maintain his board seat at Empower Retirement, which is the country’s second largest retirement recordkeeper and is owned by Great-West.

Ignites first reported on the news of Reynolds staying at Great-West.


Putnam Transition

The integration of Boston-based Putnam’s roughly 1,200 employees into Franklin Templeton is still being worked through, according to the spokesperson. The San Mateo, California-based firm is planning to keep on Putnam’s investment portfolio managers as well as certain core products, a plan it announced on an investor call shortly after the deal was made public.

“We do not anticipate any portfolio manager changes or changes to Putnam’s investment process,” the spokesperson said Thursday. “We expect the brand will continue on key offerings.”

Franklin Templeton will purchase Putnam primarily with $825 million in equity up-front at closing and $100 million in cash 180 days after closing. The deal also includes as much as $375 million in contingent payments tied to revenue growth from the partnership. The deal is designed to speed up Franklin Templeton’s growth in the retirement sector and, if completed, would increase its defined contribution assets under management to about $90 billion, according to the announcement.


From Fidelity to Great-West

Earlier in his career, Reynolds held a senior position at Fidelity Investments, where he was part of a leadership team that built the firm’s 401(k) retirement division into the largest in the country, as well as making it the third largest asset manager in the U.S. behind BlackRock and Vanguard, according to the most recent data from ADV Ratings. Reynolds left Fidelity in 2007 after rising to vice chairman and chief operating officer , joining Putnam the next year.

In 2014, Reynolds and Edmund Murphy III were among the architects of what became the country’s second largest recordkeeper, Empower, by bringing together J.P. Morgan Retirement Plan Services’ large-market recordkeeping firm and Great-West, which had already combined with Putnam Investments. More recently, Empower has taken on more large-scale retirement acquisitions, and this year it announced a restructuring to move further into consumer wealth management and participant advice.

During his time at Putnam, Reynolds backed active fund management at a time when many in the industry were pushing against it in favor of cheaper, passive investing strategies. In a 2018 interview with PLANADVISER, he discussed Putnam’s “Always Active” education campaign about the benefits of active fund management, while also giving his thoughts on environment, social and governance investment strategies and the promise of 2019 retirement legislation that became the Setting Every Community Up for Retirement Enhancement Act.
Compliance June 8, 2023

Large Plan Sponsors Seek IRS Clarification on SECURE 2.0 Provisions

The ERISA Industry Committee implored the IRS to clarify how sponsors can implement new Roth features and student loan matches.

Reported by

The ERISA Industry Committee sent an open letter to the Department of the Treasury and Internal Revenue Service on Thursday asking for clarification on various provisions in the SECURE 2.0 Act of 2022, including the student loan match, Roth catch-up contributions and Roth matching contributions.

The letter asked the federal agencies to prioritize these regulatory and guidance projects as part of their priority guidance plan for 2023 through 2024. ERIC’s requests mostly focused on issues raised by the SECURE 2.0 Act, but also addressed a few other topics.

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SECURE 2.0 permits plans to offer matching contributions for student loan repayments starting in 2024 as an optional feature. The statute allows participants to self-certify their payments and does not lay out procedures that sponsors may use to verify that participants are, in fact, paying down their debt. The ERIC letter asks for clarification on this point, as well as how the match can be structured in terms of match frequency: paycheck by paycheck, quarterly, annually, etc.

The letter also encourages the IRS to explore if student loan payments made by a participant can be matched by employer contributions to 529 plans or health savings accounts. Andy Banducci, the senior vice president for retirement and compensation policy at ERIC, acknowledges that the statute does not explicitly permit this. But Banducci recalls that the student loan match concept started with an IRS private letter ruling and suggests the IRS could explore if it has the authority to expand the concept to include employer matching contributions to 529s and HSAs, not just retirement accounts.

SECURE 2.0 also permits sponsors to allow employer matches to be made on a Roth basis, meaning participants could elect to pay income tax on their match in order to receive it into a Roth source. Sponsors want clarification on this provision, especially as it relates to vesting schedules, Banducci says. If an employer has two-year cliff vesting, but an employee has been electing a Roth match and therefore has been paying taxes on unvested matching contributions, then leaves after one year, what happens? Do they get the money anyway? Are they owed a tax refund? An important question, and one for the IRS to answer, since the statute does not. Further, can the student loan match be made to a Roth source?

ERIC’s letter also seeks guidance on how to implement the provision that requires Roth treatment for catch-up contributions by highly compensated employees.

Banducci says this provision creates issues for employees with variable income and for mid-year hires with respect to determining their status. The letter asks for clarity and asks if retirement plans could simply mandate Roth status for all catch-up contributions, regardless of employee status, if only for simplicity’s sake. Banducci says this is not spelled out in the statute, but if it is permitted by the IRS, it could save a lot of recordkeeping stress.

Lastly, the letter asks for guidance on health coverage items unrelated to SECURE 2.0. Specifically, the letter asks for the flexible spending account glitch to be fixed. Melissa Bartlett, the senior vice president for health policy at ERIC, explains that the FSA glitch occurs because the IRS does not permit one spouse to have a flexible FSA while the other has an ordinary HSA. Technically, the partner with the HSA is not eligible for it, since the spouse’s FSA could also be spent on them. Bartlett says the IRS does this to prevent “double-dipping.” The letter does not outline how precisely to fix the situation, only that it should be addressed.

 

 

 

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