Compliance March 25, 2016

Questions from ICI on California Secure Choice Plan

The California Secure Choice Retirement Savings Program is meant to provide a voluntary, low-risk, auto-enrollment retirement savings plan for many uncovered workers in the state. Can it deliver? 

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The California Secure Choice Retirement Savings Program was approved by Governor Jerry Brown back in 2012, but it has yet to receive the blessing of some of the major defined contribution (DC) plan industry groups operating in the state.

Among the opposition stands the Investment Company Institute (ICI), which represents the interests of nearly 40 member companies located in California, with about 16,000 employees in the state and $3.5 trillion in assets under management. ICI says these California-based companies, as well as mutual fund companies based outside of California, provide affordable and highly performing investments and other services to large numbers of retirement plans and individual retirement savers in California.

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It’s not hard to predict where the ICI’s opposition to the Secure Choice Program is rooted, given its national footprint and the desire of its members to remain key players in the delivery of affordable and effective retirement plans to the large and productive private U.S. workforce. While ICI says it wholeheartedly supports the goal of the Secure Choice Program—i.e., getting more people saving for and engaged in their own retirement—it feels the new program will only create more complexity for providers and consumers while doing little to help peoples’ actual financial health. People need more money to save and more education about how to save, ICI says, not another type of account. 

Beyond the concerns about an increasing lack of consistency among the states’ individual approaches to public DC programs for private sector workers, ICI members are “concerned that the program participants or California taxpayers—or most likely both—will find themselves bearing unanticipated costs as a result of the program.” They suggest program raises important and open legal questions as well, which could lead to litigation and other unforeseen hurdles.

“In particular, [the law that established the Secure Choice Program] requires that prior to implementation, the board must find that the program accounts will qualify for the favorable federal income tax treatment accorded to IRAs under the Internal Revenue Code, and that the program is not an employee benefit plan under ERISA,” the ICI explains. “As we all know, the ERISA status of state-based programs is the subject of a pending rulemaking project at the U.S. Department of Labor.”

The ICI further cites the fiduciary rulemaking as another reason to slow the implementation of the Secure Choice Program, until it’s clearer how individual retirement accounts (IRAs) and any other accounts or products touching workplace retirement accounts are to be treated from the fiduciary perspective.

NEXT: California confident in its plan 

For its part, the state says it is confident that it has a good understanding of how the program will be rolled out and how much it will cost whom. To explain as much, the state published an extensive feasibility study submitted to the California Secure Choice Retirement Savings Investment Board (SCIB) by Overture Financial LLC, clocking in at a cool 524 pages.

ICI says the detailed report, while including copious amounts of statistics and data, still is far from comprehensive. The report’s writers, unsurprisingly, disagree, noting the final report “represents the culmination of many months of collaboration between Overture Financial and its sub-contractors, the board, California Secure Choice personnel and contractors, stakeholders in the public and private sectors, service providers, employers and employer associations, worker organizations, and community groups.”

According to the report, the Secure Choice Program could immediately benefit about 6.8 million workers who are potentially eligible. According to Overture’s analysis, likely participation rates are around 70% to 90%, based on polling data. This is “sufficiently high to enable the program to achieve broad coverage well above the minimum threshold for financial sustainability,” they argue.

Further, the report cites polling data to the effect that “eligible participants in California are equally comfortable with a 3% or 5% contribution rate.” Setting a 5% auto-enrollment figure will be a strong start towards retirement readiness for lower- and middle-income workers, the report argues, especially considering the vast majority of likely participants surveyed are also comfortable with auto-escalation in 1% increments up to 10%.

“To start, the program should offer a default investment option consisting of a diversified portfolio with long-term growth potential and the choice to opt into a low-risk investment,” the report recommends. “Given its inherent portability, the program should have a lower incidence of rollovers and cash-outs than employer-sponsored 401(k) plans, which often force workers with low balances to close their accounts. At the same time, pre-retirement withdrawals are likely to be higher for the program given eligible workers’ income profile.“

Overture concludes that the program launch “should include a concerted public education campaign focused on workers and small businesses.”

The ICI contends this is all overly optimistic, and further warns that it is “seriously concerned that initiatives like that under consideration in California will ultimately lead to the creation of a fragmented, state-by-state system of retirement savings for private sector workers. A patchwork of state-run programs, each with its own unique rules, has the potential to harm the voluntary system for retirement savings that is helping millions of American private-sector workers achieve retirement security.”

Deals and People March 25, 2016

Retirement Industry People Moves

AB hires ERISA counsel; American Century names fixed income specialist; Willis Towers Watson names executive comp practice leader; Sequoia Consulting adds to 401(k) team.
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Karen Scheffler has joined AB (formerly AllianceBernstein) as senior ERISA legal counsel.

She will oversee compliance with the Employee Retirement Income Security Act (ERISA) and lead the firm’s monitoring and client education activities about the increasingly complex fiduciary and regulatory requirements.

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Previously, Scheffler was a partner at Olshan Frome Wolosky LLP, where she advised clients regarding all aspects of ERISA affecting investment management. Previously, she held positions as of counsel at Troutman Sanders LLP and counsel at Lowenstein Sandler PC. Scheffler began her career at the Department of Labor as an investigator focused on ERISA enforcement before consulting with plan sponsors on employee benefit matters with Deloitte Tax LLP.

Richard Davies, head of defined contribution at AB, cites Scheffler for her decades of expertise with ERISA.

“The retirement space is experiencing a seismic shift driven by unprecedented changes in the legislative and regulatory areas as well as litigation and industry reforms,” says Larry Cranch, general counsel at AB. “Karen’s more than 20 years of experience in both the public and private sector navigating complex ERISA issues will play an invaluable role in keeping our clients ahead of the curve in understanding their fiduciary responsibilities and the investment solutions that can best meet those needs.”

Scheffler holds a bachelor’s degree from the University of California at Los Angeles and a juris doctor degree from Hofstra University School of Law. She is a member of the bar of New York, New Jersey and Florida.

NEXT: American Century Investments names fixed-income specialist.

Abdelak Adjriou has joined American Century Investments  as vice president and portfolio manager for the teams managing global fixed income (Global Bond Fund) and non-U.S. fixed income (International Bond Fund) strategies.

Formerly with HSBC Global Asset Management, Adjriou joins American Century’s fixed-income rates and currency markets team, where he provides local rates expertise in both developed and emerging markets.

Previously, Adjriou served in various investment management capacities at HSBC, the past three as fixed-income portfolio manager responsible for local rates emerging market funds and mandates. From 2006 through 2013, he managed global and European fixed-income mandates and an absolute return government bond fund. Prior to that, he was a quantitative analyst, where he developed risk management tools and priced and managed rates, credit and volatility risks for multiple fixed income and derivative securities.  

John Lovito, co-head of American Century’s rates and currency markets team, calls Adjriou's skills a strong complement to those across the broader global fixed-income team.  

Earlier in his career, Adjriou was a fixed-income trader with Cridit Agricole Corporate and Investment Bank (formerly Calyon).  He holds Master of Arts degrees in stochastic calculus from Jussieu Paris VII and in computer science from ESSI (ENSI Group).

NEXT: Willis Towers Watson names executive compensation practice leader for North America.

Andrew Goldstein has been named leader for the executive compensation consulting practice in North America of Willis Towers Watson. He succeeds Todd Lippincott, who left the company in late 2015 for a senior corporate position.

“Andy’s extensive experience consulting to boards and management coupled with his proven track record as leader of the practice in the Midwest region make him ideally suited to head our Executive Compensation business in North America,” said Mark Reid, global lead for Willis Towers Watson’s Executive Compensation business. 

Based in Chicago, Goldstein has been with Willis Towers Watson and its predecessor companies since 1996. He serves as the named compensation consultant to the board and management of Fortune 1000 companies spanning a wide range of industries, helping clients develop executive compensation programs that align the interests of management and owners. His specialties include the design of performance-based short- and long-term incentives, employment contracts, change-in-control agreements, executive benefits and outside director pay. A certified public accountant and certified executive compensation professional, Goldstein holds a bachelor’s degree in accountancy from Miami University (Ohio).

NEXT: Sequoia Consulting adds staff to 401(k) division.

Sequoia Consulting has added three team members to its 401(k) team.

Molly Knapp has joined the team as a senior consultant, retirement plan services. She is responsible for growing the firm’s retirement plan client base in the mid to large market. Knapp, who has more than 18 years’ experience, has held various sales positions with some of the larger retirement plan providers. Most recently she was managing director, institutional markets with MassMutual Retirement Services. Knapp holds a bachelor’s degree in psychology and economics from Allegheny College.

David McEvoy has been hired as a 401(k) client service manager. He started his career at First Investors, where he helped clients with their investments and financial planning. He then transitioned to Fisher Investments where he continued to progress his career. McEvoy holds a bachelor’s degree in from Sonoma State University in business administration and finance.

Jason Thurman has joined the firm as a 401(K) consultant for the emerging and small market. He started his career as an associate financial adviser at Merrill Lynch, and most recently, spent the last three years as an associate at New York Life building a client base to help with insurance and financial planning. Thurman holds a bachelor’s degree in economics from Hampton University.

Luciano Costantini, who oversees the entire 401(k) team at Sequoia, says the appointments of Knapp, McEvoy and Thurman add to the team’s wide range of expertise and experience to enhance client retirement plan offerings.

 

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