Deals and People July 8, 2022

Retirement Industry People Moves

First Trust Capital Partners acquires direct indexing firm; New York Life appoints head of retail annuities; Security Benefit appoints chief operating officer; and more.

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First Trust Capital Partners Acquires Direct Indexing Firm

First Trust Capital Partners LLC has announced the signing of a definitive agreement to purchase Veriti Management LLC, a direct indexing asset management and financial technology company. FTCP is an affiliate of First Trust Portfolios L.P. and First Trust Advisors L.P. The transaction is subject to customary closing conditions and is expected to close on July 31.

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Through this acquisition, First Trust adds direct indexing to its platform of investment solutions.

The partnership with the Veriti team will allow for customization through direct indexing, says Ryan Issakainen, senior vice president, ETF strategist at First Trust, and will allow advisers to deliver personalized tax-advantaged solutions that better align with the investment objectives, values and interests of its clients.

Veriti was built to provide direct indexing solutions to institutions and wealth management firms. Its approach to asset management focuses on delivering advisers scalable strategies for driving tax-advantaged returns and customization for individual investors. 

Veriti launched its “Console” solution to streamline tasks and minimize the time required to create fully customized equity portfolios focused on tax efficiency and responsible investing.

First Trust, through First Trust Advisors L.P., counts more than $203 billion in assets under management or supervision as of May 31, and focuses on providing trusted investment products and advisory services. Veriti’s direct indexing technology will be a welcome addition for investors that are seeking customization that is not currently available in an exchange traded fund or mutual fund format.

Chapman and Cutler LLP is serving as legal counsel to First Trust. Berkshire Global Advisors is serving as financial adviser and Nixon Peabody is serving as legal counsel to Veriti Management.

New York Life Appoints Head of Retail Annuities

Mutual life insurer New York Life has announced the appointment of senior vice president Todd Taylor as head of retail annuities. In this role, Taylor will lead the product development and management, strategy, third-party sales and service, marketing and operations functions for New York Life’s retail annuity business line.

Taylor joined New York Life in 2008 as part of the company’s actuarial training program. Since then, he has held roles across the insurance and annuity businesses and corporate areas, including positions in pricing and product development, financial projections and planning and corporate strategy and internal consulting. Most recently, he led strategy and analytics for retail annuities.

Taylor is also the author of several articles and white papers that focus on retirement topics, including the value of income annuities in retirement income strategies, the impact of behavioral economics on retiree spending behavior, and healthcare expenditures in retirement. He holds a patent for the “Efficient Income Frontier,” a proprietary retirement product allocation framework.

He holds a B.S. in economic analysis and math from Binghamton University and is a Fellow of the Society of Actuaries. Taylor is a board member for the Insured Retirement Institute and a member of advisory boards for the American College’s Center for Retirement Income and the Investment and Wealth Institute’s Retirement Management Advisor Commission.

Taylor takes over the role from Dylan Huang, senior vice president and head of retirement and wealth management solutions, following an expansion of Huang’s responsibilities. Huang now oversees a portfolio of businesses comprised of retail annuities, long-term care solutions, NYLIFE Securities LLC (broker/dealer), and Eagle Strategies LLC (registered investment adviser).

Security Benefit Appoints Chief Operating Officer 

Security Benefit, a provider of retirement planning products and solutions, has announced the appointment of Jacquline Morales as senior vice president, chief operating officer. As COO, Morales will oversee business operations and help execute the company’s growth strategy. She will report directly to Doug Wolff, incoming CEO. Morales will lead the operations and technology portion of Security Benefit’s manufacturing group. 

Throughout Morales’ more than thirty-year career, she has held leadership roles and helped chart growth strategies, most recently at a startup in New York, where she has served as chief insurance officer. Prior to that, she was with Bestow in Dallas, where she was the chief insurance officer and board director. 

Previous leadership positions include COO and board director for Legal & General America and several different head of operations positions during her 10 years at AXA Equitable. In these roles, she was responsible for establishing scalable infrastructure internally, leading digital transformation initiatives, implementing new tools to create operational efficiency and overseeing merger and acquisition activity.

Morales received her bachelor’s degree in humanities and MBA in finance from Southern Methodist University. She is a licensed insurance agent, has served on numerous committees for industry trade groups and is often cited by the media as an expert in life insurance and annuities. 

Mutual of America Financial Group Names Executive Vice President and Head of Fixed Income

Mutual of America Financial Group, a provider of retirement services and investments to organizations and individuals, has announced that Chris Malfant has joined Mutual of America Capital Management LLC as executive vice president and head of fixed income.

Malfant will be responsible for all aspects of Capital Management’s fixed-income portfolio management. Specifically, he will focus on asset allocation and oversight of the Mutual of America Life Insurance Company general account, Mutual of America Investment Corporation funds and Mutual of America Variable Insurance Portfolios Inc. portfolios, as well as institutional accounts. He will lead a team of fixed-income portfolio managers and traders and report to Stephen Rich, chairman and CEO of Mutual of America Capital Management LLC.

Malfant has nearly two decades of experience in fixed-income investment management. Prior to joining Mutual of America, he was head of investment-grade corporate bonds and portfolio manager for American International Group. Prior to this, he served in the U.S. Navy on both the USS Donald Cook and the USS Kinkaid, where he served with distinction, earning the Donald Cook leadership sword and being named the No. 1 Division Officer.

Malfant earned an MBA from the University of Chicago’s Booth School of Business. He is a graduate of Duke University, where he earned a B.S. in biology and a B.A. in environmental science and policy.

Voya Financial Announces Leadership Succession Plan

Voya Financial, Inc., a health, wealth and investment company, has announced that its board of directors has appointed Heather Lavallee as the company’s president and CEO-elect as part of Voya’s planned succession process. She currently serves as CEO of Voya’s wealth solutions business, and will succeed Rodney O. Martin, Jr. Lavallee will become CEO on January 1, when Martin, who also serves as chairman of Voya’s board of directors, will assume the role of executive chairman. Lavallee has also been appointed to Voya’s board of directors effective immediately.

Prior to leading Voya’s wealth solutions business, Lavallee served as president of Voya’s tax-exempt markets and, prior to that, as president of the company’s employee benefits (now health solutions) business; she joined Voya in 2008. Lavallee’s 30-year career also includes leadership roles at Mutual of Omaha and Sun Life New York Insurance and Annuity Company.

Compliance July 7, 2022

Fresh Excessive Fee ERISA Complaint Lodged Against 403(b) Plan

An educational institution is the latest to face a lawsuit alleging that plan fiduciaries breached their fiduciary duties to participants.

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A new Employee Retirement Income Security Act lawsuit has been filed in the U.S. District Court for the District of Massachusetts, naming as defendants Northeastern University, the retirement plan investment committee and unnamed individuals involved in the operation of the university’s 403(b) defined contribution retirement plan.

The plaintiff is a Northeastern employee, who alleges in the proposed class action complaint that Northeastern retirement plan fiduciaries breached their fiduciary duties to plan participants. The complaint in the case puts forward allegations that mirror prior lawsuits filed against employers for purported fiduciary breaches in the management of their defined contribution retirement plans.

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Here, the lead plaintiff claims that the retirement prospects of the university’s workers were harmed by plan fiduciaries. The complaint alleges injuries to participants’ retirements emanated from excessive fees for recordkeeping and investment management costs charged by Fidelity Investments and TIAA. It is further alleged in the lawsuit that the plan failed to ensure that recordkeeping expenses were reasonable and that defendants failed to act to replace plan menu investment options with excessive management fees.

“Defendants limited the plan’s participants to low-performing, high-cost investment options such as the consistently underperforming CREF Stock Account—which by itself accounts for over 10% of the plan’s assets invested—or the costly TIAA Real Estate Account,” the complaint states. “They also subjected participants to dramatically high recordkeeping costs over several years in the class period, well higher than similar plans. Moreover, many of these options were flagged as imprudent in prior ERISA litigation of which defendants could and should have been aware.”

The plan held at least $1.3 billion in assets under management at all times during the proposed class period, according to the complaint.

“Plans this large have outsized bargaining power in the marketplace for DC plan services and greater control over the fees and expenses charged against participants’ investment,” the complaint states. “Defendants, however, did not prudently use this power to ensure participants had access to the best investment options and reduce the plan’s expenses.”

According to the plaintiff, Northeastern compensated Fidelity and TIAA for recordkeeping and administrative services through a revenue-sharing arrangement whereby the recordkeepers received indirect payments from the investments in plans. The complaint explains that, while courts have recognized that the use of revenue sharing is not, on its face, imprudent, revenue sharing “may hide the true scope of fees from participants.”

The complaint states that revenue sharing harmed plan participants because it resulted in workers being forced to pay above-market recordkeeping and administrative costs that were hidden from view.

“The plan’s Form 5500 reports negative compensation to Fidelity, which obviously is not the case,” according to the complaint. “In 2020, the plan’s Form 5500 filed with the DOL reported direct recordkeeping compensation to Fidelity of -$348,656. The form had no entry for direct compensation to TIAA at all.”

The plaintiff claims that defendants “may have” caused plan participants to pay much higher recordkeeping fees than similarly situated plan participants, “but their failure to report accurately the plan’s recordkeeping fees in annual filings renders this information unavailable until discovery occurs.”

The complaint points to a publication by the Department of Labor that speaks to the impact of investment fees on long-term performance. According to the DOL, a worker paying 1.5% instead of 0.5% and earning 7% on an original $25,000 balance can expect their assets will be nearly 35% lower over the long term.  

“Despite these high stakes, despite being subject to ERISA’s strict fiduciary duties, and despite the serious potential for harm to plaintiff and other participants, defendants utterly failed to employ a prudent process for managing the plan,” the complaint states.

The complaint also claims that plan fiduciaries failed to prudently select and monitor the plan’s investment options by including high-cost and underperforming target-date funds. When compared to options in similarly sized plans, several of the Northeastern plan’s investments were substantially more expensive than others found in plans of the same size, according to the complaint.

The complaint explains that the plan included investment options with unreasonably high expense ratios, specifically the TIAA Real Estate Account, which carried an expense ratio of 0.77%.

“The result is that, while typical real estate funds available to retirement plan participants average expense ratios of 0.59% to 0.64%, the plan’s participants are paying up to a third more,” the complaint states.

The Northeastern plan also remained investing in Fidelity “K” share classes, which were also called out for excessive fees. While the plan qualified for less expensive “K6” shares, the “defendants failed to move the plan into less expensive versions of options already in the plan,” according to the complaint.

“Defendants’ failure to make these funds available resulted in participants paying expense ratios over 30% higher in some instances,” the plaintiff states.

Northeastern University has not yet responded to a request for comment about the litigation.

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