Compliance October 11, 2017

Settlement Agreement Reached in Church Plan Challenge

Many terms of the settlement agreement between St. Joseph’s Hospital and its pension plan participants are similar to provisions of ERISA.

Reported by

A federal judge has preliminarily approved a settlement agreement between participants of the St. Joseph’s Hospital and Medical Center pension plan and St. Joseph’s Hospital.

Get more!  Sign up for PLANSPONSOR newsletters.

As with many similar complaints, the lawsuit challenges whether the plan was really a “church” plan and not subject to Employee Retirement Income Security Act (ERISA) funding rules.

In the order for preliminary approval, a judge for the U.S. District Court for the District of New Jersey certified a class, or plaintiffs. The settlement agreement says, “Nothing herein shall be construed as an agreement that the Plan is not properly treated as a Church Plan or that the Plan is subject to ERISA.” In spite of this, the terms of the agreement include many ERISA-like provisions.

Under the terms of the agreement, the defendants are obligated to contribute an aggregate amount of $42.5 million to the plan no later than 60 days after the agreement is executed or at any time prior. They may contribute that sum either directly to the plan or to an escrow account and then transfer these proceeds—including interest—to the plan 45 days after the agreement becomes final.

Additionally, at their discretion, the defendants may make further contributions to the plan at any time.

If, during the seven years after the agreement becomes final, the plan’s trust fund becomes insufficient to pay benefits as they are due, the defendants will need to shore up the trust fund so the benefits can be paid. In the event of a plan change such as a merger or consolidation during that time, participants and beneficiaries will be protected by entitlement to the same, or greater, accrued benefits under the terms of the plan as before. St. Joseph’s may amend or terminate its plan at any time, provided this will not result in the reduction of any participant’s accrued benefits as determined by the plan document.

Should the plan at some point be determined to fall under ERISA, it will then need to comply with the act’s applicable provisions.

Plan Administration Terms

Contemporaneous with plan amendments that will close and freeze the plan on or before December 31, 2018, the plan administrator will need to establish procedures concerning plan administration and notices, as set forth in the settlement agreement. At the defendants’ sole discretion, any and all reporting and disclosure to plan participants and/or beneficiaries may be accomplished via electronic dissemination, by electronic posting on defendants’ intranet site or via hard copy. If a participant requests a disclosure by hard copy, the plan administration will provide it within a reasonable time.

The plan documents will need to add provisions for taking any of the following actions that the documents, as of yet, don’t include: designate a named fiduciary; describe the procedure for establishing and carrying out the current funding policy and method; describe a procedure for allocation of administration responsibilities; provide a procedure for plan amendments and identifying a person(s) with authority to make such amendments; specify the basis on which payments are made to and from the plan; and provide a joint and survivor annuity payment option for participants and their spouses.

In addition, by the close of 2018, the plan administrator or its designee will need to have prepared a summary plan description (SPD) comprehensible to the average participant. The settlement agreement spells out in detail what the SPD should include.

For current and former employees, the plan administrator will need to prepare pension benefit statements, as it does now, distributing those electronically or in hard copy, at least once every three years. Other participants and beneficiaries could make a written request for a copy of a pension benefit statement, to be provided within a reasonable time, in either format, at St. Joseph’s discretion.

Participants October 10, 2017

Income Uncertainty Makes Women More Risk Averse

But when they work with an adviser, they understand the importance of more aggressive investing.

Reported by

The reason why many women are more risk averse with investments than men is primarily due to income uncertainty, says Rui Yao, associate professor at the University of Missouri in Columbia, Missouri.

“The reason why men and women expect uncertain income is different,” she says. “Women are more likely to be caregivers to their parents or to raise children. Men are more likely to choose occupations with income uncertainty built in, such as becoming a car salesman. We found that income uncertainty reduced women’s willingness to take on risk—but that it increases men’s willingness to increase risk.”

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

More conservative portfolios can result in women not being adequately prepared for retirement, Yao says. This is particularly true for single women, who are less risk tolerant than single men or married couples, she says. Thus, Yao suggests that advisers ask their female clients if they expect to leave the workforce in order to look after their parents or raise a family. If that is the case, then, perhaps, a more conservative portfolio makes sense. However, if that is not the case, “then, advisers should say that the latest research shows that men and women don’t really differ in their need to take investment risk. Further, they should point out that women live longer and really need to take on a riskier portfolio allocation, including equities, to compensate for their longer life.”

According to 2015 data from the Census Bureau, the average life expectancy for women is 82, compared to only 78 for men, notes Robert Massa, director of retirement at Ascende in Houston. And, according to 2015 data from the Bureau of Labor Statistics, on average, women earn 79% of what men earn, he adds. “So, if women are going to make up for this disadvantage, a sound, customized investment strategy will be needed,” Massa says.

In Massa’s experience, women are more receptive to working with a financial adviser than men are, and once they do, they understand the importance of preparing adequately for retirement. “Women as investors tend to prefer more investment education from their advisers than their male counterparts,” Massa says. “They want an adviser who tries to provide education and speaks to them with respect. Once you’ve clearly laid out the unique challenges facing women as investors, you can explain why a more aggressive investment strategy is vital to their long-term success.”

Massa shows his female clients how combining a higher savings rate with a portfolio that has a higher level of equity exposure can result in much higher balances and better outcomes. By doing this, he says, “women will often be much more receptive to an equity-based investment strategy.”

Regardless of whether she is working with a man or a woman on the retirement portfolio, Lori Reay, a partner and retirement plan consultant at DWC in Salt Lake City, Utah, says she tries to conduct one-on-one meetings.

“I think all investment advisers are stepping up to help participants, and I don’t think it is gender-specific,” Reay says. “For anyone to be prepared for retirement, the adviser is going to be more successful if they are sitting down face-to-face for one-on-one meetings.” If the adviser takes this approach, “then, the more successful the retirement plan will be and the outcome for participants will be.”

«