Products April 19, 2023

State Street Partners with Annexus For Retirement Income TDF

The firms partnered on a retirement investment that includes a guaranteed income annuity.

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State Street Global Advisors has partnered with Annexus Retirement Solutions on a target-date fund series with a retirement income annuity, the companies announced Wednesday.

The State Street GTC Retirement Income Builder Series will come with Annexus Retirement Solutions’ embedded Lifetime Income Builder annuity in the TDF’s glidepath as a separate asset class, according to the press release. Global Trust Company will be the fiduciary and trustee of the investment vehicle.

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Annexus is planning to offer the product early in the third quarter of this year through iJoin, a retirement plan platform provider connected to more than 50 recordkeepers. Once established, those recordkeepers and the plan sponsors in the iJoin network can provide participants access to the TDF through the plan menu or a managed account, says Dave Paulsen, chief distribution officer at Annexus Retirement Solutions.

“The participant has said to us that they want to maintain control all the way to and through retirement,” Paulsen says. “We built this inside of a TDF because the majority of plan participants want [their investing and retirement income setting] done for them, and the target-date does that. … It’s liquid, it’s easy for them and it doesn’t sacrifice growth.”

The Lifetime Income Builder product within the TDF trades like a mutual fund with a trading symbol, Paulsen says, making it portable across recordkeeper platforms should a participant change provider or a participant leave for a new employer. Paulsen says the model is unique and that Annexus has a patent application pending on the product. He compares it to other, less portable products in which a participant buys an annuity directly when near or in retirement.

“The majority of participants aren’t getting advice from an adviser on how to allocate their assets or buy an annuity,” he says. “We package it and do it all for them without harming growth or adding excess fees.”

Paulsen says the firm is also in talks with two top-tier recordkeeping platforms, with those talks expected to come to fruition later this year.

There is a need growing need for plan sponsors to offer participants options for decumulation of assets so individuals have enough income to live on in retirement and that it is sufficient to not for run out of money in old age. Despite federal legislation removing barriers for plan sponsors to incorporate in-plan annuities, 401(k) plans have generally not embraced adding the investments, according to Alight Solutions data published earlier this year.

The new State Street TDF series is designed to mitigate sequence of return risk—in which a participant sees a drop in savings near or in early retirement—and longevity risk when in retirement by “capturing quarterly high-water marks” on the account value and providing lifetime income via the annuity, according to the firms. The TDFs will target a 6% annual income rate when tapped for income, with the amount calculated using the highest captured high-water mark of the fund, according to the press release.

The Lifetime Income Builder annuity is backed by insurers Nationwide and Athene, with more insurance companies lined up to join the series, according to the announcement. State Street Global Advisors will provide glidepath recommendations to the trustee, GTC, and manage a portion of the solution’s underlying assets.

State Street and Annexus initially had announced a partnership to work on a TDF with an embedded annuity in March 2022.  

Compliance April 19, 2023

Mutual of America Agrees to $2.75 Million 401(k) Lawsuit Settlement

Subject to court approval, the retirement plan services and investments provider will pay participants in a class action case who alleged it charged excessive fees.  

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Mutual of America and retirement plan plaintiffs have agreed to terms of a proposed settlement, possibly closing for $2.75 million a 401(k) lawsuit brought in 2022, documents show, in Goldstein et al v. Mutual of America Life Insurance Co. in U.S. District Court for the Southern District of New York.

The company and attorneys for the plaintiffs—Eric Goldstein, Matt Sudol and Bonnie Zelazek—on April 14 submitted a memorandum in support of a class action settlement. The lawsuit alleged breach of fiduciary duty to participants of the Mutual of America Life Insurance Co. savings plan under the Employee Retirement Income Security Act.  

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The proposed settlement would provide meaningful relief to the plaintiffs if finalized by court, the motion argues.

“This is a significant recovery for the Settlement Class compared to the claims that were alleged, and it falls well within the range of negotiated settlements in similar ERISA cases,” the court filing stated. Going forward, “Defendants will ensure that at least half of the Plan’s investments are unaffiliated with Defendants (i.e., investments not managed by Mutual of America or any of its affiliates or subsidiaries) for the next three years. Defendants have also agreed to retain the Plan’s current net asset value investment platform for the next three years provided, however, that Defendants will not be bound by this if they determine that using the NAV platform is no longer consistent with ERISA.”

Under the proposed settlement’s terms, Mutual of America will direct its insurers to pay a $2.75 million gross settlement amount into a common settlement fund. After accounting for attorneys’ fees and costs; administrative expenses; and class representatives services awards approved by the court, the net settlement amount will be distributed to the eligible class members.

Under the plan of allocation, the net settlement amount will be divided between the recordkeeping claim (25%) and the investment claim (75%), according to the filings. 

The proposed settlement agreement will apply to all participants in and beneficiaries of the Mutual of America Life Insurance Co. Savings Plan at any time on or after September 14, 2016, through the date the court enters the preliminary approval order, excluding any persons with responsibility for the plan’s administrative functions or investments, the motion states.

Mutual of America was alleged to have breached the fiduciary duties of loyalty and prudence by selecting a proprietary, closed architecture recordkeeping platform for the retirement plan. The plaintiffs’ complaint alleged Mutual of America caused plan participants to pay excessive administrative and recordkeeping fees by retaining a proprietary recordkeeping platform and that Mutual of America was imprudent and disloyal in its preference for proprietary funds within the plan, despite the fund’s poor performance and high costs.

The plaintiffs requested that the court approve the proposed settlement agreement, approve proposed settlement notices, authorize distribution of notices to the proposed settlement class, certify that proposal class and schedule a final approval hearing in the case, according to the motion for preliminary approval.

The proposed settlement is pending final court approval at a forthcoming hearing that is yet to be scheduled.   

Mutual of America did not respond to a request for comment on the proposed settlement. 

The class of plaintiffs is represented by lawyers from Nichols Kaster LLP, based in Minneapolis. Attorneys from the law office of New York-based Goodwin Procter LLP represented the defendants.

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