Products February 26, 2016

Wells Fargo Sees Growth in CIT Use

CITs have been made more accessible for small to mid-size retirement plans.
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Wells Fargo announced it has experienced a 37% increase in the number of collective investment trusts (CITs) being offered in retirement plans it recordkeeps, and a 57% increase in CIT assets, from the end of 2012 to end of 2015.

“Without question, we’ve seen more growth in the small to mid-size plan market,” Jeff Kletti, head of Investments at Wells Fargo Institutional Retirement and Trust in Minneapolis, tells PLANSPONSOR. He adds that there is still growth in the large plan space, but it is not as high since large plans have had more access to CITs all along.

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Kletti attributes the growth of CITs overall to a combination of media attention and recent litigation. “I think more plans are open to exploring more options, including CITs,” he says, adding that it doesn’t mean CITs are the only way to deliver lower costs and are not necessarily right for every plan.

As for growth in Wells Fargo’s own business, Kletti says the company has provided more education to plan sponsors to make sure they understand how CITs work and know the differences between CITs and mutual funds. As a result, more plan sponsors are familiar now with CITs.

In addition, Kletti attributes the growth of CIT use in Wells Fargo’s business to the type of products it launched in 2012. Wells Fargo consolidated and restructured its legacy CIT offering, and launched its first non-affiliated manager strategies for CITs. Kletti explains that mostly asset managers offer CITs, and historically, they have had high asset minimums typically restricting the use of CITs to only the largest plans. “We wanted to bring the idea to plans that didn’t have access in past,” he says. Wells Fargo offers CITs with no minimums, allowing plans of all sizes to access these potentially lower-cost options.

“Personally, I think CIT adoption will only pick up,” Kletti concludes.

Administration February 26, 2016

CalPERS Explains a Tough Benefit Denial Decision

The CalPERS Board determined that pay granted as a lawsuit settlement was not pay that could be included in pension benefit calculations.

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An interesting new publication from the California Public Employees’ Retirement System (CalPERS) dives into the mega-pension board’s thinking in a recent benefits appeal made by two long-serving police officers—an appeal which was ultimately denied.

By way of background, CalPERS explains the appeal was filed by two City of Riverside police lieutenants who, along with their employer, sought to include settlement pay stemming from an earlier lawsuit in the calculation of their final compensation, “thereby inflating the officers’ pensions” above what CalPERS would otherwise pay.

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The CalPERS Board considered the officers’ benefits calculation adjustment appeal last week. The officers explained they had filed federal lawsuits against their employer, the City of Riverside, alleging that they had been wrongfully passed over for promotion to captain. The city settled the lawsuits by agreeing to award the lieutenants back pay at the higher rate paid to captains, and by placing the officers on administrative leave for a year (at the higher captain’s pay rate), at which point they would officially retire.

“The city reported the captain’s pay, more than $1,800 per month, on top of the officers’ base salary of $11,562.89 per month, as ‘special salary adjustment pursuant to a settlement’ and sought, with the officers, to include this increase for purposes of calculating the officers’ pensions,” the CalPERS Board explains. “CalPERS staff contended that the additional pay could not be applied toward the officers’ pensions because they had never actually performed the duties of a captain, and because they were not actually ‘promoted’ as that term is commonly understood.”

NEXT: CalPERS confident in denial 

CalPERS goes on to explain that the enhanced pay “was not provided to similarly situated employees and could not be found on a publicly available pay schedule, as California law requires.”

Considering all this, CalPERS notes the current case is “quite similar to the Richard Lewis case that the Board decided at its December 2015 meeting, also after a full hearing. In that case, the City of San Bernardino settled Mr. Lewis's employment discrimination suit, which alleged that the City had wrongfully failed to promote him from fire captain to battalion chief, by agreeing to pay him the difference between those two pay rates indefinitely, even though he was never promoted to the higher position. In that case, the Board also decided that the increased amounts the City paid to Mr. Lewis could not be used to increase his pension.”

Matthew Jacobs, CalPERS' general counsel, further describes the decision. “The settlement payments in these cases were just that—settlement payments,” he notes. “They were not pay for actual work performed at any level, and hence could not be used to inflate the officers' pensions. We simply cannot allow the pension fund to be used to finance cities' settlements of employee complaints. These cases exemplify CalPERS' efforts to ferret out potential abuse of the System.”

Jacobs highlights the importance of that second point—that allowing these settlements to be used for purposes of benefits calculations effectively puts CalPERS and the state’s taxpayers on the hook for settling city’s and municipalities’ potential wrongdoing. (An explanation of how to treat settlement funds under ERISA and other relevant law is here.)

A full explanation of the CalPERS Board’s thinking was also supplied, available here. 

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