​By Steve Richards

The Aon PRT case is more than a little complicated. Therefore, we need to peel back the onion a layer or two. The lawyers added many layers, but the magistrate pierces them all and exposes fiduciary risks.

​The decision’s name gives an inkling of just how many layers there were to peel back:

The decision by a magistrate judge out of the U.S. District Court for the Middle District of Florida was meant to clear up a murky set of esoteric regs from various sides of the PRT mountain of rules and conventions such that no one (even the judge that called for the analysis) could make decisions about the particulars of the case. The analysis was needed by the court to get to the bottom of things.

The decision recommended the rejection of the dismissal of the lawsuit called for by Aon and Alight.

Here’s how Plan Sponsor’s John Manganaro put it in his article about the decision. (Magistrate Judge Says Aon, Alight Can’t Evade PRT Lawsuit | PLANSPONSOR)

​Technically, the report recommends four things. First, it suggests that Aon Hewitt Investment Consulting’s motions to exclude the expert reports and testimony of two of the plaintiffs’ lead witnesses should be denied. Second, it recommends that the plaintiffs’ motion for partial summary judgment declaring that Aon Hewitt Investment Consulting is a fiduciary to the plan in question should be granted. Next, it denies the Aon defendants’ dismissal motion, and, finally, it denies a related dismissal motion filed by Alight…The report then details what plaintiffs in the case say are Aon’s failures to live up to its contractual agreements.

​Lump sum election communications often get short shrift in PRT cases. But there are many reasons why this is a risky approach, and we have addressed some of those in the past.  Now, in addition, it seems clear that things like lump sum election communications and take-up rates now carry the specter of potential lawsuits and carry a previously underappreciated impact on fiduciary exposure.

By Chuck Yanikosk

Magistrate Judge Says Aon, Alight Can’t Evade PRT Lawsuit | PLANSPONSOR
First, it's important to note that a decision went in Aon’s favor since this suit was filed and the article written. Aon, Alight Win Judgment in Hospital PRT Lawsuit | PLANSPONSOR

In the actual complaint in the case the court just addressed preliminary motions.  However, it is clearly critical of Aon/Hewitt, and is sympathetic with the plaintiff. and justifies its arguments with precedent, logic, and evidence.

The breach in promise regarding participant services is not the central element in the case. It is part of a larger and more directly illegal problem: did Aon/Hewitt breach its fiduciary duty with regard to investment strategy and timing?  The evidence indicates that they did, and this was mostly in ways unrelated to the failure to provide participant services.

And to the extent the participant services are part of the problem, the complaint is not DIRECTLY that they failed to provide them (and therefore injured the interests of the participants) but that they did not persuade enough participants to take the lump sum option, which hurt the financials of the transaction and resulted in additional losses to the plan sponsor.

“Leading up to the lump sum election window, Hewitt did not perform all the communications services that it contracted to perform under Schedule 5 of the [contract], including announcements, in-person meetings, webinars, brochures, posters, banners and other print materials,” the report states, citing the plaintiffs’ allegations. “Ultimately, only 67% of eligible plan participants elected to take a lump sum, instead of the projected 80%. … To complete plan termination, the plan’s invested assets were liquidated in two parts, first to pay lump sum benefits, and then to buy annuities. Plaintiffs claim that despite FRC’s requests, Aon Hewitt Investment Consulting refused to liquidate the plan funds for weeks leading up to December 2016.”

It also looks like they do not take participant services very seriously.  They promise, then back out of delivering.  At least in this one situation -- but I see nothing in this situation that needed to interfere with their delivery of those services, and I didn't notice any sign of internal push-back within Aon about not fulfilling their promises.

How will Aon/Hewitt and other firms handle participant services going forward?  They could conclude that they need to do a much better job of it and then follow through on that.  Or they could go the other way and see the offer of participant services as a potential liability for them, and so they could scale back offering these services.

It's also important to note the motivation for providing these services -- i.e., to maximize the percentage who take the lump sum offer.  They do this because it's cheaper and less financially risky for the plan sponsor to pay out lump sums than it is to buy annuities.  But this means that they interpret their own fiduciary responsibility as aimed particularly at the plan sponsor, and do not feel the same fiduciary responsibility to the plan participant.  But the fiduciary role arises from ERISA, and the purpose of ERISA is to protect the interests of participants, and famously puts a lot of extra burdens on the plan sponsor that cost them money, so the law is on the participants' side much more than on the plan sponsors' side.  And therefore taking the side of the sponsors (by actively promoting lump sums instead of offering neutral or participant-centric advice) itself is arguably a breach pf fiduciary duty -- though the court didn't address this and almost certainly won't.  Furthermore, as the court in this case does say, AON/Hewitt probably had a fiduciary duty even if they had not explicitly said in advance they were acting as a fiduciary.  One could argue, therefore, that the Aon/Hewitt approach, which appears motivated by their own self-interest in making the plan sponsor happy, is actually (or at the very least potentially) illegal.

​The key takeaway seems to be: Do you want to work with a firm whose mission is to help participants make the best decisions for THEM -- keeping in mind that you [the decision-makers] along with your colleagues and people who have worked for you for many years are the beneficiaries here -- or will you trust the quantity and quality of help you will get from one of the giant firms whose main interests and motivations lie elsewhere?"

Part of a continuing series.

You have several main options, though some of them come in multiple flavors:

Option #1 of 4 – Keep the Pension

This option applies only if the lump sum offer is coming from a traditional pension plan that provides a guaranteed retirement income for life. It does not apply to most 401(k) plans, or other similar plans where you have a specific account balance.

Advantages:

• It’s the simplest choice: just keep things as they are.
• You get retirement income for life, which might also include the life of a spouse, partner, or other beneficiary. You don’t have to worry about outliving it, generally speaking. And some pension plans even offer an inflation adjustment, though this applies mostly to government pensions, and usually not to corporate pensions.
• Your monthly benefit is determined by formula, based on your years of service and compensation. It is not affected by fluctuations in the financial markets, or to other events. You know what you will get, and when.
• You might get a bit of a bonus in your benefit if you retire early if your pension plan provides for this.
• Since the pension will dole out money on a monthly basis, you can’t readily spend it or give it away prematurely and then be left broke. You’re protected against yourself, and against others who might try to influence you (especially when you are older and perhaps more vulnerable).
• Pension benefits are also exempt from garnishment by creditors (other than the IRS), though once you actually receive payments creditors may be able to try to get them from you, depending on state law.
• Even if your employer goes out of business, your pension is owed to you. And payment (within limits) is guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a U.S. government-backed organization.

​Disadvantages:

• Although you have an opportunity now to “cash in” your future pension benefits, this may be a one-time offer. Keeping the pension as-is may lock you into that for life. Taking a lump sum gives you a lot more options, including the option to lock yourself into an irrevocable lifetime payment arrangement later, if and when you choose to do so.
• A lump sum could be invested differently, using a plan tailored to your specific needs, or following a strategy that might provide a much better long-term return – though you could also come out worse that way, depending on the specifics of what you do with the funds.
• You have limited (perhaps no) control over the timing and amount of what you receive out of a traditional pension plan. If you need money sooner,  you can’t get it. If you don’t need money that soon, you probably don’t have the option of leaving it where it is. There is very little flexibility.
• Although you “win” the bet if you live a long time, you “lose” the bet if you don’t. You could die the day after you receive your next pension check, and under most pension plans that would be all you’d get. (A spouse or other beneficiary might or might not be able to get something more out of it, depending on what options the plan offers and which you choose at the time your pension begins. But choosing an option that covers someone else means a smaller pension during your own lifetime – there’s no free lunch there.)
• While the rigid nature of future pension payments does protect you from making bad decisions about your money, it also prevents you from making good decisions about them. Committing to a steady stream of monthly income for a long period of time may (or may not) be the single best thing you could do with your financial resources right now.
• The PBGC guaranty is limited. In 2016 the limit at age 65 is $60,136 a year (if your benefit is payable for your life only), so that if your own pension is higher than that, the extra amount you receive is at risk if your pension plan goes broke. Note, however, that in some cases your pension plan may actually be transferring the risk to an insurance company, in which case your guarantees come from the insurance company, the insurance industry, and/or your state government.

 
Up next: Option #2 - Take the lump sum and roll it over into a tax- advantaged retirement plan

You’ve been told you have the option of converting all or part of your pension plan to an immediate cash payment (a “lump sum”). What should you do?
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Just as important, how do you even think about this in a sensible way?

First, let’s distinguish three circumstances under which you might have the option of taking a lump sum from your pension plan:

1. You are retiring from an employer that offers a traditional pension plan (a plan that pays a monthly retirement benefit for life), and that plan allows you to take all or part of the value of your pension as a lump sum when you retire, with reduced or zero future payments.
2. Your employer is restructuring a traditional pension plan, and you’re being offered a one- time opportunity to keep your pension as is, take a lump sum payment in exchange for giving up all future pension benefits from the plan, or take half the lump sum amount and keep half of your pension.
3. You have a 401(k), 403(b), or other similar plan where you already have a specific account balance, and because of a job termination, retirement, or other event you have a right to withdraw some or all of your account from the plan.

​Although each of these situations is different, most of the thought process you should go through is the same.

Even so, there is more than one way to think about this decision.

1. Taking a lump sum means you have an immediate financial windfall. What’s more exciting than that? And who doesn’t have a mental list of great things that could be done with a windfall?
2. Then again, if you take a lump sum, you may be cheating your own future, or that of people who depend on you. Maybe that money is going to mean a whole lot more to you later than it does now, not least of all because if left alone, it is likely to grow.

​Of course, if the lump sum amount is small, none of this matters a great deal. But if it represents more than a few paychecks to you, then it’s worth putting some serious thought into.

And that’s what our guide "Should You Accept A Lump Sum From Your Pension Plan?" is for.

For a free copy click here.

An updated, proven system to help participants make the right PRT lump sum elections…and get a picture of their retirement few would otherwise ever receive.

Tens of millions don’t have much insight into their retirement.
​

• "How much money do I need?" is perhaps the most frequent question.
• "What are my options?" and "How do I get there?" given my own particular circumstances.
• Questions especially urgent when it’s increasingly obvious they don’t have enough. 

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The LSA provides a retirement analysis for users who are at a critical juncture in their retirement planning: Do I take the lump sum or keep my pension, albeit in the form of an annuity? Participants who deserve – though rarely get – written analyses can get one in minutes.

By Steve Richards

​With the 10-year Treasury yield hitting an all time low on Tuesday it seems a good time to reflect on the impact of such low yields on DB plan de-risking and terminations.

The efficacy and timing of de-risking moves basically comes down to where one thinks interest rates are going. The conventional wisdom for years now is that rates are heading up, and most think that pulling the trigger on buying annuities and/or offering lump sums is just not a good idea. Why? Because as rates go up the price of Single Premium Group Annuities (SPGAs) go down. Likewise, the cost of lump sums.

Obviously, this conventional wisdom has largely proved wrong.

​What’s worse is that these could be the good old days when plan sponsors will look back and say to themselves: “Boy, I sure wish we had made those de-risking moves way back when…” Especially if equity markets tank, always a risk.
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By Steve Richards

I remember it like yesterday when we incorporated the predecessor of CES-Crews in 1999. Ah, the good old days:
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• The dot-com bubble was ballooning
• The 10-year was just north of 6%
• A gallon of gas was about $1.20
• The world was about to end with the turning of the clocks at midnight 2000