Compliance June 28, 2019

ERISA Lawsuit Argues Outdated Mortality Assumptions Harm Annuitants

As the complaint points out, the Society of Actuaries has published some five updates to its mortality assumptions since the mortality table used by defendants was published way back in 1971.

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A new complaint filed in the U.S. District Court for the Eastern District of Virginia resembles several others filed in the last year against MetLife, Pepsi and American Airlines, suggesting the use of outdated mortality tables in determining annuity payments causes retirees to lose part of their vested retirement benefits.

This latest complaint targets Huntington Ingalls Industries, which refers to itself on its website as “America’s largest military shipbuilding company and a provider of professional services to partners in government and industry.” With some nuances in each case, the basic argument being put forward is that these employers are failing to pay the full promised value of ‘alternative benefits,’ in that they are failing to ensure different annuity options made available in a retirement plan are actuarially equivalent to the plan’s default benefit, as required by the Employee Retirement Income Security Act (ERISA) and the terms of the plans themselves.

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According to the text of the would-be class action, under the part of the Huntington plan that covers employees hired before June 7, 2004, dubbed the “legacy part,” participants accrue a retirement benefit that is a flat monthly rate for each year of service in the form of a single life annuity (SLA), described as “a payment stream that starts when they retire and ends when they die.”

The complaint suggests participants can choose from several forms of benefits other than an SLA, including joint and survivor annuities, which offer payment streams for retirees’ lives and their spouse’s lives after the retiree dies, and a “Social Security leveling option annuity,” which according to the complaint enables “early retirees to collect pension benefits until they begin receiving Social Security benefits at which point their pension benefits would be lowered.” Collectively, these options are referred to in the complaint as “non-SLA annuities.”

“To calculate the benefit amounts for retirees who receive these non-SLA annuities, defendants apply actuarial assumptions to calculate the present value of the future payments,” the complaint states. “These assumptions are based on a set of mortality tables to predict how long the participant and beneficiary will live and interest rates to discount the expected payments. The mortality table and interest rate together are used to calculate a ‘conversion factor’ which is used to determine the amount of the benefit that would be equivalent to the SLA.”

Under ERISA, the present value of the non-SLA Annuities must be equal to the value of the SLA for the forms of payment to be “actuarially equivalent.”

“Mortality rates have improved over time with advances in medicine and better collective lifestyle habits,” the complaint continues. “People who recently retired are expected to live longer than people who retired in previous generations. Older morality tables predict that people will die at a faster rate (higher mortality rate) than current mortality tables. As a result, using an older mortality table to calculate a conversion factor decreases the present value of the non-SLA annuities and—interest rates being equal—the monthly payment that retirees who select these non-SLA Annuities receive.”

The complaint states that the Huntington defendants calculate the conversion factor (and thus the present value of the non-SLA annuities) for the legacy part of the plan using the 1971 Group Annuity Mortality Table. This table assumes 90% of the employees are male, and that 90% of contingent annuitants are female, while utilizing a 6% interest rate.

“Using the 1971 table, which is based on data collected roughly 50 years ago, depresses the present value of non-SLA annuities, resulting in monthly payments that are materially lower than they would be if defendants used reasonable, current actuarial assumptions,” the complaint alleges. “By using outdated mortality assumptions to calculate non-SLA annuities under the legacy part, defendants improperly reduce plaintiff’s benefits.”

Specifically, the complaint calls for an order from the Court reforming the plan to conform with ERISA; payment of future benefits in accordance with the reformed Plan, as required under ERISA; payment of amounts improperly withheld; and such other relief as the Court determines to be just and equitable.

The lead plaintiff goes on to point out that more recent mortality tables are “two-dimensional” in that the rates are based not only on the age of the individual but the year of birth—and that the Society of Actuaries (SOA) has published updated tables five times since 1971, most recently in 2014, with the express stated purpose of accounting for changes in the U.S. population’s mortality experience. And just in May of this year, the SOA released an exposure draft of new private-sector retirement plan mortality tables.

The full text of the complaint is available here.

Deals & People June 28, 2019

Retirement Industry People Moves

CFA Institute Appoints First Woman CEO and President; Spectrum Investment Advisors Names Top Leadership Appointments; AIG Retirement Names Regional Consultant Relations VP; and more.

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Art by Subin Yang

CFA Institute Appoints First Woman CEO and President

CFA Institute has appointed of Margaret Franklin as its new CEO and president. Franklin is the first woman to hold the position in its 73-year history. She will assume the role on September 2, taking over from Paul Smith.

Franklin has been a leader in the investment management industry for 28 years, most recently as president of BNY Mellon wealth management in Canada and head of international wealth management in North America. Her experience has been gained at firms ranging from large, global asset managers to start ups, including Marret Private Wealth, State Street Global Advisors and Barclays Global Investors. Her work has included advising individuals, families, pension plans, endowments, foundations and government agencies.

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In 2011, Franklin was chair of the Board of Governors of CFA Institute, a volunteer position, and is a member of CFA Society Toronto, where she has also served on its board. She is a founding member of the CFA Institute Women in Investment Initiative, a past recipient of its Alfred C. Morley Distinguished Service Award in 2014, and a member of its Future of Finance Content Council.

“I am honored to assume the leadership of CFA Institute, whose mission to promote the highest standards of ethics, education, and professional excellence is more important than ever as our industry faces disruption from many quarters,” says Franklin. “I look forward to applying my wide-ranging experience as a practitioner and extensive knowledge of the organization in the service of its mission and members.”

Franklin will join the organization on September 2. Smith, who previously announced his departure at the end of 2019, will remain in an advisory capacity to the CEO until December 31.

AIG Retirement Names Regional Consultant Relations VP

AIG Retirement Services, formerly VALIC, a retirement plan provider for healthcare, K-12, higher education, government, religious, charitable and other not-for-profit organizations, has named Mimi Hodac vice president of consultant relations for the western region.

Hodac will focus on strengthening relationships with the consultant community in California, Colorado, Hawaii, Arizona, Nevada, Utah, Nebraska, Iowa, Missouri, Kansas, Oregon and Alaska.  

“We are deeply committed to working with the consultant community to help them deliver top-notch products, solutions and expertise to the non-profit defined contribution marketplace,” says Robert Haverstrom, vice president, consultant experience, AIG Retirement Services. “Mimi brings extensive expertise in the not-for-profit retirement market and we’re excited to welcome her to AIG.”

Hodac joins AIG Retirement Services from Lincoln Financial Group, where she most recently served as senior relationship manager. She previously worked at Prudential Financial, working closely with plan sponsor clients and consultants.

Spectrum Investment Advisors Names Top Leadership Appointments

Spectrum Investment Advisors Inc. has announced changes in top leadership as part of the succession plan for the closely held retirement plan and wealth management firm. Manuel Rosado has been appointed to role of president. Matthew Demet will be elevated to senior vice president of business development. Jonathan Marshall, who has been with the firm for 16 years, will remain in his role as chief investment officer and chief compliance officer. 

Founder James Marshall will vacate his role as president and serve as chairman and ambassador.

Rosado, a partner of the firm, will focus on the executional management and overall success of the company. He holds a master’s degree in finance from Concordia University-Wisconsin and a bachelor’s degree in business administration from Taylor University, where he is on the board of trustees.  Rosado is also the president of the Wisconsin Retirement Plan Professionals Ltd.  

Demet, a partner of the firm for six years, will focus on strategic business development and overall sales.  He is a graduate of St. Norbert College, earning his bachelor’s degree in business administration.  He’s been in the retirement plan and investment management industry since 1989.

Spectrum Investment Advisors will continue to employ seven shareholders, who have an average of 25 years of experience. Lead partners include James Marshall, Jonathan Marshall, Rosado, Matthew Demet, Cheryl Besaw and Brian White. 

EGPS Acquires Feldman Benefit Services

Economic Group Pension Services (EGPS) Inc., a third-party consulting and administration firm, has acquired Feldman Benefit Services Inc., based in Springfield, New Jersey, as of January 1.  

“Their unique organization, expertise, and technique greatly aligns with EGPS’s overall vision,” says Daniel Liss, CEO of EGPS. “Providing personalized service while having access to top national resources is an advantage that will guide the combined companies in the continued direction for strategic growth.”

Elise Feldman, previously president of Feldman Benefit Services Inc., is now regional vice president for the New Jersey regional office for EGPS.

“We are structured through a solutions-driven approach,” explains Feldman. “This transition will significantly improve and exceed our clients’ needs by still providing a tailored approach while adding greater resources, which will allow us to influence a greater market.” 

Mutual of Omaha Announces 401(k) Team Promotion

Laura Huscroft has been promoted to vice president of 401(k) at Mutual of Omaha.

In her new role, Huscroft will focus on product management and development. Huscroft has spent her entire career in the financial services industry. Prior experience includes life and annuity product pricing, Medicare supplement product pricing and enterprise risk management.

Huscroft earned her bachelor’s degree in actuarial science from the University of Nebraska-Lincoln. She’s also a fellow of the Society of Actuaries and a member of the American Academy of Actuaries.

Mutual of Omaha is a full-service, multi-line organization providing insurance, banking and financial products for individuals, businesses and groups throughout the United States.

Segal Consulting Adds VP and Consulting Actuary to San Francisco Office

Todd Tauzer has joined Segal Consulting as vice president and consulting actuary in the San Francisco office. In this role, Tauzer will be supporting public sector clients.

Tauzer joined Segal from S&P Global Ratings where he was director of municipal pensions. There he developed an analytical framework to assess the sustainability of public sector pension plans and other post-employment benefits plans. Prior to joining S&P Global Ratings, Tauzer was a senior pension actuary with the California Public Employees’ Retirement System (CalPERS) for close to 10 years. While at CalPERS, he led in the development of a risk-mitigation policy that earned the 2016 Award for Excellence in Government Finance from the Government Finance Officers Association (GFOA).

Tauzer is a frequent speaker at industry events, including those sponsored by the Brookings Institute, the National Federation of Municipal Analysts, the Society of Municipal Analysts, the National Conference of State Legislators and the GFOA. He is a fellow of the Society of Actuaries, a member of the American Academy of Actuaries, and a fellow of the Conference of Consulting Actuaries as well as an active committee member with these organizations. Tauzer is also a chartered enterprise risk analyst.

Tauzer was a Regents Scholar at the University of California, Davis, where he earned a bachelor’s degree in Mathematics and in Economics.

Relationship Manager Joins BPAS San Juan Team

BPAS is expanding its Puerto Rico service team. Effective July 1, Steven Graciani will join BPAS Trust Company of Puerto Rico as a relationship manager based in San Juan.

Graciani will service Puerto Rican plan sponsors and financial advisers associated with the BPAS PR 1081 business. His role will focus on onboarding new plans, client and financial adviser training, plan audit support and general client communication. Graciani has spent the past 15 years working with plan sponsors in Puerto Rico.  He has extensive experience with BPAS services and clients.

“We are excited to have Steven join the BPAS team,” says Alfredo Matheu, president of BPAS Trust Company of Puerto Rico.  “Through a strong combination of expertise in local regulations, PR Trust capacities, DC and DB services, and local staff, BPAS is uniquely positioned to assist plan sponsors with operations in PR.”

Aviva Investors Hires Chicago-Based Portfolio Manager and Equity Analysts

Aviva Investors will be expanding its U.S. equities business.

Robert Plaza has joined the firm as portfolio manager from Key Private Bank, where he was director of equity research, while Nick Nikitas and Adam Schmitz have joined as equity analysts from Robert. W. Baird and Harris Associates, respectively.

Their roles are based in Chicago, and they will report to Susan Schmidt, head of U.S. Equities at Aviva Investors.

Including the latest hires, 18 investment professionals have joined the equities platform since the Aviva Investors expansion in January 2018.

“We are excited about the expansion of our U.S. equities team. It will complement our growing global equities platform and our expanding North American fixed income capabilities, allowing us to better serve clients regionally and around the globe,” says Tom Meyer, head of Americas client solutions at Aviva Investors.

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