Compliance April 14, 2015

New York State Moves to Create Its Own PRT Standards

Filed as Senate Bill 1092 and Assembly Bill 6796, a new initiative in the New York State Legislature seeks to expand and strengthen scrutiny paid to pension risk transfer transactions enacted by employers in the state.
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State Senator Tony Avella, a Democrat from New York’s 11th District, introduced the bill alongside Assembly Member Peter Abbate, a Democrat from the 49th District. The identical bills would require that companies moving to convert pensions to annuities provide “proper disclosures related to the transaction for all impacted retirees.”

As Abbate and Avella note, “The purpose of the bill is to provide necessary protection to retirees whose pension plans are entirely divested of all Employee Retirement Income Security Act [ERISA] and Pension Benefit Guaranty Corporation [PBGC] [safeguards] as a result of a group annuity purchase from a life insurance company.”

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The bill also prohibits the subsequent transfer of the retirees’ pension benefits without the confirmation of the New York State Superintendent of Financial Services that the insurer acquiring the group annuity contract has the financial strength to fulfill its long-term obligations to all retirees.  

Specifically, provisions of the bill would amend state insurance law by adding a new Section 3219-a to New York’s Civil Practice Law and Rules (CPLR), relating to pension de-risking transactions with an annuity. The section requires that an annuity issued by an insurance company licensed to do business in the state, which sells an annuity intended to provide pension benefits to retirees of any company, corporation, limited liability company or association must include the following features:

A clear statement that payments to annuitants under an annuity contract issued pursuant to this section are exempt from the claims of creditors;

A statement that the retirees will no longer have protection under ERISA and the PBGC;

The identity and contact information for the New York Life and Health Insurance Guaranty Association, or any substitute or replacement guaranty association that provides coverage to annuitants residing in New York in the event of the insurer’s financial impairment or insolvency, as set forth on a publicly available website such as that maintained by the Life Insurance Co. Guaranty Corp. of New York (www.nylifega.org); and

Mandatory annual disclosures to all retires whose benefits are transferred to an insurance company or alternative benefit provider for the purpose of providing retirement benefits, of the following: funding levels of all assets relative to expected liabilities under the assumed pension benefit schedules, investment performance summary by asset class, investment performance detail by asset class, expenses associated with any group annuity contract, changes in actuarial assumptions, if any.

Other provisions will prohibit transfer or assumption of pension assets and liabilities to another insurer without confirmation by the superintendent that the insurer assuming the obligations of such allocated or unallocated group annuity contract has the financial strength to fulfill its obligations under such contract. In addition, the proceeds of any such allocated or unallocated group annuity contract issued “shall be exempt from application to the satisfaction of money judgments under Section 5200 give of the CPLR.”

Section 2 of the bill amends Paragraph 2 of Subdivision (1) of Section 5205 of the CPLR, as amended by Chapter 24 of the laws of 2009, by adding that “Statutorily exempt payments” shall specifically include “any annuity proceeds whose benefits are transferred to an insurance company or alternative benefit provider for the purpose of providing retirement benefits pursuant to Section 3219-a of the insurance law in a pension de-risking transfer.”

Section 3, lastly, sets forth an effective date of 120 days “after [the bill] shall have become law and shall apply to all policies and contracts issued, renewed, altered, or amended on or after such date.”

Full text of the bill is available here. 

Data & Research April 14, 2015

Amid Distrust, Plan Sponsors Trust Advisers

Compared with confidence in the financial services industry generally, plan sponsors have much higher levels of trust in their own retirement plan advisers, a study found.
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Trust in service providers dropped below last year’s levels, according to the Second Annual Plan Sponsor Trust & Confidence Study by the National Association of Retirement Plan Participants (NARPP). This year, the study asked a series of questions related to trust in retirement advisers. Just one in five plan sponsors (20%) said they generally trust retirement advisers to “always do the right thing.” However, trust in their specific adviser is higher, at 71%,

What builds adviser trust for a plan sponsor? NARPP wanted to understand the trust factors—ones that build as well as erode trust—in the plan sponsor-plan adviser relationship and identified five practices or characteristics. Next to each is the percentage of plan sponsors that strongly agree when asked about their current adviser:

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  • Completely lives up to promises (44%);
  • Values plan sponsor business (53%);
  • Follows through on requests (53%);
  • Cares about the long-term financial security of participants (49%); and
  • Understands plan sponsor’s needs (45%).

When it comes to other providers in the retirement space, plan sponsors continue to express deep pessimism about service providers, with trust in financial institutions at 8% (a slight dip from 2014’s 9%) and trust in their current plan provider at 58%, a loss of seven percentage points from last year’s 65%. Survey respondents assessed their trust in a provider by agreeing with the statement they “can always trust their provider to do what is right.”

The low numbers mirror the general public’s confidence in financial institutions, according to Laurie Rowley, president and co-founder of NARPP, “which is quite low. Surveys by Pew Research and Stanford University, among others, show the general public’s trust in financial institutions hovers in the 10% to 11% range.”

In fact, she says, there seems to be quite a pall over the defined contribution (DC) industry, where people have more personal experience with financial institutions, including recordkeepers. In NARRP’s survey, trust scores for plan providers range from a high of 74% to a low of 24%, so there’s clearly room for improvement, Rowley tells PLANADVISER, “especially if plan sponsors consider the factors that both build and erode trust: accountability, following through on promises, and understanding needs of the plan sponsor and employees. “

While trust in service providers dipped lower below those in the previous study, Rowley believes there’s an opportunity to open the floor to discussions on ways to improve.

Critical Trust Factors

“I can’t think of a factor that’s more important than accountability and reliability,” Rowley says. “And that’s where the conversation needs to shift, to how well the provider is doing the job.” Plan sponsor dissatisfaction with a service provider can be an opportunity for discussion, the basis for a conversation between plan sponsor and recordkeeper to see how services to participants, for example, can be improved. “If you’re having a problem with education or service, the plan sponsor can point it out,” she says. Change won’t take place immediately, Rowley says, but the more people talk about it, service providers are going to have to level up their game.

The top factor for plan sponsors for choosing service provider is trustworthiness, which scores higher than participant customer service, quality of the customer experience, technology, education, administrative service and cost.

Calculating trust starts with the plan sponsors’ opinion of service provider competence, Rowley says. Can the service provider do the job they’re supposed to do? To assess actual trust, the survey asked plan sponsors to describe the amount of trust they have in financial institutions as well as their current service providers: “How much of the time can you trust financial institutions to do the right thing?”

Rowley notes that building and restoring trust with both plan sponsors and consumers should be a top priority for financial institutions because of its unique and critical role in participant savings behavior.

The study’s data challenge some of the more traditional aspects of what drives loyalty and satisfaction, according to Rowley. “Trust is the bedrock of every brand,” she says. “It is key to participant engagement, and it is the most important selection and loyalty factor for plan sponsors.”

The top-rated service providers for 2015 are: Vanguard; Wells Fargo and Charles Schwab (tied for second place); and Transamerica.

The 2015 study includes measurements for:

  • Trust levels with retirement advisers;
  • Efficacy of service providers’ education programs;
  • Attitudes about fees and fee disclosure; and
  • Individual trust rankings for the major service providers.

The Plan Sponsor Trust & Confidence Study, fielded in March 2015, polled 1,226 plan sponsors ranging in size from under $5 million to over $250 million in plan assets (average $61 million). All major industry groups are represented in the sample.  Developed by NARPP, Boston Research Technologies and Professors from Stanford University, the study is in its second year. Its goal is to set a standard for evaluating retirement plan service providers by measuring trust, and the characteristics that build or erode trust.

For more information or to get a copy of NARPP’s report, email the organization at Contact@NARPP.org

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