Compliance January 31, 2014

PBGC Revives Partition Authority

For the third time in its history, the Pension Benefit Guaranty Corporation (PBGC) is using its authority to partition an insolvent employer’s participants from a multiemployer plan to boost the plan’s financial position.
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The agency announced the Bakery and Sales Drivers Local 33 Industry Pension Fund in Baltimore was slated to go insolvent following the bankruptcy filing of Hostess Brands, Inc. PBGC approved a request from the Bakery and Sales Drivers to separate 330 former Hostess participants from the plan, and pay PBGC guaranteed benefits so promised benefits for most of the plan’s members would remain intact.

During a press briefing, PBGC Director Joshua Gotbaum explained plans in this critical status have for years come to the agency saying they have adequate resources to pay for active employees, but do not have enough resources to pay for employees of companies that went out of business. The agency has the authority to take responsibility for those companies that have gone out of business, called partition ability, but until now has only used this authority twice—not because the agency does not want to help, but because its multiemployer program does not have adequate funds to do so. “So we have to tell these plans our program has a deficit, so can’t help,” he said.

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However, according to Gotbaum, the agency has decided, even though it is clear it needs more resources, it will use its authority to help these plans. “We decided to do our job, despite the lack of money,” he added.

Speaking about the current negotiation to separate Hostess participants from the Bakery and Sales Drivers Local 33 Industry Pension Fund, Gotbaum said: “If we had adequate funds we could do this not just for plans with hundreds of participants, but for plans with hundreds of thousands of participants.”

A Cry for Help

In January 2012, Hostess Brands Inc. filed bankruptcy protection after failing to reach an agreement on pension and health benefits (see “Hostess Proposes Suspension of DB and MEPP Contributions”).  The Bakery and Sales Drivers Local 33 Industry Pension Fund had six contributors to the plan originally, but following other withdrawals and the Hostess bankruptcy it had one remaining contributor able to pay for its own employees, Sanford Rich, PBGC's chief of negotiations and restructuring explained during the press briefing. After determining the plan satisfied all requirements of the statute giving the PBGC partition ability, the agency took Hostess participants out the plan and put them into a new terminated plan. The current plan without these participants is solvent and expected to be solvent in perpetuity, Rich said.

However, since the plan had only one contributor left, the agency suggested the employer join another plan. The plan found another Teamster plan, the Milk Drivers and Dairy Employees Local Union No. 246 of Washington D.C. Pension Fund, and the two, along with the PBGC, negotiated a merger. The merged plan now has three contributors and about 1,100 participants, including the Hostess participants. Separating Hostess participants from the rest of the plan will enable the plan to avoid insolvency and preserve pension benefits for most of the plan's participants, the agency announced. “Merging the plans added multiple employer contributions, the strength of the multiemployer system, and lowered administrative costs,” Rich told the press.

Groups of Hostess participants exist in other multiemployer plans, but Gotbaum and Rich noted some of those plans are still financially sound despite the Hostess bankruptcy. There is one other outstanding request regarding a plan with a group of Hostess participants the agency is considering. In 2010, the agency took responsibility for pensions of Hostess employees from the American Bakers Assn. Retirement Plan, a multiple employer plan.

The last time the PBGC used its partition ability was in 2010, when it divided the Chicago Truck Drivers, Helpers & Warehouse Workers Union (Independent) Pension Fund into two separate plans (see“PBGC Divides Pension Plan to Delay Solvency”). The other time was in 1983.

According to Gotbaum, aside from more financial resources, the agency could help more plans if the statute for partition ability was amended. There are three hurdles to meet to be partitioned—one is the liability must be related to an actual bankruptcy. The PBGC can only use its authority if an employer withdrew from the plan because it filed Chapter 11 bankruptcy. “If Congress could redefine that into a broader category, we could use our partition authority more effectively,” he said. “If an employer withdraws because it liquidated, we can’t help. If it withdrew due to a geography change, we can’t help.”

In FY 2013, PBGC paid $89 million in financial assistance to 44 multiemployer pension plans covering the benefits of nearly 50,000 retirees. An additional 21,000 people in these plans will receive benefits when they retire. However, PBGC's multiemployer program premiums are far below the levels necessary to meet all obligations and the agency reported a net multiemployer deficit for FY2013 of $8 billion (see “PBGC Deficit Grows to $36B”).

Products January 31, 2014

TD Ameritrade Devises Recruiting Solution

TD Ameritrade Institutional launched a campus-to-career program to help independent advisory firms win and retain the next generation of financial services talent.
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With the launch of a new nationwide RIA Intern Network, TD Ameritrade Institutional hopes to arm registered investment advisers (RIAs) with tools and resources to build effective internship programs that can attract and develop young financial advisers.

The firm says it is expecting more than 30% growth in demand for financial services during the next decade—nearly twice the growth rate of all other occupations, as measured by the U.S. Bureau of Labor Statistics “Employment Projections to 2020” study. Other research indicates that the industry is far from positioned to take advantage of the growth, with some 43% of percent of advisers over the age of 55 and just 6% of working advisers under 30 (see “Adviser Population Aging Fast”).

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 “If we don’t change the course we’re on, there’s a very real threat there won’t be enough young people entering the field to meet the growing demand for financial advice,” warns Tom Nally, president of TD Ameritrade Institutional. “An internal succession transition can take up to ten years to implement, which is why it’s so important that we engage students now and raise awareness of a great career opportunity.”

The RIA Intern Network seeks to facilitate mutually beneficial relationships for advisers looking to fill entry-level roles and students preparing to enter the workforce, the firm says. And by attracting tech-savvy interns to their firms, advisers can be in a better position to capitalize on the generational transfer of wealth from Boomers to Gen X and Gen Y investors.

TD Ameritrade Institutional will provide support and guidance to help RIAs build an effective training and development program within their firms. Advisers participating in the program will receive a comprehensive internship guide that outlines how to build a program that serves their firm’s strategy and creates a valuable experience for students.

Students and advisers will connect through an online portal to post resumes and internship opportunities, while a dedicated LinkedIn page will connect participants for social networking. Students can network with peers interning at other RIA firms across the country and participate in professional development and education programs through a webcast series.

The network could also benefit the RIA industry as it battles rivals in other wealth management channels for the best and brightest, the firm says. 

“Even though RIA channel growth is outpacing the broader industry, advisers still face a David and Goliath battle,” says Nally. “Smaller RIA firms with fewer training resources can be challenged to compete for students who may perceive better career opportunities at the larger brokerage firms.”

The guidebook is available now to help advisers lay the groundwork for implementing a successful internship program within their firms. Advisers can download the guide from the TD Ameritrade Institutional Education Center. TD Ameritrade Institutional will launch the online portal and LinkedIn page later this spring, as students and advisers start to gear up for summer internships.

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