Products & Services February 8, 2024

Product & Service Launches – 2/8/24

SEI signs on as trustee to Pictet collective investment trusts; Voya officially launches dual QDIA; and Standard Insurance Company bolsters stable value products; and more.

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SEI Attracts European Asset Manager With CIT Lineup

SEI Trust Co. announced on February 6 it will serve as trustee for four collective investment trusts established by Pictet Asset Management in the U.S. institutional retirement market, according to a Tuesday press release.

The four CITs launched by Pictet Asset Management include:

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  • Pictet Clean Energy Transition CIT;
  • Pictet EM Blend CIT;
  • Pictet EM Local Currency Debt CIT; and
  • Pictet EM Hard Currency Debt CIT.

“Asset managers are enhancing distribution by launching multiple share classes in various asset classes and investment strategies,” said John Alshefski, SEI Trust’s senior vice president and managing director of its traditional investment managers business, in a statement. “Our established turnkey operational platform and experienced, professional team of experts enable global investment managers, retirement plans, consultants, and advisers an efficient way to gain access to SEI’s extensive CIT lineup.”

Managing $237 billion in investment strategies globally, Pictet is one of the largest asset managers in Europe, according to the announcement.

Voya Officially Launches Dual QDIA to Provide Greater Personalization

Voya Financial Inc. launched a dual qualified default investment alternative product on Thursday, seeking to win market share from rivals and gain defined contribution plan assets to the firm’s managed accounts, according to a press release.

Voya’s QDIA places participants into a default investment starting as a target-date fund, transitioning automatically as they age—generally around age 50, though with optionality for the employer—to any of the proprietary managed accounts supported by Voya.   

“Individuals nearing retirement are in need of a more holistic approach that not only supports their unique retirement goals and more-complex investment needs but also ensures that they are prepared to generate a sustainable retirement income stream,” said Andre Robinson, Voya’s senior vice president of retail wealth management and advisory solutions, in a statement “We are seeing growing interest from retirement plan participants—with total assets in Voya’s managed account solutions up 28% in 2023, compared to the year prior.”

Managed accounts are professionally managed investment services, using a plan’s core investment menu.

Voya’s dual QDIA seeks to offer pre-retirees individual investment advice; retirement income planning; and payout strategies and tactics aimed to personalize asset allocation and investments to the individual’s specific financial situation.

The dual QDIA is now available across Voya’s managed account programs to retirement plan sponsors and retirement plan advisers within Voya-administered retirement plans and will be available to intermediary clients to support their adviser managed account programs.  

Voya did not disclose fees for the product.

Standard Insurance Company Bolsters Stable Value Products

The Standard Insurance Co. added to the proprietary APEX fund series with the new APEX Stable Value Fund, available to new retirement plan recordkeeping clients in the company’s platform, the firm announced Thursday.

The fund offers a guaranteed crediting rate that denotes the corporate and treasury rate environment, backed by the financial stability of the Standard; it is currently at 4.5% from January 1 through June 30, and will reset semi-annually.

“The APEX Stable Asset Fund allows us to extend this competitive offering to more retirement plan clients including those considering The Standard recordkeeping platform,” said Jason Burlie, the Standard’s vice president of retirement plan sales, in a statement.

The fund is available to defined contribution plans, including 401(k)s and 403(b)s.

MassMutual Debuts First Sub-Advised Muni Bond Mutual Funds

MassMutual Investments announced on February 5 the introduction of three new municipal bond funds to the MassMutual Funds product mix and selected Clinton Investment Management LLC as the sub-adviser.

The funds will be managed consistent with CIM’s municipal short-duration (limited term), market-duration and credit-opportunities strategies, according to the announcement.

The funds are:

  • MassMutual Clinton Limited Term Municipal Fund;
  • MassMutual Clinton Municipal Fund; and
  • MassMutual Clinton Municipal Credit Opportunities Fund.

The funds were launched in three share classes, and varying expense ratios apply to each, according to the fund’s prospectuses.

“These launches represent an important milestone and reflect continued consistency in our efforts to expand and grow our MassMutual Investments platform in the wealth distribution channel,” said Doug Steele, MassMutual’s head of product management, in a statement. “These are the first funds that we are introducing in the municipal category, with a new-to-MassMutual sub-adviser.”

The new funds are the first sub-adviser selections by MassMutual’s head of manager research, Wale Adedokun, who joined the company in 2022.

Clinton Investment Management is a municipal bond manager specializing in actively managed strategies and is based in Stamford, Connecticut.

Compliance February 8, 2024

Past Proposals to Tax Qualified Retirement Plans Have Never Gotten Far

Industry has always organized to defeat even marginal changes to the tax-preferred status of DC plans.

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A study published by Andrew Biggs and Alicia Munnell for the Center of Retirement Research at Boston College advocated taxing tax-advantaged plans in order to help pay for Social Security. The study provoked a wider debate on the utility of qualified plans and the need to find ways to pay for Social Security, which is projected to have to cut benefits by about 23%, starting in 2034.

The total cost to federal revenue of qualified defined contribution accounts, both employer-sponsored and individual retirement accounts, comes out to about $185 billion annually, according to Biggs and Munnell. Biggs says the tax break “really doesn’t raise retirement savings very much,” because much of the tax benefit goes to higher earners who would be saving in any case. The tax preference for retirement accounts prompts many people, especially wealthier savers, to “simply shift money from taxable accounts to untaxed accounts;” those savers are “in no danger of running out of money,” Biggs says.

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Beyond simply removing tax-preferred status, the Biggs-Munnell study also discussed subjecting employer retirement contributions to FICA taxes so that revenue can be collected for Social Security and Medicare upfront, similar to how traditional employee contributions do not discount an individual’s taxable income for FICA.

Biggs acknowledges that this reform is a bit less straightforward, because calculating income this way would also entitle those workers to more Social Security benefits when they retire.

Legislative Proposals

But what proposals have actually been made to modify the tax status of DC plans, regardless of the benefits to Social Security?

One such proposal came in 2014 from former Representative David Camp, R-Michigan, then the chairman of the House Committee on Ways and Means. His proposal which would have frozen inflation adjustments for DC plan contributions for 10 years. That would have the effect of gradually reducing the real cap on tax-advantaged contributions and potentially raising more revenue. The proposal was issued as a discussion draft and was never voted on.

Other potential proposals were discussed in 2017 in the lead-up to the Tax Cuts and Jobs Act. According to Brigen Winters, a principal in Groom Law Group and an organizer of Save Our Savings, an advocacy that pushed back against the 2017 proposals, some lawmakers wanted to push more savings into after-tax Roth source accounts, so the money saved would be taxed up front to raise more short-term tax revenue.

Specifically, Winters says some lawmakers proposed limiting traditional pre-tax contributions to less than Roth contribution or requiring that at least 50% of employee contributions be made on an after-tax basis. None of these proposals made it into proposed legislation.

Winters says these proposals were partially designed to satisfy Congressional budget scoring rules, which evaluate the cost of all federal spending bills based on their impact on federal revenues in a 10-year window from the date of enactment. Since traditional contributions are pre-tax and Roth post-tax, Roth contributions generate more tax revenue within the 10-year window than traditional pre-tax contributions. In reality. traditional contributions are merely tax-deferred, so they are taxed as income when they are withdrawn from the retirement account, whereas the earnings in a Roth account are tax-exempt.

The so-called “Rothification” proposals such as these faced industry resistance because the short-term tax incentive makes it easier for many to save for retirement. The Rothification proposals “never got very far,” Winters says.

Winters notes that the perception that Roth accounts generate more federal tax revenue than traditional accounts is misleading, and some lawmakers have caught on and proposed either taxing the interest on large Roth balances or compelling distributions from them. These proposals also have not advanced into legislation.

There was an echo of this Rothification debate during discussions ahead of passage of the SECURE 2.0 Act of 2022, Winters explains. A provision of SECURE 2.0 requires catch-up contributions by highly compensated employees to be made on a Roth basis, an inclusion made solely to generate revenue in the short term to pay for other provisions in the bill. Winters says that industry did not push back because the legislation, as a whole, was very popular with groups in the retirement industry.

Lastly, Winters says Camp’s 2014 proposal to de-index contribution limits from inflation for a limited period of time came up again in 2017 during discussion of the Tax Cuts and Jobs Act. Once again, he says, it was resisted and defeated by industry.

In recent years, efforts to tax qualified plans or erode the contribution levels through inflation have all been defeated before any formal legislative proposal could even be made. But that does not mean it is not on people’s minds, both in Congress and in academia.

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