Deals & People August 7, 2015

Retirement Industry People Moves

Among the week's people moves, Kimberly Shaw Elliott and Jay Bloom joined Independent Financial Partners, John Carbone and Matthew Goldberg signed on to Fred Alger Management, and Jessica Portis joined Mercer Investments.
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Kimberly Shaw Elliott has joined Independent Financial Partners (IFP) as president of IFP Plan Advisors. She will provide strategic direction for the division, which oversees more than $35 billion in retirement plan assets under advisement.

Under Elliott’s leadership, the firm’s plan advisers will deliver several new services, including a dedicated call center for retirement plan participants; a request for proposal (RFP) service department; annual conferences for retirement plan advisers; marketing materials and co-branding opportunities.

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Known in the industry as a speaker and subject matter expert, Elliott will help IFP’s retirement plan-focused advisers navigate the complex rules surrounding employee benefits, securities law, broker/dealer regulation and taxes. She will also define IFP’s risk management strategies for retirement programs, provide thought leadership and training to advisers, and serve as the firm’s ERISA (Employee Retirement Income Security Act) counsel.

“The rules surrounding retirement plans are continuously evolving, and it’s a challenge for clients and their advisers to keep up on their own,” Elliott observes. “IFP’s retirement plan advisers now have a team dedicated to helping them assist their plan sponsor clients.”

A former private practice attorney, Elliott has represented broker/dealers, investment advisers, insurance companies and others across the nation, focusing on distribution and fiduciary responsibility. Previously, she worked for many years as lead counsel and an executive for a number of financial services companies.

Elliott holds a bachelor’s degree in mass communication, radio and television, from Southern Illinois University at Edwardsville, as well as three post-graduate degrees from Washington University in St. Louis: juris doctor, Latin legum magister in taxation and an executive master’s in business administration.

Jay Bloom has been hired as director of business development, and will work directly with plan advisers to ensure that IFP delivers the ideas, resources and support.

Bloom brings a perspective built from his years of experience working exclusively with retirement plans.

“I was attracted to IFP because of the scope of its business and diversity of its advisers,” he said. “We are an important player in this sector and should be a destination for retirement plan advisers looking to work with a hybrid RIA.”

Bloom joined the executive team at 401(k) Exchange in 2004, where he helped grow the institutional business channel until 2008, when he helped launch a 401(k) Exchange subsidiary, Jupiter Distribution Partners, a broker/dealer providing hybrid wholesaling services to Cullen Funds and First American Funds. In 2010, Bloom covered Florida as a regional vice president for The Retirement Advantage, a national third-party administrator focused on administering defined benefit and defined contribution plans. He joins IFP from Strategic Growth Advisors, a firm he founded in 2011 that delivered prospects to retirement-focused advisers.

John P. Carbone has joined Fred Alger Management as senior vice president, institutional sales and service. He will concentrate on growing sales and managing ongoing institutional relationships. Along with the existing institutional team, he will be responsible for fostering new relationships and increasing market presence in the institutional, consultant, and certain retirement and bank trust markets. Carbone will report to Jim Tambone, executive vice president, chief distribution officer.

Carbone, who has 20 years of experience, was most recently at BNY Mellon Investment Management, where he grew revenue through direct sales to corporate retirement plan sponsors on the East Coast. Prior to BNY Mellon, Carbone held senior institutional sales roles at The Hartford and Mellon Financial. Carbone coordinated benefit administration delivery and client servicing at Hewitt Associates. He holds a bachelor’s degree in finance from Providence College.

Matthew J. Goldberg has joined as senior vice president, divisional sales manager. He will lead and develop Alger’s team of regional marketing managers located in the western half of the U.S. Goldberg’s team is responsible for expanding relationships and creating new ones with advisers in wirehouses, independent broker/dealers and RIA offices, as well as expanding Alger’s market reach of growth equity strategies. He will report to Elizabeth Clapp-Carey, senior vice president, head of retail sales.

Goldberg, who has 24 years of experience, has spent his entire investment career at Columbia Threadneedle Investments (and its predecessors), most recently as divisional vice president for the West Coast and, previously, as regional vice president in California. Goldberg holds a bachelor’s degree in finance from Lehigh University.

Fred Alger Management reports that it manages more than $23.8 billion in assets as of June 30.

Jessica Portis joined Mercer Investments as a senior consultant to support Mercer’s work in the endowment, foundation and non-profit health care sectors.

Portis will report to Kim Wood, senior partner and not-for-profit segment leader. She takes on the new role effective September 8, and will be located in Mercer’s St. Louis office.

Previously, Portis was a senior consultant and business leader at Summit Strategies. She has extensive experience in investment consulting, Mercer says, including expertise in servicing public pension, corporate defined benefit and defined contribution, endowment, foundation and not-for-profit health care clients.

Compliance August 7, 2015

Plans Must Carefully Field ERISA Claims and Settlements

There are few, if any, regulations providing direct guidance on this matter.
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When a 401(k) retirement plan is awarded damages or receives a settlement from a lawsuit, it is incumbent on the retirement plan adviser to help the plan administrator figure out how to award the funds to participants.

Generally, the funds are first placed into a holding account, explains Daniel Johnson, head of the employee benefits and compensation practice at Moore & Van Allen in Charlotte, North Carolina.

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Then, the first distribution of the settlement goes to pay attorney fees, says Mike Kasecamp, retirement plan consultant at CBIZ Retirement Plan Services in Columbia, Maryland. Their fees are typically 25% to 30% of the settlement, Kasecamp says. “It is unfortunate that with many of these settlements, the participants receive such small funds, while the attorneys can get millions,” he says. (See “Leveraging ERISA Attorneys.”)

Next, the administrator must figure out how to distribute the funds to participants, relying on the detailed files of their recordkeepers to determine how to allocate the funds on a pro rata basis, Johnson says. Sponsors typically divide the settlement by each participant’s balance at the time of receipt to figure out a percentage to pay them, Kasecamp says.

If the settlement was determined in a relatively short period of time, it could be easy for the administrator to allocate the funds, Johnson says. However, in most cases, lawsuits carry on for several years or longer. In that time some participants many have left a plan, making it challenging for the administrator to locate them and potentially causing delayed payments, Johnson says.

“Plans don’t stay static,” Johnson says. “People move their money around, and some people may have paid out or have left the company.”

NEXT: Be meticulous 

It is important for advisers to be very meticulous about how they allocate the settlement moneys.

“Unfortunately, current regulations do not give specific instructions, and the process for allocation to participants may not be the same for every single plan receiving a settlement,” says Rick Skelly, client executive at Barney & Barney’s retirement services division, based in San Diego. “When the plan receives the actual settlement check, it doesn’t come with specific allocation instructions to the participants. The plan sponsor must determine the allocation themselves.”

In some cases the settlement agreements includes a formula for allocating the funds to participants, says Marcia Wagner, principle with Wagner Law Group in Boston.

As to how participants receive the funds, for those who are currently still in the plan, it is placed into their account, Johnson says. For those who have left the plan, “it will be a trailing distribution,” he says.

In some cases, sponsors may decide to allocate the funds only to those who are currently in the plan, Skelly says. However, if it is not “administratively feasible” to allocate the funds to the participants, “the payment may, to the extent permitted by the retirement plan, be used to pay reasonable administrative expenses associated with maintaining the retirement plan,” he says. “The money would be deposited into the forfeiture account in this instance.”

In addition, if the lawsuit has dragged on for a long period of time and many of the participants have left the plan and are unreachable, this could also prompt the sponsor to allocate a settlement to the plan’s administrative expenses, rather than to participants, Skelly says.

NEXT: How settlement payments appear on statements

When the settlement payments are issued to participants, because they typically are so small, they are simply added to the participant’s earnings on their account statement, Johnson says. “Most of the time, these settlements end up being pennies to a few dollars” per participant, Kasecamp agrees.

However, “If it is a big number and has gotten a lot of press, the sponsor will probably ask the recordkeeper to represent the figure as a line item,” Johnson says

While most retirement plan accounts are daily valued, and issue statements to participants each quarter, a few plans balance their accounts only annually, Kasecamp says. “These are balance-forward accounts, and in these cases, these plans would hold the funds until the end of the year,” he says.

If the settlement is awarded to a defined benefit plan, “damages and settlement proceeds would be comingled with the plan’s other assets, and no participant would have a claim against any specific portion of the assets,” Wagner says. “Plan benefits under these plans are generally determined under a formula based on a participant’s compensation and length of service.”

As to when taxes are paid on settlements, because 401(k) retirement plans are tax-exempt, the settlements are generally not taxed, Wagner says. Participants pay taxes when the funds are distributed, she says.

NEXT: Other best practices

As to other considerations advisers and sponsors must keep in mind when handling settlements, Johnson says that “a lot of times, these settlements involve the stock of the sponsoring employer. As a party in interest, it is a prohibitive transaction for the employer to receive such settlement money. Therefore, the employer has to go through a prohibitive transaction class exemption to make sure the settlement is exempt.”

And just like any other fiduciary action, it is important that the sponsor “make sure that the funds are allocated to the correct participants and document how they came up with the figure,” Kasecamp says. “The best way to handle any fiduciary best practice is to ensure it is a prudent process and that is documented.”

In addition, it is important for the sponsor to determine whether accepting a settlement is a better option than pursuing a lawsuit, Wagner says. “Prior to opting for a settlement, ERISA requires a plan fiduciary to conduct a prudent evaluation of whether the settlement is reasonable and the settlement proceeds are at least as valuable as the likely recovery from pursuing all aspects of the claim, including both securities fraud and ERISA causes of action,” she says. “The plan fiduciary should consider whether the receipt of the settlement proceeds outweighs the possibility of receiving a larger recovery by not participating in the settlement and pursuing the ERISA claims.”

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