a quarterly publication of confero fiduciary partners ...church plans, monetary policy, the dol...

CONFEROA quarterly publication of Confero Fiduciary Partners

Editor ’s Letter | The Roland Roundup | Partner Spotlightalso inside

A vAriety of topics discussing Washington’s Impact on Retirement

ISSUE NO. 19

Confero | 1summer 2017

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Max P. KesselringEditor-in-Chief

Westminster tries to stay aware of the political landscape and how changes in Washington could impact the world of

retirement. We have dedicated many of our blog posts and articles to this topic, and we felt it was time to do an entire issue to cover these topics in more detail.

In this issue, we will be able to delve much deeper and gain much more insight on the topic.

To provide incredible insight, we have been able to get many fantastic contributors for this issue. We believe that to create a successful magazine you need the best and most knowledgeable contributors. The goal of our magazine is to bring the readers a diverse and

talented group of retirement professionals to speak on subjects that matter most.

In this issue, we discuss Washington’s impact on the retirement landscape. Some of the topics include the presidential election’s impact on the ecomony, taft-harley and church plans, monetary policy, the DOL fiduciary rule, and multi employer plans.

We hope that you enjoy this issue of the magazine. We think it is one of the most important to date because it is the first time we have addressed the topic of Washington’s impact since the inaugural Confero. Much has changed since then, and there could be even more on the horizon. So we want you to be aware of what could impact your retirement future.

If you would like to learn more about a topic that has been covered, or if you have a question on one of the articles, please email me at [email protected].

Publisher Confero Fiduciary Partners

PartnersFiducia Group, LLC

Westminster Consulting, LLC

Editor-in-ChiefMax Kesselring

[email protected]

Editorial StaffRoland Salmi

[email protected]

Sheila [email protected]

Creative DirectorMax Kesselring

[email protected]

Staff ContributorsMax Kesselring, Gabriel Potter, Roland Salmi

Featured ContributorsJoseph Davis, Paul A. Friedman, Heidi LeMieur,

Daniel A. Notto, Fred Reish, Tom Wald

Online/Digital OperationsJacob Button

[email protected]

For a copy of the magazine, please email [email protected] or

call 800-237-0076.

The information contained in this magazine is for general information purposes only. The information is provided by Confero Fiduciary Partners (CFP) and, while every effort is made to provide information that is both current and correct, CFP makes no representations or warranties of any kind, ex-press or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the magazine or the information, products, services, or related graphics contained within the magazine for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will CFP be liable for any loss or damage, in-cluding, without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this magazine.

Please note that the articles included in this publication are general information and are not intended as legal advice, nor should you consider them as such.

2 | summer 2017 Confero | 3

Author Name, Titles, Company Article Title

In This Issue...Editor’s LEttEr • Max KESSELRing

FEaturEd CoNtributors

thE 2016 ELECtioN’s impaCt oN thE ECoNomy • gabRiEL PoTTER

what Now For Erisa 2017? • Paul a. FrIedman

a NEw poLiCy sEasoN iN thE uNitEd statEs • JosePh davIs

ExpaNdiNg muLtipLE EmpLoyEr pLaNs: a bipartisaN idEa to Narrow thE CovEragE gap • danIel a. notto

mEEt wEstmiNstEr CoNsuLtiNg, LLC rochester, nY

partNEr spotLight • mathEw barbEr WestmInster consultIng, llc

thE roLaNd rouNdup • roland salmI

doL CoNtiNuEs aggrEssivE ENForCEmENt duriNg 2017 • heIdI lemIeur

thE doL FiduCiary “paCkagE”: basiCs oN thE prohibitEd traNsaCtioN ExEmptioNs • Fred reIsh

ECoNomiC agENda timiNg hits a sNag • thomas Wald

thaNk you, CoNtributors

We hope you enjoy!

Featu red Contributors

4 | summer 2017

Heidi leMieurColumbia Threadneedle investments

Heidi LeMieur has spent nearly 15 years in the retirement services industry providing retirement plan compliance. Ms. LeMieur has been featured as a keynote speaker at numerous regional and national conferences, is a member of the Retirement Learning Center’s National Speakers Bureau, and works one-on-one with financial professionals.

Previously, Ms. LeMieur was an ERISA consultant with Ascensus. During her tenure with Ascensus, she was responsible for delivering live group presentations, providing technical consultation and support to financial advisors and retirement service professionals, and performing numerous compliance assessments for financial organizations regarding their retirement plan business.

Ms. LeMieur received a behavioral arts and sciences degree in management with a minor in psychology from The College of St. Scholastica. She holds the Certified 401(k) Professional (C(k)P) designation administered by The Retirement Advisor University, in collaboration with UCLA Anderson School of Management Executive Education, as well as the CISP designation from the Institute of Certified Bankers (ICB).

Joseph davis, PhdVanguard Retirement group

Joseph Davis, PhD, a Vanguard principal, is the global chief economist and global head of the Vanguard Group, Inc.’s Investment Strategy Group, whose research and client-facing team develops asset allocation strategies and conducts research on the capital markets, the global economy, portfolio construction and related investment topics. Mr. Davis also chairs the firm’s Strategic Asset Allocation Committee for multi-asset-class investment solutions. As Vanguard’s chief economist, Mr. Davis is a member of the senior portfolio management team for Vanguard Fixed Income Group. He is a frequent keynote speaker, has published white papers in leading academic and practitioner journals and helped develop Vanguard Capital Markets Model™ and the firm’s annual economic and capital markets outlook. Mr. Davis earned his BA summa cum laude from Saint Joseph’s University and his MA and PhD in economics at Duke University.

Paul a. FriedmanJackson Lewis, P.C.

Paul A. Friedman is a principal in the White Plains, NY, office of Jackson Lewis, P.C. He has tried more than 35 jury trials. He has also tried more than 200 arbitrations and bench trials on all aspects of ERISA.

He has more than 35 years of experience in litigating cutting-edge ERISA issues before the United States Department of Labor, United States district courts, bankruptcy courts, and courts of appeal on behalf of employers, plan sponsors, and fiduciaries of ERISA plans across a wide breadth of industries.

He has also been recognized as a preeminent labor and employment attorney by Martindale-Hubbell since 2005 and as a Super Lawyer by both New Jersey and the New York Metro’s Super Lawyers since 2007.

Gabriel Potter, aiF®, MBaWestminster Consulting, LLC

Gabriel Potter is a Senior Investment Research Analyst at Westminster Consulting, LLC, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

Prior to joining Westminster, Gabriel worked as an Institutional Consulting Analyst with Graystone Consulting – the institutional business unit of Morgan Stanley Smith Barney.

Gabriel earned his MBA with concentrations in corporate finance and computers and information systems from the University of Rochester’s William E. Simon School of Business and his Bachelor of Arts degree in economics and a certificate of business management from the University of Rochester. He currently holds a Series 66 license from the NASD and an Accredited Investment Fiduciary Analyst designation (AIFA®) from the Center of Fiduciary Studies.

Confero | 5

daniel a. nottoJ.P. Morgan asset Management

Daniel A. Notto is an ERISA Strategist with Retirement Solutions at J.P. Morgan Asset Management. Dan leverages more than 30 years of experience to provide legislative and regulatory insights to DC plans and financial advisors across the country. He is a frequent speaker and author on legal matters related to tax-favored savings plans such as 401(k)s and IRAs.

Before joining J.P. Morgan, Dan served as senior retirement plan counsel at AllianceBernstein and general counsel and consulting practice director at Universal Pensions (now Ascensus). He also worked in the legal department of Investors Diversified Services (now Ameriprise Financial).

Dan holds a BS from the University of Minnesota and received his JD (cum laude) from William Mitchell College of Law. He has received the Certified Pension Consultant (CPC) designation from the American Society of Pension Professionals & Actuaries (ASPPA) and is a member of the bar of New York.

Tom Wald, CFa®

Transamerica asset Mgt., inc.

Tom Wald, CFA®, Chief Investment Officer at Transamerica Asset Management, Inc., is responsible for overseeing the investment and mutual fund product development functions and sub-adviser selection process. He also actively publicizes Transamerica’s investment thought leadership and products to advisors, clients, and the media. He has more than 25 years of investment experience and has managed large mutual funds and sub-advised separate account portfolios. Tom holds a bachelor’s degree in political science from Tulane University and an MBA in finance from the Wharton School at the University of Pennsylvania. He has earned the right to use the Chartered Financial Analyst (CFA) designation.

Fred ReishDrinker biddle & Reath, LLP

Fred Reish is an ERISA attorney whose practice focuses on fiduciary responsibility, prohibited transactions and plan qualification and operational issues. He has been recognized as one of the “Legends” of the retirement industry by both PLANADVISER magazine and PLANSPONSOR magazine. Fred has received awards for: the 401(k) Industry’s Most Influential Person by 401kWire; one of RIABiz’s 10 most influential individuals in the 401(k) industry affecting RIAs; the Commissioner’s Award and the District Director’s Award by the IRS; the Eidson Founder’s Award by the American Society of Professionals & Actuaries (ASPPA); the Institutional Investor and the PLANSPONSOR magazine Lifetime Achievement Awards; and the ASPPA/Morningstar 401(k) Leadership Award. He has also received the Arizona State University Alumni Service Award. Fred has written more than 350 articles and four books about retirement plans, including a monthly column on 401(k) fiduciary issues for PLANSPONSOR magazine. Fred Co-Chaired the IRS Los Angeles Benefits Conference for over 10 years, served as a founding Co-Chair of the ASPPA 401(k) Summit, and has served on the Steering Committee for the DOL National Conference.

Perspective

note: The articles included in this publication are general information and are not intended as legal advice, nor should you consider them as such. You should not act upon this information without seeking professional consent.



april 4, 2017sulyma v. intel CorporationA federal district court judge has found that claims against Intel Corporation’s Investment Policy Committee for its retirement plans are time-barred under ERISA’s three-year statute of limitations. Christopher Sulyma filed the lawsuit on behalf of participants, claiming that the defendants breached their fiduciary duties by investing a significant portion of the plans’ assets in risky and high-cost hedge fund and private equity investments through custom-built target-date funds. According to defendants, Sulyma had actual knowledge of the facts constituting the alleged violations of ERISA more than three years before he sued, through “annual notices, quarterly Fund Fact Sheets, targeted emails, and two separate websites.” (Case Dismissed.)

Moore, Rebecca. “Intel Wins Suit Over Use of Alternative Investments.” Plan Sponsor. Asset International, 04 Apr.

2017. Web. 16 June 2017.

april 7, 2017Baird v. BlackRock, inc. Retirement CommitteeCharles Baird, an employee of BlackRock from 2009 to 2016, has filed suit against the firm, claiming the use of proprietary funds in its 401(k) plan caused the plan participants to incur excessive fees. The plan fiduciaries are charged with failing to honor their fiduciary duties under ERISA by selecting and retaining high-cost and poor-performing investment options, with excessive layers of hidden fees that are not included in the fund

expense ratios. Almost all fund options offered to BlackRock employees and participants are funds affiliated with BlackRock. The complaint compares the BlackRock TDFs to the firm’s management of funds in the federal Thrift Savings Plan and the Vanguard Target Date Funds. The BlackRock TDFs both underperformed and cost more. (Case Filed.)

Moore, Rebecca. “BlackRock Faces 401(k) Excessive Fee Case.” Plan Sponsor. Asset International, 07 Apr. 2017. Web. 19 June 2017.

april 10, 2017lynn v. Peabody energy CorporationA federal district judge has dismissed the stock drop lawsuit against Peabody Energy, concluding that plaintiffs did not allege special circumstances or offer plausible alternatives according to standards set forth in the Supreme Court’s Dudenhoeffer ruling. The judge held, with respect to public information claims against employee stock ownership plan fiduciaries, that “allegations that a fiduciary should have recognized from publicly available information alone that the market was over- or undervaluing the stock are implausible as a general rule, at least in the absence of special circumstances…affecting the reliability of the market price as an unbiased assessment of the security’s value in light of all the public information.” (Case Dismissed.)

Moore, Rebecca. “Peabody Energy Stock Drop Suit Dismissed.” Plan Sponsor. Asset International, 10 Apr.

2017. Web. 16 June 2017.

april 21, 2017Barchock et. al. v. CVs Health Corp. and Galliard Capital ManagementA U.S. District Court judge in Providence, RI, dismissed a fiduciary-breach lawsuit against CVS Health Corp., Woonsocket, RI, and Galliard Capital Management by three participants in CVS’ 401(k) and employee stock ownership plan. The lawsuit had originally been filed by the three participants, charging CVS for breaching its fiduciary duties because the plan’s stable value fund managed by Galliard imprudently invested “too much of the plan’s stable value fund assets in ultra-short-term cash management funds that provided extremely low returns.” Judge Mary Lisi dismissed the suit, citing the fund was invested in conformance with its stated objective and whether that strategy was prudent cannot be measured in hindsight.” (Case Dismissed.)

Kozlowski, Rob. “Judge Dismisses Fiduciary-breach Lawsuit against CVS, Stable Value Fund Manager.” Pensions & Investments. Crain Communication Inc., 21 Apr. 2017. Web. 19 June 2017.

april 26, 2017du Vall v. Walt disney Co.A California judge has ruled for a motion to dismiss an ERISA lawsuit against Walt Disney Co. The court ruled that plan fiduciaries cannot be held liable for losses suffered by participants who had exposure to Valeant Pharmaceuticals stock at the time of the company’s dramatic fall from grace. Walt Disney Co. offers a participant-directed individual account plan where they can allocate money among a number of investment options. The Sequoia Fund held more than 12% of plan assets. Sequoia put 25% of its net assets in Valeant, leading to a $65 billion loss in market value. (Case Dismissed.)

Manganaro, John. “Court Again Dismisses ERISA Complaint Against Disney.”

PLANADVISER. Asset International, 26 Apr. 2017. Web. 19 June 2017.

May 12, 2017Richards-donald v. TiaaTIAA has reached a settlement agreement in Richards-Donald v. TIAA, which dates back to October 2015 in which TIAA was accused of breaching fiduciary duties under ERISA and engaging in self-dealing and prohibited transactions by favoring its own retirement plan investment options, managed by TIAA or affiliated entities, and by having TIAA provide recordkeeping services. Plaintiffs

argued that the strong prevalence of revenue sharing on the investment menu and a lack of low-cost passive investments also represented a conflict for TIAA, as both the recordkeeper and fund provider. The case agrees on a number of nonmonetary settlement terms, including that TIAA will add more nonproprietary investment options to its retirement plan and reconsider how it treats revenue-sharing payments. The monetary settlement is approximately $5 million. (Resolution Found.)

Manganaro, John. “TIAA Settlement Agreement Goes Beyond Monetary Compensation.”

PLANSPONSOR. Asset International, 12 May 2017. Web. 19 June 2017.

May 25, 2017nicolas v. Trustees of Princeton UniversityIn Nicolas v. Trustees of Princeton University, participants are suing Princeton trustees for ERISA breaches. The plaintiffs contend that instead of leveraging the plans’ massive bargaining power to benefit participants and beneficiaries, the defendant failed to investigate, examine and understand the real cost to plans’ participants for administrative services, thereby causing the plans to pay unreasonable and excessive fees for investment and administrative services. Specifically, plaintiffs suggest Princeton inappropriately “agreed to pay an asset-based fee for administrative services that increased as the value of his participant account rose, even though no additional services were being provided.” Further, the suit contends, Princeton “selected and retained investment options for the plans that historically and consistently underperformed their benchmarks and charged excessive investment management fees, as well as share classes that were more expensive than other share classes readily available to qualified retirement plans that provided plan investors with the identical investment at a lower cost.” (Case Filed.)

Manganaro, John. “Participants Sue Princeton Trustees for ERISA Breaches.” PLANSPONSOR. Asset International, 25 May 2017. Web. 19 June 2017.

The RolandRoundup.

The Roland Roundup is a compilation of court cases that have recently been in the news. Each case focuses on a violation of ERISA guidelines.

The outcomes of these cases may have a lasting impact on the fiduciary environment.

Confero | 9

Roland salmi, MBaWestminster Consulting, llC

Roland is an Associate Analyst at Westminster Consulting, where he executes performance analysis, client projects and investment support for senior consultants. He brings research knowledge, industry trends and a commitment to client success to the Westminster team.

Prior to joining Westminster Consulting, Roland worked as a financial advisor at Morgan Stanley Wealth Management and as a staff accountant at St. Bonaventure University. He received an Associate of Science degree in business administration and a Bachelor of Science degree in psychology from Elmira College. He then received his MBA from St. Bonaventure University. Roland has earned his Series 7 and 66 licenses.

He resides in the city of Rochester and enjoys hiking, kayaking and skiing in his free time.

IMPACTThe 2016 Election’s

on the Economy

The 2016 Election’s

on the Economy


Four years ago, we inaugurated our new publication, Confero, in the shadow of President Barack Obama’s second inauguration. We believed it was timely and appropriate to review the outcome of President Obama’s re-election to the presidency, working with a new Congress and the likely impact for investors. Four years later, we believe it

is worthwhile to revisit the topic, evaluate our 2012 predictions and, if possible, consider what effects the 2016 election may have on the economy.

Verified Predictions from 2012

We were heartened to reread our article from 2012 and note that the majority of our predictions were correct. Here are statements we made in our 2012 article that were ultimately confirmed over time:

• Federal Reserve Chair Ben Bernanke signaled he would stand down in 2014;

• Bernanke’s replacement would be FOMC member Janet Yellen;• The “dovish” monetary policy, accepting higher inflation in an attempt to

maximize employment, would continue;

• Obamacare would stand unchanged;

• Challenges to Wall Street Reform and Consumer Protection Act (i.e., Dodd-Frank) were limited, and the law would persevere without the threat of repeal;

• The expansion of domestic fossil fuel energy would continue without interference from environmentalists.

By Gabriel Potter


The 2016 election’s impact on the economyGabriel Potter, aiF®, Mba, Westminster Consulting, LLC

We feel these statements and predictions are essentially true, with a few caveats. First, we argued several laws and regulations would continue without challenge. To be more accurate in our prediction, we should have noted potential challenges would be deferred at least until the next election. Second, some of these predictions are generalizations. For example, environmental activists in the Democratic Party were able to impede some projects, like the Keystone XL Pipeline, but there is substantial evidence that U.S. fossil-fuel production, particularly natural gas, expanded greatly over the past few years until saturating the market.

Mixed Results from 2012

Westminster Consulting did not make an overt prediction about some outcomes, but instead let the burden fall to our contributing sources. For example, there was a disagreement about the 2013 fiscal cliff negotiations. Two of our contributors believed the required spending cuts and tax increases would be greatly damaging. ING worried fiscal cliff results would be enough to push us into recession,

while PIMCO saw GDP losses in 2013. JPMorgan took a more optimistic tack, suggesting we would be able to negotiate a last-minute deal to avoid the worst outcomes. The ultimate deal, signed by President Obama on January 2, 2013, left several elements unsolved but it did bypass the worst-case scenario, solidify Bush-era tax cuts for the middle class, retain unemployment benefits, and raise revenues through estate taxes and payroll tax increases.

The 2012 Prediction with a Potential Contradiction

While we feel most of our predictions and declarations were justified, there is a statement we made that hasn’t corresponded to the upward equity markets over the past six months or so.

Here is a statement we made in our 2012 article:

“As a rule, markets hate uncertainty. At a basic level, uncertainty is what investors suffer through to warrant a return on their investment. … It is hard to derive a logical price for a security if the inputs to a pricing

model (e.g. — tax rates, projections for GDP growth) are unstable.”

So, the first element of our potential contradiction is an argument we made in 2012, suggesting markets prefer clarity to uncertainty. For our second element, let us consider the American people’s choice for president: Donald Trump or Hillary Clinton. We have long argued Donald Trump was the choice for greater change and potential uncertainty. Hillary Clinton represented a likely continuation of President Obama’s policies, while Donald Trump promised to tear down the status quo, “drain the swamp,” and start over. For the third element of our contradiction, let us consider the fact equity markets moved almost immediately higher on the President Trump’s election and have been hitting new highs over the past several months. The optimistic “Trump Trade” over the past six months has been a triumph

of investor consumer confidence and sentiment over vetted and specific policy proposals.

We understand each of these three elements is an extreme simplification. There were many criteria voters used to weigh their choice for president. There its an overwhelming number of factors that can influence market direction, many which have nothing to do with government. Trying to derive a logical argument based on all three elements is dubious at best. Still, in broad terms, these three points create a contradiction. President Trump represents change

to global established order. Investors have been hopeful

for positive changes coming from his legislative agenda

rather than frightened by the uncertainty

he might bring to the economic environment.

At least this simplification of the “Trump Trade” had been true thus far. At the time of writing, May

17th, the market is down several hundred points as the market absorbs President Trump’s latest troubles (involving FBI Director James Comey, classified information being released to Russian envoys, and so on).

Fewer Are Willing to Make 2016 Predictions

Each edition of Confero is built on a theme, such as pension benefits, participant experience, and so on. It has never been difficult to get contributions for Confero by declaring our theme to a set of potential contributors and asking for article submissions. We have done this successfully since the beginning. Although Confero magazine was brand new and completely unknown in 2012, we were able to conduct extensive interviews with leading market strategists from nationally known firms as part of our research efforts from the first edition onward. Since then, Confero has grown its circulation to thousands of readers, industry professionals and fiduciaries alike. Moreover, we maintain constant communication with a number of firms

– investment managers, consultants, actuaries, attorneys, broker-dealers

– looking for contributions to our quarterly magazine.

Given these advantages, getting article submissions should be relatively simple. We were able to assemble a fantastic group of industry thought leaders for this issue, but it was certainly more difficult. When we announced our theme as a revisit to Washington D.C.’s impact on the market, contributors were much more reluctant to tackle the subject. Washington’s impact on the market is hardly a taboo topic; we have done it before. We all accept the relevance and potential impact of the new administration on investors; the market has moved up in double digits since naming Trump the next president with complete Republican control of Congress, even without any immediate changes to policy. Predictions and market forecasts based on economic fundamentals are still common. Our first monthly article for the year always includes a table with a dozen year-end market predictions. In a world where advisors and consultants can wax


Article TitleGabriel Potter, aiF®, Mba, Westminster Consulting, LLC

lyrical about the driest of topics, why would it be difficult to attract contributors? How can Westminster Consulting and its contributors allot pages to obscure legislation regarding pension plan funding obligations, but not find willing contributors to comment on the historically unprecedented, attention-grabbing outcome of the 2016 election and how it might impact the market?

We understand one reason for the reticence of contributors to tackle the topic: timing. In 2012, market analysts and pundits had a stable framework of decision-making trees, known players, and likely potential scenarios to work from. As such, Westminster Consulting was willing to make predictions about President Obama’s second term with accuracy, informed by history. In contrast, President Trump is an outsider whose policy positions were often scant with details. Naturally, potential contributors wanted to wait until there was evidence of his behavior to draw inferences upon. The hope was, once things quieted down, you might see a pattern emerge in the behavior of key players.

After a month of President Trump and the new Congress, Westminster Consulting posited an operating framework for the new administration in our February monthly article, “The Dust Settles.” In summary, we argued that the president’s swift executive actions might matter politically, but

most policy decisions that affected the economy and investor outcomes would still occur at the (much slower) pace of Congress. The president has the ability to excite investor sentiment in the short term with hopes of huge tax cuts or amazing health care reforms. Similarly, the president could negatively shock markets with fears of trade wars. However, there are institutional checks-and-balances that have already thwarted some of the president’s actions. Long-term

outcomes are a function of applied policy and economic fundamentals, which is the primary purview of Congress, not the president. In our estimation, the sitting president is a secondary matter to economic growth and, ultimately, investor outcomes. Several months later, we still feel comfortable with this long-term generalization while we acknowledge investor sentiment can swing the market drastically in the short term.

That is our position, but other market analysts may disagree with our line of reasoning. Other analysts may believe the president’s policy goals are given higher priority in Congress and

will supersede competing legislation. They may argue a president’s influence on investor sentiment is important because it can create a virtuous cycle of optimism and expansion or, conversely, a vicious cycle of pessimism and retraction. As such, the man sitting in the Oval Office is a primary factor that influences the economic and market outcomes.

For analysts who believe the president a key component to economic

outcomes, it is critical to establish his likely positions. However, after four months of this administration, there are still questions about what policy positions the president may take. Moreover, there are questions as to whether the president can complete his first term or if the mounting questions may slow down his prospective legislative agenda. At the time of writing of this article,

mid-May 2017, several betting sites have substantially increased their odds that President Trump will not finish his first term due to voluntary resignation. This fact might explain the unusual reticence of analysts to make predictions about the 2016 election’s impact on the markets. Even after four months with the current administration, there are many unknowns to risk an unfounded prediction upon.

Gabriel Potter is the Senior Research Analyst at Westminster Consulting.

He can be reached at [email protected] or 585-246-3750.

““The president has the ability to

excite investor sentiment in the short term with hopes of huge tax cuts or

amazing health care reforms. similarly, the president could negatively shock

markets with fears of trade wars.

““


What now? For eRisa 2017Paul a. Friedman, Jackson Lewis, P.C.

what Now For Erisa 2017?by paul a. FriedmanThe June 2017 decision by the Supreme Court in the church plan controversy is another in a series of events that occurred within the last year that demonstrates that the faith of American employers and their employees in the employee benefits system established under ERISA may be misplaced.

CHURCH PLANS

The church plan decision itself involved three consolidated actions and three defined benefit pension plans of large medical conglomerates that sought to utilize an exemption provided under ERISA to avoid obligations owed to their employees. The church plan exemption initially adopted by the framers of ERISA to comply with the separation of church and state originally only applied to a “... plan established and

maintained by a church.” However, that definition was expanded in 1980 under the Talmadge

amendment to “include” another type of plan — “a plan maintained by a

principal purpose organization.”

In reaching its decision, the Supreme Court applied a rule of strict statutory construction and concluded that the definition of church plan should include

those covered by the 1980 amendment stating that

“under the best reading of the statute” that a principal purpose

organization qualifies as a ‘church plan’ regardless of who established it.”

The impact of the decision will be far broader than simply on defined benefit

pension plans. Rather, if established by a “principal purpose organization,” any type of

ERISA plan, such as defined contribution pension plans and employee welfare benefit plans would

qualify for the exemption. ERISA protections as basic as

the annual reporting requirement, i.e., the Form 5500 and the prudent man standard of Section 404 required of all fiduciaries, are not applicable to church plans. Moreover, the Pension Benefit Guaranty Corporation (PBGC) will no longer provide protections to participants if defined benefit church plans face severe financial difficulties.

Medical coverage will also be affected because COBRA is part of ERISA. As such, the right to COBRA coverage will cease to exist for participants in plans established by principal purpose organizations.

Most troubling to this observer was the lack of concern demonstrated by the Supreme Court in its decision. Although being fully cognizant of the separation of powers doctrine and the role of the Supreme Court to interpret rather than to make law, the decision appeared to be somewhat callous. Only Justice Sonia Sotomayor in her concurrence with the court’s decision, referred to the protection promised by ERISA that an employee who has “…fulfilled whatever conditions are required to obtain a vested benefit…will actually receive it.” She expressed concern over the outcome of these cases and stated what is obvious: Defendants had been organizations that operate for-profit subsidiaries, employ thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA.

Obviously, this is not the end of church plan litigation. However, in the interim it appears that cases involving church plans will need to rely upon state law for disposition. The uniform law of pensions envisioned by the framers of ERISA will no longer apply.

TAFT-HARTLEY PLANS

The past year also saw the first reduction of “core benefits” in Taft-Hartley defined benefit pension funds that faced increased underfunding. Those are union-sponsored plans and are unlike defined contribution plans. The defined contribution plans only promise a retirement benefit based upon a

combination of the amount of contributions made and the investment choices of an

employee. Hence, an employee who makes large contributions and employs a good

investment strategy will logically have more monies for retirement than an employee who does

neither. In contrast, multi-employer defined benefit pension funds rely upon contributions made by all employers and the investment return of the entire

corpus of the fund to pay for promised retirement benefits.

No participant in a defined benefit pension fund has a proprietary interest in any specific account. Rather, the amount of promised retirement benefits that become obligations of the fund after a participant attains a minimum of five years service in a plan (“vesting”) and

increases based upon each additional year of service accrued are calculated by actuaries using historical data to set the promised benefit to a participant. At present, actuaries are setting benefit entitlements based on a fund achieving an investment return of 7.5%. There are few “prudent” investments that are achieving anywhere near a 7.5% return. However, pensions being promised today use that rate of return. This has resulted in an underfunding of a pension fund. Simply, the difference between the amount of promised pensions that are legally enforceable obligations of the fund and the actual monies of the fund available to pay those pensions represents underfunding. If a fund has pension obligations of $100 but only possesses $60 to pay those obligations, that fund would be 40% underfunded. Obviously, if this situation continued, the fund would run out of money.

In the aforementioned example, $100 would be the core benefit that had been promised. Until recently, that core benefit was sacrosanct. It could not be reduced after it was earned. However, the underfunding has become so severe and pervasive among the multi-employer defined benefit pension funds that Congress adopted legislation, the Multiemployer Pension Reform Act of 2014 (MPRA), to permit drastic reductions in core benefits of 50% or more if a fund could establish to the satisfaction of the Treasury Department that its financial status was disastrous and that it would run out of money if relief was not granted.

More than 10 pension funds applied. Among those was the Central States Southeast and Southwest Areas Pension Fund, which is projected to run out of money in less than 10 years. Its application was publicly opposed by a group of senators led by Senator Elizabeth Warren of Massachusetts and was ultimately rejected by the Treasury Department. Of all applications, only that of the Iron Workers’ Local 17 Pension Fund was granted.

Another fund that sought relief under MPRA was the New York State Road Carriers Local 707 Pension Fund. Its application was denied. On March 1, 2017, the fund ran out of money and sought PBGC assistance. According to PBGC, prior to its takeover of the fund, the average Local 707 Pension Fund was receiving a pension of $1,313 per month. The average monthly payment will be slashed by PBGC to $570, a reduction of 56%.

Clearly, the status of employee benefit funds in 2017 falls short of the goals sought by its framers in the passage of ERISA.

Paul A. Friedman is a principal in the White plains, NY, office of Jackson Lewis, P.C.



a new Policy season in the United statesJoseph davis, PhD, Vanguard Retirement group

a New policy seasonin the united statesby Joseph davis

In addition to prepping my yard for the summer, my spring rituals include reflecting on changes that have occurred over the past year. As always, some things have changed, while others remain the same. My children are a year older,

but for some reason they still need help with their homework when I’m mulching. More broadly, we’ve seen another year of progress in the stabilization of the U.S. economy and another flurry of policy discussions in the media. This time, though, the Federal Reserve has to share the stabilization spotlight with policymakers on Capitol Hill. The optimist in me believes that the policy changes being discussed reflect and can help drive a sustained expansion in the United States, but the realist in me understands how difficult that could be.

Economists view monetary policy as a reflection of economic conditions. Just as I cut my grass only when it needs it, central bankers adjust monetary policy only when economic conditions warrant it. Against the backdrop of a strengthening U.S. economy, the Fed is gradually normalizing policy that includes raising its policy rate and, likely sometime later this year, starting to reduce the size of its balance sheet. Just as the Fed’s purchase of assets to expand its balance sheet was a real-world experiment in monetary policy, the implications of a gradual roll-off of assets held by the Fed are largely unknown. This is why, much like the process of increasing interest rates, balance-sheet normalization will be slow and gradual. We believe that, in order to minimize market impact, this will include three important components:

1. Public communications about the plan will continue, with an announcement about the agreed-upon program coming in the late summer or early fall.

2. The framework will consist of two key points: the pace of roll-off and the targeted size of the balance sheet at the end of the program.

3. The Fed will initially use only one “tool” at a time and pause changes in the policy rate until the impact of balance sheet roll-off is better understood. Looking to the end of 2018, it is difficult to envision a scenario where the policy rate is 2% or greater.

If the announcement and implementation of the roll-off plan are handled in a clear, transparent, and gradual manner, there should be minimal market effect.

Change Is a Process, Not an Event

Changes are also afoot on the fiscal-policy front—changes that many, including myself, hope will push the United States back toward prerecession rates of growth. That said, we at Vanguard believe that expecting big changes in 2017 may be overly optimistic.

Fiscal stimulus and structural changes, including infrastructure spending and tax reform, have the potential to shape our economic and financial market environment for years to come. These policies need to be vetted and implemented with care. Even if we were to see one or the other announced later this year, the economy would not realize their benefits until

sometime in 2018. The most we can hope for this year would be for benefits from increasing levels of confidence about the potential for policy change. While these could very well push growth and inflation higher in the near term, recent softness in data and gridlock in Washington may begin chipping away at this positive sentiment.

The last 12 months have seen significant change in economic conditions, particularly in the United States. Growth is stabilizing and inflation continues moving toward the Fed’s target of 2%. As with any economic data, rates of growth and inflation will ebb and flow, but we as investors should look past those toward bigger-picture trends.

Headwinds Remain

Even if there are short-term boosts to growth or inflation this year or next, the realist in me remains concerned that the types of policies being proposed today, while a step in the right direction, won’t be enough to counteract the structural headwinds we outlined in our Economic and Market Outlook (demographics, technology, and globalization). Aside from the possibility of near-term cyclical boosts to growth and inflation, longer term we would expect each to hover around 2% compared with pre-crisis average rates north of 3%. But rather than being seen as weak, such conditions should be viewed as fundamentally sound given the pressures of structural forces.

Seasons change, and so do policies, though hopefully not as frequently. Investors would be well served in the long term to focus more on their spring cleaning and fall leaf raking than in trying to construct a portfolio that fits an ever-evolving policy environment. While policy certainly can shape our economic and financial market environment, trying to predict with precision the timing, impacts, and duration of specific policies is as fruitful as my looking for help moving the 50 yards of mulch from my driveway.

Note:All investing is subject to risk, including the possible loss of the money you invest.

© The Vanguard Group, Inc., used with permission.

Joseph Davis, PhD, is the global chief economist and global head of the Vanguard Group, Inc.’s Investment Strategy Group.

Confero | 1918 | summer 2017


Fast Facts: dol Continues aggressive enforcement during 2017Heidi lemieur, Columbia Threadneedle investments

Year after year, the Employee Benefits Security Administration (EBSA)

agency of the Department of Labor (DOL) puts forth great effort to promote compliance among retirement plans. This year will be no different as the EBSA has indicated it seeks to promptly detect, pursue and correct violations, and to aggressively pursue tips and complaints from the public. A recap of the EBSA’s 2016 enforcement results follows, along with new initiatives for 2017.

Am I affected?As a plan sponsor, you have a fiduciary responsibility to keep your plan in compliance with DOL rules and regulations at all times. You could be held personally liable if you fail to do so.

The number of civil investigations decreased slightly during fiscal year (FY) 2016; however criminal investigations increased. These results demonstrated the EBSA’s ability to effectively target ERISA violations. The EBSA closed 2,002 civil investigations and 333 criminal investigations, in which it found that:

• Over 67% of the plans were required to restore losses to the plan or take another type of corrective action to correct plan deficiencies.

• Ninety-six individuals (e.g., plan officials, corporate officers and service providers) were indicted for offenses related to their plans.

From the investigations, we can conclude that a very small percentage of plans have true “bad guy” situations; the majority of violations generally come from oversight errors and omissions by plan sponsors.

Total results1Prohibited

transactions corrected

Plan assets restored/participant

benefits recovered

Voluntary fiduciary correction program

Monetary benefit recoveries from

informal resolution

Abandoned plan program

$947.4 million $169.9 million $352.0 million $9.5 million $394.2 million $21.8 million

*As announced by EBSA in the fact sheet released January 2017

Fiscal year 2016 EBSA total monetary results*

In its budget for FY 2017, the EBSA requests 846 full-time employees for enforcement and participant-assistance activities, which could increase the likelihood of your plan being investigated by the DOL. Specifically, the DOL intends to concentrate enforcement resources on its Major Case Enforcement Initiative where EBSA will target areas that have the greatest impact on the protection of plan assets and participants’ benefits, for example, professional fiduciaries and service providers with responsibility for large amounts of plan assets and benefits.

What do I need to know?

As a plan sponsor, it is your responsibility to fully understand the features of your retirement plan and the rules surrounding its operation.

According to the DOL and IRS, common plan errors include:• Late or missed Form 5500 filing

• Late or missed deposits of employee salary reduction contributions

• Participant loan failures (e.g., loans that exceed the maximum permitted dollar amount)

• Failure to timely amend the plan to keep it updated with changes in the law

• Plan operational errors arising from the failure to follow plan terms (e.g., an employee who meets the plan’s eligibility requirements but is not allowed to participate)

• Specified plan prohibited transactions (e.g., sales or loans between the plan and a party in interest)

• By monitoring your plan on an ongoing basis, you can avoid many of the problems typically discovered during a formal plan audit or fix errors by following an IRS- or DOL-sponsored correction program.

You could face severe monetary penalties if you fail to properly operate your plan. Even worse, your plan could lose its tax-favored status if certain defects exist.

Additional details

According to the EBSA’s FY 2017 budget request, new initiatives the EBSA will focus its resources on include:

• Conflict of interest rule — investment advice

• Revision of the Form 5500 Series and implementing regulations under ERISA

• Savings arrangements established by states for non-governmental employees

• Amendment of abandoned plan program

• Adoption of amended and restated voluntary fiduciary correction program

Fortunately, there are tools available to assist you in determining your plan’s level of compliance before a DOL audit strikes. If you discover plan deficiencies, your company will likely incur expenses trying to make them right. You can be sure the cost of fixing a problem on your own will be less than the potential expense if the DOL or IRS discovers the defect during an official audit.

For additional information about the DOL fiscal year 2016 enforcement activity, visit https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/ebsa-monetary-results.pdf

To review the DOL Strategic Plan fiscal years 2014-2018, visit https://www.dol.gov/sites/default/files/documents/agencies/osec/stratplan/fy2014-2018strategicplan.pdf

To review the Major Case Enforcement Initiative, see the fiscal year 2017 Budget, visit https://www.dol.gov/sites/default/files/documents/general/budget/CBJ-2017-V2-01.pdf

If you would like a preliminary evaluation of your compliance with DOL and IRS standards, contact your financial advisor regarding an ERISA review of your plan with the help of the Learning Center. It is also extremely important to review any fiduciary deficiency with your tax professional and/or legal advisor(s).

If you discover compliance concerns with your plan, you should review the IRS and DOL correction programs with your financial advisor and take action to correct them.

• DOL plan correction programs: https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administrationand-compliance/correction-programs.

• IRS plan correction programs: https://www.irs.gov/retirement-plans/correcting-plan-errors.

There is also guidance on how plan sponsors may correct plan errors through the IRS 401(k) Plan Fix-It Guide located at https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide.

What action should I take?

Talk to your financial advisor regarding:

• Conducting a self-audit of your plan — the first step might be an ERISA review, which is offered exclusively through the Learning Center.

• Documenting all compliance efforts, plan issues and correction methods as safeguards should the IRS or DOL ever audit your plan.

Heidi LeMieur a DCIO Senior Consultant at Columbia Threadneedle Investments.

She can be reached at [email protected].

dol Continues aggressive enforcement during 2017By Heidi LeMieur


Author Name, Titles, Company

Interesting Angles of the DOL’s FIduciary Rule #45The DOL Fiduciary “Package”:

basics on the prohibited transaction ExemptionsbY fRED rEISH

This is my 45th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions

and related developments in the securities laws.

My last post (Angles #44) discussed the requirements of ERISA’s prudent man rule and of the best interest standard of care for IRAs and plans. This article outlines the requirements of the two prohibited transaction exemptions that will apply to recommendations of investment products and services and insurance products to plans, participants and IRAs (“qualified accounts”). Those two exemptions are:

• Prohibited Transaction Exemption 84-24 (which covers recommendations of insurance products, including annuities and life insurance policies). This “transition” 84-24 has been amended to cover all types of annuities (group and individual, variable, fixed rate and fixed index) and applies to the period from June 9, 2017 through December 31, 2017.

• The Best Interest Contract Exemption (BICE), which can be used for sales of any investment products and services or any insurance products (including those covered by 84-24) during the transition period.

Before discussing the general requirements of those exemptions, I should point out that not all advisory services require the use of an exemption. For example, if an adviser provides investment services to a plan, participant or IRA for a pure level fee, there is not a conflict of interest, in the sense that the adviser’s compensation remains the same regardless of the investments that are recommended. By “pure level fee,” I mean that neither the adviser, nor any affiliate nor related party (including the adviser’s supervisory entities, e.g., broker-dealer), receives any additional compensation or financial benefit.

If, however, the adviser, or any affiliated or related party, does receive additional compensation, that would be a financial conflict of interest, which is a “prohibited transaction” under ERISA and the Internal Revenue Code. In that case, the adviser would need to take advantage of one of the exemptions: BICE or 84-24. (I should point out that neither 84-24 nor BICE is available where the adviser has discretion over the investments in the plan, participant’s account or IRA. As a result, discretionary investment management must be for a pure level fee, or a different exemption must be found.)

Here are some examples of compensation that constitutes a prohibited transaction: commissions; 12b-1 fees; trailing payments; asset-based revenue sharing; solicitor’s fees; proprietary investments; and payments from custodians. If any of those payments, or any other financial benefits (such as trips, gifts, or marketing allowances), are received by the adviser, or any affiliated or related party, partially or entirely as a result of an investment or insurance recommendations, that would be a prohibited transaction.

The most common exemption will be the Best Interest Contract Exemption. During the transition period, that exemption, BICE, requires only that the adviser (and the adviser’s Financial Institution, e.g., the RIA firm or broker-dealer) “adhere” to the Impartial Conduct Standards (ICS). There are three requirements in the ICS. Those are:

• Best interest standard of care (which, in its essence, consists of the prudent man rule and duty of loyalty).

• The receipt of only reasonable compensation.

• The avoidance of any materially misleading

statements.

The use of the word “adhere” means only that the adviser and Financial Institution


Fred Reish, Drinker biddle & Reath, LLP

must comply with those requirements. There is not a requirement to notify the plan, participant or IRA owner of those requirements, nor is there a requirement during the transition period to enter into a Best Interest Contract.

On the other hand, 84-24 does impose some written requirements. For example, the insurance agent or broker must disclose his initial and recurring compensation, expressed as a percentage of the commission payments. And, the plan fiduciaries or IRA owners must, in writing, acknowledge receipt of that information and affirm the transaction. On top of that, though, the agent must also “adhere” to the Impartial Conduct Standards.

It is my view that Financial Institutions (such as broker-dealers and IRA firms) should, between now and June 9*, focus on the fiduciary processes that will be implemented by the home offices (for example, which mutual fund families and insurance products can be sold to “qualified” accounts such as IRAs plans). In a sense, the Financial Institutions will be co-fiduciaries with the advisers and, therefore, share responsibility for the recommendations that are made to the qualified accounts. As a result, Financial Institutions need to have

protective policies, procedures and practices in place.

In addition, the home offices of Financial Institutions need

to focus on the training of their advisers to comply

with the prudent process requirement imposed

by the fiduciary rules, including

documentation of those processes.

While part of a prudent process

will be similar

to what is currently required under the suitability and know-your-customer rules, these new fiduciary standards place greater emphasis on certain factors, for example, the costs of investments and the quality of the investment management (as well as the financial stability of an insurance company).

With regard to the reasonable compensation requirement, the burden of proof is on the person claiming that the compensation was reasonable. In other words, the burden of proof will be on the broker-dealer, the RIA firm, and the agent or insurance

adviser. As a result, advisers and Financial Institutions should have data in place to support their compensation for each investment category that they recommend to plans, participants and IRA owners.

Finally, with regard to 84-24, the required disclosure and consent forms need to be developed and agents need to be educated on the use of the forms, including

the disclosure and consent requirements.

Unfortunately, in a short article like this one, I can only discuss some of the requirements. Obviously, there is more than this, but this is a good starting point for understanding the rules and working on compliance with the new requirements.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Drinker Biddle & Reath.

*Article was posted May 2, 2017 on fredreish.com

Fred Reish is an ERISA attorney for Drinker Biddle & Reath, LLP.


““Financial Institutions will be co-

fiduciaries with the advisers and, therefore, share responsibility for the recommendations that are made to

the qualified accounts.




You’ve heard about the problem: An alarmingly high percentage of American workers, especially among those who work for smaller companies, don’t have access to

a retirement plan through their employers.1 Despite legislative efforts over the years to create plans tailored for small employers—like the Savings Incentive Match Plan for Employees (SIMPLE) IRA—and to provide tax incentives to encourage small companies to set these plans up, a coverage gap persists.

To help narrow this coverage gap, a handful of states are preparing to launch programs that would require employers within these states that do not maintain retirement plans to automatically enroll employees in IRAs funded with payroll deductions. But unlike 401(k)s or other qualified retirement plans, these state-based IRA programs do not permit matching or other types of employer contributions, and the amounts employees can contribute are subject to the IRA limits, which for 2017 are $5,500 per year for those under 50 years of age and $6,500 for employees age 50 or older—less than one-third of what 401(k) plans currently allow.

Now, however, a promising solution to encourage more employers to adopt 401(k)s or other qualified retirement plans is being seriously considered in Washington, with bipartisan support: namely, to expand and enhance a vehicle that has been around for generations—the multiple employer plan (MEP). This could enable unrelated as well as related employers to join together and offer a retirement plan while realizing economies of scale.

Expanding multiple Employer plans: A Bipartisan Idea to Narrow the COverage GapBY Daniel a. Notto



expanding Multiple employer Plans: a Bipartisan idea to narrow the Coverage Gapdaniel notto, J.P. Morgan asset Management

Background

As its name suggests, a MEP is a single plan adopted by more than one employer. These plans are often maintained by trade or professional associations as a benefit for their member firms. Because a MEP is a group arrangement, a participating employer typically pays less for investment and administrative services than it would if it maintained an individual plan for its employees. In addition, the MEP sponsor, or one or more service providers hired by the sponsor, often assumes fiduciary responsibility for selecting the investments on the plan’s menu and serving as the plan administrator, thus relieving the adopting employers of those duties.

However, there are some problems with existing rules that detract from the utility of MEPs. One is the so-called one-bad-apple rule, according to which one employer’s violation of the qualification rules could disqualify the entire plan. The other is that the Department of Labor (DOL) takes the position that a purported MEP in which there is no nexus (for example, no membership in a common trade organization among participating

employers) is not a single plan but a collection of individual plans.

Applying this interpretation would eliminate some of the advantages and cost efficiencies of participating in a group arrangement. For example, each employer would incur costs for preparing and filing a Form 5500 and, if its plan has 100 or more participants, for the accompanying audit and accountant’s opinion.

Momentum is building for open MEPs

Over the past few years, the notion of allowing unrelated employers to band together in so-called open MEPs to take advantage of the economies of scale that MEPs provide has been embraced by business groups, the financial services industry and policymakers on both sides of the aisle. Open MEPs are seen as a promising way to encourage more employers to establish retirement plans. President Obama’s budget proposal for fiscal year 2017 included a provision that would have authorized open MEPs. In addition, the Senate Finance Committee last September unanimously passed the Retirement Enhancement and Savings Act, which included an open MEP provision. However, neither measure was taken up by the full Congress before it adjourned at the end of 2016.

The Retirement Security for American Workers ActOn February 3, a bipartisan group in the House of Representatives introduced a bill titled the Retirement Security for American Workers Act. If enacted, the bill would enhance MEPs by addressing both of the shortcomings mentioned earlier. First, it would fix the one-bad-apple rule by requiring that the assets of a non-compliant employer be

transferred out of the MEP, either to a separate plan for that employer or to other retirement plans for employees, such as IRAs.

Second, it would permit open MEPs by eliminating the requirement of a nexus among participating employers for MEPs sponsored by a “pooled plan provider.”

The bill describes a pooled plan provider as an entity that:

• registers with the Internal Revenue Service (IRS) and the DOL

• acknowledges in writing that it is a named fiduciary and plan administrator

• performs certain administrative duties and provides disclosures and other information that the IRS or DOL prescribes

An open MEP would be required to have an institutional trustee responsible for collecting contributions and holding the MEP’s assets. While participating employers would retain fiduciary responsibility for prudently selecting and monitoring the pooled plan provider, they would be off-loading significant responsibility to the pooled plan provider. As proposed, the bill would be effective in 2017, but Congress would likely delay the effective date in the event the bill passes late in the year.Given the strong support for open MEPs, the Retirement Security for American Workers Act could become a reality, especially if it could be attached to a larger bill like a tax reform measure. If so, we believe the retirement services industry will create innovative open MEP programs that combine all the services needed to operate a plan in a cost-effective manner. This would make

retirement plans very attractive to small employers, helping to further the goal of increasing the number of American workers who have access to a retirement plan through their employer.

We will monitor this bill and other proposed legislation and keep you apprised of any significant developments.

1 For example, according to the Employee Benefit Research Institute, in 2013, 51.3% of American workers worked for an employer or union that sponsored a retirement plan. Craig Copeland, “Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2013,” EBRI Issue Brief No. 405 (October 2014).

Daniel A. Notto is an ERISA Strategist with Retirement Solutions at J.P. Morgan

Asset Management.

Disclosures

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, you should seek individualized advice from your personal financial, legal, tax and other professional advisors that take into account all of the particular facts and circumstances of your own situation.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve.

J.P. Morgan Asset Management is the marketing name for the asset management businesses of JPMorgan Chase & Co. and its affiliates worldwide. JPMorgan Distribution Services, Inc., member FINRA/SIPC.

© 2017 JPMorgan Chase & Co. All rights reserved.April 2017

An alarmingly high percentage of American

workers do not have access to a retirement

plan through their employers.

““

““



By Tom Wald, CFa®


Economic Agenda Timing Hits a SnagWhy It Matters • The so-called “Trump Trade” momentum appears to have hit a snag.

• Transamerica Asset Management, Inc. CIO Tom Wald expects events in Washington to have a direct short-term impact on financial market activity.

Investors may want to focus on fundamental earnings profiles and the macroeconomic environment.

It has long been said that if you want a friend in Washington, get a dog. With this in mind, one might surmise those seeking quick implementation of the new administration’s economic agenda may be looking for Lassie’s phone number about now.

These past six months or so have been one of the rare cycles in which the direction of financial markets has closely tracked the events of the political world. Usually following parallel tracks of occasional intersection, the political and financial world coalesced in November, following the surprise election of Donald Trump, and, as a result, interest rates and the equity markets immediately headed upward and managed to keep that ascent on track all the way through the first day of March. During that time frame, the Dow Jones Industrial Average eclipsed 21,000, and 10-year Treasury yield reached 2.61%, representing respective increases of +15% and +.75% from their pre-election levels.

That trajectory of stocks and market-based interest rates is believed to be linked, in some part, to the expectations of the Trump administration’s new economic policies. Focusing on tax reform and repatriation, deregulation, and enhanced levels of fiscal spending, markets quickly interpreted this agenda to be more pro-growth and inflationary than that of our current environment, hence the rapid move in rates and equity prices.

However, since the first week of March, the legislative path to achieving much of this policy agenda seems to have hit a snag, at least on timing, and this is reflected in the recent pullback of both stocks and interest rates. As of April 13, the Dow is off close to 3% from its early March high, and the 10-year Treasury yield has fallen about .35% to beginning-of-the-year levels.

To some degree, this recent market activity reflects a very difficult month or so the new administration has had negotiating the Washington legislative landscape. It began in early March with the White House attempt to garner a majority in the Republican-controlled House of Representatives to repeal the Affordable Care Act (also known as “ACA” or “Obamacare”), and, in so doing, prioritizing that legislation ahead of tax reform.

By almost all accounts, tax reform represents the single area of pending legislation that had the markets most excited and economic pundits most likely to raise growth forecasts. Giving it a back seat to health care was deemed by many to be a risky legislative strategy.

The decision to put health care first on the legislative docket mostly likely stemmed from the premise that by repealing the ACA, about $1 trillion in taxes associated with Obamacare would also be eliminated. This would in turn reduce the standard by which any future tax reform would be judged to be “revenue neutral,” a key criterion for many fiscally hawkish members of the House. To many, this might appear to be a simple game of Congressional fun-with-numbers, and, in many, ways that is a tough argument to take the other side of. Nonetheless, it

32 | summer 2017 Confero | 33Confero | 3332 | summer 2017

was enough to make the White House put on an all-out press for health care passage in late March, and when the votes weren’t there, the path for tax reform on a timely schedule (as in, by the end of 2017) appeared to be in jeopardy.

At first, it was believed health care would be set aside and tax reform would move forward without it. However, that assumption was contradicted on April 12, when President Trump confirmed the tax savings from new health care legislation would be necessary for any new tax reform. So in addition to confusion and frustration, more than a month was lost in the legislative process. When combined with the upcoming congressional August recess, tax reform in 2017 now appears to be at an underdog status. Such are the perils of Washington politics, where slam dunks can move to three-point shots in the blink of an eye.

So where does this leave the economic agenda and the markets as we look toward the second half of 2017 and beyond? A few points we believe to be important:

• By no means – in our opinion – have the pending economic policies of the new administration, or what has been referred to in the media as the “Trump Trade,” been the only, or even the primary, catalyst behind the move in stocks over the past several months. We believe the bulk of the argument for rising stock prices is attributable to what is expected to be a dramatic improvement in corporate earnings occurring incrementally throughout 2017.

• We believe it is also important to realize that a delay in policy is not necessarily a denial of policy. As tax reform legislation will likely wind up being widespread and complicated in nature, far more than just adjusting tax rates, its ultimate conclusion could have a meaningful impact to individuals and corporations for years to come. Therefore, a delay in timing into 2018 will not, in our opinion, have a dramatic effect on the long-term economy.

• In addition to tax reform, we believe fiscal policy legislation, particularly pertaining to national infrastructure spending, will likely also be on a 2018 schedule. If market weakness continues to ensue because of this calendar, we would likely view it as a buying opportunity, all else being equal, as we continue to expect earnings improvement as the predominant catalyst for stocks through the remainder of 2017.

• Finally, interest rates and bond yields have also seen a downward move during the past few weeks and now stand at or close to beginning-of-the-year levels. Part of that move, in our opinion, could also relate to geopolitical events, as there may have been a flight to safety following the firing of U.S. missiles into Syria on April 7. We continue to believe the long-term trend in rates remains upward, given overall economic and inflationary conditions.

In summary, we believe the events in Washington will likely continue to have a more direct short-term impact on market activity than has historically been the case. That having been said, we believe investors should focus on the fundamental earnings profiles and overall macroeconomic environment ultimately impacting stocks and interest rates.

What to Do • Keep an eye on the big picture.

• Wald believes advisors should expect the long-term trend in interest rates to remain upward.

About the AuthorTom Wald, CFA®, Chief Investment Officer at Transamerica Asset Management, Inc., is responsible for overseeing the investment and mutual fund product development functions and sub-adviser selection process. He also actively publicizes Transamerica’s investment thought leadership and products to advisors, clients, and the media. Tom has more than 25 years of investment experience and has managed large mutual funds and sub-advised separate account portfolios. He holds a bachelor’s degree in political science from Tulane University and an MBA in finance from the Wharton School at the University of Pennsylvania. He has earned the right to use the Chartered Financial Analyst (CFA) designation.

Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be suitable for all investors.

Past performance does not guarantee future results.

The information included in this article should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor’s investment objectives, particular needs or financial situation. This information has been developed by Transamerica Asset Management, Inc. and may incorporate third-party data, text, images, and other content deemed to be reliable.

Not insured by FDIC or any federal government agency. May lose value. Not a deposit of or guaranteed by any bank, bank affiliate or credit union.

Tom Wald is Chief Investment Officer at Transamerica Asset Management, Inc.

He can be reached at [email protected].

economic agenda Timing Hits a snagTom Wald, CFa®, Transamerica asset Management, inc.



Thank you

Columbia Threadneedle InvestmentsDrinker Biddle and Reath, LLPJackson Lewis, P.C.J.P. Morgan Asset ManagementTransamerica Asset Management, Inc.Vanguard Retirement GroupWestminster Consulting, LLC

Contributors!

36 | summer 2017 Confero | 37CONFEROF I D U C I A R Y P A R T N E R S

Contact Mathew at [email protected] or 315-440-8646.

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Our focus on promoting, developing and maintaining proper and strong fiduciary governance processes for clients is central to our culture and to the services we provide. Our role as “fiduciary” consultant to plan sponsors goes beyond that of a traditional investment consultant. Pivotal to the work we do with plan committees is assisting them with the development of and compliance with sound fiduciary practices, while delivering exceptional, original investment analysis.

Our prudent process-based approach enables defined benefit and defined contribution plan fiduciaries to meet their legal obligations, as well as mitigate their potential liability in a cost-effective and prudent manner, benefiting all stakeholders of a plan.

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PaRtneR SPotlIghtm at h e w b a r b e rMeet Westminster

“We provide plan sponsors with the ability

to better navigate and manage the demanding

and changing ERISA regulatory landscape.”

-Thomas Zamiara

Mathew is a Senior Consultant at Westminster Consulting, where he is responsible for the firm’s personal advice and employee

education programs.

Mathew leads the firm’s participant education and advice initiative, Westminster Workplace Solutions. Additionally, he develops and promotes Westminster Wealth Management, an investment advisory and financial planning practice within the firm.

Prior to joining Westminster, Mathew was the founder of and wealth advisor at Barber Financial Management in Syracuse, NY, for over 10 years. He has received the industry designation of Accredited Investment Fiduciary (AIF®) and specializes in benefit consulting and

401(k) planning for businesses and retirement income planning and distribution strategies for pre-retirees and their families.

Mathew is a Syracuse native who thrives on giving back to the community. He runs a regional chapter of Xcel 2 Fitness, a national nonprofit geared towards teaching 3rd to 5th grade boys to be better leaders and, ultimately, better men through fitness. Mathew is also an active member to the executive board of Syracuse First.

Mathew resides in Syracuse with his wife, Michelle, and their two boys. In his free time, he enjoys many active hobbies, including volleyball, CrossFit, running, and golf.

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Confero Fiduciary Partners11 Centre Park - Suite 303 Rochester, NY 14614-1115,

Phone: 800.273.0076 www.westminster-consulting.com/Publications/Confero

CONFEROF I D U C I A R Y P A R T N E R S

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