Products November 3, 2014

Schwab Unveils Solution to Increase RIA Diversity

With an initial focus on gender diversity, Schwab Advisor Services unveiled the RIA Talent Advantage program and an associated online community to facilitate cross-firm discussion and innovation.
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The multi-faceted program was created to help registered investment advisory (RIA) firms better understand the opportunity for and the value of creating a diverse workforce, Schwab says. The program is designed to help firms “build a culture of inclusion and more effectively attract, promote and retain talent at their firms and be optimally positioned to thrive in a highly competitive marketplace.”

A key component of the program is a new LinkedIn community, created to provide a resource to help RIA firm leaders, employees and all advocates of diversity connect with peers. The community will facilitate discussion and sharing of strategies for building a culture of inclusion across the RIA and financial services industries. The community will be a hub for custom content including guest posts from industry thought leaders, proprietary and third-party research, moderated discussions and connections to educational programming.

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“As the face of the investor changes, we believe greater diversity will be critical in driving RIA growth and sustaining success for the long term,” notes Neesha Hathi, a senior vice president who co-leads the diversity effort at Schwab with Mary Rosai, senior vice president and head of marketing for Schwab Advisor Services. “RIA firm growth will be driven by assets that not only come from their existing client base, but increasingly from a more diverse population. Advisers must be ready to meet the unique needs of these individuals and their families.”

With a focus on gender, culture and generational diversity, Hathi says the program will help RIAs “forge new ground and share best practices to serve the evolving investor profile.” She adds that Schwab will conduct innovative research and provide advisers with tangible, actionable insights and solutions for effecting change in their firms.

Rosai says the firm will leverage guidance from its Women’s Advisory Council to develop pathways firms can take to move towards greater diversity. “We are now adding emphasis and additional structure to our effort to help advisers better understand the business opportunity and to cultivate female employees for leadership and ownership roles,” she adds. “Our goal is to increase the number of women RIAs, which we believe will benefit advisers and investors alike.”

More information is available at www.aboutschwab.com.

Compliance November 3, 2014

A Review of PBGC Reportable Events

There are certain events that defined benefit (DB) plan sponsors are required to report to the Pension Benefit Guaranty Corporation (PBGC) before they happen.
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The PBGC wants to make sure funding for DB plans does not deteriorate and tries to catch problems ahead of time by asking for plans to fill out PBGC Form 10 for reportable events, Kurt Piper, owner and chief actuary of Piper Pension and Profit Sharing, told attendees of the 2014 Association of Pension Professionals and Actuaries (ASPPA) Annual Conference. Piper said the agency wants advanced notice of certain events, including sponsor bankruptcy and liquidation.

Piper warned attendees that there is no exception for the requirement to report these events by terminating plans unless the plan is already paid out or transferred to the PBGC. He also said a reportable event notice must be filed within 30 days of knowledge of the event, or the plan sponsor could be subject to a penalty of up to $1,100 per day for each day the notice is late.

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Reportable events include:

  • Active participant reduction – A reportable event occurs when the number of active participants in the plan is reduced to less than 80% of the number of active participants at the beginning of the plan year or 75% of the number of active participants at the beginning of the previous plan year.
  • Failure to make required contributions – When a required funding payment is not made by the due date for the payment. 
  • Inability to pay benefits when due – When a plan is unable, or projected to be unable, to pay benefits.
  • Distribution to a substantial owner – When there is a distribution to a substantial owner of a contributing sponsor; the total of all distributions to the substantial owner within the one-year period ending with the date of the distribution exceeds $10,000; the distribution is for reason other than the substantial owner’s death; and immediately after the distribution, the plan has unfunded nonforfeitable benefits.
  • Transfer of benefit liabilities – When a plan maintained by any member of a plan’s controlled group makes a transfer of benefit liabilities to an entity or plans maintained by an entity that is not a member of the transferred plan’s controlled group, and the amount of liabilities transferred, in conjunction with the other benefit liabilities transferred during the 12-month period ending on the date of transfer, is 3% or more of the plan’s total benefit liabilities.
  • Change in contributing sponsor or controlled group – When there is a transaction that results, or will result, in one or more entities ceasing to be members of the plan’s controlled group.

Other reportable events include: 

  • Liquidation – When a member of the plan’s controlled group is involved in any transaction to implement its complete liquidation, institutes or has instituted against it a proceeding to be dissolved or is dissolved, and liquidates in a case under the Bankruptcy Code or any similar law.
  • Extraordinary dividend or stock redemption (1) – When a cash distribution, combined with any other cash distributions to shareholders previously made during the fiscal year, exceeds the adjusted net income of the entity making the distribution for the preceding fiscal year, or when the cash distributions made during the fiscal year or the three prior fiscal years exceeds the adjusted net income of the entity making the distribution for the four preceding fiscal years.
  • Extraordinary dividend or stock redemption (2) – When a non-cash distribution’s net value, combined with the net value of other non-cash distributions made to shareholders during the fiscal year, exceeds 10% of the total net assets of the entity making the distribution; or when both cash and non-cash distributions to shareholders are made during the fiscal year, and the sum of the cash-distribution percentage and non-cash distribution percentage exceeds 100%.  
  • Application for minimum funding waiver – When a plan applies for a minimum funding waiver.
  • Loan default – When a loan agreement by a member of the plan’s controlled group of an outstanding balance of $10 million or more is defaulted because the debtor fails to make a required payment when due, or if the lender accelerates the loan or the lender defaults the loan due to the debtor's failure to maintain certain financial requirements. 
  • Bankruptcy or similar settlement – When any member of the plan’s controlled group commences bankruptcy proceedings or any other type of insolvency proceeding, or executes a settlement with creditors.

Piper noted that changes to plan funding and premium rules made by the Pension Protection Act of 2006 require changes to reportable events rules. The PBGC issued proposed rules in April 2013 and held its first-ever public hearing on proposed rulemaking; however, there’s no indication of when the rules will be finalized. In the meantime, the Form 10 instructions include a list of PBGC Technical Updates to which filers of reportable events should refer until the final rules are issued.

There may be an addition to reportable events in 2015 related to pension risk transfer events. The PBGC has asked the Office of Management and Budget to approve required reporting of certain undertakings to cash out or annuitize benefits for a specified group of former employees.

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