Data & Research July 28, 2016

Sponsors Warming Up to Lifetime Income Solutions

Nearly one-quarter have adopted at least one approach in their DC retirement plans.
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Employers are gradually warming up to lifetime income solutions in their retirement plans, Willis Towers Watson found in its Lifetime Income Solutions survey.  However, they are more interested in educating participants about drawdown strategies or partial withdrawals than using guaranteed insurance-backed products.

Twenty-three percent of retirement plan sponsors have adopted at least one lifetime income solution, and another 18% are considering it. Among those who are not considering lifetime income solutions, 81% say it is because they are worried about fiduciary risk, 66% cited cost and 60% said the solutions available on the market are too new.

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Among this minority offering lifetime income solutions, 71% say the reason is to help their workers convert their defined contribution (DC) balances into lifetime income. The most prevalent approach is systematic withdrawals, cited by 73% of those offering a lifetime income solution, followed by income planning tools (64%), education (60%), managed account services with a non-guaranteed payout (33%), out-of-plan annuities (19%) and in-plan annuities (10%). However, 21% are considering offering out-of-plan annuities.

The survey also found that participants themselves are slow to use lifetime income solutions; 61% of sponsors said that 25% or fewer of their participants use in-plan managed account services with a non-guaranteed payout service, 50% said 25% or fewer of their participants take advantage of lifetime income education, and 50% said 25% or fewer of their participants use partial or systematic withdrawals.

“Employees and retirees face major obstacles as they try to save for retirement so that they have a regular, adequate income that secures their future,” says Bill Dewalt, senior investment consultant at Willis Towers Watson. “This is particularly true at a time when employers are increasingly concerned about financial well-being and retirement readiness, life spans have lengthened, and competing financial responsibilities make it hard to save for retirement. Lifetime income solutions allow plan sponsors to continue their mission of preparing employees for life in retirement.”

Compliance July 27, 2016

Two Church Plans Take Cases to Supreme Court

Both petitions to the high court question whether ERISA's church plan exemption applies so long as a pension plan is maintained by a qualifying church-affiliated organization, or whether the exemption applies only if a church initially established the plan.
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Advocate Health Care and St. Peter’s Healthcare System have filed petitions for writ of certiorari with the U.S. Supreme Court to determine whether their pension plans are considered “church plans” under the Employee Retirement Income Security Act (ERISA).

ERISA exempts “church plans” from funding and other requirements. These plans are not insured by the Pension Benefit Guaranty Corporation (PBGC).

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Both petitions question whether ERISA’s church plan exemption applies so long as a pension plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the plan. 

In December 2015, the 3rd U.S. Circuit Court of Appeals agreed with a district court ruling that because no church established St. Peter’s Healthcare System’s defined benefit (DB) retirement plan, it is ineligible for church plan exemption.

In March, the 7th U.S. Circuit Court of Appeals, using similar reasoning as the 3rd Circuit, ruled that the DB plan sponsored by Advocate Health Care Network does not qualify as a church plan exempt from many provisions of ERISA.

There have been a number of lawsuits filed against health care providers challenging the status of their DB plans. An attorney speaking at the 2016 PLANSPONSOR National Conference said such lawsuits are filed nearly every week.

Saint Francis Hospital, one of many health care organizations sued over the “church plan” status of its pension, has agreed to a $107 million settlement.

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