Products May 31, 2018

Investment Products and Services Launches

MassMutual Introduces New TDFs; J.P. Morgan Updates TDF Selection Tool; and Krane Funds Advisors Creates CIT for Retirement Plans.

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MassMutual has introduced a new target date fund (TDF) family subadvised by a Legg Mason-affiliated manager, QS Investors, LLC, that aims to help reduce market volatility for retirement plan savers when they are most vulnerable to market losses: just before and right after retirement.

 

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The Legg Mason Total Advantage Funds, a series of bank-maintained collective investment funds sponsored by Wilmington Trust, N.A. and available through MassMutual 401(k)s and other defined contribution (DC) retirement plans, offers retirement savers a combination of upside return potential with the goal of reduced volatility. The funds incorporate both active and passive investment management strategies by investing in underlying funds that are managed by 16 different managers. A stable value investment component is part of the strategy to help retirement savers manage market volatility.

 

The Legg Mason Total Advantage Funds’ architecture gives investors access to not only Legg Mason managers but also to a wide array of external managers. QS Investors is one of Legg Mason’s institutional asset manager affiliates, with an expertise in multi-asset class portfolios.

 

“The five years before and after retirement can be a particularly vulnerable time for retirement savers,” says Tina Wilson, head of MassMutual Investment Solutions Innovation. “With a relatively short time horizon to recoup investment losses, pre-retirees and retirees risk significantly diminished assets and retirement income from market corrections and volatility. Unfortunately, some retirees may be taking more risk than they realize.”

 

The Legg Mason Total Advantage Funds seek to manage investment risk with a series of proprietary investment strategies, including Adaptive Asset Allocation and Next-Generation Diversification.  

 

J.P. Morgan Updates TDF Selection Tool

J.P. Morgan announced an upgrade to its Target Date Compass tool that advisers use to help plan sponsors make informed target-date fund (TDF) selections.  The new Target Date Compass is said to have easier, more intuitive navigation, deeper analytics, and greater customization. 

Target Date Compass was introduced to help defined contribution (DC) plan sponsors evaluate the critical differences among TDFs. The program asks plan sponsors to consider important plan criteria including objectives, risk tolerance, demographics and expected participant behavior.  Answers to these questions help plan decision-makers identify the Target Date Type that best matches plan goals and participant needs. This allows plan sponsors to concentrate on a group of funds that are likely to match the plan’s goals and objectives.

“With of the vast number of target-date fund choices in the market, it is virtually impossible to make an informed choice without exhaustive analysis of the fund universe,” says Catherine Peterson, global head of Insights Programs at J.P. Morgan.  “Target Date Compass allows advisers to conduct this analysis in a matter of minutes and generate custom reports that help meet fiduciary obligations with a well-defined process for making, documenting and defending target-date fund decisions.” 

Krane Funds Advisors Creates CIT for Retirement Plans

Krane Funds Advisors, the investment manager for KraneShares exchange traded funds (ETFs) has launched KraneShares MSCI China A-Share Collective Fund, a collective investment trust (CIT).

 

The CIT seeks to replicate the performance of its benchmark, the MSCI China A Inclusion Index, which is designed to track the progressive partial inclusion of Mainland listed Chinese securities (A-shares) in the MSCI Emerging Markets Index over time. It follows the same investment strategy as the KraneShares Bosera MSCI China A-Share ETF.

 

The trustee for the new CIT is SEI Trust Company, a wholly owned subsidiary of SEI Investments Company (SEI). SEI maintains ultimate fiduciary authority over the management of, and the investments made in, the CIT with Krane Funds Advisors, LLC as adviser.

 

The KraneShares MSCI China A-Share Collective Fund was developed specifically for qualified pensions including defined benefit and defined contribution plans, and complies with the fiduciary standards of the Employee Retirement Income Security Act (ERISA).

 

“This is a significant moment for China’s capital markets and for global institutional investors who begin to allocate their portfolios to the world’s second largest equity market,” says Jonathan Krane, CEO of KraneShares. “We believe this CIT is a solution for institutional retirement plans that track MSCI indexes to align with the benchmark as they incorporate the China A-share market into their portfolios.”

Compliance May 31, 2018

IRS Reminds Non-Electing Church Plans of Qualification Requirements

While non-electing church plans are not subject to most ERISA requirements, they are subject to pre-ERISA regulations.

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In a recent Employee Plans (EP) Issue Snapshot, the Internal Revenue Service (IRS) identifies sections of the Internal Revenue Code (IRC) that a non-electing church plan must satisfy in order to be a qualified plan under IRC Section 401(a).

As the Snapshot notes, a plan that meets the definition of a church plan in IRC Section 414(e) is exempt from certain requirements imposed on other tax-qualified retirement plans under the IRC. However, a church plan sponsor can elect under IRC Section 410(d) to have the plan treated as though it were not an exempt church plan. Plans for which no IRC Section 410(d) election was made are known as “non-electing church plans.”

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Non-electing church plans are exempt from the Employee Retirement Income Security Act (ERISA) provisions pertaining to participation, coverage, and vesting; however, these plans are subject to the requirements for participation, coverage and vesting that were in effect on September 1, 1974, prior to the enactment of ERISA. The pre-ERISA vesting requirements are set forth in IRC Sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.

Section 401(a)(4) stated that a trust constitutes a qualified trust “if the contributions or benefits provided under the plan do not discriminate in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees.” In addition, regarding vesting, Section 401(a)(7) stated that “upon its termination or complete discontinuance of contributions under the plan, the rights of all employees to benefits accrued to the date of such termination or discontinuance, to the extent funded, or the amounts credited to the employees’ accounts are nonforfeitable.”

According to the Issue Snapshot, the pre-ERISA participation and coverage requirements are set forth in IRC Sections 401(a)(3) and 401(a)(5) as in effect on September 1, 1974.

Section 401(a)(3) provided that a plan could satisfy one of two alternative percentage tests:

  • 70% or more of all employees must be covered under the plan; or
  • 70% or more of all employees must be eligible under the plan, and if so, at least 80% of all eligible employees must be covered.

The percentages above are applied after excluding employees:

  • who worked less than a period stated in the plan, not to exceed 5 years;
  • who do not customarily work for more than 20 hours in any one week; and
  • whose customary employment is not more than 5 months in any calendar year.

The IRS notes that in lieu of meeting one of the percentage tests, the plan may cover a classification of employees which does not discriminate in favor of officers, shareholders, persons whose principal duties consist of supervising the work of other employees, or highly compensated employees. Section 401(a)(5) provided that a classification shall not be considered discriminatory within the meaning of IRC Section 401(a)(3)(B) merely because it is limited to salaried or clerical employees.

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