Compliance June 6, 2022

HUB’s $1.1B CSi Acquisition Highlights Ongoing Consolidation

Given CSi’s more than 50 years in practice and integrated third-party administration business, its acquisition by HUB International shows how even the most well-established retirement advisory shops see good reasons to consolidate.

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This week, HUB International announced its acquisition of CSi Advisory Services, a firm that advises on more than $1.1 billion in collective client assets across its retirement, wealth and third-party administration businesses.

The full financial terms were not disclosed, but by the simple metric of client assets under advisement, the deal represents one of the larger merger and acquisition transactions of the past several years. It comes at a time when the overall pace of M&A activity in the advisory industry has slackened—if only slightly—and questions are being raised about how the current economic environment may impact deal volumes.

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Based on announced M&A transactions through the end of April 2022, deal levels are down compared to early 2021, according to data provided by Wise Rhino Group, which advised CSi during the transaction process. According to the team at WRG, it is too early to project downward trends, especially as a few of the leading aggregator firms, after a very active M&A year in 2021, may be more focused on the task of integrating their newly acquired advisory firms. According to WRG, many firms have noted the continued commitment of resources toward the development of centralized platforms and processes, as well as the search for talent to support their business, as a reason for a slower M&A pace this year.  

Indeed, via the CSi acquisition, HUB is bringing on board Kristi Baker, managing partner of CSi Advisory Services, and Kelli Davis, vice president of retirement plan consulting. Additionally, the CSi Advisory Services team will join Hub Midwest East.

“Kristi, Kelli and the CSi team bring a shared vision of helping clients fulfill their dream of a successful retirement,” says Joe DeNoyior, president of Hub Retirement and Private Wealth. “We are proud to welcome them to HUB.”

CSi has been a recipient of multiple recognitions by PLANADVISER, and both Davis and Baker have earned the 2022 Top Retirement Plan Advisers designation.

“When we started consulting work with the firm in 2019, we couldn’t help but be impressed with what was already a successful, multigenerational business spanning nearly 50 years of service,” comments Peter Campagna, Wise Rhino Group managing partner. “The past few years, though, they built their business into a powerhouse through integrated TPA, retirement plan services and wealth management businesses. HUB has found a gem with Kristi, Kelli and their talented team, who are poised to grow exponentially in the near future.”

Compliance June 6, 2022

IBM Pension Plan Faces Outdated Mortality Data Challenge

The plaintiffs are seeking to remedy alleged failures by an IBM pension plan to pay joint and survivor annuity benefits in amounts that are ‘actuarially equivalent’ to a single life annuity benefit.

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Plaintiffs have filed a new Employee Retirement Income Security Act lawsuit in the U.S. District Court for the Southern District of New York, naming IBM and various related entities, including the technology company’s pension plan, as defendants.

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The case echoes other recent ERISA lawsuits that pertain to conversion calculations used to determine the value of certain types of annuity benefits to be paid out by pension plans. The plaintiffs in these proposed class action cases make a subtle but potentially financially significant argument that seeks to remedy alleged failures by pension plans to pay joint and survivor annuity benefits in amounts that are “actuarially equivalent” to a single life annuity benefit. Such actuarial equivalence is required by ERISA.

The plaintiffs in such cases suggest that, by not offering JSAs that are actuarially equivalent to the single life annuities that participants earn, the defendants cause retirees to lose part of their vested retirement benefits in violation of ERISA. These plaintiffs seek various remedies from the federal courts, including monetary damages and mandated structural reforms to their pension plans.

Outdated mortality assumptions and inflated interest rates come into play in the calculation of “actuarial equivalence,” according to these lawsuits.

To calculate the payment amounts of a JSA—a type of pension annuity that will be passed on to the participant’s spouse or another beneficiary upon death—certain actuarial assumptions are applied to determine a “conversion factor” that can in turn determine the “present value” of the future payments. These assumptions are based on a mortality table (used to predict how long the participant and beneficiary will live) and the current interest rate (used to discount the expected payments based on the expected future earnings on the principle).

Participants in these cases say their employers are knowingly using outdated mortality tables and inflated interest rate assumptions that undervalue the JSA benefit relative to the SLA. They say this is the case because mortality rates have generally improved over time with advances in medicine and better collective lifestyle habits. Thus, people who retired recently are expected to live longer than those who retired in previous generations. By the same token, older mortality tables predict that people near (and after) retirement age will die at a faster rate than current mortality tables.

As a result, these cases argue, an employer using an older mortality table to calculate a conversion factor decreases the present value of a JSA and—interest rates being equal—the monthly payment retirees receive. The interest rate also affects the calculation, such that using lower interest rates—mortality rates being equal—decreases the present value of benefits in forms other than an SLA.

In the new case, the plaintiffs allege that the IBM Plan violates ERISA’s actuarial equivalence rules for individuals who began participating in the IBM Personal Pension Plan before it was amended effective July 1, 1999. For these individuals, the complaint alleges, when the plan converts an SLA to a JSA, it uses a mortality table that is more than 40 years out of date, “despite massive increases in life expectancy in the intervening decades.”

“As a result, these participants and their beneficiaries receive significantly less than the actuarial equivalent of their single life annuity, directly contrary to ERISA’s requirements,” the complaint states. “Defendants appear to have recognized that these actuarial assumptions did not pass muster. In 1999, IBM restructured the plan into a cash balance plan for newer employees to reduce its retirement obligations. When IBM amended the plan [to] effectuate this new structure, it amended the plan’s definition of actuarial equivalence to employ updated actuarial assumptions. But for people who had been employed by IBM before this amendment, defendants continue to employ punitive, unreasonable and severely outdated assumptions, which result in the class receiving less than their full pensions.”

The full text of the compliant is available here. IBM has not yet responded to a request for comment about the lawsuit.

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