Products February 5, 2015

Merrill and USC Introduce Longevity Training Program for Financial Advisers

Merrill Lynch and the University of Southern California Leonard Davis School of Gerontology announced a training program that provides insight into the opportunities and challenges of increasing longevity.
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Designed to help its financial advisers and retirement specialists better understand and address the evolving needs of the nation’s aging population and their families, Merrill Lynch, in conjunction with the University of Southern California (USC) Leonard Davis School of Gerontology, is launching its longevity training program for financial advisers.

Merrill Lynch, provider of wealth management and investment services, intends for program participants to learn about the importance of and issues associated with longevity. Participants are provided information about the latest advances, research and experiences in the field of gerontology, which includes the sociological, psychological and physiological aspects of aging. Merrill Lynch Clear, helping people navigate to and throughout retirement, defines seven life priorities: health, home, family, giving, leisure, work and finances.

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“We’ve partnered with one of the nation’s most prestigious universities, and a pioneer in the study of gerontology, to help ensure that our advisers and specialists have a deeper understanding of the opportunities and challenges presented by increasing longevity,” says David Tyrie, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “Greater knowledge of and appreciation for various aspects of aging helps us better connect with our clients, address concerns, and achieve their desired outcomes leading up to and through retirement.”

The program consists of approximately 12 hours of training over the course of four to eight weeks, providing participants with on-demand videos featuring USC professors, online courses and reference materials, as well as Web-based best practice presentations and knowledge sharing from Bank of America Merrill Lynch experts. Additionally, participants complete scored assessments of content knowledge and application skills. Upon completion of the program, participants receive a certificate from USC and up to nine continuing education credits for Certified Financial Planner, Certified Investment Management Analyst or Chartered Retirement Planning Counselor professional designations.

A preliminary group of 50 Merrill Lynch financial advisers and specialists began participating in the program in January. The program will be available to all firm advisers and specialists in April, and then extended in May to include human resource (HR) and benefit plan professionals at companies for which Bank of America Merrill Lynch provides retirement and benefit plan services.

Compliance February 5, 2015

Why Some Pensioners Worry About Risk Transfers

A case heard in federal appeals court this week asks whether increasingly common pension risk transfer moves by large corporate plan sponsors are putting retirees at increased risk.
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A three-judge U.S. court of appeals panel heard oral arguments yesterday in the class action Lee v. Verizon (Case No.  14-10553), a case regarding the transfer of 41,000 Verizon retirees’ pension accounts into a single group annuity sponsored by Prudential Insurance Co.

The pension risk transfer move had been approved by a district court, based in part on the plaintiffs’ inability to prove real harm occurred as the result of the risk transfer. An earlier opinion issued by Chief Judge Sidney A. Fitzwater of the U.S. District Court for the Northern District of Texas, Dallas Division, cited multiple reasons for the dismissal, including the plaintiffs’ failure to prove that Sections 102(b), 404(a) and 510, as well as Section 409(a), of the Employee Retirement Income Security Act (ERISA) were violated. At the time, Fitzwater stated that while he was dismissing the case, his opinion did not prohibit the plaintiffs from repleading their case in the future, leading to the current appeal.

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The main worry of the retirees is that their billions of dollars in income annuities will be less well-protected than ERISA-covered benefits, for example in the case of a personal bankruptcy or the admittedly unlikely bankruptcy of Prudential. The plaintiffs further claim they received insufficient notice in advance of the transfer of their promised pension benefits from Verizon’s to Prudential’s balance sheet and that no such right to enact a transfer was established by plan documents.

In a conversation with PLANADVISER, Jack Cohen, Association of BellTel Retirees chairman, outlined the plaintiffs’ other concerns, noting that his organization advocates for Verizon retirees and that he personally stands among the large class of complainants. While the pension risk transfer has so far been deemed legal, he suggests Verizon did not follow some of the best practices commonly enacted during a major pension risk transfer operation, leading to unnecessary stress and resentment among the retiree base.

“If you look at pension risk transfer deals enacted by General Motors and Ford, for example, they included lump-sum offerings and plenty of advanced warnings and explanation of the transfer,” Cohen says. “We feel we were not given sufficient notice or other options, apart from accepting the annuity.”

Additionally, Cohen says, the transfer was “highly discriminatory,” in that it only applied to some similarly situated Verizon retirees and not others. While he admits that the lawsuit’s claims are in direct opposition to established industry practices and the opinions of numerous benefits professionals and insurance firms, which view pension risk transfer deals as a next logical step in the challenging history of once-dominant pension plans, he feels the courts are allowing certain plan sponsors to undermine the letter and intent of ERISA.

Cohen notes the lawsuit is not about getting a smaller pension check under the terms of the risk transfer, or even about a lack of confidence in Prudential’s commitment or ability to pay the large class of Verizon pensioners.

“No one is arguing about the present solvency condition of Prudential, but because of this transfer, retirees are not safeguarded under the same protections as prior to the transaction,” he says. “Although the retirees are still receiving the same monthly payments, this pension-stripping transaction replaces their pensions with non-ERISA-protected insurance annuities. It strips retirees of ERISA’s protections and the Pension Benefit Guaranty Corporation [PBGC]’s uniform guarantee, putting their retirement income stream at risk in the event of a personal bankruptcy.”

Cohen says the case also raises two other issues that have not received much attention in the courts or the financial press: “We do not feel there is anything being done to address the potential for resale of these pension obligations further down the road. Nor do we feel there is a reason to trust the insurance companies, well-established or not, to know when they have reached capacity and should stop taking on more pension obligations.” 

As Cohen observes, part of the industry’s argument for why pension risk transfers are an acceptable path forward for ERISA-covered pensions is that the insurance firms taking on the pension risk are very healthy and are good at what they do. (See "Evaluating Participant Benefit Security in Pension Buyouts.")

“They really make hay of the fact that they’re so strong and solvent,” Cohen says. “But what protections are in place when it comes to the prospect of someone like Prudential later deciding this is not a business line it wants to be in? Will it be able to resell the assets, as it were? Who will be lining up to buy the assets when Prudential wants to get out of the business? We don’t want to see pension liabilities becoming a marketable security in any way.”

Contacted for comment about this story, Prudential said it is unable to share more detail about its deal with Verizon, and the company declined to respond to Cohen’s suggestions about the long-term potential for the secondary or tertiary transfer of pension obligations. In any case, the recently announced $600 million risk transfer the firm entered into with another pension plan sponsor suggests it has no plans to slow down in the space.

“The suggestion that we can move these assets out from under ERISA and expect them to be fully protected is a myth whose time has come,” Cohen says. “The insurance companies involved with this de-risking see so much opportunity, they don’t know where to go first. It’s our obligation as a nation to make sure that, if this is what the evolution of pensions is going to look like, that it happens without giving up all these protections we have worked so hard to establish in ERISA and other laws.”

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