Sage Advisory Services Launches Custom LDI Solution

Sage Advisory Services, an Austin, Texas-based asset manager, released a liability-driven investing (LDI) solution tailored for small pension plans.

Providers of LDI strategies have historically focused their services on major pension plan sponsors, the firm says. But the increasing use of exchange-traded funds (ETFs) has expanded the opportunity for smaller pension funds to create asset mixes that closely resemble their liability streams. The strategy can minimize the volatility of plan funded status, an important risk measure for the plan sponsor.

Sage is targeting defined benefit pension plans with between $1 million and $10 million in assets for the new LDI service. Sage will work with these clients to implement an ETF-driven portfolio that allows sponsors to buy individual securities at a cost-effective price point. Portfolios are comprised of credit and government bond ETFs that closely match the duration, yield to maturity, and option-adjusted spread of a plan’s liability benchmark, the firm says. Sage asset managers then adjust the portfolio monthly to reflect changes in the liabilities and the discount curve.

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“Through our depth of experience in ETF-based solutions and liability driven investing, Sage can deliver customized solutions for clients of any size,” says Robert Smith, the chief investment officer at Sage. “We focus on purpose-driven investing, and a well-managed ETF-based LDI portfolio is the ideal solution for small defined benefit plans.”

Sage provides daily online access to holdings, characteristics and performance data, as well as custom monthly and quarterly portfolio statements. These reports provide plan sponsors and investors with a full-spectrum view of the performance of the ETF-based LDI strategy relative to their custom liability benchmark characteristics, the firm says.

Key features of the LDI solution include the following:

  • Client-specific asset/liability analysis and LDI planning;
  • Ongoing guidance on portfolio construction and optimization;
  • Monthly rebalancing by experienced fixed income management team;
  • Quarterly reporting relating to the specific liabilities of the client;
  • Complete annual review of plan status;
  • Plan sponsor can set specific fixed income/equity split in accordance with risk tolerances; and
  • LDI portfolio is matched to the duration and other characteristics of the client’s unique liability rather than a generic long duration strategy.

More information is available at www.sageadvisory.com.

Mass. Regulator Argues for Better Disclosures of Match Changes

In a report sent to Congress and the Department of Labor, the Massachusetts Securities Division (MSD) is asking for improved disclosures to retirement plan participants of company match contribution changes.

In the report, the office of the Secretary of the Commonwealth of Massachusetts William F. Galvin argues that under the existing Employee Retirement Income Security Act (ERISA) rules, employers are required to notify employees of any changes to the retirement plan, including changes to match contributions; however, current rules do not mandate that employees receive meaningful and timely disclosure of such changes. The report notes that current disclosure obligations only require the employer to inform the employee that a change occurred, not information about how that change might detrimentally impact her overall retirement plans.

The report also notes employers have up 210 days after the end of the plan year in which the change is made to make the disclosure. “Giving this material information to employees months after the change has occurred renders the disclosure totally ineffectual,” the letter says, adding that plan participants would benefit from more immediate and transparent disclosure of changes to 401(k) plans.

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Earlier this year, Galvin announced a letter was sent to the 25 largest 401(k) plan providers seeking the number of plans they administer that have shifted to year-end lump-sum matches, the number of affected employees, and the date of the change (see “Regulator Questioning Move to Annual 401(k) Match”). It also sought the disclosure of information provided to plan participants about the potential risks associated with the change.

The report says 28 firms were sent a letter. Twelve of the firms contacted did provide 401(k) recordkeeping or plan administration services. Sixteen responded that while they provided other services, they did not provide recordkeeping or plan administration services. In addition, many firms challenged the jurisdiction of the MSD in connection with requesting information regarding its services as a recordkeeper to retirement plans. Other firms indicated that providing information and records would violate the confidentiality terms of the various agreements between the firm and its plan fiduciary clients and noted privacy concerns. Two firms would not provide information absent a subpoena.

As a result of the inquiry, the Massachusetts Securities Division (MSD) found with those firms that voluntarily responded, each claimed that it was not the 401(k) recordkeeper’s obligation to know about the content and implementation of any amendments to a 401(k) plan. Moreover, none of the firms stated that they had any fiduciary duties to independently develop or issue disclosures to employees in the 401(k) plan regarding risks related to the employers’ annual match of employee contributions. Further, most of the firms were not involved in communications to participants regarding changes to plan features.

“It became clear from the MSD’s survey that the only party who has a duty to disclose plan changes is the employer or plan sponsor,” the report says.

The report indicates that while the responses received provided limited data, what was established is that if there is a trend, it is moving from periodic match employer contributions to a year-end, lump-sum contribution.

“[P]rompt congressional and [Department of Labor] action is necessary to ensure that material changes to 401(k) plans, specifically the timing of match contributions, are required to be disclosed in a full, understandable, standardized disclosure (beyond mere notification to plan participants),” the report says. “Meaningful disclosure, at a minimum, should be mandated before more companies move to year-end match contribution and specifically provided prior to that change occurring.”

A copy of the report is here.

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