US House Eyes Improving Small Employer Retirement Plans

Capitol Hill is haggling over the budget, aiming to expand small-business programs and create more opportunities for protected lifetime income solutions.  

The House Ways and Means Committee will begin debate Thursday on a set of major budget reconciliation recommendations, focused on Section 2002 of the US budget bill for fiscal year 2022, an effort that seeks to broaden employer retirement plans.

The mechanics of congressional budget reconciliation legislation are complicated, but as explained in a white paper published by the Center on Budget and Policy Priorities, reconciliation bills are not subject to filibuster. In other words, that means the legislation only needs a simple majority to pass, and not the 60 votes required for most bills in the Senate. Though the scope of amendments is limited, the paper explains, the lack of procedural hurdles related to the filibuster gives the reconciliation process significant advantages for enacting partisan budget and tax measures.

As of earlier this week, the newly revealed draft language, set to be marked up and potentially amended by the Ways and Means Committee starting Thursday, includes Democratic policy goals that range from the establishment of universal paid family and medical leave to federal support for skilled nursing facilities and training. Like all House committees, the Ways and Means panel is currently controlled by a Democratic majority seeking to use the budget reconciliation process to accomplish legislative goals that stand next to no chance of success through typical legislative means.

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Most notable for the retirement planning industry is the second section of the legislative recommendation language: “Subtitle B: Budget Reconciliation Legislative Recommendations Relating to Retirement.” Language in this section of the draft would generally require small business employers to offer their employees a retirement plan. The language, which could be amended or deleted during the forthcoming debate, appears to permit a service/eligibility period of up to two consecutive 12-month periods.

During that time, each of the to-be-enrolled employees would need to complete at least 500 hours of service to be eligible for the plan. Language in the text also seeks to set limits on contribution ranges and the amount of employees’ earnings that can ultimately be tax-deferred.

Other provisions would require automatic enrollment retirement plans to include a protected lifetime income distribution option for plan participants. As noted in comments about the draft reconciliation bill shared by the Insured Retirement Institute (IRI), Subtitle B of the reconciliation bill includes and advances measures previously incorporated into the Automatic Retirement Plan Act, first published back in 2017.

Pertaining to lifetime income requirements, Subtitle B of the reconciliation bill requires that auto-enrollment retirement plans offer participants with account balances of $200,000 or more an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution. The IRI leadership says this option would meaningfully expand opportunities for workers to obtain much-needed protection against outliving their savings.

Smart, a retirement technology business working on expanding the pooled employer plan (PEP) market in the United States, also offered supportive comments about the publication of the draft reconciliation legislation.

“The data is very clear,” says Catherine Reilly, director of retirement solutions at Smart. “The administration of retirement plans is not as burdensome as some have believed, but instead is simple and routine for small employers. This legislation symbolizes a great leap toward the future of retirement security that Americans deserve.”

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Union Threatens Strike Over Cuts at UK’s Largest Pension

The University and College Union says industrial action is now ‘inevitable.’

The University and College Union (UCU), a UK higher education trade union, is threatening to issue a strike for its more than 120,000 members over pension changes made by the Universities Superannuation Scheme (USS).

The UCU said industrial action is now “inevitable” after Universities UK (UUK), which represents more than 340 employers in the USS, voted to approve proposals to “cut thousands of pounds from the retirement benefits of university staff,” the union said in a statement.

The threat comes after employers in the USS backed a series of proposals for medium- and long-term reform of the pension plan. The UUK said without the changes, employers and plan members were facing escalating contribution rates. It said the contribution rate for employers would rise from the current 21.1% of salary to 23.7% in October, and to at least 28.5% next year. And it said member contributions would rise from 9.6% of their salary currently to 11% in October, and at least 13.6% next year.

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However, the union said USS voted to make changes to the pension plan without considering alternative proposals offered by the union, as well as a request to extend negotiations by one month. The union claims its proposals would have provided higher benefits in return for lower contributions than those put forward by the employers.

“However, employers repeatedly refused to agree to a small increase in their own contributions,” the UCU said. “They also refused to provide the same level of employer covenant support for UCU’s alternative proposals as they were willing to provide for their own.”

The union says that as a result of the cuts, a 37-year-old USS plan member on a £42,000 salary will take a 35% loss to his guaranteed retirement benefits over the rest of his career. It also said the changes will threaten the viability of the plan and cause staff to increasingly decide to leave the plan in the face of cuts to benefits and increased contributions.

“Employers have failed to support alternative compromise proposals put forward by UCU, drawn up under the constraints of a flawed 2020 valuation of the scheme,” UCU General Secretary Jo Grady said in a statement. “UCU’s proposals were far superior to those of UUK, delivering higher benefits and reducing contributions for staff.”

Under the UUK’s proposed changes, contribution rates for employers and employees would be kept the same at their current 21.1% and 9.6%, respectively, and the salary threshold up to which defined benefits are accrued would be lowered to £40,000. Additionally, accrual would be reduced from 1/75th of salary to 1/85th of salary, while benefits would be protected against inflation up to 2.5%, down from 5%.

The USS pension has £82.2 billion ($113.1 billion) in assets under management (AUM) as of March 31, including £80.6 billion in the pension plan.

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Chairman of Dutch Asset Manager MN Steps Down

Chief Financial and Risk Officer Fleur Rieter has been named interim chair.

Norbert Hoogers, chairman and chief executive of Dutch pension fund asset manager MN, is leaving the firm and its $207 billion in assets under management (AUM) to become the new CEO of occupational health services provider HumanTotalCare.  

MN’s Chief Financial and Risk Officer (CFRO) Fleur Rieter has been named as Hoogers’ interim replacement. Hoogers will start at his new job Dec. 1 and will transfer the MN portfolio to Rieter on Oct. 1.

Hoogers joined the fund in August 2018 from health insurer Zilveren Kruis, where he worked for nearly nine years, climbing to the position of chairman of the board. Prior to Zilveren Kruis, he was financial director at the health and safety service provider within Achmea.

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“I feel at home in the pension world, but care, vitality, and sustainable employability in the broadest sense have always kept my interest,” Hoogers said in a statement. “At HumanTotalCare there are challenges that are tailor-made for me. After careful consideration, I have decided to take this step now.”

MN provides pension administration for the sector funds Metalektro (PME), Metaal & Techniek (PMT) and Koopvaardij and manages assets for Dutch pension funds that serve nearly 2 million participants and retirees.

Hanny Kemna, MN’s presidential commissioner, said he would have preferred Hoogers’ move to come at a later date due to planned changes to streamline the company.

“MN is on the way to becoming a more compact and agile organization, with a focus on core tasks,” Kemna said in a blog post on the company’s website. “We would have liked Norbert Hoogers to be involved longer, but we respect his choice to make a switch at this stage of those changes. We have enjoyed working together and we have confidence in MN’s management team to bring all changes together in a professional manner along the agreed course.”  

Rieter joined MN in July 2019 as financial director and a member of the company’s executive committee. Prior to MN, she had been director of pensions at Dutch insurance firm a.s.r. beginning in 2013. She previously worked as chief financial and risk officer at De Amersfoortse, director of finance and operations at Legal & General, and as a manager at PwC.

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Maybe the Drought Won’t Be That Bad for Ag Commodities

Big harvests outside the drought-stricken West may make up for a lot of the crop shortfalls, says Wells Fargo.


Scarcity-driven crop prices have shot up this year, amid a relentless drought in the Western US and similar dry spells in Brazil, Russia, and Canada. But better yields in the US’s Midwest, thanks to heavy late-summer rainfall there, should temper those price leaps.

So says Wells Fargo’s senior economist, Mark Vitner, in a report on agriculture as the end of the growing season nears. “While the Western third of the country has been scorched by an unrelenting drought, late-season rains have bolstered hopes for bumper corn and soybean crop in large parts of the Midwest,” Vitner reported.

Although prices for key ag commodities such as corn, soybeans, and wheat will remain elevated this year, they will be less painful for consumers, he indicated. Ranchers also will benefit from less-onerous feed prices, he pointed out. As of July, food prices had escalated over the previous 12 months by 3.4%.

A scaling back of that increase likely would filter through to the Consumer Price Index (CPI), where food prices have risen along with other items—cars, energy, and shelter, for instance.

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All in all, Vitner wrote, “America’s agricultural sector appears set for a relatively good year.” Despite the problems in the nation’s Western states, he explained, better harvests in Illinois, Iowa, Indiana, and Ohio “have cut into the rise in commodity prices.” The current onset of new coronavirus cases also might hold down commodity price hikes by crimping demand, he reasoned.

The recent reductions in food commodity prices seem to bolster Vitner’s thesis, provided they continue. As of mid-August, 63% of the US spring wheat crop was in poor condition, as opposed to just 6% at the same juncture in 2020, the US Agriculture Department found. Wheat, at $4.95 per bushel in August last year, hit a high three weeks ago of $7.75, up by more than half. But it is off 7.5% since, owing to good crop news from the Midwest, Vitner contended. The grain is a key staple, made into bread and other baked goods, as well as pasta and breakfast cereal.  

The story is the same elsewhere. Corn has dipped 28% in price to $5.56 per bushel, as of Friday, from its peak in May. It is a basic ingredient used to make products ranging from taco shells to bourbon to animal feed. Some 40% of the US corn crop is blended into motor fuel. Soybeans, a vital commodity used for feeding livestock, as well as for industrial uses like paints and plastics, has slid 22% from its May high point.

Despite the drought, farmers and ranchers have been very resilient, buffering themselves to a degree from the lack of water, Vitner said. They have taken steps to reduce the impact by selling off herds and flocks, switching to less water-dependent crops, and leaving fields unplanted.

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SEC Settles With Eight Firms Over Inadequate Cybersecurity Measures

The regulator alleges a lack of safeguards exposed the personal information of thousands of clients.


The US Securities and Exchange Commission (SEC) has settled charges with eight investment firms for allegedly failing to adopt and implement written policies and procedures designed to protect customer records and information. The regulator claims the failures allowed email account takeovers that exposed the personal information of thousands of customers and clients.  

The eight firms are Cambridge Investment Research Inc., Cambridge Investment Research Advisors Inc., Cetera Advisor Networks LLC, Cetera Investment Services LLC, Cetera Financial Specialists LLC, Cetera Advisors LLC, Cetera Investment Advisers LLC, and KMS Financial Services Inc. All are registered with the SEC as broker/dealers (B/Ds), investment advisory firms, or both.

According to the SEC’s cease-and-desist order against Cambridge Investment Research and Cambridge Investment Research Advisors, cloud-based email accounts of more than 120 company employees were taken over by unauthorized third parties between January 2018 and July 2021, which exposed the personally identifiable information of nearly 2,200 Cambridge clients. The SEC alleged that Cambridge did not adopt and implement enhanced security measures for cloud-based email accounts of its representatives until 2021, despite knowing about the first email account takeover more than three years earlier.

The SEC also alleged that cloud-based email accounts of more than 60 employees of the five Cetera companies were commandeered by unauthorized third parties between November 2017 and June 2020, exposing the personal information of nearly 4,400 clients. According to the cease-and-desist order against the Cetera firms, none of the accounts taken over were protected in a way that was consistent with the companies’ policies.

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The SEC also alleged that Cetera Advisors and Cetera Investment Advisers sent breach notifications to their clients that included misleading language suggesting they revealed the breach much sooner after its discovery than they actually did.

The regulator also alleged that the cloud-based email accounts of 15 KMS financial advisers or their assistants were taken over by unauthorized third parties between September 2018 and December 2019, which led to the exposure of approximately 4,900 clients’ information. The SEC said KMS waited until May 2020 to adopt written policies and procedures requiring additional security measures and that it didn’t fully implement them until three months later.

“Investment advisers and broker/dealers must fulfill their obligations concerning the protection of customer information,” Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit, said in a statement. “It is not enough to write a policy requiring enhanced security measures if those requirements are not implemented or are only partially implemented, especially in the face of known attacks.”

The SEC alleges that each of the eight firms violated the so-called “Safeguards Rule,” which is intended to protect confidential customer information. Without admitting or denying the SEC’s findings, each firm agreed to be censured and pay a penalty, and to cease and desist from future violations of the charged provisions. The Cetera companies will pay a $300,000 penalty; the Cambridge firms will pay a $250,000 penalty; and KMS will pay a $200,000 penalty.

The SEC announced in March that it would examine whether investment firms are able to manage cyber risk as office workers continue to work from home. The securities regulator said it would scrutinize their ability to protect investors’ identities, prevent unauthorized access of accounts, and defend against phishing or ransomware attacks.

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Why Is OCERS Looking at Dumping Ray Dalio’s Prized Hedge Fund?

The California county pension program says his Bridgewater Pure Alpha has been dogging it since 2015.


Ray Dalio is a Wall Street legend. But to the Orange County Employees Retirement System (OCERS), the story of Dalio and his hedge fund firm Bridgewater Associates has grown stale.

Unhappy by what the California asset allocator terms the trailing performance of his flagship hedge fund, Pure Alpha, OCERS has placed the fund on its watch list, which is sort of like probation.

The Orange County pension plan ($20.8 billion in assets as of mid-year) and its consultant, Meketa Investment Group, say they will continue to monitor the hedge fund’s returns and then judge whether it should stay or go. The Pure Alpha position with OCERS is $175 million, just over 6% of the pension operation’s assets.

Molly Murphy, the California plan’s CIO, stressed in a statement to CIO that this step is not necessarily curtains for Pure Alpha. “We continually assess all of our investment managers and some stay in the portfolio and come off watch, while others do not and are terminated, but it is not prescribed,” she said.

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By Meketa’s estimate, the Bridgewater hedge fund has returned an annualized 4.5% since 2005, about 2.5 percentage points less than its benchmark—which is the yield of a Treasury bill plus 5 percentage points. Its falloff has come since 2015, Meketa found in its report, and from then it has fallen short over three-, five, and seven-year periods up to June 30 this year. For 2021’s first half, Pure Alpha’s 1.9% increase was 0.7 point below the benchmark’s showing, Meketa reported.

During Pure Alpha’s 16-year tenure with Orange County, Bridgewater has delivered around 6.4% annually for OCERS, slightly more than doubling its money, according to a Wall Street source sympathetic to the firm. Plus, the person said, it has had just one negative year with OCERS. But the S&P 500 has returned a bit more, 8.8% per annum, over that span. Pure Alpha has generated a reported annual 10.4% net of fees since its 1991 inception.

Neither Bridgewater nor Meketa would comment on the contretemps.

OCERS signed on with Pure Alpha in May 2005 and for the next 10 years, the hedge fund outperformed, Meketa found. Then the performance ebbed, the consultants’ study stated, due to a “relatively stable macro environment and fewer large price changes across broad markets (e.g., equities, interest rates, foreign exchange, and commodities).” The longstanding appeal of Pure Alpha has been its lack of correlation to standard asset classes, mainly stocks, and its attention to large shifts in global economic forces, such as economic growth or contraction and currency movements.

This is a real comedown. The Dalio fund has dazzled investors for years with its prescient moves, such as sidestepping the 2001-03 dot-com bust and the 2008-09 global financial crisis. In each case, parent Bridgewater, the world’s largest hedge fund firm, has touted its superior analysis to see what is coming that’s bad—or good. Pure Alpha clocked a 9.5% performance in 2008, when the S&P 500 plunged by a third, and capped that with a blow-out 45% in 2010.

The fund, though, last did well in 2018, up 14.6%, when stocks started to nudge upward as the Federal Reserve reversed its rate-raising regimen. After that, the hedge fund started to struggle, apparently not catching the dramatic equities turnaround after the early 2020 pandemic-induced slump.

Dalio has a daunting standing in the investing community, and his views command respect. Certainly, keeping OCERS as a client is not vital to Bridgewater, which oversees $105 billion in hedge fund assets. The OCERS position is a fraction of that. Still, no one wants to be canned.  

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University of California Reports Biggest One-Year Gain in History

The portfolios returned 28.9%, or $38 billion, in 2021 to raise their total asset value to $168 billion.


The investment portfolios for the University of California (UC) added $38 billion over the fiscal year ending June 30 to raise their asset value to $168 billion, a 28.9% increase over the prior year. It was the largest one-year gain in the endowment’s history.

The investment portfolios include the UC endowment, which returned 33.7%, and its pension, which was up 30.5%.

The endowment attributed the record returns to the strong performance of its private and public equity investments, which returned 58.7% and 41.1%, respectively, during the year.

“In so many ways, this past fiscal year was intense, and humbling,” CIO Jagdeep Singh Bachher said in a statement. “Beyond the tumult of the pandemic, the social and geopolitical unrest, with the effects of climate change in sharp relief, we made some bold moves to capture the unique opportunities a surging market provided.”

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UC’s portfolios have grown by $73.1 billion, or 77% since 2014, when Bachher was named CIO of the university system. Since then, the UC Investments team has also generated $5.2 billion in returns over its benchmarks and saved $2.2 billion in costs by reducing its number of external managers and increasing direct co-investments in companies. UC Investments said it has cut the number of its key external partnerships to 50 today from 280 in 2014.

The university’s general endowment pool was worth $19 billion as of June 30, a $5 billion increase from the previous year, and a $10.7 billion, or 129%, increase since 2014. The one-year net return was 33.7%, which beat its benchmark’s return by 4.2%, and its three-, five, and 10-year annualized returns were 14.9%, 13.7%, and 9.9% respectively. Over the longer term, the endowment pool reported 20-, 25-, and 30-year annualized returns of 7.8%, 8.9%, and 9.7% respectively, all of which surpassed their policy benchmarks.

The asset value of the University of California pension rose $20.8 billion from the previous year, thanks to a one-year net return of 30.5%, which was 2% above its benchmark. The pension has three-, five-, and 10-year annualized returns of 12%, 11.6%, and 8.9%, respectively. Over the longer term, the pension has 20-, 25-, and 29-year annualized returns of 6.9%, 8.1%, and 9%, respectively, all of which met or exceeded their policy benchmarks. Private and public equity investments were also the top-performing asset class for the pension, returning 54.7% and 41.8% respectively for the year.

“Jagdeep and the UC Investments team, working entirely remotely, stayed calm and focused,” UC Regent Investments Committee Chair Richard Sherman said in a statement. “We ended up significantly changing our asset allocation—by increasing our exposure to equities—in the middle of the pandemic. It proved to be the right move.”

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