September 21, 2020 PIonline.com $16 an issue / $350 a year THE INTERNATIONAL NEWSPAPER OF MONEY MANAGEMENT Retirement Plans Governance Japan proposal CalPERS board on contribution limits could hurt wrestling with What is a benefit to some could also discourage DC how to delegate By DOUGLAS APPELL THE PLAN: Kyle Departure of CIO reveals cracks in philosophy Japan’s regulators are moving to Delaney said of what power to give staff and what to keep put “fairer” contribution limits for Bridgewater wants to corporate defined contribution form closer ties with plans in place this year but analysts sovereign wealth By ARLEEN JACOBIUS warn their proposed changes could funds while it trims just as easily shrink Japan’s DC staff numbers. The sudden departure of market as expand it. CalPERS’ CIO has revealed Vincent Ricardel Along the way, some of Japan’s to some board members that biggest corporate plan sponsors they might have been driv- could be forced to restructure the ing from the backseat — de- mix of DC and defined benefit re- spite actions taken last year. tirement plans they offer to em- After an exchange of ployees. punches and counterpunch- At issue are current rules that Money Management es in the form of letters by mandate across-the-board reduc- board members about the tions in DC contribution ceilings for timing of meetings — regu- companies that also offer defined Bridgewater has a plan larly scheduled or emergen- benefit plans. cy — and type — open ses- In contrast to the U.S. 401(k) sys- sion or closed session — the tem, where regular deductions from for steering through storm board tried during mara- employees’ paychecks powers thon meetings held on Sept. growth, companies are the main 14 through Sept. 16 to turn MORE ON HEDGE FUNDS contributors to Japan’s corporate Manager in midst of the car around. DC asset pool, which has grown to restructuring after big n Institutional investors are looking Using power many board more than ¥12 trillion ($112.9 bil- to hedge funds to help navigate members indicated during MUSCLED UP: Keith Ambachtsheer thinks lion) since the country put its DC losses, bad publicity through volatile times. Pages 3, 16 the meeting that they didn’t stronger board governance translates into framework in place almost 20 years realize they had, the board higher retirement plan returns. ago. By CHRISTINE WILLIAMSON sponse to the impacts of the COV- turned information items on DB plans, meanwhile, remain the ID-19 pandemic on global markets. the agendas into action items. The board also secured significant core of Japan's corporate retire- Bridgewater Associates LLC, the Bridgewater’s total assets under governance changes, including giving the board shared responsibil- ment system with ¥63 trillion in as- world’s largest hedge fund manager, management fell 12.5% to $140 bil- ity with the CEO for hiring, firing and re-evaluating the CIO and, sets — roughly five times the size of is experiencing one of its hardest lion through June 30 from $160 bil- reversing a decision it made late last year, turning the investment DC. years after assets under manage- lion as of Dec. 31. After better per- committee back into a committee of the entire board. Under prevailing rules, compa- ment fell precipitously. formance in July and August, total And there could be more to come as the board wrestles with the nies offering only a DC plan can Its flagship global macro strategy AUM rose to $148 billion as of Sept. fallout from former CIO Yu “Ben” Meng’s departure in August. Mr. contribute up to ¥55,000 monthly, or — Pure Alpha — was down 20% in 1, down 5.7% from year-end 2019, Meng is now under investigation by the state Fair Political Prac- just over $500, to employees’ ac- the first quarter this year in re- SEE BRIDGEWATER ON PAGE 32 tices Commission’s enforcement division over potential financial counts. For companies offering a conflicts of interest. | SEE CalPERS ON PAGE 29 DB plan as well, that ceiling is cut in half — to ¥27,500. Japan’s Ministry of Health, Labor Alternatives and Welfare is arguing now that slashing monthly DC contribution limits by ¥27,500 is unfair for com- Investors answer call over infrastructure panies whose estimated DB contri- butions come in well below that European governments grams and changes to retirement tors, the initiatives offer the poten- amount, noted Junichiro Goto, To- plan rules. tial of snagging higher returns as kyo-based managing director, mul- make changes that will Amid the ongoing battle with the fixed-income assets continue to tiasset business development, with coronavirus pandemic, the French, disappoint. AllianceBernstein Japan Ltd. spur investing climate Dutch, Swiss and U.K. governments France and the Netherlands The ministry is calling for those are all moving infrastructure high- each unveiled fresh stimulus pro- companies’ DC ceilings to be raised, By PAULINA PIELICHATA er on their priority lists. grams on Sept. 3 and Sept. 7, re- flexibly, to allow total contributions For the governments, the push spectively. The French government for a sponsor’s DB and DC plans of European countries are paving would help renew aging infrastruc- will make a fiscal injection of €100 ¥55,000, Mr. Goto said. the way for institutional investors ture and spur new industries such billion ($118.4 billion) into its econ- By way of example, under the C’EST BON: Declan O’Brien said French to increase exposure to infrastruc- as solar energy while providing omy over the next two years with a SEE JAPAN DC ON PAGE 30 changes will be welcomed by investors. ture assets by launching fiscal pro- jobs for the unemployed. For inves- SEE INFRASTRUCTURE ON PAGE 31 SOUND BITE Principal Global creates Muslim app NISA’S DAVID G. EICHHORN: ‘One Principal Global hopes its inconvenient truth about fixed income ‘Young Hajj’ mobile app is there is always a role for it in any will be the start of a great rate environment.’ Page 3 retail relationship with Indonesians. Page 6 2 | September 21, 2020 Pensions & Investments IN THIS ISSUE Regulation VOLUME 48, NUMBER 19 Defined contribution DOL’s rapid pace is too quick, many are saying When COVID-19 hit, New York best interest of retire- State Deferred Compensation Plan Feedback on investment advice ment investors. The executives acted quickly to maintain ERISA’s 5-part test rule proposal needed more time standard would be in- services to participants. Page 6 for fiduciary advice terpreted and applied By BRIAN CROCE consistent with the Under the five-part test outlined in ESG Securities and Ex- the Employee Retirement Income Retirement plan executives in The latest chapter in the ongoing debate con- change Commission’s Security Act, a person is an “invest- Europe are dedicating more assets cerning investment advice regulation is raising best-interest stan- ment advice” fiduciary if all of the to active equity approaches as ESG eyebrows from stakeholders on both sides, with dard, known as Reg following are satisfied: information pools explode. Page 4 sources saying the Department of Labor’s now BI, which went into ■■They provide advice or make lapsed 30-day comment period was insufficient effect June 30. recommendations regarding investing Governance for interested parties to provide proper feedback. It will likely take in, purchasing or selling securities or CalPERS and CalSTRS are taking The Labor Department on June 29 unveiled a TRANSPARENT: Andrea months for the Labor other property while receiving a fee. different paths when complying with proposed prohibited transaction exemption that Seidt said the five-part test Department to final- ■■The advice is provided on a regular a state law requiring state officials to would permit investment advice fiduciaries to re- needs to be clearer on ize the rule. basis. ceive compensation for their advice and to engage fiduciary duties. Also on June 29, the avoid conflicts of interest. Page 29 ■■ in certain principal transactions that are now for- Labor Department There is a mutual understanding with the plan, plan fiduciary or IRA Money management bidden. Currently, the Employee Retirement In- announced a final rule reinstating the five-part come Security Act prohibits investment advice fi- test used to determine whether an investment owner. Executives at Principal Global duciaries from self-dealing, or taking actions that professional or financial institution is a fiduciary. ■■The advice will serve as a primary see their Young Hajj offering as a would provide additional compensation from It was in 2016 that the Labor Department under basis for investment decisions with first step in building an “Islamic transactions involving plans and individual re- the Obama administration finalized a rule, com- respect to plan or IRA assets. ecosystem” of goals-based savings tirement accounts for themselves, their affiliates monly known as the fiduciary rule, that aimed to ■■The advice will be individualized products. Page 6 or related entities. replace the five-part test by broadening the defi- based on the particular needs of the Investment advice fiduciaries relying on the nition on when a person or entity is taking on plan or IRA. Departments exemption would have to provide advice in the SEE FIDUCIARY ON PAGE 34 At deadline ..............32 Frontlines ..................8 Changes ahead ........35 Hirings.....................26 ESG Classified ................28 Manager roundup .....19 DC roundup .............12 People roundup........33 Editorial ..................10 Other views ..............10 ETFs ........................13 RFPs .......................28 CTFC report hailed as a ‘dramatic milestone’ Late responses still OK Outline of financial impact of climate for pair of P&I surveys change a first from a U.S. regulator P&I is accepting late responses to the annual survey of DC mutual By HAZEL BRADFORD funds and target-date strategies.