Explore institutional insights
Explore institutional insights
Market update
Investor insights
Market update
Investor insights
Learn more about our investment group
Market update
Investor insights
Welcome!
Please select your country and language below:
APRIL 12, 2023
Chris Adair, Senior Managing Director, Head of Strategic Partnerships and Tim Boomer, Senior Managing Director, Head of Client Solutions at SLC Management, discuss the Special Financial Assistance Program in the American Rescue Plan Act and the implications for Taft-Hartley plans.
Steve Peacher: Hi everyone, it's Steve Peacher at SLC Management and thank you for dialing in to this episode of “Three in Five.” I've got two of my colleagues on with me today, Chris Adair and Tim Boomer, both of whom are Senior Managing Directors at SLC. Guys, thanks for taking some time today.
Tim Boomer/Chris Adair: Thanks for having me Steve.
Steve Peacher: So the topic today revolves around Taft-Hartley plans. This is a segment of the institutional universe that is really important to SLC Management, I think, you know, represents over 20% of our client base. Over 500 of our clients are Taft-Hartley clients. So this is an area that's really important to us. And there's a big development in this space around the American Rescue Plan Act, which has been designed to channel money to Taft-Hartley plans to shore up those that are underfunded and make sure the benefit payments to the beneficiaries are paid and met. And so it's important. And that is coming into effect, those monies are coming to the plans, there are restrictions around those monies. There's a lot to navigate. Tim Boomer’s Solutions team has a lot of actuaries, which, where we work with plans to help them navigate this. That's what we want to talk about today, this American Rescue Plan Act and what the implications are for Taft-Hartley plans, because it's a big opportunity. And so that's where we're going. So, Chris Adair let me start with you. You know, as I mentioned, we've been working for multi-employer plans for a long time. Maybe just explain to our listeners what that ARPA program is and why it's so important.
Chris Adair: Yeah, sure. Thanks Steve and thanks for taking the time. We're really excited about participating in the space here as part of the American Rescue Plan Act is a group called the SFA Program, which is a ‘Special Financial Assistance Program’ that's overseen by the PBGC. And, you know, really the intent of the legislation and this program is really about protecting and shoring up the retirement benefit plans of our Taft-Hartley clients and the hardworking American. So, as you alluded to, that's it's been a big part of our business for a long time and we're excited to be a part of it. Specifically, the SFA program was included as part of the Rescue Plan Act of 2021 you know with the goal of aiding and severely underfunded multiemployer pension plans. Plans must apply through the PBGC to determine, one if the plan is eligible to receive relief funds and two, the amount of the assets that the plan will receive. The amount granted is intended to help meet the plan's pension benefits over the short or medium term. So as a result the funds come with restrictions designed around the amount the plan is going to invest those assets and not to get into the weeds too much, but about 67% of the plans are required to be invested in fixed rate investment grade bonds, with the intent to pay benefits. Initially, the PBGC is focused on plans that typically are the most insolvent, and that process started last year, last summer last year. And we've started seeing those assets flow out of the PBGC to plan participants. And we're continuing to see a large part of these assets start to become available for these underfunded Taft-Hartley plans.
Steve Peacher: So Tim, as Chris mentioned, you know, these funds have a very specific purpose. They're designed so that benefit payments can be made, and that probably has implications for how the money is invested. So, what approaches are you seeing plan sponsors take as they look to invest these SFA assets to meet those commitments?
Tim Boomer: Yeah. Thanks, Steve and I guess I'd just echo what Chris said, which is I think one of the most important descriptors around these assets is really that the goal is to meet benefit payments. And I think that hit hard with a lot of plan sponsors and they've really taken it to heart, they want to guarantee a once in a lifetime opportunity to secure out these plans. They really want to guarantee those future benefit payments for the participants. And so what that means is we've seen plan sponsors really focused on, how do they align these investments with those future benefit payments. We've seen many plan sponsors take what I would call a cash flow focused investment strategy. So, they're thinking how can I align my fixed income proceeds with my benefit payments that go out the plan? At the same time, there's also a desire to really make these assets work as hard as we can. So, how can we earn extra money within our fixed income portfolio where every dollar extra we earn is an extra dollar that will end up in a participant's pocket in the future. And so we see these two, I don’t want to call them conflicting approaches, but on one side we want to really align with our benefit payments, and on the other side, we want to have a total return-oriented component that can add a little bit of extra juice and really help drive some of those future benefit payments. What we see is most times like this taking a little piece of each of those approaches and really the degree to which a plan sponsor will favor one or the other depends on a few factors, such as how much they're allocating to fixed income or how significant the SFA assets are versus their existing portfolio. So in nearly every case, it's really how do I align some of my fixed income to meet those future benefit payments and how do I make a portion of it work a little harder for them?
Steve Peacher: And what are some of the practical consideration that a plan has to consider as they invest those SFA assets?
Tim Boomer: Yeah. So, Chris hit on a few of these earlier, but these assets do come with some restrictions. So, and those restrictions are really targeted around protecting those assets to meet future benefit payments. As Chris mentioned, probably the biggest one everyone's aware of is that about two thirds of those assets have to be invested in fixed income, at least two thirds measured once every year. And then within that fixed income, there's also a restriction. So, it's U.S. denominated investment grade, fixed rate instruments. So that precludes anything below investment grade, it precludes floating rate instruments. And that also means that certain securitized assets don't fall into that category. And so the key consideration is really you need to work with partners in the space who can monitor that, who understand those regulations, that have systems in place where they can make sure we're really not getting on the wrong side of that program. The other consideration is really around rebalancing. So, you know, we're talking about a long time into the future to meet these benefit payments. Over that period there's going to be consistent rebalancing. So that's going to be between the equity or the growth component and the fixed income on an annual basis to make sure we're staying on side of that two thirds/one thirds rule. There's also going to be within the fixed income portfolio. And so where we have a portion of cash flow matched every year where we're paying benefit payments out of that and our payments are essentially rolling down, we have to think about adding the next year's payment into that system. So it's also rebalancing between our more total return focused fixed income and cash flow focused fixed income. And I think managing that process as a partner, we need to do it, we need to be very hands on and very connected to what's really happening in the plan.
Steve Peacher: So, there's obviously been a huge move in the fixed income markets since many of these applications were submitted. You've had a dramatic rise in short rates, you've had the shape of the curve change, you've had long rates rise, and you've had some volatility in the equity markets, but especially on the rates side there's been a huge change. So, talk about the implications of that. How is that impacted what plan sponsors can achieve and how they have to think about investing these SFA funds?
Tim Boomer: Yes, so I mean, as Chris touched on, a lot of these applications they've already gone in and the money start to flow. The rate at which, when we're calculating the amount of assets which a plan will receive, it's really based on taking that future benefit payments out to 2051 and then discounting them back today to see how much money we would need today to meet those payments. And the assumption of how much we would have earned on those assets is very important to determining that amount. So, when we look at when these applications went in, that's assumption for a lot of plans is probably a high 3% number. And so the number we were getting today, how much assets we would need to meet the future payments was pretty high. Today, as we roll that forward, for most plans the expected return on assets number on these SFA assets is probably anywhere from 1% to 2% higher. And what that really means is that when we look at these assets today, they can meet payments a lot further into the future than was originally planned. So that means that people investing today, they can out earn the original assumption and really make those payments go a little bit further toward plan beneficiaries. It also means that we can, for a lot of plans, they can perhaps make different investment decisions than they would have done a year ago. So today, in order to meet some of those future payments, they can probably do more within fixed income and take less risk within the overall asset allocation because they're able to earn more within that fixed income portfolio than they anticipated.
Steve Peacher: Well, you know, this is really an important topic because, you know, for years people saw the funded status of many of these Taft-Hartley plans and I think the question was what's going to happen here? Because there are real people on the back end who rely on these funds. And I think it was a, it was obviously a big achievement for this American Rescue Plan Act to be passed and new funds to flow to shore up these plans. Tor many Taft-Hartley plans it's a big deal. I know we're working with many of our Taft-Hartley clients who think through this and invest the money the right way. You know, and it's complicated given the restrictions and the fact that markets have changed. So, guys, thanks for taking a few minutes to talk about this. It's a, it's a big and important topic.
Chris Adair: Thanks, Steve.
Steve Peacher: And thanks everybody for listening to this episode of “Three in Five.”
This content is intended for institutional investors. The information in this podcast is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance, or investment services. Investors should consult with their professional advisors before acting upon any information contained in this podcast. Any statements that reflect expectations or forecasts of future events are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. As such, do not place undue reliance upon such forward-looking statements. All opinions and commentary are subject to change without notice and are provided in good faith without legal responsibility.
SLC-20230404-2825634
About SLC Management
SLC Management is the brand name for the institutional asset management business of Sun Life Financial Inc. (“Sun Life”) under which Sun Life Capital Management (U.S.) LLC in the United States, and Sun Life Capital Management (Canada) Inc. in Canada operate.
Sun Life Capital Management (Canada) Inc. is a Canadian registered portfolio manager, investment fund manager, exempt market dealer and in Ontario, a commodity trading manager. Sun Life Capital Management (U.S.) LLC is registered with the U.S. Securities and Exchange Commission as an investment adviser and is also a Commodity Trading Advisor and Commodity Pool Operator registered with the Commodity Futures Trading Commission under the Commodity Exchange Act and Members of the National Futures Association.
BentallGreenOak, InfraRed Capital Partners (InfraRed) and Crescent Capital Group (Crescent), and Advisors Asset Management are also part of SLC Management.
BentallGreenOak is a global real estate investment management advisor and a provider of real estate services. In the U.S., real estate mandates are offered by BentallGreenOak (U.S.) Limited Partnership, who is registered with the SEC as an investment adviser, or Sun Life Institutional Distributors (U.S.) LLC, an SEC registered broker-dealer and a member of the Financial Industry Regulatory Authority (“FINRA”) . In Canada, real estate mandates are offered by BentallGreenOak (Canada) Limited Partnership, BGO Capital (Canada) Inc. or Sun Life Capital Management (Canada) Inc. BGO Capital (Canada) Inc. is a Canadian registered portfolio manager and exempt market dealer and is registered as an investment fund manager in British Columbia, Ontario and Quebec.
InfraRed Capital Partners is an international investment manager focused on infrastructure. Operating worldwide, InfraRed manages equity capital in multiple private and listed funds, primarily for institutional investors across the globe. InfraRed Capital Partners Ltd. is authorized and regulated in the UK by the Financial Conduct Authority.
Crescent Capital Group is a global alternative credit investment asset manager registered with the U.S. Securities and Exchange Commission as an investment adviser. Crescent provides private credit financing (including senior, unitranche and junior debt) to middle-market companies in the U.S. and Europe, and invests in high-yield bonds and broadly syndicated loans.
Securities will only be offered and sold in compliance with applicable securities laws.
AAM is an independent U.S. retail distribution firm that provides a range of solutions and products to financial advisors at wirehouses, registered investment advisors and independent broker-dealers.
Website content
The content of this website is intended for institutional investors only. It is not for retail use or distribution to individual investors. All investments involve risk including the possible loss of capital. This website is for informational and educational purposes only. Past performance is not a guarantee of future results.
The information contained in this website is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained on this website. The assets under management (AUM) represent the combined AUM of Sun Life Capital Management (Canada) Inc., Sun Life Capital Management (U.S) LLC, BentallGreenOak, Crescent Capital Group, InfraRed Capital Partners, and Advisors Asset Management.
AUM as of June 30, 2024. Total firm AUM includes approximately $12B in cash, other, unfunded commitments, and Advisors Asset Management equity. Total firm AUM excludes $10 billion in assets under administration by AAM.
Currency conversion rate: USD $1.00 CAD $1.3677 as of June 30, 2024.
UK Tax Strategy - InfraRed (UK) Holdco 2020 Limited
InfraRed (UK) Holdco 2020 Ltd is the UK holding company of InfraRed Partners LLP and a subsidiary of Sun Life (U.S.) Holdco 2020 Inc, which has its headquarters in the U.S. The company was incorporated to purchase InfraRed Partners LLP and acts solely as a passive holding company. The Tax Strategy for the InfraRed Holdco Group sets out our approach to the management of InfraRed Holdco Group UK tax affairs in supporting business activities in the UK.
This UK tax strategy is published in accordance with the requirements set out in Schedule 19 of Finance Act 2016. The strategy, which has been approved by the Board of Directors of InfraRed (UK) Holdco 2020 Ltd, is effective for the period ending 31 December 2024. It applies to InfraRed (UK) Holdco 2020 Ltd and its dormant subsidiary Sun Life (UK) Designated Member Ltd, referred to as the “InfraRed Holdco Group”. InfraRed Holdco Group.
© 2024, SLC Management