R&I Update October 2023

OCTOBER 2023

Manager’s Note National Retirement and Insurance (R&I) Committee member Capt.

Ken Binder passed away on August 19, 2023. Binder was an MD-11 captain at FedEx Express and served on the National R&I Committee since 2010, including 12 years as committee chair. ALPA lost a fierce, dedicated pilot-benefits advocate. In May, ALPA awarded Ken the first Andrew J. Hughes Presidential Citation for his extensive work and accomplishments for ALPA pilots.

At its meeting held on September 20–22, 2023, the Executive Council confirmed Capt. Jason Ambrosi’s appointment of Ben Monshor (FedEx) to the national R&I Committee. Ben is a Memphis-based 767 first officer. Read more about Ben below.

Capt. Ken Binder April 24, 1976 – August 19, 2023

The National R&I Committee held ALPA’s third Financial Wellness Seminar on October 24, at ALPA’s offices in McLean, Va. In collaboration with Charles Schwab, the seminar featured presentations from ALPA experts, Schwab financial consultants, and other outside professionals on a wide range of financial topics, such as saving, investing, planning for retirement, tax strategies, and estate planning.

On September 29, United pilots ratified a new collective bargaining agreement, which significantly improves retirement and insurance benefits for all pilots. Under the new agreement, employer nonelective contributions to the pilots’ 401(k) will increase to 17 percent in January 2024 and 18 percent in January 2026. Additionally, United will establish a pilots’ market-based cash balance plan (MBCBP), with the ability of pilots to annually choose to spill excess 401(k) contributions 2024 OPEN ENROLLMENT DATES into the new MBCBP or to continue spilling excess into the Retiree HRA VEBA. The new contract also made significant improvements to Alaska October 25–November 17 long-term disability, including the elimination of offsets, a reduction Delta November 1–17 in the pilot cost share from 35 percent to 25 percent, and an increase FedEx October 10–15 in the maximum benefit to $13,657, which will be indexed to future Frontier October 23–November 10 pay raises, and full retirement contributions based on pre-disability Hawaiian October 30–November 17 income. Please read the Collective Bargaining Update below for more JetBlue October 12–26 information on the agreement.

Spirit

October 16–27

United

October 30–November 17

CONTENTS Manager’s Note . . . . . . . . . . . . . . . . . . . . 1

Membership Plans . . . . . . . . . . . . . . . . . 21

National R&I Committee Member . . . . . . . 2

Canadian Update . . . . . . . . . . . . . . . . . . 21

Collective Bargaining Updates . . . . . . . . . 2

R&I Fast Facts . . . . . . . . . . . . . . . . . . . . 22

Contract Enforcement . . . . . . . . . . . . . . . 6

Investing & Marketing Outlook . . . . . . . . 23

Legislative & Legal Updates . . . . . . . . . . . 7

R&I Contacts . . . . . . . . . . . . . . . . . . . . . 28

Court Cases of Interest . . . . . . . . . . . . . 13

NOTE: Text in blue is a live link to referenced external PDF files. Click on the link to open the file.

Questions?

Comments?

Please click here or e-mail Celeste.Sweeney@alpa.org

National R&I Committee Member Ben Monshor First Officer Ben Monshor is a Memphis-based 767 first officer with FedEx Express. He joined the ALPA Retirement and Insurance Committee in 2023. In 2018, Ben joined the FedEx MEC R&I Committee and is currently vice chair of the FedEx MEC R&I Committee. Additionally, Ben chairs the FedEx MEC Pilot Benefit Review Board and serves as a member on the Post-Medicare Premium Reimbursement Board, Pilot Investment Committee, Insurance Board, and Retirement Board.

Ben began his airline career at Continental Express, which became ExpressJet, where he worked from 2000–2008 and served on the Long-Term Disability Committee from 2005–2008. After a stop at World Airway for a few years, Ben became a FedEx Express pilot in 2011.

Ben’s desire to serve on the FedEx MEC R&I Committee stemmed from years of witnessing the large role insurance, both medical and disability in particular, play in pilots’ lives. Being a believer that education is the key to maximizing negotiated benefits, Ben has played a major role in the R&I Committee’s education initiatives for the FedEx Express pilots. These initiatives help ensure that FedEx pilots are knowledgeable of both their negotiated benefits and ALPA benefits. Ben joined the ALPA R&I Committee to continue his work, and the work others have done before, to serve the entire ALPA pilot group, through tailored disability, life, and other insurances, as well as developing new ideas and solutions to retirement and insurance issues.

Ben resides in Petoskey, Mich., with his wife and two sons.

Collective Bargaining Updates United Air Lines (CBA Effective September 29, 2023, amendable September 30, 2027) PREVIOUS AGREEMENT

NEW AGREEMENT

HEALTHCARE FAA or LTD Committee Required Medical Procedure

If not covered by health plan, then no coverage. Pilot paid.

Basic Life Insurance Death Benefit

The company will provide life The company will provide life insurance equivalent to 2,052 times insurance equivalent to 1,026 times the hourly rate as of the date of death. the hourly rate as of the date of death.

If not covered by health plan, then paid by LTD plan.

LIFE INSURANCE

R&I Update • 2 • October 2023

PREVIOUS AGREEMENT

NEW AGREEMENT

DISABILITY Long-Term Disability

Minimum 90-day waiting period for nonoccupational injuries.

Minimum 60-day waiting period for nonoccupational injuries.

Pilot contribution: 35%

Company contribution: 75%

Company contribution: 65%

Maximum monthly benefit as of:

Maximum monthly benefit: $11,000.

2/29/23

$13,521.40

Offsets for UAL comp, legacy CAL DB plan benefits, SSDI, and state disability.

After snap up

$13,656.70

1/1/24

$14,339.63

1/1/25

$14,913.23

1/1/26

$15,509.91

1/1/27

$15,975.14

Pilot contribution: 25%

No offsets except UAL comp.

HIMS

12-month lifetime max on LTD.

24-month lifetime max on LTD.

Sick Leave

Five hours per month.

Six hours per month.

Extended Sick Bank (ESB)

No provision.

All pilots receive 120 hours as of DOS. Accrued at 4 hours per month with max of 180. 540 max for pilot career. Can be used as a bridge to LTD or if pilot runs out of sick leave, subject to 15-hour unpaid period. Can also be used as 15 hours/month supplement to LTD, which will include PRAP contributions. Once ESB is maxed out, then the 4 hours per months converts to 1.3 days credit for LTD waiting period.

Paid Maternity Leave

None.

Eight weeks paid time off at 2.8 per day.

Paid Parental Leave

None.

Fourteen days paid time off at 2.8 per day. Birth parent entitled to both paid maternity and paid parental leave.

Company Contributions to PRAP

The company will contribute 16% of eligible earnings to PRAP.

Company contribution increased to 17% effective January 1, 2024, and 18% effective January 1, 2026.

Eligible Earnings

Profit-sharing payments and signing bonus/retro pay are excluded.

Profit-sharing payments and signing bonus/retro pay are included as eligible earnings for PRAP contribution purposes.

In-Service Distributions

Age 59½ personal contributions only allowed for in-service distributions.

Age 59½ all money types in PRAP are eligible for in-service distributions.

Market-Based Cash Balance Plan

None.

Company will establish a market-based cash balance plan (MBCBP). Amounts that cannot be contributed to PRAP due to IRS limits will be contributed to plan if elected by pilot. In-service distributions available at age 59½, provided balance is not less than total UAL contributions.

Excess Contributions Due to 401(a)(17) and/or 415(c) Limits

Company 16% PRAP contributions in excess of Code Section 415(c) and 401(a)(17) limits spill to active HRA if pilot enrolled in a UAL medical plan, or RHA if not enrolled in a UAL medical plan.

Prior to establishment of MBCBP, 401(a)(17) spill to active HRA/ RHA is capped at $10,000 with the remainder paid in cash. 415(c) spill to active HRA/RHA not subject to cap.

LTD Retirement Contributions

None.

Two times the company contribution rate as of date of disability using the LTD benefit as the eligible earnings for the contribution calculation. Benefit will be paid through MBCBP, and accrual for pilots on LTD will start prior to establishment of MBCBP. Will be offset by any PRAP contributions made as part of ESB supplement. If unable to provide retirement benefits to disabled pilots through MBCBP, then the contribution will be spilt 50/50 as cash and PRAP contributions.

RETIREMENT

After establishment of MBCBP and subject to IRS approval, pilots will have an annual election for all excess contributions to spill to either the active HRA/RHA or MBCBP.

R&I Update • 3 • October 2023

Air Wisconsin (CBA Effective October 11, 2023, amendable October 10, 2026) PREVIOUS AGREEMENT

NEW AGREEMENT

RETIREMENT Non-elective Company Contributions

The company will make non-elective contributions totaling 3% of eligible earnings to the 401(k) Plan.

Effective once the Preferential Bidding System LOA is signed, the company non-elective contributions will be based on years of service.

Years of Service

Percentage

Less than 10 years

3%

Greater than 10 years

4%

Greater than 15 years

5%

Greater than 20 years

6%

WestJet and Swoop (CBA effective January 1, 2023, expires December 31, 2026) PREVIOUS AGREEMENT (WESTJET)

PREVIOUS AGREEMENT (SWOOP)

NEW AGREEMENT (ALL PILOTS)

LEAVE Vacation

Annual vacation entitlement is based on years of service: Less than 3 years: 2 weeks

New-hire pilots will earn a prorated amount of paid vacation days based on date of hire.

Effective January 1, 2025, annual vacation entitlement is based on years of service:

4–7 years: 3 weeks

4.0 Vacation Credit Hours/Day

Less than 3 years: 2 weeks

7 years or more: 4 weeks

4–7 years: 3 weeks

4.5 Vacation Credit Hours/Day

7–25 years: 4 weeks 25 years or more: 5 weeks 4.5 Vacation Credit Hours/Day

Sick Leave

Each active pilot shall be provided with 54 sick leave credit hours annually, with a maximum accrual of 120 credit hours.

Sick/emergency days will be applied to the first 10 qualifying days in a calendar year that a pilot is absent from work.

No doctor’s note required for absences shorter than 3 consecutive days.

Sick leave credit hour balances shall convert to paid sick leave days: 1 paid sick leave day for every 5.4 sick leave credit hours.

Each pilot shall be allotted 12 paid sick leave days per year, with a maximum accrual of 22 days.

No doctor’s note required for absences shorter than 5 consecutive days.

Personal Days

No provision.

No provision.

Personal leave days are defined as separate and above any sick leave entitlement, in accordance with the Canada Labour Code. After 3 months of service, each pilot has 3 paid and 2 unpaid personal days.

Maternity Leave Top-Up

No provision.

No provision.

Effective January 1, 2026, the company shall top up a pilot on maternity leave the difference between the amount received on STD and the calculated basic benefit of EI or QPIP between 6 or 8 weeks, as applicable based on approved STD claim, and a total combined 17 weeks after the birth.

RTW from No provision.

Maternity/ Parental Leave

No provision.

After at least 6 months on maternity and/or parental leave, a pilot may apply for the reduced block program for the remaining duration of their approved leave.

R&I Update • 4 • October 2023

PREVIOUS AGREEMENT (WESTJET)

PREVIOUS AGREEMENT (SWOOP)

NEW AGREEMENT (ALL PILOTS)

INSURANCE Flexible Insurance Choice

N/A

Pilots are provided 4.8% of base salary to spend in their flex credit program, to select from LTD (mandatory), drugs, extended healthcare, vision, basic dental, major dental, and child orthodontia.

Pilots will transition to a modernized flex plan design, My Plan My Choice (MPMC). MPMC provides pilots with greater flexibility to personalize their insurance selections to match their individual needs and eliminates unnecessary spending on redundant benefits. The companypaid flex credits or “shopping dollars” also cover a higher level of coverage under MPMC.

COVERAGE PROVIDED BY COMPANY-PAID SHOPPING DOLLARS STD

66.7% of pre-disability earnings, nontaxable, max $2,500/week

N/A, variable

75% of pre-disability earnings, taxable, max $3,000/week

Paramedical

80% coverage, $500 combined max for all practitioners

N/A, variable

90% coverage, $2000 for mental health, $750 for dietician, $2000 for physiotherapist 80%, $750 combined max for all other practitioners

Vision

80% coverage, exams max $50/24mths, lenses max $250/24mths

N/A, variable

80% coverage, exams max $75/24mths, lenses max $300/24mths

Dental

80%, max $1500 per year (Basic only)

N/A, variable

Preventive: 90%, max $1500 combined w Basic Basic: 80%, max $1500 combined w Preventive Major: 50%, max $1250 Child Orthodontic: 50%, max $1500/life

RETIREMENT Contributions to WestJet Savings Plan (WSP)

Voluntary Pilot contributions up to 20%, matched 100% by the Company.

Voluntary Pilot contributions up to 10%, matched 100% by the Company.

[Effective July 1, 2023] 10% Company contribution to WSP with no Pilot contribution required.

Voluntary Pilot contributions up to 10%. (Additional 10% transferred to fixed salary rates.)

Pension Plan

Intent for Association to seek, propose, and join a target-benefit pension plan (to the company’s satisfaction) wherein Pilots could elect to defer half (10%) of their 20% company ESPP contribution to a 10% company pension contribution.

N/A

Intent for Association to explore alternative retirement plans to replace the current WSP. Criteria for company approval of the plan are defined.

VARIABLE COMPENSATION Stock Option Cash Payment

The Stock Option Plan was replaced by an annual Cash Payment:

N/A

$10,298 for captains and $7,312 for first officers.

R&I Update • 5 • October 2023

After 12 months active service, a pilot who has active group benefit coverage shall receive a semimonthly lump sum payment: $429 for captains and $305 for first officers.

Contract Enforcement Arbitrator Rules in ALPA’s Favor and Awards Pilot Reimbursement for Care Deemed Not Medically Necessary by the Insurer An arbitrator recently ruled in favor of a Federal Express (FedEx) pilot, finding that a specific course of treatment was medically necessary despite the insurer’s seven denials for continued care. The arbitrator awarded reimbursement for the patient’s entire course of treatment.

The Federal Express Corporation Group Health Plan for Pilots (GHP) defines medical necessity and gives the claims paying agent, Anthem, the authority to administer all claims for benefits and to make medical necessity determinations. The GHP is incorporated by reference into the Collective Bargaining Agreement between FedEx and ALPA. During in-patient residential psychiatric care treatment, Anthem determined that continued care was not medically necessary based on the applicable medical guidelines. While inpatient care continued, the pilot filed a claim under the GHP’s claims and appeals procedures. The claim was denied and appealed multiple times before being set before the FedEx Pilot Benefit Review Board (PBRB). The PBRB, comprised of an equal number of ALPA and FedEx members, deadlocked on the issue, resulting in a contractually required review before an arbitrator.

FedEx argued that the GHP grants Anthem broad, discretionary authority to make medical necessity determinations and that Anthem’s determination should be given great deference as is customary in Employee Retirement Income Security Act of 1974 (ERISA) denial of benefits cases. ALPA argued that for Anthem’s medical necessity determination to be given great deference, it must be logical, plausible, and supported by inferences that may be drawn from the facts in the record, as is the applicable legal standard for ERISA benefit denial cases involving discretion.

The arbitrator found, with respect to the specific facts of the case, that 1. FedEx’s expert witness’ conclusions were not supported by the record and therefore not credited, 2. Anthem ignored clear evidence in the medical record, 3. Anthem violated provisions in the GHP when it rejected coverage, 4. The patient exhibited symptoms that required continued care, and 5. The determination of medical necessity by the treating physicians are entitled to greater weight than the on-paper review by consulting physicians who seemed to have ignored or not credited the notes from the clinicians who spent the greatest amount of time with the patient.

Key Takeaway

y Plan administrators and claims paying agents are required to follow the terms of the plan and associated guidelines.

R&I Update • 6 • October 2023

Legislative & Legal Updates Matching Contributions for Student Loans Under SECURE 2.0 Act Begin in 2024 Defined contribution plan matching contributions have traditionally been based on plan participants’ elective deferrals to their plan accounts. This creates a dilemma for pilots who have student loan debt and are covered by a plan with matching contributions, as they may be forced to forgo making elective deferrals (which means leaving company matching contribution dollars on the table) because of the need to make student loan payments. An inability to start saving for retirement early in a pilot’s career could substantially reduce the amount of retirement savings the pilot is able to accumulate over their career.

SECURE Act 2.0 provides a fix for this dilemma. For plan years beginning after December 31, 2023, SECURE Act 2.0 will permit “Qualified Student Loan Payments” (QSLPs) to be treated as elective deferrals. A QSLP is a payment for a loan incurred to pay higher education expenses of the employee, the employee’s spouse, or the employee’s dependent. This means that, starting in 2024, employers may amend their plans to provide for matching contributions based on a pilot’s student loan payments, even if the pilot is not otherwise making elective deferrals to the plan.

In most respects, QSLPs will be treated the same as elective deferrals. They will be subject to the same matching rate, and the matching contributions will be subject to the same vesting schedule. If the plan allows pilots to elect to have their match paid as Roth contributions, then the QSLP match will also be eligible for election on a Roth basis. Any eligibility waiting period that applies to traditional matching contributions will apply the same way for the QSLP match.

There are a handful of ways in which QSLPs are treated differently than elective deferrals from an administrative standpoint. Pilots seeking a QSLP match will be required to certify annually that they made the QSLP. Employers must allow a minimum of three months after the end of the plan year for pilots to request the QSLP match and provide the required certification. In addition, employers will not be required to contribute at the same time and with the same frequency as the traditional match, although they can choose to do so.

There are several outstanding questions for which federal guidance would be helpful, and employers might be inclined to wait for that guidance before amending their plans to add a student loan matching provision. Employers will also likely want to evaluate the potential cost of adding this feature, since it will likely increase the total matching contributions paid. In the meantime, pilot groups covered by a contract with a 401(k) match should consider engaging in discussions with their employer about implementing a student loan matching provision. Although these discussions can take place as part of Section 6 negotiations, pilot groups that aren’t in negotiations should consider looking for opportunities to discuss adding this feature outside of Section 6.

Transfers from Section 529 Accounts to Roth IRAs The SECURE Act of 2022, which was part of the Consolidated Appropriations Act of 2023 and signed into law on December 29, 2023, amended the Internal Revenue Code to allow for tax-free and penaltyfree rollovers from 529 accounts to Roth IRAs under certain conditions. Effective for distributions after December 31, 2023, beneficiaries of 529 accounts will be permitted to transfer up to $35,000 in unused college savings to their Roth IRA. Prior to SECURE Act 2.0, if a 529 beneficiary did not use all of the funds in their 529 account, options were limited. If any unused amounts remained in a 529 account, the amounts could be transferred to another a family member for use for college expenses. Alternatively, up to $10,000 of the unused amount could be withdrawn to pay qualified educational loans of the beneficiary or a sibling. The least attractive option was to withdraw the unused amounts, resulting in taxable income and a 10 percent penalty for the beneficiary. Under the new law, these excess funds can now be transferred to a Roth IRA. R&I Update • 7 • October 2023

The new rule addresses concerns by families and students about unused funds being trapped in 529 account, which lead many families to delay funding 529 accounts or choosing to not fund them at all. The new rule eliminates this concern, allowing families to maximize tax-free growth of college savings.

However, the Roth IRA transfer has some limitations:

y The lifetime maximum a 529 beneficiary can transfer is $35,000, y The 529 account must be in place for at least 15 years, y No contributions or earnings on contributions from the last 5 years can be transferred, and y The amount transferred in any one year is subject to the Roth IRA annual contribution limits ($6,500 for 2023).

IRS Delays SECURE 2.0 Catch-Up Contribution Roth Deferral Requirement On Friday, August 25, 2023, the Internal Revenue Service (IRS) released Notice 2023-62 (Notice) delaying the implementation of Section 603 of the SECURE 2.0 Act of 2022 (Section 603) which required catch-up contributions to be contributed on a Roth basis effective January 1, 2024, for individuals earning more than $145,000 in FICA wages in the prior year. The Notice initiated an administrative transition period, effectively delaying implementation of the Section 603 requirement, until after December 31, 2025.

The Notice also clarified that plan participants age 50 and over may continue to make catchup contributions after 2023, regardless of their income level.

A catch-up contribution is an elective contribution made by plan participants 50 years of age or older in the plan year (i.e., an eligible participant) that would otherwise exceed applicable IRS limits. The IRS catch-up contribution limit for 2023 is $7,500 and is indexed annually.

The Notice generally acknowledges the concerns plan sponsors and recordkeepers are experiencing regarding the timely implementation of the Section 603 requirement. Some of these concerns included 1. Developing procedures to identify $145,000 FICA wage earners and restricting their catch-up contributions to Roth only; 2. How to timely communicate the Roth catch-up requirement to impacted participants; 3. Either to add a Roth feature for plans that do not include the feature, eliminate catch-up contributions for eligible participants earning over $145,000 in the prior year, or to eliminate catch up contributions for all participant; and 4. Whether to require that all catch-up contributions be made on a Roth basis, for all participants, regardless of FICA wage level.

The Notice describes the administrative transition period as a means to facilitate an orderly transition for compliance with the requirement.

R&I Update • 8 • October 2023

The Notice invites public comment and suggestions on the matters contained therein by October 24, 2023.

The Notice solicits a specific request for comments on whether a plan would be permitted to discontinue catch-up contributions for FICA wage earners over $145,000 given that the Internal Revenue Code requires that all eligible participants must be allowed to make the same election with respect to catch-up contributions. Pending received comments, the IRS anticipates issuing future guidance in the following areas regarding the implementation of the Roth catch-up requirements:

y Whether Roth catch-up requirement will apply to participants who earn non-FICA wages in the prior year.

y Whether plan sponsors will be permitted to treat a participant’s election to make catch-up

contributions on a pretax basis as a “deemed” election to make catch-up contributions on a Roth basis.

y Whether wages, for participants of plans maintained by more than one employer, will be aggregated for the purposes of determining whether the participant’s wages for the year exceed $145,000.

Key Takeaways

y The requirement that 401(k) plan participants earning over $145,000 in FICA wages in the prior year make catch-up contributions on a Roth basis has been delayed to after December 31, 2025.

y Plan participants age 50 and over may continue to make catch-up contributions on a pretax basis after 2023, regardless of income level.

y R&I Committee members should be aware if their 401(k) plans permits Roth contributions, and if not, consider whether the feature should be added.

y Further guidance on the status of catch-up contributions made on a pretax basis will be issued prior to the new implementation deadline (after December 31, 2025).

SECURE 2.0 Requires the Department of Labor to Review Its Pension Risk Transfer Guidance & Determine If Amendments Are Warranted Section 321 of the SECURE 2.0 Act of 2022 (Section 321), entitled “Review of Pension Risk Transfer Interpretive Bulletin,” directs the Secretary of Labor (Secretary) to 1. Review 29 C.F.R. 2509.95-1 (Interpretive Bulletin 95-1), which details the applicable Employee Retirement Income Security Act of 1974 (ERISA) fiduciary standards when selecting an annuity provider for a defined benefit pension plan; 2. Consult with the Advisory Council on Employee Welfare and Pension Benefit Plans (ERISA Advisory Council), to determine whether amendments to Interpretive Bulletin 95-1 are warranted; and 3. Report to Congress on the findings of such review and consultation, including an assessment of any risk to participants.

The Employee Benefits Security Administration (EBSA) is in the process of conducting the review and released a consultation paper discussing the relevant background of Pension Risk Transfers and Interpretive Bulletin 95-1, EBSA’s review process, and the stakeholder responses raised in its review. EBSA released the consultation paper on July 18, 2023, and welcomed the ERISA Advisory Council’s input on how and if the stakeholder responses should impact Interpretive Bulletin 95-1. On August 29, 2023, the ERISA Advisory Council released its conclusion. This article summarizes Interpretive Bulletin 95-1 as it exists today and the ERISA Advisory Council’s conclusions, which incorporate EBSA’s stakeholder responses. Review the ERISA Advisory Council’s full response.

R&I Update • 9 • October 2023

What Is a Pension Risk Transfer?

A pension risk transfer occurs when an employer or plan sponsor of a defined benefit plan transfers all or a portion of its benefit obligations to an insurer through the purchase of an annuity contract. There are a variety methods of pension risk transfer transactions utilized by employers and plan sponsors. For a more detailed explanation of these transactions, please review the article “New American Academy of Actuary’s Issue Brief on Pension Risk Transfer” in last quarter’s R&I Update.

Interpretive Bulletin 95-1 Interpretive Bulletin 95-1, published March 6, 1995, and last amended October 7, 2008, provides guidance concerning the fiduciary standards under ERISA applicable to the selection of an annuity provider for the purpose of benefit distributions from a defined benefit plan when the plan intends to transfer liability for benefits to an annuity provider. Interpretive Bulletin 95-1 does not provide guidance regarding the selection of annuity providers for the purpose of benefit distributions from a defined contribution plan.

Pursuant to ERISA, fiduciaries must 1. Discharge their duties with respect to the plan solely in the interest of the participants and beneficiaries; 2. Act for the exclusive purpose of providing benefits to the participants and beneficiaries and defraying reasonable plan administration expenses; and 3. Act with the care, skill, prudence, and diligence under the prevailing circumstances that a prudent person acting in a like capacity and familiar with such matters would use.

Interpretive Bulletin 95-1 regards the selection of an annuity provider as a fiduciary function under ERISA. Therefore, fiduciaries selecting an annuity provider must take steps calculated to obtain the safest annuity available, unless under the circumstances it would be in the interests of participants and beneficiaries to do otherwise, and, at a minimum, conduct an objective, thorough, and analytical search to identify and select a provider from which to purchase annuities.

Interpretive Bulletin 95-1 provides several factors a fiduciary should consider when evaluating a potential provider’s claims paying ability and creditworthiness rather than relying on insurance rating services recommendations: 1. The quality and diversification of the annuity provider’s investment portfolio.

2. The size of the insurer relative to the proposed contract.

3. The level of the insurer’s capital and surplus.

4. The lines of business of the annuity provider and other indications of an insurer’s exposure to liability.

5. The structure of the annuity contract and guarantees supporting the annuities, such as the use of separate accounts.

6. The availability of additional protection through state guaranty associations and the extent of their guarantees. Unless they possess the necessary expertise to evaluate such factors, fiduciaries would need to obtain the advice of a qualified, independent expert. A fiduciary may conclude, after conducting an appropriate search, that more than one annuity provider is able to offer the safest annuity available.

Interpretive Bulletin 95-1 considers the impact of cost on the fiduciary’s decision-making process.

The DOL advises that, in situations where an annuity is only marginally safer than its competitor but disproportionately more expensive for the participant, it may be in the best interest of the participant to choose the competing annuity. Additionally, the DOL notes that it may be in the best interest of the participants to select a competing annuity if the annuity provider providing the safest available annuity is unable to demonstrate the ability to administer the payment of benefits. However, at no point

R&I Update • 10 • October 2023

does increased cost or other considerations justify placing a participant’s annuitized benefit at risk by purchasing an unsafe annuity.

In contrast, a fiduciary’s decision to purchase a riskier or lower priced annuity to maximize the reversion of assets paid to the employer-sponsor would violate the fiduciary’s duty to act solely in the interest of the participant. Similarly, a fiduciary may not purchase a riskier annuity solely because there are insufficient assets in a defined benefit plan to purchase a safer annuity. The fiduciary may have to condition the purchase of annuities on additional employer contributions sufficient to purchase the safest available annuity.

Interpretive Bulletin 95-1 also considers the presence of any potential conflict of interest in the fiduciary’s decision-making process. It cautions that fiduciaries should take special care in reversion cases where the fiduciaries’ interest in the sponsoring employer could create the potential for a prohibited transaction.

Fiduciaries with such a conflict of interest will need to obtain and follow independent expert advice calculated to identify insurers with the highest claims-paying ability willing to write the business.

ERISA Advisory Council’s Recent Statement In its August statement, the ERISA Advisory Council expressed a wide range of opinions on whether amendments to Interpretive Bulletin 95-1 are warranted. Six of the 15 council members took the position that the interpretive bulletin identifies appropriate considerations for plan fiduciaries, thus no changes are warranted. These members argue that the factors, as described in Interpretive Bulletin 95-1, to be considered in the selection of annuity providers remain relevant and continue to mandate a high level of due diligence, yet offer plan sponsors flexibility in selecting an appropriate annuity provider as evidenced by the absence of a single default or failure of an annuity since its issuance. This cohort also addressed how each of the 13 areas of concern (listed below) identified by the DOL’s consultation paper are adequately addressed by Interpretive Bulletin 95-1 and the state Department of Insurance (DOI) regulatory framework.

To the contrary, other ERISA Advisory Council members assert that significant changes to Interpretive Bulletin 95-1 are needed to protect the interest of annuitants. Much of the suggested change focused on the trend of growing private equity involvement in the insurance and annuity market, risks related to the ownership structure of the annuity provider and their reliance on non-traditional investments and liabilities, and the continuation of certain rights provided by ERISA to the individuals who cease to be participants covered under the ERISA plan because of the pension risk transfer annuity purchase transaction. The ERISA Advisory Council’s suggested changes fit firmly within the following 13 categories identified in the DOL’s consultation paper: 1. Ownership Structure

8. Spousal Protections

2. Assets: Increase in Non-Traditional/ Risky Investments

9. Anti-Alienation Rules: Protections Against Creditors and Division of Benefits on Divorce

3. Liabilities: Existence of NonTraditional Liabilities

10. Disclosures

4. Reinsurance

12. State Guaranty Associations

11. Loss of PBGC Protections

5. Risk-Based Capital and Other Methodologies 6. Separate Accounts as a Protection 7.

Administrative Capabilities and Experience

13. Impact of Partial Pension Risk Transfer Annuity Purchases on Residual Funding Status of Plans

The Secretary is required to report its findings and conclusions resulting from consultation with the ERISA Advisory Council to Congress, including an assessment of any risk to participants by December 29, 2023. Read the DOL report and/or the ERISA Advisory Council’s report, including specific suggestions in each category listed above.

R&I Update • 11 • October 2023

Preventive Coverage and High Deductible Health Plans When the COVID-19 pandemic began, several relief efforts were put in place to aid during the outbreak period, including the Families First Coronavirus Response Act (FFCRA); the Coronavirus Aid, Relief, Economic Security Act (CARES); the American Rescue Plan Act (ARPA); and the Inflation Reduction Act (IRA)—all of which provided the ability to modify certain requirements regarding coverage, election deadlines, and filing deadlines that pertain to ERISA plans. These temporary modifications were tied to the public health emergency and outbreak period, which is 60 days after the end of the national emergency.

As reported in our April 2023 R&I Update, the national emergency and public health emergencies ended respectively on April 10 and May 11 of this year.

Similar to the aforementioned legislation, on March 11, 2020, the IRS released Notice 2020-15, which relaxed coverage guidelines for high-deductible health-care plans and allowed for COVID-19 testing and treatment to be provided on a pre-deductible basis without impacting the plan’s Health Savings Account (HSA) eligibility. With the end of the public health emergency and national emergency, the IRS has provided further clarification through Notice 2023-37 that high deductible health plans can continue to provide predeductible COVID-19 testing and treatment through December 31, 2024, without impacting HSA eligibility.

In addition to clarifying when the COVID-19 provision will end, this notice also provides a safe harbor for certain preventive services. The decision in the Braidwood Management v. Becerra case, which was covered in our April 2023 R&I Update, sought to remove no-cost, pre-deductible coverage for certain preventive measures from ACA requirements. The March 30, 2023, ruling determined that health plans do not have to cover services with an “A” or “B” rating in the current recommendations of the U.S. Preventive Key Takeaways: Services Task Force (USPSTF) as preventive y COVID-19 testing and treatment will cease coverage, without cost to the participant. The federal to be treated as pre-deductible coverage for government has sought an appeal of the decision, HDHPs on January 1, 2025. and the case is currently with the Fifth Circuit Court y Services with a current “A” or “B” rating of Appeals. An administrative stay has been issued from the USPSTF will continue to be until the appeal has been determined. Regardless considered preventive services, regardless of the Fifth Circuit’s decision, IRS Notice 2023-37 of any changes to Public Health Service allows for HDHPs to consider any service with an Act Section 2713 or pending court case “A” or “B” rating from the USPSTF on or after March decisions related to HDHPs. 23, 2010, to be preventive care and provided to participants on a pre-deductible basis.

2024 Limits Affecting Retirement Plans and Flexible Spending Accounts Below are the 2024 projections for the most significant limits that affect retirement plans, as well as the flexible spending account. The IRS does not release the official limits until late October or early November.

The official limits will be included in the January 2024 R&I Update. A more complete list, including other limits that affect retirement savings plans, will be available on the ALPA app once officially released by the IRS. The 2024 Group Health Plan limits that impact high-deductible health plans (HDHPs) and health savings accounts (HSAs) were announced in the July 2023 R&I Update.

IRS Retirement Plan Limits

2023

2024

401(a)(17)—Qualified Plan Compensation Limit

$330,000

$345,000

415(b)—Defined Benefit Plan Limit

$265,000

$275,000

415(c)—Defined Contribution Plan Limit*

$66,000

$69,000

401(k)—Employee Pretax Deferral and Employee Roth 401(k) Contribution Limit

$22,500

$23,000

401(k) Catch-up (Age 50 and older)

$7,5000

$7,500

Highly Compensated Employee Definition

$150,000

$155,000

*Catch-up contributions do not count against the 415(c) limit.

R&I Update • 12 • October 2023

Traditional and Roth IRA eligibility and contributions limits do not apply to a rollover to a traditional or Roth IRA or to a conversion of a traditional IRA to a Roth IRA. Flexible Spending Account Limits

2023

2024

Health Care FSA Contribution Limit

$3,050

$3,200

Health Care FSA Rollover Limit

$610

$640

Dependent Care FSA Contribution Limit

$5,000

$5,000*

*The $5,000 limit applies to participants who are single or married and filing jointly. Participants who are married and filing their taxes separately are limited to an annual contribution of $2,500.

Court Cases of Interest Fourth Circuit Finds that 401(k) Plan Third-Party Investment Advisor Did Not Breach Its Fiduciary Duty by Cross-Selling to Its Client and Investing in Its Own Proprietary Funds In Reetz v. Aon Hewitt Investment Consulting, Inc., the United States Court of Appeals for the Fourth Circuit (Fourth Circuit) held that Aon: 1. Was not acting as a fiduciary while cross-selling additional services to its client; 2. Did not breach the fiduciary duty of loyalty by recommending that the plan adopt a streamlined investment menu which benefited Aon; and 3. Did not breach the fiduciary duty of prudence or the fiduciary duty to monitor investments when Aon selected and maintained one of its proprietary funds in the plan’s core fund line up, despite the funds poor performance.

Applicable Law The Employee Retirement Income Security Act of 1974 (ERISA) defines a fiduciary as a person or entity, with respect to a plan, who 1. Exercises discretionary authority or control over plan management or plan assets; 2. Has discretionary authority or responsibility for the administration of a plan; or 3. Provides investment advice to a plan for compensation or has any authority or responsibility to do so.

ERISA Distinguishes Between Several Different Types of Fiduciaries

y Plan Administrator ERISA 3(16) Fiduciary: This entity is responsible for the day-to-day administration of the plan. The employer, plan sponsor, or a joint board of employer and association members may perform this role. The plan sponsor has the authority to hire a third-party vendor to perform plan administration tasks. However, the plan sponsor has an obligation to monitor such vendors.

y Investment Advisor ERISA 3(21) Fiduciary: This entity is a third-party vendor who shares fiduciary responsibilities with the plan sponsor. However, the plan sponsor retains the ultimate authority to accept or reject the ERISA 3(21)’s recommendations and to monitor their performance.

y Investment Advisor ERISA 3(38) Fiduciary: This entity has full authority to select, monitor, and

replace investments and does not require approval from the plan sponsor to act. This type of fiduciary assumes all legal responsibility and liability for investment decisions and must be a registered investment advisor, bank, or insurance company.

R&I Update • 13 • October 2023

ERISA requires plan fiduciaries to discharge their duties with respect to a plan solely in the interest of participants and beneficiaries 1. For the exclusive purpose of providing benefits to participants and beneficiaries and defraying reasonable expenses of administering the plan; 2. With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; 3. By diversifying the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so; and 4. In accordance with the documents and instruments governing the plan.

These four duties are often referred to as the duty of loyalty, the duty of prudence, the duty to diversify, and the duty to follow plan documents.

Background Lowe’s Home Improvement sponsors a 401(k) plan for its over 260,000 employees with assets valued at around $5 billion. The Administrative Committee of Lowe’s Companies (Committee) serves as the plan administrator. The Committee, comprised of noninvestment professionals, hired Aon Hewitt Investment Consulting, Inc. (Aon), as a 3(21) third-party investment consultant. The Committee retains the ultimate responsibility to approve or reject Aon’s recommendations and to monitor Aon’s performance and fees.

During its tenure as a 3(21) fiduciary, Aon recommended that the Committee streamline the investment menu it offered participants. Shortly thereafter, Aon began cross-selling (i.e., selling new services to a client who uses your other services) its services as a 3(38) fiduciary to Lowe’s. The Committee eventually selected Aon as its 3(38) fiduciary and “assumed that Aon would likely use its own funds” as investment vehicles for a portion of the plan’s assets. After becoming the 3(38) fiduciary, Aon transferred all plan assets (unless the participant directed otherwise) from the plan’s eight equity options, totaling about $1 billion, to the Growth Fund, one of Aon’s propriety funds. The Growth Fund was an equity fund that “would produce returns similar to global equity over the long run, but with less volatility and more protection against losses in down markets.” At the time of selection, the Growth Fund: “(i) had only two years of performance history, (ii) was in the bottom ten percent of its peers over all periods, (iii) was included in only two other retirement plans in the country, and (iv) was not included in any similarly sized retirement plans.” Further, relative to the otherwise comparable funds, the Growth Fund had few assets under management—the $1 billion from Lowe’s was nearly three-quarters of the fund’s assets.

Over time the fund’s performance “lagged the returns of comparable growth funds and benchmarks.”

According to some calculations, if plan assets had been invested in other comparable funds, the plaintiffs would have had between $70 and $277 million more saved for retirement.

On behalf of a class of plan participants, Reetz filed suit in the United States District Court for the Western District of North Carolina (District Court), alleging that Lowe’s, the Committee, and Aon breached their fiduciary duties of loyalty when Aon began cross-selling its services and suggesting that Lowes change the plan’s structure and prudence and their duty to monitor plan investments when Lowe’s and Aon selected and retained the Growth Fund in the Lowe’s retirement plan. Lowe’s and the Committee settled out of court with the class, but Aon elected to go to trial. The District Court held that Aon did not breach its fiduciary duty. Reetz appealed to the Fourth Circuit.

Fourth Circuit Ruling Loyalty The Fourth Circuit affirmed the District Court’s ruling that Aon did not breach its duty of loyalty to the plan participants by cross-selling or suggesting that Lowe’s change their plan investment menu because evidence showed that the structural change Aon recommended was requested by Lowe’s because of R&I Update • 14 • October 2023

certain challenges the plan was facing. There was no evidence that Aon was contemplating a cross-selling campaign during this time. Meeting minutes reflect that Aon’s investment advice remained evenhanded and consistent with Aon’s longstanding recommendation—that Lowes adopt a structure that would less likely lead to the engagement of a 3(38) fiduciary. Additionally, Aon recommended a tier of passively managed funds, which would have reduced any fees a 3(38) fiduciary would have received. Aon’s recommendation to streamline the investment menu may have incidentally benefited its own interest. But, because that interest did not motivate Aon’s recommendation, it did not violate the duty of loyalty.

Further, pursuant to ERISA a person only acts as a fiduciary to the extent it engages in certain conduct, such as rendering investment advice for a fee or other compensation. Following well-established case law, the Fourth Circuit found that when trying to sell services, a fiduciary is not rendering investment advice.

Thus, Aon could not have breached its fiduciary duty of loyalty while cross-selling, because Aon was not acting as a fiduciary.

Prudence The Fourth Circuit held that Aon did not breach the duty of prudence when it selected and maintained the Growth Fund because Aon considered alternative investment funds when creating the Growth Fund and continued to monitor the Growth Fund’s performance. Thus, satisfying Aon’s duty to engage in a reasoned decision-making process.

The Fourth Circuit states that “the duty of prudence is not results oriented; it looks for a reasoned process.”

“The duty does not demand a fiduciary—with the benefit of hindsight—make the optimal investment.

Instead, a fiduciary who appropriately investigates the merits of an investment decision prior to acting easily clears this bar.” The Fourth Circuit found that Aon created the Growth Fund after an extensive review Key Takeaways of the available options on the market left them dissatisfied prior to becoming the 3(38) fiduciary y There are three types of fiduciaries (3(16), 3(21), and 3(38). While each may have for the Lowe’s plan. Engaging the plan as the 3(38) varying responsibilities to the plan, each is did not require Aon to reperform its review. The obligated to adhere to the duty of loyalty, Fourth Circuit opined that Aon “went beyond its the duty of prudence, the duty to diversify, duty to investigate, it created.” When Aon selected and the duty to follow plan documents. the Growth Fund for Lowe’s, it had been “closely tracking the Growth Fund’s performance since its y Prudence is process! The duty of prudence inception and understood how it compared against is not results-oriented. A court must benchmark and peer funds.” Aon continued to ask whether the fiduciary engaged in a monitor the Growth Fund evidenced by Aon’s reasoned decision-making process. Meeting periodic alteration to the Fund’s asset allocation, minutes may play an important role. There the swapping of underlying fund managers, and is no uniform checklist, and a variety of its change in the types of non-equity assets used actions can support a finding of prudence, to avoid equity over exposure. The Fourth Circuit depending on the circumstances. found that Aon discharged its continuing duty to monitor investments and remove imprudent ones.

What Is Equitable Relief Under ERISA? Jody Rose’s son Kyree was a flight attendant for PSA Airlines and covered by PSA’s self-insured medical plan. On December 24, 2018, at age 26, Kyree was diagnosed with severe myocarditis, with doctors determining he needed a heart transplant to survive. PSA denied Kyree’s request for benefits, asserting that the treatment was experimental. When Kyree asked for a reevaluation, the claim was denied again, this time on the basis that he did not meet certain alcohol abuse criteria, which was not criteria in the plan. Kyree’s doctors appealed again, stressing that Kyree would not survive without a heart transplant, but despite the life-or-death nature of the decision, the claim was denied. Kyree then submitted a request for an external expedited review, which under ERISA regulations should have been completed within R&I Update • 15 • October 2023

72 hours. However, PSA treated the request as a standard, non-expedited review to be completed within 45 days. By the time the external review determined that Kyree was entitled to coverage for the heart transplant, thus overturning the previous denials, Kyree had died. Kyree’s mother sued PSA, the plan, its claim administrator, and reviewers on behalf of Kyree’s estate, seeking relief for wrongful denial of benefits under ERISA §502(a)(1)(B) and alternatively, for a breach of fiduciary duty under ERISA §502(a)(3), seeking monetary damages and appropriate equitable relief. The district court granted PSA’s motion to dismiss both claims and Rose appealed.

ERISA §502(a)(1)(B) allows a participant or beneficiary to bring a civil action to recover benefits due under the terms of a plan, to enforce rights under the terms of a plan, or to clarify rights to future benefits under a plan. ERISA §502(a)(3) allows a participant or beneficiary or a fiduciary to bring a civil action seeking “other appropriate relief.” The Fourth Circuit Court of Appeals in Rose v. PSA Airlines addressed what ERISA §502(a)(3) means when it says a participant or beneficiary can sue for “other appropriate equitable relief.”

ERISA §502(a)(1)(B) Claim The Fourth Circuit affirmed the district court’s dismissal of the §502(a)(1)(B) claim. The court stated that plaintiff’s seeking relief under §502(a)(1)(B) have two options: pay for treatment and then seek reimbursement of out-of-pocket expenses or seek an injunction to enforce the terms of the plan. Following well established law, the court held that §502(a)(1)(B) does not authorize a plaintiff to seek the monetary cost of a benefit that was never provided. The terms of the PSA plan, like most medical plans, did not provide for the payment of money directly to the participant or beneficiary, but instead pays directly to the medical service provider or reimburses participants for out-of-pocket expenses. The benefit Kyree would have received under the terms of the plan would be the surgery, not a direct monetary payment. If he had paid for the surgery out-of-pocket, then the plan would have been required to reimburse him. Because Rose was seeking to recover the monetary cost of a benefit that was not provided, instead of seeking to recover a benefit under the terms of the plan, the court held that she was not entitled to relief under §502(a)(1)(B).

ERISA §502(a)(3) Claim The court next considered whether the recovery of the monetary cost of the surgery that was wrongfully denied qualifies as equitable relief under ERISA. The court noted that it is well settled law that compensatory damages, or money intended to be paid as compensation for a loss or injury, is a legal remedy, not an equitable remedy. Citing several Supreme Court decisions, including Mertens v. Hewitt Associates, Great-West Life & Annuity Ins. Co. v. Knudson, Montanile v. Board of Trustees, the court concluded that to obtain equitable relief under ERISA §502(a)(3), such relief had to be typically available in equity.

The court stated that compensatory, or monetary damages, are not typically available in equity. However, the Supreme Court in Great-West recognized the concept of equitable restitution, a remedy awarding money to a plaintiff where money or property identified as belonging to a plaintiff could be traced to specific funds or property in the defendant’s possession. Thus, monetary equitable relief could be available where a money award remedies unjust enrichment and when the plaintiff can point to specific funds that they rightfully own, but the defendant possessed as a result of unjust enrichment. The court distinguished the Supreme Court’s decision in CIGNA Corp v. Amara, permitting a make-whole, lossbased, monetary relief under ERISA §502(a)(3) as dicta. The court concluded that ERISA plaintiffs who seek money, are asking for legal, not equitable, relief under §502(a)(3), but plaintiffs who seek “to strip away defendant’s unjust gains” are asking for equitable relief if they can “trace those unjust gains to specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds.”

In this case, the court remanded the §502(a)(3) claim back to the district court to determine whether Rose plausibly alleged facts that would entitle her to equitable relief by alleging that a defendant was unjustly enriched by interfering with Kyree’s rights and that the fruits of that unjust enrichment remain in the defendant’s possession or can be traced to other assets.

R&I Update • 16 • October 2023

Key Takeaways

y The court closes the door on make-whole remedies and monetary relief under ERISA §502(a)(3) claims in the Fourth Circuit.

y The court limits monetary relief in §502(a)(3) claims to unjust enrichment that can be specifically traced to identified funds in a defendant’s possession.

With the court minimizing the Amara decision on the issue of the availability of a make-whole equitable remedy, the case may likely wind its way to the Supreme Court.

Federal Court Judge Rejects Challenge to Department of Labor’s 2022 Ruling Regarding ESG Factors On September 21, 2023, in Utah v. Walsh, U.S. District Court for the Northern District of Texas Judge Matthew J. Kacsmaryk sided with the Department of Labor (DOL) and ruled that workplace retirement plans are allowed to consider environmental, social, and corporate governance (ESG) factors when selecting and monitoring investments on behalf of participants.

In January 2023, 26 states and other private parties filed a lawsuit in the District Court in Amarillo, Texas, arguing that the DOL’s 2022 Final Rule (2022 Rule), titled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” undermines key protections for retirement savers, oversteps the department's authority under the Employee Retirement Income Security Act (ERISA), and is arbitrary and capricious. Specifically, the plaintiffs alleged that provisions of the 2022 Rule violated the Administrative Procedure Act (APA) with respect to fiduciary duties imposed by Congress in ERISA. On May 16, 2023, the plaintiffs filed a motion for summary judgment and on June 2, 2023, the DOL filed a cross-motion for summary judgment. The Court denied the motion and granted the cross-motion.

Applying a two-part framework developed in a 1984 Supreme Court case, Judge Kacsmaryk ruled that the 2022 Rule does not violate ERISA nor is it arbitrary and capricious.

Background In 2020 the DOL issued regulations (the 2020 Rule) indicated that ESG factors may only be considered in a tiebreaker situation where fiduciaries are unable to distinguish between investments based on pecuniary factors alone. In response to concerns the DOL received from commentators expressing confusion over whether ESG factors could ever be considered financially material, the DOL issued the 2022 Rule clarifying that ERISA fiduciaries may take into account ESG factors that are relevant to an investment’s expected riskreturn, restating the ESG tiebreaker rule. Read more background on the 2020 Rule and the 2022 Rule.

Legal Framework—Standard of Review To determine if the 2022 Rule violated ERISA, the court relied on a two-part framework developed in a 1984 Supreme Court case (Chevron USA Inc. v. Nat. Res. Def. Council., Inc., 467 U.S. 837). The Chevron framework requires courts to first analyze whether Congress has directly spoken to the question at issue.

If, however, Congress has not addressed the issue or the statute is ambiguous, the second part of the Chevron framework states that courts must not disturb an agency’s rule unless it was either “arbitrary and capricious” or “manifestly contrary to statute.”

Judge Kacsmaryk ruled in favor of the DOL on both steps. First, he determined that because ERISA does not contemplate the possibility of a “tie” between two financially equivalent investment options, Congress has not spoken to the question at issue. In assessing whether the DOL’s interpretation in the 2022 ESG Rule was reasonable, Kacsmaryk concluded that the DOL’s interpretation was not “manifestly contrary to the statute” and, as a result, held that the DOL was entitled to Chevron deference. Kacsmaryk noted that the reasonableness of the DOL’s interpretation is supported by its prior rulemakings. He also wrote that ESG factors may have a financially material impact on the value of an investment and failure to consider them, in certain circumstances, could constitute a violation of a fiduciary’s duty of prudence in some circumstances.

R&I Update • 17 • October 2023

2022 Rule is Neither “Manifestly Contrary to Statute” or “Arbitrary and Capricious” Having determined that the DOL’s action is entitled to Chevron deference, Kacsmaryk then evaluated whether the agency’s actions satisfied the “arbitrary and capricious standard” under the APA. He wrote that while the court should not substitute its own judgment for that of the agency, the agency must have considered all important aspects of the problem, examined all relevant data and be able to “articulate a satisfactory explanation for its action, including a rational connection between the facts found and the choice made.” The court concluded that the 2022 ESG Rule was not arbitrary and capricious and did not violate the APA. Kacsmaryk found that plaintiffs failed to show that the 2022 Rule was arbitrary and capricious because the DOL argued that they were trying to address confusion and a “chilling effect” identified by commenters about the 2020 Rule, which was unclear with respect to if ESG could be considered at all, and this is the “minimal level of analysis from which the agency’s reasoning may be discerned.”

While the plaintiffs argued that the 2022 changes loosened restrictions on fiduciaries, Kacsmaryk found that the 2022 ESG Rule “changes little in substance” from the DOL’s previous rulemakings and that there is “little meaningful daylight” between the two rules. Under both the 2022 and 2020 ESG-related rules, a fiduciary’s “determination with respect to an investment . . . must be [made] based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis,” which, therefore, permits a fiduciary to consider ESG factors if they are expected to have an economic impact on an investment.

Conclusion Based on prior legal precedent, the court wrote that to avoid violating the APA all that is necessary is a minimal level of analysis from which the agency’s reasoning can be discerned. At the end of the ruling, Kacsmaryk wrote that “while the court is not unsympathetic to plaintiff’s concerns over ESG investing trends, it need not condone ESG investing generally or ultimately agree with the Rule to reach this conclusion.”

Key Takeaways:

y This ruling does not change a plan fiduciary’s ERISA duties of prudence and loyalty with respect to the interests of participants and beneficiaries.

y 401(k) investors have filed multiple class-action lawsuits in recent years against employers over

their investment options; therefore, employers may be nervous about adding ESG funds in such an environment.

y The 26 states may appeal this decision; however, there is an ongoing separate lawsuit challenging

the 2022 Rule filed by two individual plan participants in the U.S. District Court for the Eastern District of Wisconsin, Milwaukee Division. In this case, however, the issue to be decided is whether the plaintiffs have been harmed by the rulemaking thereby allowing the court to intervene.

Tenth Circuit Rejects 401(k) Excess Investment Fee Claim Participants brought a class action against their employer, Barrick Gold, its Board of Directors, and its Benefits Committee alleging that the 401(k) plan’s fiduciaries breached their fiduciary duty of loyalty and prudence by selecting a more expensive share class of the plan’s target date funds when an identical but less expensive share class of those funds was available, and that the company and the Board of Directors breached their fiduciary duty to monitor the investment fiduciaries. The District Court dismissed the claim, noting that merely alleging that a plan offered a more expensive share class is not enough to state a claim for breach of fiduciary duty. The plaintiffs appealed.

Barrick Gold, a gold and copper mining company, sponsored a defined contribution plan with at least half a billion dollars in assets under management that offered a range of investment options, including target date funds, mutual funds, and collective trusts. The complaint primarily focused on the allegation that the plan charged too-high investment-management and recordkeeping fees. In support of the claim,

R&I Update • 18 • October 2023

the complaint compared the plan’s recordkeeping fees against the average fees charged by smaller plans.

These cost comparisons alleged that the plan offered more expensive options and charged higher fees when cheaper options were available. The District Court found that these allegations failed to raise an inference that a prudent fiduciary in the same circumstances would have acted differently. Additionally, the court found that the duty to monitor the claim failed because it depended on a plausible allegation of a breach of other fiduciary duties, which the court found lacking. On appeal, the plaintiffs challenge the dismissal of the duty of prudence claim and the dismissal of the duty to monitor claim.

Matney v. Barrick Gold presented the Tenth Circuit with its first opportunity to address the pleading standards for excess fee claims since the U.S. Supreme Court’s 2022 decision in Hughes v. Northwestern University. The court addressed what a plaintiff must plead to plausibly allege plan fiduciaries breached their duty of prudence by offering more expensive investment options and charging fees higher than alternative plans in the marketplace. The court found recent decisions by the Third, Sixth, Seventh, and Eighth circuit courts of appeal persuasive, holding that to raise an inference that a fiduciary acted imprudently by selecting higher cost funds or services, a plaintiff must provide a sound basis for comparison by showing a meaningful benchmark. The court further held that what makes a cost comparison meaningful will depend on the context. For example, when comparing investment management fees, a meaningful comparison will be supported by facts alleging the alternative investments options have “similar investment strategies, similar investment objectives, or similar risk profiles to the plan’s funds.” Likewise with recordkeeping fees, a comparison will be meaningful if it shows that the recordkeeping services rendered by the chosen comparators are similar to the services offered by the plan’s recordkeeper. In this case, the Tenth Circuit found that the plaintiffs’ attempt to compare the plan’s funds to Fidelity collective investment trusts, passively managed funds, and the ICI median average (as opposed to the average of similar actively managed TDFs), failed to be meaningful benchmarks. The court stated that a benchmark is meaningful only if the goals and strategies are comparable. The court also rejected the plaintiff’s use of expense ratios as a way to compare investment options, and the use of the 401(k) Averages Book as a comparison of recordkeeping fees, as these did not offer an like for like comparators of fees and services.

Court Dismisses Challenge to DOL Cryptocurrency Compliance Assistance Release The District Court for the District of Columbia dismissed a challenge to a Compliance Assistance Release issued by the Department of Labor’s Employee Benefits Security Administration (EBSA) that urged caution in the use of cryptocurrency in defined contribution plans, ForUsAll, Inc. v. U.S. Department of Labor.

In March 2022, the EBSA issued Compliance Assistance Release 2022-01, which addressed the inclusion of cryptocurrency as a potential investment option for defined contribution plan participants. The EBSA cautioned plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu. The guidance stated that the EBSA has “serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies” or other products whose value is tied to cryptocurrencies. In the view of the EBSA, these investments “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” The risks and challenges identified included:

y The highly speculative nature of cryptocurrency; y Difficulty evaluating these assets, even for expert investors; y Lack of ready availability to pay plan benefits and expenses since cryptocurrencies are not held like traditional plan assets in trust or custodial accounts;

y Concerns about the reliability and accuracy of cryptocurrency valuations; and y Evolving rules and regulations governing cryptocurrency markets mean some market participants may be operating outside of or not complying with existing regulatory frameworks.

R&I Update • 19 • October 2023

Based on the concerns expressed in the Compliance Assistance Release, the EBSA plans to conduct an investigative program aimed at 401(k) plans that offer cryptocurrencies and similar investments, and potentially to take action to protect the interests of plan participants and beneficiaries with respect to these investments.

The EBSA stated that plan fiduciaries responsible for overseeing cryptocurrency investment options or allowing cryptocurrency investing through brokerage windows “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty in light of the risks” noted in the guidance.

Read our full article about the Compliance Assistance Release in the April 2022 R&I Update.

Plan recordkeeper ForUsAll, Inc. offers cryptocurrency to plan participants through self-directed brokerage windows. It sued the Department of Labor (DOL) shortly after the Compliance Assistance Release was issued, alleging that it prompted the fiduciaries of several retirement plans to back out of discussions about providing plan participants access to cryptocurrency investment options. ForUsAll alleged that the DOL failed to provide a notice and comment period before issuing the guidance.

ForUsAll also alleged that the guidance exceeded the DOL’s authority by replacing the fiduciary standard of prudence with a more heightened standard of “extreme care” that applied only to cryptocurrency and suggesting that plans’ fiduciary duties extend to their selection and monitoring of cryptocurrency investments offered through brokerage windows. ForUsAll asked the court to declare the Compliance Assistance Release unlawful, to set it aside, and to enjoin EBSA from applying it in any manner.

The court dismissed ForUsAll’s complaint on two grounds. First, the court found that, even if they did grant the relief requested, ForUsAll failed to demonstrate that this relief would cause the fiduciaries to renew their discussions or to enter into the contemplated arrangements to provide access to cryptocurrency investment options. Because the harm asserted was highly speculative, the court found that ForUsAll did not have standing to bring the case.

Second, the court found that, even if ForUsAll could show that the relief requested would address any harm allegedly caused by the Compliance Assistance Release, the guidance is not subject to judicial review because it is not a final agency action. Courts can only review federal agency action if it is the culmination of that agency’s consideration of an issue. In this case, the court found that the guidance was “the opening act, not the grand finale, of the Department’s process of regulating the burgeoning cryptocurrency market.” Furthermore, the guidance does not dictate what plan fiduciaries can or cannot do with respect to cryptocurrency investments. Rather, it “simply reminds plans of their duties under ERISA, describes the various risks associated with cryptocurrency investments, and communicates the Department's position in a manner that does not bind regulated entities or the agency.”

Key Takeaways:

y The EBSA’s warnings about the risks inherent in allowing access to cryptocurrencies in a

retirement plan are still in effect, and plan fiduciaries should continue to exercise extreme caution if they are considering adding cryptocurrency as an option within a plan lineup or even as part of a brokerage window.

y While the guidance does not compel plan fiduciaries to take or avoid taking any specific action,

they should be prepared to justify any decision to allow access to cryptocurrency and to explain why they believe such a decision comports with their fiduciary responsibilities.

y Any pilots who are concerned about their 401(k) plan either offering or declining to offer access to cryptocurrency should reach out to ALPA Retirement and Insurance to discuss the issue.

R&I Update • 20 • October 2023

Membership Plans MetLife Dental Plans

Medicare Advantage

Effective January 1, 2024, the dental plans available to ALPA members will switch to MetLife. After a thorough analysis, the ALPA Retirement and Insurance Committee and the VEBA Board of the ALPA Pilot Welfare Benefit Plan determined that MetLife would be a great partner, capable of continuing to offer plans and services members have come to expect, while driving innovation and delivering savings to our pilots.

In 2024, Aetna Medicare Advantage preferred provider organization (PPO) plan options will be available to all ALPA Medicare retirees and their Medicare-eligible dependents:

Members currently enrolled in dental will automatically be transferred to MetLife. The plan provides nationwide coverage with a network of thousands of dentists and specialists. A list of participating dentists is available online. Enter the ZIP code and select the PDP Plus network.

Similar to ALPA’s previous dental plans, MetLife offers Basic and Comprehensive options. MetLife’s dental insurance helps with routine dental care like cleanings, checkups, fillings, and root canals.

y Basic Dental Plan: Provides diagnostic,

preventive, and restorative services at low premiums to ensure oral health. Preventive care, including cleanings, exams, and x-rays, is covered at 100 percent in-network, with all other services covered at 50 percent. There is a $50 deductible per person with a cap at $150 for a family. This plan will pay up to $1,500 toward your services in each calendar year.

y Comprehensive Dental Plan: Offers expanded

levels of coverage, including braces for children through age 26. It increases coverage for root canals, periodontics, and extractions to 80 percent and the annual maximum per year to $2,000 per person.

Learn more about ALPA Dental Insurance.

To enroll or make changes to ALPA insurance, login to myalpainsurance.alpa.org.

y Premier Plan: $135.35 per month y Essential Plan: $18.61 per month Both plans include Part D drug coverage and are available no matter where you live throughout the United States. Plus, the plan does not require participants to use in-network doctors.

Participants can see any doctor eligible to receive Medicare payment.

Additional Aetna programs/services are included at no extra cost:

y SilverSneakers y Telehealth services y 24/7 nurse line y Compassionate care team This program renews every January 1, and enrollment is open throughout the year as members become eligible.

Learn more about ALPA’s Medicare Advantage plan.

Canadian Update y Seventy-two percent of plan members

appreciate health benefits more today than before pandemic: Benefits Canada

y Canadian women share what evolving

benefits and workplace policies mean to them: Benefits Canada

y Universal pharmacare legislation to pass this year: Canadian HR Reporter

y Drug benefit cost-control program violated collective agreement: Knowledge | Fasken

R&I Update • 21 • October 2023

R&I Fast Facts Rising Retirement Assets The Congressional Research Service has released a new report using the Federal Reserve’s Financial Accounts of the United States data. As of December 31, 2022, most retirement funds ($26.3 trillion) were held in employer-sponsored plans, while $11.5 trillion remained in individual retirement accounts. In the report, employer-sponsored plans were comprised of defined benefits, like pension plans as well as defined contribution plans, like 401(k) plans. From 2013 to 2022 assets in retirement have grown by 13.3 percent. The increase is a result of both investment returns and increased participation.

Gen X Retirement Preparedness According to a recent National Institute on Retirement Security (NIRS) report, the retirement preparedness of Gen X (birth year 1965–1980) is frighteningly low. The median retirement savings account for Gen X is approximately $10,000. The underfunding of defined contribution plans is attributed to Gen X being the first generation that was caught between defined benefits dying out and the rise of defined contribution plans. Roughly 14 percent of Gen Xers are covered by a defined benefit plan. Despite the low percentage of pension participants, only fifty-five percent of Gen. Xers participate in an employer-sponsored retirement plan.

Outside of employer-sponsored benefits, the median amount Gen X households have saved in individual retirement accounts is $40,000. The average is significantly higher, at $243,342 but inflated by contributions from high earners.

2024 Benefits Trends Willis Towers Watson released a global benefit trend survey showcasing how employers’ opinions and priorities have shifted over the past two years.

y Globally, competition for talent has risen to the top concern for employers. However, 62 percent of

employers in North America list rising costs and inflation as their second concern. Striking a balance between these two competing interests is a challenge, which has resulted in many employers trying to attract new hires by providing flexibility or improving efficiency.

y PwC Health Research Institute has projected an increase of 7% for healthcare renewal rates in 2024.

The increase is attributed to overall inflation as well as rising drug costs.

y Seventy-four percent of employers in North America employers list plan cost as the top issue when determining their benefits strategy for the upcoming year.

y To tackle the rising cost issue, employers are reviewing vendor contracts (66%), shifting costs to employees (43%), or bundling more services with one vendor (31%).

Social Security Fast Facts The Social Security Administration released Fast Facts and Figures Regarding 2022 utilization. A few key statistics:

y 70.6 million people received benefits in 2022; 5.6 million were new recipients. y The average age of disabled workers receiving benefits is 55.6, while retiree recipients’ average age is 74.2.

R&I Update • 22 • October 2023

SCHWAB CENTER FOR FINANCIAL RESEARCH

Investing & Markets Outlook October 2023

SCFR Investing & Markets Outlook SCHWAB CENTER FOR FINANCIAL RESEARCH

In this publication, the Schwab Center for Financial Research provides its point of view on timely issues of importance to investors as they make decisions about their portfolios. The perspectives in this report are current as of October 1, 2023.

This report covers six key areas: Macro Outlook U.S. Equities U.S. Fixed Income International Equities

International Fixed Income Washington Charles Schwab

R&I Update • 23 • October 2023

2

MACRO OUTLOOK Services weakness drags down growth, yet monetary tightening hasn’t ended •

The global economy is sluggish. While the manufacturing recession may be troughing, the services economy has weakened. Growth in the U.S. and Japan has been resilient, while Europe and China’s economies are weak, despite some stabilization in China recently.

•

Inflation has moderated but remains at uncomfortable levels. Core inflation (excluding volatile food and energy prices) remains above the 2% target level for most major central banks. Wage growth is likely to be a key factor. Wages tend to react with a lag and wage inflation could remain high before eventually moderating.

•

Even without further rate hikes, central bank tightening continues.

Central bank balance sheets are contracting as bonds are sold or not rolled over into new purchases upon maturity. Additionally, real rates, or policy rates less inflation, will continue to rise as inflation eases, putting further pressure on growth.

•

Some rolling recessions are turning into rolling recoveries. Our thesis for the better part of the past two years is that the U.S. economy has been suffering from a series of rolling recessions, which started in manufacturing, housing, and the consumer goods segments of the economy. Now, some of those have started to enter recovery mode, but the move has been uneven. Parts of housing (particularly home sales) are still mired in recession territory, while manufacturing indicators like the ISM Manufacturing PMI have improved at a better pace of late. However, key to watch is whether the concerted increase in the dollar, oil, and Treasury yields upsets some of the resilience in services and the labor market.

Vertical axis is in index points. Axis is truncated for visual purposes; the lowest levels were 39.58 (manufacturing), 26.21 (composite) and 23.72 (services) in April 2020 and the highest levels were 56.04, 58.46 and 59.53, respectively, in May 2021. Please see Important Disclosures for definitions of the indexes used.

Charles Schwab

3

U.S. EQUITIES The “average stock” has not done much heavy lifting •

Stocks pulled back in September, their worst performance so far in 2023. With the increase in the value of the U.S. dollar, oil prices, and bond yields—along with the looming risk of the now-averted government shutdown—equities struggled. There was no clear theme, as traditional defensive sectors (e.g., Utilities and Consumer Staples) sold off alongside growth peers (e.g., Information Technology). The only outperformer was Energy, which has benefited from higher oil prices and a high and rising interest coverage ratio (a measure of how easily a company can pay interest due on its outstanding debt).

•

A weak start for a new “bull” market. With the S&P 500® Index nearly a year away from its October 2022 low, the move higher has looked quite weak relative to historical bull market advances. The equal-weighted version of the index hasn’t materially outperformed the market-capitalization-weighted version, which underscores the fact that the “average stock” has struggled to gain traction, with most year-to-date gains due to a handful of mega-cap stocks.

•

Revenue growth will be a focus for Q3 earnings. Given that 2Q earnings were boosted by aggressive cost-cutting, key to watch for the coming quarter’s reporting is whether companies report a rebound in revenue—not least because inflation-adjusted revenue growth has been declining for three consecutive quarters.

•

We suggest focusing on companies with high-quality attributes, such as strong profit margins, upward revisions to earnings estimates, and high interest coverage ratios. These companies may be better positioned to weather potential ups and downs.

The S&P 500 Equal Weight Index is the equal-weight version of the capitalization-weighted S&P 500 Index. The S&P 500 Equal Weight Index (EWI) includes the same constituents as the capitalization-weighted S&P 500 Index, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance.

Charles Schwab

R&I Update • 24 • October 2023

4

U.S. FIXED INCOME The federal funds rate is expected to stay higher for longer •

“Higher for longer" is still the Fed’s policy—for now. Inflation is moving in the right direction, but good news on inflation isn't likely to change the Fed's policy stance in the near term. However, it does reduce the likelihood of another rate hike in this cycle. A few more good inflation readings and signs of easing in the labor market will be needed to shift Fed policy.

•

Market expectations and Fed projections are still at odds. The updated Fed “dot” plot suggests the central bank will hike one more time this year, but the fed funds futures market suggests the implied probability of another hike this year is just 50%, per Bloomberg.

•

Treasury yields keep rising. Despite signs of cooling inflation and expectations that the Fed might not hike again, the 10-year Treasury yield rose above 4.6% in late September, its highest level since 2007. The rise was likely driven by multiple factors, including increased Treasury supply, concerns about the federal deficit, and the Fed’s ongoing quantitative tightening (by which the Fed stops reinvesting in maturing securities, in effect shrinking its balance sheet and reducing the amount of liquidity in the market).

•

Consider focusing on quality and some intermediate- or long-term maturities. High-quality bond yields remain near their highest levels in years.1 Rather than moving down in credit quality to earn even higher yields, we suggest that fixed income investors favor U.S. Treasuries and investment-grade corporate or municipal bonds. And rather than focus on short-term investments, investors should consider bonds with slightly longer maturities rather than risking reinvesting at lower yields once the Fed begins to cut rates.

Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products.

1 Source: Bloomberg. Bloomberg US Aggregate Bond Index, average yield-to-worst of 5.4%, as

of 9/29/2023.

Charles Schwab

5

Charles Schwab

6

INTERNATIONAL EQUITIES The average international stock has outperformed •

International stocks remain an important component of a diversified portfolio. Currently, the average international stock has been outpacing the average U.S. stock, if one compares broadbased indices on an equal-weight basis. Using an equal-weight index instead of a market-capitalization index offers a better view of how the average stock is doing. In general, the more stocks that are helping to push the overall market higher, the more support the market has.

•

The El Niño weather pattern in the Pacific Ocean may slow economic growth, as it could disrupt food production, impact the movement of goods and price of energy, create geopolitical unrest, and keep rates higher for longer in some countries.

•

Investors may need to get used to slower growth for longer in China, due in part to a weak property market and the past buildup of debt. While the property market is a drag on growth, we don’t believe international spillover is likely—China’s slowdown is likely to be felt mainly in China.

R&I Update • 25 • October 2023

INTERNATIONAL FIXED INCOME Most global bond yields remain elevated, but are still well below U.S. yields •

Developed-market global bond yields are near their highest levels since 2008. Like the U.S. Federal Reserve, most global central banks have been raising interest rates to combat inflation.

This has pulled the average yield of the Bloomberg Global Aggregate ex-USD Index up to over 3%.

•

U.S. yields still offer a wide spread relative to developed-market global bonds, helping to pull the dollar higher. All else being equal, higher interest rates make a currency more attractive to hold.

Yields on domestic bonds are more than 200 basis points (or two percentage points) above international developed market bonds.

Unless the value of the U.S. dollar falls, which isn’t our base-case expectation, the yield differential is a hurdle for investors considering international bonds.

•

Concerns that the U.S. dollar will lose its status as the global reserve currency seem overblown. While the dollar is down more than 5% from last September, it’s still near its 10-year high versus currencies of U.S. trading partners and is now up for the year.1 The BRICS2 move to form a trading bloc is not likely to alter demand for dollars any time soon.

•

Tighter financial conditions pose a risk to emerging-market (EM) bonds. The average yield of the Bloomberg Emerging Markets USD Aggregate Bond Index is close to 8%, but much of that yield is due to the level of U.S. yields, not EM bond spreads. We suggest a cautious stance toward EM bonds.

1 Based on the Bloomberg Dollar Spot Index.

2 BRICS is a grouping of the world economies of Brazil, Russia, India, China and South Africa.

Charles Schwab

7

Charles Schwab

8

WASHINGTON Government shutdown averted…for now •

Last-minute deal averts government shutdown. In a surprising twist on the usual Washington drama, a bitterly divided Congress managed to come together to pass a short-term funding bill that keeps the government open and operating until November 17.

President Joe Biden signed the bill into law just 32 minutes before a shutdown would have begun on October 1.

•

Nothing about the underlying dynamics has changed, so Congress will be facing another tough shutdown deadline in November. The two chambers are simply in fundamentally different places on spending. The Republican-controlled House is pushing for spending cuts and adding controversial policy provisions to the funding bills.

The Democrat-controlled Senate will never go for spending cuts nor partisan policy provisions. It’s hard to see how those differences get reconciled—and that puts a pre-Thanksgiving government shutdown squarely on the table.

•

SEC is targeting the fourth quarter to finalize multiple controversial rules. The SEC’s regulatory agenda is massive and the agency is hoping to finalize some of its most controversial proposals this fall.

We’ll be watching in the weeks ahead for whether the agency finalizes proposals to overhaul equity market structure, toughen liquidity rules for mutual funds, and require public companies to disclose more about the risks they face from climate change.

R&I Update • 26 • October 2023

Important Disclosures The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

Investing involves risk, including loss of principal.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

Past performance is no guarantee of future results.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third-parties and Charles Schwab & Co., Inc. does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, political instability, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Currencies are speculative, very volatile and are not suitable for all investors.

Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

Schwab does not recommend the use of technical analysis as a sole means of investment research.

Performance may be affected by risks associated with non-diversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, small capitalization securities and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy.

Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Supporting documentation for any claims or statistical information is available upon request.

Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Schwab Retirement Plan Services, Inc. and Charles Schwab & Co., Inc. are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products and services are offered by Charles Schwab & Co., Inc. (“Schwab”, Member SIPC, www.sipc.org). Schwab Retirement Plan Services, Inc. is not a fiduciary to retirement plans or participants and only provides recordkeeping and related services.

Charles Schwab

9

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. For more information on indexes please see schwab.com/indexdefinitions.

The J.P.Morgan Global Composite PMI™ is produced by S&P Global in association ISM and IFPSM. Global composite PMI indices are compiled by S&P Global from responses to monthly questionnaires sent to companies in manufacturing and services survey panels in over 40 countries. For manufacturing surveys, responses are collected for the following variables: output, new orders, new export orders, future output, backlogs of work, employment, quantity of purchases, suppliers' delivery times, stocks of purchases, stocks of finished goods, input prices and output prices. For services surveys, responses are collected for the following variables: business activity, new business, new export business, future activity, outstanding business, employment, input prices and prices charged.

The MSCI EAFE Equal Weight Total Return Index represents an alternative weighting scheme to its market-cap-weighted parent index, the MSCI EAFE Index. The index includes the same constituents as its parent (large and mid-cap securities from developed market countries around the world excluding the U.S. and Canada). However, at each quarterly rebalance date, all index constituents are weighted equally, effectively removing the influence of each constituents current price (high or low). Between rebalances, index constituent weightings will fluctuate due to price performance Total return includes interest, capital gains, dividends, and realized distributions.

The S&P 500® Equal Weight Index is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance. Total return includes interest, capital gains, dividends, and realized distributions.

Bloomberg US Aggregate Bond Index - Measures the performance of investment grade, US Dollar-Denominated, fixed-rate non-convertible taxable bond market. The index includes Treasuries, government- related and corporate securities, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. It excludes certain types of securities, including tax-exempt state and local government series bonds, structured notes embedded with swaps or other special features, private placements, floating rate securities, inflation-linked bonds and Eurobonds. It is a market-value weighted index.

Bloomberg Global Aggregate ex-USD Index - Measures the performance of global investment grade debt from 24 local currency markets. It is a multi-currency benchmark that includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers, excluding US Dollar-Denominated bonds. It is a market-value weighted index.

The ISM manufacturing index, also known as the purchasing managers' index (PMI), is a monthly indicator of U.S. economic activity based on a survey of purchasing managers at more than 300 manufacturing firms.

The Bloomberg Dollar Spot Index tracks the performance of a basket of 10 leading global currencies versus the U.S. dollar. ©2023 Charles Schwab & Co., Inc. (“Schwab”). Member SIPC. All rights reserved 1023-3F21

Charles Schwab

R&I Update • 27 • October 2023

10

R&I Contacts REPRESENTATION DEPARTMENT—R&I TEAM MEC-BASED STAFF TELEPHONE

ASPEN

Phil Borgman, Benefits Specialist (ALA MEC)

206-241-3138

1946

Phil.Borgman@alpa.org

Dianne Myers, Associate Benefits & Contract Specialist (ALA MEC)

206-241-3138

1949

Dianne.Myers@alpa.org

Sontia Green, Benefits Specialist (DAL MEC)

404-763-5193

5193

Sontia.Green@alpa.org

Louis Parks, Associate Benefits Specialist (DAL MEC)

404-763-4932

4932

Louis.Parks@alpa.org

Ann Giannini, Benefits Specialist (FDX MEC)

901-842-2207

2207

Ann.Giannini@alpa.org

Brandy Hough, Sr. Benefits Specialist (FDX MEC)

901-842-2208

2208

Brandy.Hough@alpa.org

Stacey Stewart, Assistant Benefits Specialist (FDX MEC)

901-257-2024

2020

Stacey.Stewart@alpa.org

Christal Oliver, Benefits Specialist (JBU MEC)

703-689-4261

4261

Christal.Oliver@alpa.org

Lisa Kwilas, Benefits Specialist (UAL MEC)

847-292-1723

1723

Lisa.Kwilas@alpa.org

NAME/JOB TITLE

E-MAIL

NATIONAL STAFF Danika Borda, Benefits Specialist (Canada)

613-265-7970

Kevin Burton, Benefits Attorney

703-689-4117

4117

Kevin.Burton@alpa.org

Angela Greene, Sr. Benefits Attorney

703-689-4124

4124

Angela.Greene@alpa.org

Jack Parrack, Sr. Enrolled Actuary

703-689-4379

4379

Jack.Parrack@alpa.org

Catherine Powers, Assistant Director, Representation

703-689-4126

4126

Catherine.Powers@alpa.org

Celeste Sweeney, Benefits Specialist (U.S.)

703-689-4224

4224

Celeste.Sweeney@alpa.org

Michael Swierczek, Investment Portfolio Advisor

703-689-4137

4137

Michael.Swierczek@alpa.org

Anngi Tipton, Administrative Specialist

703-689-4114

4114

Anngi.Tipton@alpa.org

Dan White, Supervising Benefits Attorney

703-689-4118

4118

Dan.White@alpa.org

TELEPHONE

ASPEN

E-MAIL

Navea Harris, Supervisor

703-689-4156

4156

Navea.Harris@alpa.org

Mike Barreto, Sr. Insurance Analyst

703-689-4330

4330

Mike.Barreto@alpa.org

Patricia Morse, Insurance Clerk

703-689-4152

4152

Patricia.Morse@alpa.org

Typhani Short, VEBA Administrative Assistant

703-689-4193

4193

Typhani.Short@alpa.org

Danika.Borda@alpa.org

MEMBER INSURANCE STAFF NAME/JOB TITLE

NATIONAL R&I COMMITTEE NAME

E-MAIL

Capt. Jon Erickson (DAL), Chairman

Jon.Erickson@alpa.org

Capt. Fred Greene (UAL)

Fred.Greene@alpa.org

Capt. Jeffrey Hicks (FFT)

Jeffrey.Hicks@alpa.org

Capt. Travis Wheat (SPA)

Travis.Wheat@alpa.org

Capt. Steve Gower (WJA)

Steve.Gower@alpa.org

F.O. Ben Monshor (FDX)

Ben.Monshor@alpa.org

R&I Update • 28 • October 2023