A most unusual year chronicled by P&I

The wide-ranging ripple effects of a once-in-a-century global pandemic dominated headlines this year, but an evolving approach to ESG investing, a contentious U.S. presidential election and a flurry of regulatory activity were also among the notable themes in Pensions & Investments' top 10 stories of 2020.

The top story this year — chosen by P&I's editors — will surprise no one. The COVID-19 pandemic has wreaked havoc with the lives of nearly everyone on the planet in a seemingly infinite number of ways. For one, the editorial staff of the newspaper you're reading hasn't seen each other in person for more than nine months.

However, among all the seismic events the pandemic has elicited, it is the economic impact that has led P&I's coverage in 2020.

Other big stories of the year included the impact of COVID-19 on the retirement industry specifically after passage of the CARES Act, the impact of the pandemic and the summer racial injustice protests on ESG investing, the election of Joe Biden as U.S. president, new regulatory moves by the SEC and DOL and the surprising resignation of Yu "Ben" Meng as CalPERS' chief investment officer, whose hiring was one of P&I's top 10 stories of 2019.Here's a look back at the headlines that drove Pensions & Investments' coverage this year.

It took less than three months after the beginning of a new coronavirus outbreak in Wuhan, China, at the end of 2019 to shake the global economy to its foundations and become the biggest story of the 21st century, outstripping the global financial crisis in speed and scope as a global calamity.

In March, the situation appeared dire. The S&P 500 and MSCI ACWI fell 8.8% and 12.4%, respectively, during the week of March 9. A credit crisis dwarfing that of the Great Recession appeared imminent. But the lessons from the 2008 crisis would eventually pay dividends, and responses that mirrored those made 12 years earlier swiftly followed.

The Federal Reserve Open Market Committee slashed the target range for the federal funds rate to zero to 0.25% on March 14, from the range of 1% to 1.25% it had set just 11 days earlier. Then the Fed created two corporate credit facilities to ensure credit would be available to large employers: The Primary Market Corporate Credit Facility, providing new bond and loan issuance; and the Secondary Market Corporate Credit Facility, providing liquidity for outstanding corporate bonds.

Other central banks around the world made moves intended to curb the effects of the pandemic. On March 18, the European Central Bank's governance council announced a €750 billion ($846.7 billion) Pandemic Emergency Purchase Program, a temporary asset purchase program of private and listed securities intended to provide stimulus to the European economy. By Dec. 10, the ECB had increased the program to €1.85 trillion and extended it until at least the end of March 2022 in the face of the pandemic's second wave.

While markets would experience extraordinary volatility and the significant negative impact of shutdowns on certain travel, leisure and retail sectors including high unemployment, a global depression at the levels not seen in nearly a century seems — to date — to have been averted.

The inflection point for the second-ranked story of 2020 was President Donald Trump signing the Coronavirus Aid, Relief, and Economic Security Act on March 27. The $2 trillion-plus economic stimulus package included a one-year holiday for defined benefit plan sponsors from making 2020 minimum required contributions, as well as relief for defined contribution plan participants from rules on taking required minimum distributions and limits on hardship loans.

While the majority of corporate defined benefit plan sponsors did not take up the government's offer of the contribution holiday, those in industries hit particularly hard by the economic impact of the pandemic delayed their contributions to free up cash. One such company was Fort Worth, Texas-based American Airlines Inc., which announced on April 30 it would defer its minimum required pension plan contributions for 2020, totaling $196 million, until Jan. 1.

The pandemic also forced some companies to freeze or postpone matching contributions to their 401(k) plans, with larger firms making those moves more often than smaller firms. The Plan Sponsor Council of America said 11.6% of firms surveyed in June with more than 5,000 employees made changes to employer contributions.

Joy M. Napier-Joyce, an employee benefits attorney at Jackson Lewis PC, said in a March interview: "The idea is that because it's pretty clear there's going to be a rocky road ahead, employers and plan sponsors are trying to cut off any spending that they absolutely don't have to make right now and see where things develop and then revisit as the path forward starts to clear."

The emergence of COVID-19 and the impact of worldwide protests following the killing of George Floyd by police in Minneapolis on May 25 have led to an evolution of institutional investors' environmental, social and governance priorities.

While ESG investing has historically focused primarily on environmental issues, "the pandemic forced us to shift, and forced owners of capital to think about the other letters in ESG," said Nathan S. Shetty, Chicago-based head of multiasset portfolio management for Nuveen LLC, the money management arm of TIAA-CREF, in an August interview.

The months since the pandemic and the death of Mr. Floyd highlighted deep social inequities, evidence of investors' growing appetite to address those issues came in the form of calling on companies to address their human capital management, as well as the sale of social bonds intended to raising money for projects like affordable housing, health care and education. According to S&P Global, social bond issuance totaled $71.9 billion by Oct. 31, well eclipsing 2019's total of $16.7 billion. The bonds, which accounted for just 5% of global bonds at the end of 2019, grew to account for 30% by the end of August, according to AXA Investment Managers.

Adam Gillett, head of sustainable investment at Willis Towers Watson PLC in London, noted in an August interview: "COVID has not fixed our climate crisis, the biodiversity crisis, or other social issues, but it has shown that we can make pretty drastic changes to personal behavior if we see something we can do. I think it has shown what is possible."

The former vice president's victory in the presidential election in November was the fourth top story of 2020. It was only the fifth defeat of an incumbent U.S. president in the past century. While it was a significant victory for Mr. Biden and the Democratic Party, the balance of the U.S. Senate remains in flux as two runoff elections in Georgia on Jan. 5 will determine whether Republicans will maintain their majority. Observers believe maintaining the status quo will be good for the markets.

Markets seemed to support that view in November as the S&P 500 and MSCI ACWI had extraordinary returns of 10.8% and 12.2%, respectively, for the month. Stephen Auth, Federated Hermes Inc. CIO of equities, said in a client note: "We should still get a substantial fiscal package, but avoid growth-killing tax hikes planned by the Democrats in a sweep."

Jeffrey Schulze, an investment strategist with ClearBridge Investments LLC in New York, noted in a November interview that Mr. Biden will be in somewhat familiar waters beginning his presidency in a COVID-ravaged environment.

"As vice president, Biden took office in the midst of the global financial crisis and helped steer the economy back into an expansion characterized by steady but slow economic growth," he said at the time.

While Mr. Biden may not be able to undo all recent changes by the administration of Mr. Trump, some of them may be vulnerable.

"It's pretty commonplace for an administration that comes in to essentially ... put a hold on any regulations that aren't final and effective," Michael P. Kreps, Washington-based principal at Groom Law Group, said in an October interview.

The Congressional Review Act could be used to undo recently enacted regulations, but it would require a Democratic majority in both the House and Senate. The CRA allows Congress to disapprove a final rule issued by federal agency if not in effect for more than 60 legislative days.

The DOL's moves to rein in ESG and embrace private equity in 401(k) plan investment lineups were ranked by P&I's editors as the fifth top story of 2020. In June, Labor Secretary Eugene Scalia unveiled the department's ESG proposal by stating "private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan."

The retirement community quickly criticized the proposal. Many claimed the DOL did not justify the reasoning behind it and expressed concerns it would create barriers for considering ESG risks.

The final rule in October walked back the ESG-specific language, instead articulating the requirement that ERISA plan fiduciaries must select investments based on pecuniary factors, described as any factor that a fiduciary prudently determines is expected to have a material effect on the risk and return based on appropriate investment guidelines.

Also in June, the DOL provided guidance that DC plan sponsors can include certain private equity strategies in target-date funds and other diversified investment options. The DOL specified that plans must evaluate the risks and benefits associated with the investment alternative. It did not authorize making private equity investments available for direct investment.

In December, the DOL unveiled two more final rules to take effect shortly before the Biden administration takes office Jan. 20. First was a rule establishing a framework for ERISA-governed fiduciaries to follow when they vote proxies and select and monitor proxy advisory firms, and next was a prohibited transaction exemption for investment-advice fiduciaries.

That exemption allows fiduciaries to receive compensation for more types of their guidance, including advice to roll over assets to an individual retirement account from a retirement plan.

Ranked sixth were the actions taken by the Securities and Exchange Commission during the year.

Perhaps the most controversial was the July 22 vote to approve sweeping changes to rules governing proxy advisory firms.

Commissioners voted 3-1 to approve the rule amendments, which include a clear definition that proxy voting advice generally constitutes a solicitation, the requirement of proxy advisory firms to disclose conflicts of interests to clients; and obliges proxy advisory firms to provide clients with access to any response the company provides to the voting advice before the clients vote.

Earlier in the year, on June 5, the SEC's standards-of-conduct package, commonly known as Reg BI, was approved. The package features a best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts.

The year also saw the SEC's consolidated audit trail going live for broker-dealer reporting. Years in the making, the CAT is a single database for all equity and options trades executed on U.S. exchanges allowing regulators to track all orders throughout their life cycle. It is intended to offer a way to quickly determine what caused large, sudden losses in trading value by tracking illegal or manipulative trades.

On Aug. 5, Yu "Ben" Meng, the CIO of the now-$430.5 billion California Public Employees' Retirement System, Sacramento, resigned just 18 months after succeeding Theodore "Ted" Eliopoulos as the investment chief of the largest U.S. pension plan.

His resignation came after a state watchdog had launched an investigation into two complaints filed against Mr. Meng that claimed he had failed to properly disclose certain personal investments and sales of stocks and other holdings.

Mr. Meng had disclosed in a statement of economic interest form filed with CalPERS that he personally invested in stocks of three private equity firms, The Carlyle Group Inc., Blackstone Group Inc. and Ares Management Corp.'s business development company, Ares Capital Corp.

CalPERS' board quickly made significant changes to the governance of the pension fund to make the hiring, evaluating and terminating of the CIO a shared responsibility between the board and the CEO; the CEO previously had sole responsibility for hiring, firing and managing the CIO. The board also returned the investment committee to a committee of the whole that included all 13 board members, giving it final authority that the nine-member panel lacked.

Dan Bienvenue, deputy chief investment officer, total portfolio, was named interim CIO. CalPERS has since hired recruiting firm Korn Ferry to assemble a candidate pool for a permanent successor.

The ongoing trend in manager and consultant consolidation continued in 2020, beginning with a blockbuster deal in February when Franklin Resources Inc. announced it planned to acquire Legg Mason in a $4.5 billion deal.

The combined firm, which became Franklin Templeton upon the deal's closing on July 31, created a money manager with $1.42 trillion in assets under management as of Sept. 30, catapulting it into the upper echelon of U.S. money managers.

As of Dec. 31, 2019, Legg Mason and Franklin Templeton had ranked 22nd and 24th, respectively, in P&I's latest money manager directory and their combined AUM at that time would have ranked the firm 12th.

That was followed soon afterward by another announcement on March 9 that shook the institutional investing industry: Aon PLC planned to close a purchase in the first half of 2021 of rival Willis Towers Watson PLC in an all-stock deal worth $30 billion.

It is a union between institutional investment consulting and outsourced manager giants. Aon and WTW had $3.44 trillion and $2.6 trillion in institutional assets under advisement as of June 30, respectively, according to P&I's latest consultant survey. The combined firm, which will rank second behind only Mercer, may end up supplanting that firm as the largest outsourced CIO manager. In recent P&I data, the firms combined for $330 billion in OCIO assets under management as of June 30. Mercer had $306 billion as of that date.

On Oct. 8, Morgan Stanley announced its intention to acquire Eaton Vance, creating a money management firm with nearly $1.2 trillion in assets under management. The deal for an equity value of about $7 billion is expected to be completed in the second quarter of 2021.

And looking ahead, the consolidation trend shows no signs of abating as news reports in December said State Street Corp. was exploring options for State Street Global Advisors, its asset management business which has more than $3 trillion in AUM.

This year saw a number of significant U.S. Supreme Court rulings that shaped the future of ERISA fiduciary breach litigation. In February, the court ruled against Intel Corp.'s investment policy committee, which had sought to enforce a three-year deadline for filing ERISA claims in response to a lawsuit by Christopher Sulyma, a participant in two Intel DC plans.

That limit applies to lawsuits if the plaintiff has actual knowledge of the limit, while a six-year limit applies to those who do not. Receiving retirement plan disclosures and having "actual knowledge" of the information included in them are not the same thing, the Supreme Court said in the ruling.

Later, on June 1, the court ruled in Thole vs. U.S. Bank that participants in fully funded plans do not have the standing to sue plan fiduciaries for mismanagement.

Finally, on Nov. 9, the court declined to review a request by fiduciaries of an IBM 401(k) plan seeking to overturn a pro-participant ruling by a federal appeals court in Retirement Plans Committee of IBM et al. vs. Larry W. Jander et al.

The appeals court had ruled against IBM fiduciaries in June 2020 in the suit, in which participants alleged fiduciaries should have taken corrective action because 401(k) plan investors in company stock were harmed when the stock fell following IBM's disclosure, asset write-down and subsequent sale of a money-losing microelectronics unit.

On the state level, another significant ruling came from the California Supreme Court in 2020. That court on July 30 ruled that public employers and pension systems are not barred from reducing or eliminating certain extra pay practices that resulted in increasing employees' total compensation for pension purposes. The practices known as "pension spiking" had been permissible before the state's 2012 pension reforms ended them.

The year also saw a heavy volume of ERISA cases in general. For example, during the second quarter alone Pensions & Investments tracked 43 ERISA actions ranging from new filings and settlements to dismissals and appeals.

The last top story of the year was the continuing tensions between U.S. and China.

On May 13, after months of pressure from Capitol Hill, the Federal Retirement Thrift Investment Board, Washington, voted unanimously to pause its implementation of plans to shift its $54.3 billion I Fund benchmark to the MSCI ACWI ex-U.S. Investible Market index, which includes Chinese companies, from the MSCI EAFE index. The board administers the $644 billion Thrift Savings Plan.

The board cited the COVID-19 pandemic and newly nominated board members in the vote. Nine days earlier, Mr. Trump had nominated three people to the five-member board that, upon Senate confirmation, could lead to a new majority. Then, on May 11, two letters were sent to the DOL's Mr. Scalia from administration officials referencing "national security and humanitarian concerns" regarding the I Fund shift.

Then, in November, Mr. Trump signed an executive order that Americans beginning Jan. 11, 2021, will no longer be able to invest in 31 Chinese companies that the White House has identified as helpful to China's People's Liberation Army. In response to that order, FTSE Russell announced Dec. 4 it would remove eight Chinese companies from its global and China A indexes.