THE VISTEON INVESTMENT PLAN
The Visteon Investment Plan is a defined contribution plan with 2,152 plan participants–all of whom are current or former employees of Visteon Corp. The plan sponsor is Visteon Corp.
Visteon Corp. designs smart digital cockpits for electric and automated vehicles. The company is headquartered in Belleville, Michigan. It’s stock trades under the symbol NASDAQ:VC. As of the date of this post, Visteon’s stock price is at a 5-year high: $166.26.
S&P last rated Visteon bonds at BB- on March 22, 2022. a BB rating means the company is “less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.”
This speculative-grade bond rating suggests excessive debt in comparison to Visteon’s rising equity price, and raises various questions. Visteon is exposed to the possibility of collateral calls in light of current market volatility and its low bond rating–which could have a spill-over effect on proper funding of its pension plans.
401k REPORT CARD CRITERIA
The goal of this review is to evaluate the Visteon Pension Plan for its plan transparency–or lack thereof. In other words:
how easy (or difficult) is it for plan participants to understand the investing options presented in the plan, and the value of assets in each investing option?
Otherwise stated: can a plan participant fairly estimate what the plan assets are worth, and make informed investing decisions based on the information and menu options presented?
We examine the following criteria:
— the percentage of plan assets held in a collective trust;
— the percentage of plan assets valued at net asset value (NAV);
— the description (if any) of assets held in Levels 2 and 3 of the fair value hierarchy;
— performance comparisons.
PLAN ASSET ALLOCATION
As of year end 2021 (the last DOL reporting date) Visteon Investment Plan assets held in participant-directed accounts were:
Mutual funds: $300,937,368
Collective trust: $344,216,537
This meant that 53% of all assets in participant-directed investment segments were held in a collective trust, while 47% were held in a mutual fund (or other registered investment companies).
Put another way, plan participants had fair market value visibility into less than half of the investment options made available to them.
FAIR VALUE HIERARCHY DISCLOSURES
Level 1 Assets (mutual funds): $300,937,368:
Visteon reports (both in DOL 5500 form and 10-K) that mutual fund investment values are recorded as Level 1 assets. This is a correct reporting, in our view, of mutual fund assets. Level 1 valuation means that fair market value is marked at least daily. Therefore, participants and beneficiaries can tell precisely what is happening with their plan investments.
Level 2 and NAV Assets (collective trust assets): $344,216,537:
Visteon reports in its DOL 5500 form that all assets held in a collective trust are recorded as Level 2 assets. But in the latest 10-K filed with the SEC, Visteon reports that all collective trust pension assets are recorded at net asset value. So, which is it? These conflicting designations are confusing, to say the least.
Level 2 assets are meant to include:
Level 2: Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
The quoted prices for a Level 2 asset might include, for example, OTC trades of analogous assets that are not recorded on an active trading market, but are otherwise accessible. But net asset value is something different–something far more vague.
NAV recorded assets are to include:
NAV: assets that, as a practical expedient, are reported outside the fair value hierarchy but are included in the total assets for reporting and reconciliation purposes.
So, for some reason, Visteon reports its pension assets held in a collective trust as Level 2 assets in its DOL 5500 form, but as NAV assets in its 10-K. It is fair to say that a Visteon employee or retiree would have no idea how to value 53% of the assets held in investing options under the Visteon Investment Plan, and that this dual asset value representation is confusing and gives no visibility into actual fair market value of the plan assets.
Visteon mutual fund growth YoY: 2021 | 9.4%
Visteon collective trust growth, YoY: 2021 | 4.5%
S&P 500 growth YoY: 2021 | 26.9%
This (troubling) performance data shows that Visteon Plan’s investments in mutual funds (26.9% : 9.4%) did much worse than a passive investment in the S&P 500; while investments in Visteon’s collective trust did even far worse (4.5% / 26.9%).
Equally concerning is that mutual funds performed better than collective trust funds. The problem here is that asset managers make far more money for themselves by putting pension funds in collective trusts, rather than in mutual funds. An additional potential problem is for 2022 and 2023–the S&P 500 index is falling–what will that do to the (generally) illiquid investments in a collective trust?
The inescapable conclusions of this Visteon Investment Plan review are threefold:
First, for the plan year 2021, plan participants would have seen far greater returns by simply investing in a S&P 500 index fund.
Second, the bulk of menu options designed by the Visteon plan (53%) are held in a collective trust, with little (or no) visibility into the actual value of the investment choices presented.
Third, Visteon reports confusing values for its collective trust assets in the DOL 5500 form (Level 2) compared to its 10-K filing (NAV). This presents a very confusing valuation profile for plan participants.
If you are a Visteon employee or reitree with questions about your pension holdings in the Visteon Investment Plan, give us a call for a free consultation, or fill in the contact fields in the adjacent section and we will get back to you –>
About the Author
Kevin McBride is a Pension & Benefits Litigation Attorney in Los Angeles, California, USA.
He is admitted into three California US District Courts (Central, Southern, and Northern), the US District Court for the District of Utah, the Ninth Circuit Court of Appeals, and the Federal Circuit Court of Appeals. McBride holds a BA degree in Economics from the University of Utah and a JD from the University of Utah College of Law, where he served on the Utah Law Review. He is a member of the Federalist Society and the Federal Bar Association.