Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 1st, 2014
Industry Insights
Plan Failure Risk Is the New Fiduciary Risk
Overwhelming evidence shows the failure of health and retirement plans. With the advent of the Affordable Care Act (ACA), plan sponsors have approached the problem by asking if their benefits plan incorporates health and retirement plan best practices. Perhaps the better question is, “Are you wasting your employee benefit dollars?”
Plan Sponsor of the Year and Finalists: Mid-Size 401(k)
Meet Our Plan Sponsor of the Year Winner: Mid-Size 401(k)
“It’s what really matters,” says Mike Tanner, director of compensation and benefits at O.C. Tanner, about why the company has intensified its long-time emphasis on retirement adequacy. “There is a lot of focus on the front end—what are the contribution rates, and how is the asset-allocating looking?—and accumulation is important. But you can’t tell what the results will be unless you look at the projected income-replacement ratios.” The developer of employee-recognition strategies and rewards programs, headquartered in Salt Lake City, has a deep-rooted sense of responsibility to help employees prepare for retirement.
At law firm Akin Gump Strauss Hauer & Feld LLP, the 401(k) plan’s participants have varying salaries, goals and retirement time horizons. The Washington, D.C.-based firm includes partners (19%), other attorneys (35%) and administrative staff (46%). So when it comes to the amount of retirement savings accumulated, “our people are all over the spectrum,” says Jessica Chicorelli, Akin Gump’s director of retirement benefits.
Over time, American Woodmark Corp.’s 401(k) investment menu had grown to include more than 30 options. That complexity, plus a lack of automatic enrollment, meant many new hires neglected to sign up; those employees who did take the initiative to participate often flocked to too-conservative or too-aggressive asset allocations. The catalyst for change came with American Woodmark’s decision to freeze its pension plan in April 2012, says Richard Hartman, corporate benefits manager.
When Range Resources Corp. switched recordkeepers last January, it took the opportunity to make some plan-design changes aimed at increasing participant savings. The result? The average deferral rose from 6.92% in December 2012 to 8.6% a year later. The modifications included raising the initial default deferral from 3% to 6%, immediately increasing the deferral to 6% for existing participants who had been saving less, automatically escalating all participants by 1% annually up to 10% unless they opted out, and going to immediate vesting.
As the recession’s effects lingered, some employees at agricultural and industrial equipment-maker Vermeer Corp. felt financially squeezed—and reduced their 401(k) contributions to boost their take-home pay. That worried Cheri Klyn, director of shared services at the company in Pella, Iowa. “I’ve seen in the past that if somebody lowers his deferral in downtimes, he forgets to raise it when times are good,” she says.
Benefit Briefs
Retirement Plan Committees Need a Custom Charter
Many retirement plan committees do not have a charter, and often those that do find it fails to provide adequate guidance because it is not specific enough to the organization. According to an article in Sibson’s latest Perspectives newsletter, in the interest of sound organizational and plan governance, every retirement plan committee should have a custom charter that provides a framework for meeting its responsibilities. Richard A. DeFrehn and John K. Graham, vice presidents at Sibson Consulting, say, among other things, a custom charter can help get new retirement plan committee members up to speed. A company with high turnover at senior levels may find its newly hired employees lack the necessary experience to take responsibility for the company’s retirement plans. A retirement committee with a plan charter would have clearly outlined duties and oversight responsibilities for committee members which would enable the company to arrange and carry out training quickly for new employees who will be performing key fiduciary and governance tasks.
NQDC Plans See Higher Participation in 2013
Thirty percent of respondents to a recent survey note a higher plan participation for nonqualified deferred compensation (NQDC) plans. According to the eighth annual MullinTBG/PLANSPONSOR Executive Benefits Survey, there was a 10.5% increase in enrollment figures. The survey also shows, for 2013, 19% of respondents noted higher deferral amounts, and similar to previous survey results, participation rates were highest (56%) for firms that offered a company match.
Buyer's Market
A new online personal financial planning and budgeting tool from ING U.S. enables users to organize, integrate and manage all their money matters on a single platform. The dashboard enables individuals to populate their financial information and connect various accounts and holdings—such as checking, savings, credit cards, mortgage, insurance and retirement accounts. The digital planning tool allows users to set goals, monitor progress, create budgets, track spending and learn more about possible solutions to common financial issues.
Scott Davison Takes Helm as CEO of OneAmerica
J. Scott Davison, CLU, ChFC, will begin serving as chief executive officer for the companies of OneAmerica on April 1. Under Davison’s leadership, OneAmerica has plans to grow assets under administration from a record $36.4 billion in 2013 to $50 billion in three years. To achieve this milestone, the company will add up to 50 staff positions in 2014, grow its sales force and invest more than $100 million in new technology and service capabilities in next three years. Davison tells PLANSPONSOR large pieces of this growth will be in its retirement business.
Market Mirror
The Dow climbed 134.60 points (0.82%) Monday, to 16,457.66, while the NASDAQ gained 43.24 points (1.04%) to finish at 4,198.99, and the S&P 500 increased 14.72 points (0.79%) to 1,872.34. The Russell 2000 closed 21.46 points (1.86%) higher at 1,173.29, and the Wilshire 5000 was up 186.73 points (0.94%) at 19,996.01. On the NYSE 3.2 billion shares traded, and on the NASDAQ 2.7 billion shares changed hands, with advancing issues outnumbering declining issues more than 3 to 1 on both exchanges. The price of the 10-year Treasury note was unchanged, with its yield at 2.723%, and the price of the 30-year Treasury bond was down 8/32, bringing its yield up to 3.562%.
Financial Sense
For February, the average cost of purchasing annuities from an insurer decreased slightly from 108.5% to 108.4% of the accounting liability, according to the Mercer U.S. Pension Buyout Index. Index findings show that the economic cost of maintaining pension liability remained level at 108.7% of the balance sheet liability.
Rules & Regulators
IRS Opens Window to Adopt Updated Pre-Approved Plans
Retirement plan sponsors have a two-year window to adopt newly updated pre-approved plan documents. In Announcement 2014-16, the Internal Revenue Service says it will soon issue opinion and advisory letters for pre-approved master and prototype (M&P) and volume submitter (VS) defined contribution plans that were restated for changes in plan qualification requirements listed in the 2010 Cumulative List and filed with the Service during their second submission period under the remedial amendment cycle.
Small Talk
ON THIS DATE:  In 1621, at the Plymouth settlement in present-day Massachusetts, the leaders of the Plymouth colonists, acting on behalf of King James I, made a defensive alliance with Massasoit, chief of the Wampanoags. The agreement, in which both parties promised to not “doe hurt” to one another, was the first treaty between a Native American tribe and a group of American colonists. In 1700, English pranksters began popularizing the annual tradition of April Fools’ Day by playing practical jokes on each other. In 1789, the first U.S. House of Representatives, meeting in New York City, reached quorum and elected Pennsylvania Representative Frederick Augustus Conrad Muhlenberg as its first speaker. In 1877, ignoring the taunts of fellow miners who said he would only find his own tombstone, prospector Edward Schieffelin began his search for silver in the area of present-day southern Arizona. Later that year, Schieffelin found one of the richest silver veins in the West. He named it the Tombstone Lode. In 1963, the ABC television network aired the premiere episode of General Hospital, the daytime drama that will become the network’s most enduring soap opera and the longest-running serial program produced in Hollywood. On the same day, rival network NBC debuted its own medical-themed soap opera, The Doctors. In 1970, President Richard Nixon signed legislation officially banning cigarette ads on television and radio. In 1984, soul singer Marvin Gaye was shot and killed by his own father one day short of his 45th birthday.   TUESDAY TRIVA: The UCLA (University of California, Los Angeles) Bruins have won the most NCAA titles, with 11.
TRIVIAL PURSUITS: From where did the term “March Madness” come?
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Editorial: Alison Cooke Mintzer


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