Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 11th, 2014
Benefit Briefs
Is LDI Feasible for DC Participants?
Defined contribution (DC) plans are increasingly adopting practices similar to defined benefit (DB) plans to improve participant outcomes, including automatic enrollment and “do-it-for-me” investments. One current DB trend is liability-driven investing (LDI), in an attempt to match assets to future benefit obligations. Is there a way for DC plans to make use of LDI?
According to the 2013 UBA Health Plan Survey from United Benefit Advisors, 19.2% of the four most popular types of insurance plans (CDHP, PPO, HMO, POS) offer a wellness program, and consumer-driven health plans (CDHPs) continue to lead the trend, with 26.9% offering such programs. While employers with 1,000 or more employees (58.2%) offer the most wellness programs, middle market employers saw a growth rate around 12.5% in the offering of wellness programs during 2013, which is double that of any other employer size. Employers with more than 1,000 employees, on the other hand, actually decreased their wellness offerings by 0.7%.
Employers Say ACA Affects Retirement Benefits
A new analysis from the LIMRA Secure Retirement Institute suggests more than four in 10 employers believe the Patient Protection and Affordable Care Act (or ACA) has directly impacted their retirement plan. The research shows around 43% of employers report the ACA has affected their current retirement benefits strategy and spending, and 45% believe the ACA will change their retirement plans in the future.
“The ADP Annual Health Benefits Report: 2014 Benchmarks and Trends for Large Organizations” indicates that between 2010 and 2014, the percentage of full-time employees who were eligible for employer-provided health benefits remained relatively steady at an average of 90%. The overall percentage of those participating in health benefits also remained relatively constant at an average of 68%. However, the report shows distinct trends with regard to age. A growing number of older employees were eligible and participated in employer-provided health benefits. Among employees between ages 50 and 59, 73% of those eligible participated. In all groups 40 and older, participation was more than 70% in 2014.
IRA Rollover Marketplace May Soon Be Reshaped
Federal regulators and policymakers appear to have embarked on a mission to reshape the operation of the individual retirement account (IRA) rollover marketplace. Several announcements from various officials signal efforts to impose new duties on financial institutions and intermediaries when interacting with distribution-eligible plan participants, or to reinterpret existing duties and standards of care in new ways as a means of influencing and reconfiguring the rollover discussion. Why is this so important? The IRA market has become the largest retirement system in the U.S., totaling more than $6 trillion, with contributions in excess of $300 billion per year.
Economic Events
In the week ending April 5, the advance figure for seasonally adjusted initial claims for unemployment insurance was 300,000, a decrease of 32,000 from the previous week’s revised level, the Labor Department reported. The last time initial claims were this low was May 12, 2007, when they were 297,000. The average interest rate for a 30-year fixed-rate mortgage is 4.34%, down from 4.41% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.38%, down from 3.47%.
Market Mirror
Major U.S. stock indices suffered a blow Thursday, with the Dow declining 266.96 points (1.62%) to 16,170.22, the NASDAQ plummeting 129.79 points (3.10%) to 4,054.11, and the S&P 500 falling 39.10 points (2.09%0 to 1,833.08. The Russell 2000 lost 32.30 points (2.78%) to finish at 1,127.66, and the Wilshire 5000 closed 437.60 points (2.19%) lower at 19,524.45. On the NYSE, 3.2 billion shares traded, with declining issues outnumbering advancing issues more than 3 to 1. On the NASDAQ, 2.7 billion shares changed hands with a more than 6 to 1 lead for decliners. The price of the 10-year Treasury note was up 2/32, bringing its yield down to 2.641%. The price of the 30-year Treasury bond increased 8/32, decreasing its yield to 3.508%.
Rules & Regulators
EEOC Alleges Early Retirement Incentive Is Discriminatory
The U.S. Equal Employment Opportunity Commission (EEOC) says a Phoenix, Arizona, school district unlawfully used an early retirement incentive plan. A lawsuit filed by the EEOC says the plan discriminates based on age by providing for older employees to be compensated at lower rates than are paid to younger employees.
“Are we expecting vendor-provided 403(b) prototype documents anytime soon? I seem to recall from a prior Ask the Experts article that the deadline for submissions is at the end of this month.”
Financial Sense
March was a light trading month for defined contribution (DC) plan participants, according to Aon Hewitt’s 401(k) Index. The index found the overall daily transfer volume in March averaged 0.021% of the total daily balances, slightly lower than February’s value of 0.023%. In addition, there were zero days in March with above normal transfer activity levels, marking the first month of zero above normal trading days since August 2013. Total transfer activity across the index was low, at $244 million (0.15%). When DC participants did trade in March, they favored fixed income funds.
Consider the Market Before De-Risking DBs
Market conditions like those seen in 2013 benefited those plan sponsors that had not yet moved to de-risk their defined benefit (DB) plans. Milliman’s “2014 Pension Funding Study” found that during 2013, a 7.5% decrease in plan liabilities from higher discount rates and 9.9% average return on plan assets combined to produce a $198.3 billion improvement in the funded status deficit from year-end 2012. Plans with high allocations in equity investments came out as the big winners in 2013. The study reveals not all DB plan sponsors adopted a liability-driven investing (LDI) strategy to de-risk their plans. Some continued to maintain an equity-heavy asset mix, awaiting a more opportune time to carry out de-risking. In 2013, say the authors of the study, that strategy paid off as equity investments surged and interest rates rose, giving those plans with a higher equity allocation a boost in funded status. “2013 was actually a very good year for taking risks, since the equities market offered such positive returns, Zorast Wadia, a principal and consulting actuary with Milliman in New York, and one of the authors of the study, tells PLANSPONSOR.
The estimated cost, as a percentage of accounting liability, of a U.S. retiree annuity purchase decreased during February from 108.5% to 108.4%, according to Mercer. The Mercer Global Pension Buyout Index notes that the Society of Actuaries released a new draft mortality table predicting longer life expectancy than those currently used to determine a plan’s accounting liability. Mercer says this change is expected to cause a larger increase in accounting liabilities than insurer pricing, causing a decrease in buyout premiums.
Sponsored message from OFI
Go Where the Growth Is
These days investors must be willing to pursue growth opportunities globally or risk missing them altogether. George Evans, head of Equities at OppenheimerFunds, talks about a strategy that starts with a global core of the best and fastest growing companies, regardless of where they are headquartered.
Small Talk
ON THIS DATE:  In 1919, in Paris, France, the International Labor Organization (ILO) was founded as an independent, affiliated agency of the League of Nations. In 1921, the first live sports event on radio took place this day on KDKA Radio. The event was a boxing match between Johnny Ray and Johnny Dundee. In 1947, Jackie Robinson became the first black player in major-league history. He played in an exhibition game for the Brooklyn Dodgers. In 1951, President Harry S. Truman relieved General Douglas MacArthur of command of the U.S. forces in Korea. The firing of MacArthur set off a brief uproar among the American public, but Truman remained committed to keeping the conflict in Korea a “limited war.” In 1961, Bob Dylan played his first major gig in New York City, opening for bluesman John Lee Hooker at Gerde’s Folk City. In 1968, U.S. President Lyndon B. Johnson signed the 1968 Civil Rights Act. In 1970, Apollo 13, the third lunar landing mission, was successfully launched from Cape Canaveral, Florida, carrying astronauts James A. Lovell, John L. Swigert, and Fred W. Haise. In 1980, the Equal Employment Opportunity Commission issued regulations specifically prohibiting sexual harassment of workers by supervisors. In 1988, at the Shrine Auditorium in Los Angeles, the actress and singer Cher collected the Academy Award for Best Actress for her performance in Moonstruck. In 2004, Phil Mickelson won the Masters Golf Tournament at Augusta National Golf Club, his first major championship in nearly 12 years as a professional golfer.   And now it’s time for FRIDAY FILES!
And you thought you were having a bad day at work… There’s fish in that crate.
In New York City, New York, police saw a man drive erratically and hit a car, before making a U-turn and crashing into another car, causing injuries for occupants in both vehicles, court papers alleged. According to the Daily News, the man then drove off and plowed through a traffic stop with “police jumping out of the way,” the document said. Who was the man? A seven-year veteran of the NYPD. Cops charged the officer with leaving the scene of an accident, DWI, reckless driving and refusing to take a breath test. In Louisville, Kentucky, a 34-year-old man snuck onto the rooftop of a residence earlier this month, busted a skylight and dropped a ladder into the residence. Police say he fell, broke his leg and called 911. According to the WLKY news station, police found him in the residence and took him to University Hospital then charged him with burglary. He has pleaded not guilty.
A father and son’s choreographed dance to Pharrell’s “Happy” was the winner at this NCAA finals game.
In Texarkana, Texas, a woman was arrested after making a report to police—that her drug dealer sold her a bad bag of marij.uana. She also told them the dealer would not give her a refund, and had in her possession a small bag of pot, according to Reuters. She was released on bail, but was arrested the very next day for public into.xication, as she was yelling in the streets. In Maplewood, Minnesota, a 911 dispatcher first got a call and hang-up, then another call from the same number. The second time, the call stayed open, and the dispatcher overheard pieces of a conversation about where police were and the dangers of getting caught. It was “pretty clear based on some of that conversation that this was a burglary,” Maplewood Police Chief Paul Schnell said, according the Pioneer Press. The burglars had accidentally pressed the phone’s emergency-call feature. As is the case with all 911 calls, the dispatcher could see the location: a car-repair shop. Officers arrived to see the two men leaving the building, one carrying a television, the other a box. Upon seeing the officers, the men dropped the objects and ran. Officers ordered them to stop then sent police dogs to nab them.
You can feel like a kid again, as this 78-year-old riding a roller coaster for the first time shows.
In Dover, New Hampshire, police could not identify any suspects in their initial investigation of a burglary of an Apple laptop. After several months and the laptop’s owner thought the computer was gone for good. Then, he got an email from Apple, thanking him for calling customer service. According to the WMUR news station, Apple had taken a call from someone who referenced the serial number of the stolen computer. “It then took us a while to track down the individual who made the phone call, but we were able to put that together and ultimately come up with enough evidence to charge him with the original burglary and recover the computer,” said Lt. Brant Dolleman of the Dover Police. In Orlando, Florida, police and fire crews were called to a fire at an apartment building. A man was rescued from his burning apartment and taken to Orlando Regional Medical Center to be treated for smoke inhalation, the Orlando Sentinel reports. The man told authorities he started the fire “to burn the bugs in his home and computer.” In Exeter, England, the first viewing of the blockbuster film Noah at the Vue cinema was cancelled—due to flooding. However, the amount of what was not in such biblical proportions as the film; reportedly, workers discovered the flooding from a leaky ice machine, but had the cinema cleaned up by the afternoon. Have a wonderful weekend, everyone!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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