Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 14th, 2014
Benefit Briefs
Participant Trading Down as More Use Professional Help
Recent research by investment management firm Vanguard indicates trading by participants of defined contribution (DC) plans has decreased by half over the last decade. Only 10% of defined contribution plan participants surveyed by Vanguard say they engaged in retirement-related investment trades in 2013, according to Jean Young, senior research analyst at the Vanguard Center for Retirement Research. This is down from 20% in 2004. However, this does not mean participants are sitting still when it comes to investing. Rather, more DC participants are making use of professionally managed funds or allocations, says Young.
Think Tank Recommends New Type of Fee Disclosure
The Center for American Progress in Washington, D.C., recommends adding a label to retirement plan communications for participants. Authors of the report, “Fixing the Drain on Retirement Savings,” contend there is a common-sense solution that will protect participants by improving retirement fee disclosure. Picking up on the best parts of other public disclosures—such as nutrition labels, cigarette warnings, and Energy Star labels—a “Retirement Fund label” would be a visible box on all literature, either printed or web based, that offers a simple disclosure to both inform consumers about the risk of high fees and offer them a clear and comparable way to think about their fund options, according to the report.
Complexity of Information Impedes Financial Education
While Americans recognize that becoming more financially savvy strengthens their chances of saving more for retirement, relatively few are taking steps to improve their understanding of financial matters, according the “Financial Resources and Engagement Study” released recently by Genworth Financial, Inc. The study finds three out of five adults believe there is a correlation between financial literacy and retirement readiness. However, it also reveals less than half (46%) of these same adults actively seek out financial knowledge. The reason, say 45% of adults surveyed, is the complexity of financial products.
Buyer's Market
Aon Hewitt is partnering with financial software provider HelloWallet to bring more robust financial wellness services to its U.S. clients. HelloWallet, headquartered in Washington, D.C., provides personalized and unbiased guidance to individuals about managing debt, spending wisely and maximizing company benefits. Aon Hewitt expects the partnership with HelloWallet will help clients become more engaged and more successful in managing their finances. The collaboration pairs HelloWallet’s web and mobile financial guidance software with Aon Hewitt’s benefits administration solutions to provide workers with access to their health and wealth data in an integrated setting.
Industry Voices
Industry Voice: Pension Risk Transfer: Due Diligence Considerations
Pension risk transfer transactions—including lump sums, buy-ins, buy-outs and longevity insurance—are increasingly viable options for de-risking a defined benefit plan. Building off the success of these products in the United Kingdom, several leading insurers have developed innovative products to address the risks faced by corporate pension plans and the risks associated with specific regulatory and design features of the U.S. market. While pension risk transfer transactions offer significant potential benefits to plan sponsors, due diligence by the plan sponsor, with help from its advisers, is required to properly assess the cost-benefit trade-offs and whether the price is competitive and reflects plan attributes and population.
Economic Events
THE ECONOMIC WEEK AHEAD: Today, we’ll see reports from the Census Bureau about retail sales for March and business inventories for February. Tomorrow, the Bureau of Labor Statistics will reveal the consumer price index (CPI) for March. Wednesday, the Census Bureau will report about housing starts for March, and Thursday, the Labor Department will issue its initial claims report.
Market Mirror
Friday, the Dow was down 143.47 points (0.89%) at 16,026.75, the NASDAQ fell 54.37 points (1.34%) to 3,999.73, and the S&P 500 closed 17.39 points (0.95%) lower at 1,815.69. The Russell 2000 lost 16.11 points (1.43%) to finish at 1,111.53, and the Wilshire 5000 declined 203.30 points (1.04%) to 19,321.15. On the NYSE, 3.2 billion shares changed hands, with declining issues outnumbering advancing issues more than 2 to 1. On the NASDAQ, 2.7 billion shares traded, with a near 3 to 1 lead for decliners. The price of the 10-year Treasury note was up 7/32, bringing its yield down to 2.625%. The price of the 30-year Treasury bond increased 22/32, decreasing its yield to 3.485%. WEEK’S WORTH: For the week ending April 11, the Dow was down 2.35%, the NASDAQ dropped 3.10%, and the S&P 500 declined 2.65%. The Russell 2000 fell 3.63%, and the Wilshire 5000 lost 2.80%.
Rules & Regulators
Proposed Protections for DC to DB Rollovers
The Pension Benefit Guaranty Corporation (PBGC) recently proposed rules about the treatment of rollovers from defined contribution (DC) plans to defined benefit plans (DB). To fully understand the proposal, plan sponsors must have a good understanding of PBGC guaranteed benefit rules, Lonie Hassel, principal at Groom Law Group in Washington, D.C., tells PLANSPONSOR. “The rollover rules would only be relevant if the DB plan that DC assets were rolled into was later terminated, did not have enough assets to pay benefits, and was turned over to the PBGC,” she points out.
The World at Large
The past few momentous weeks for UK defined contribution (DC) pensions have seen massive reform, including a charge cap of 0.75% (75 basis points) imposed. British industry knew a cap was coming, but how many of the country’s top firms are on the wrong side of the cap? What are the implications of the cap for those yet to stage? How will investment strategies change?
Small Talk
ON THIS DATE:  In 1818, Noah Webster, a Yale-educated lawyer with an avid interest in language and education, published his “American Dictionary of the English Language.” In 1865, John Wilkes Booth, an actor and Confederate sympathizer, fatally shot President Abraham Lincoln at a play at Ford’s Theater in Washington, D.C. In 1902, James Cash (J.C.) Penney opened his first retail store in Kemmerer, WY. It was called the Golden Rule Store. In 1912, just before midnight in the North Atlantic, the RMS Titanic failed to divert its course from an iceberg, ruptured its hull, and began to sink. In 1969, the 41st annual Academy Awards were broadcast live to a television audience in 37 nations. It was the first time the awards had been televised worldwide.
SURVEY SAYS: Reader Superstitions
Last week, I asked NewsDash readers whether they believe in certain common superstitions and whether they have any superstitions of their own. None of the commonly known superstitions are believed by most readers, but even those who don’t believe them follow them or at least think about them when things happen. While only 16.5% of readers believe finding and picking up a penny is good luck, 37.6% say they follow it sometimes. Six percent say they believe knocking on wood prevents bad luck, and 62.7% do not believe it, but follow it sometimes. Forty percent do not believe it’s bad luck to open an umbrella indoors, but they follow the rule. Included in superstitions, shared by readers were some other commonly known superstitions— “Don’t split the pole when walking with someone,” “Bad luck comes in threes,”—but some were new to me. For example, “If you put your purse on the floor, you will never have money,” (That would explain so much). Some verbatim comments were very funny “Did you hear the one about responding to questions about superstitions on a day that has a “y” in it?? I thought not!” Many readers said superstitions are nonsense, and some shared why they are, or are not, superstitious. Editor’s Choice goes to the reader who said:  “My favorite ‘fortune’ that I got in a fortune cookie years ago said, ‘Black cat does not want you to cross ITS path.’” A big thank you to everyone who participated in the survey!
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