Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 15th, 2014
Benefit Briefs
An Argument for ‘To-Retirement’ TDFs
Retirement plan participants are showing strong interest in target-date strategies, but one provider says retirement investors should stick to the most conservative approaches. Ron Surz, president of Target Date Solutions, has developed something of a reputation as an outspoken critic of target-date funds (TDFs) in the wake of the 2008 financial crisis. His firm is a division of PPCA Inc., specializing in target-date products that incorporate elements of capital preservation and take a more conservative approach than many TDFs currently included in defined contribution (DC) plan lineups. It’s a challenging balance to strike, Surz tells PLANSPONSOR, between helping participants limit investment risk while also addressing longevity concerns.
The Patient Protection and Affordable Care Act of (or ACA) has influenced companies’ health care benefits strategy, with more employers moving toward or at least considering the use of a defined contribution (DC) benefits model, according to the “Eight Annual Study of Employee Benefits Today and Beyond: Group Benefits and the Defined Contribution Model,” released by Prudential Group Insurance. Forty-seven percent of employers report having already moved to this model or are currently implementing this type of program. Sixty-two percent of those that are likely to move to an exchange and those that are currently considering participating in an exchange believe they will adopt this model in the next two years.
Lessons from Top-Ranked Retirement Systems
Like a smooth-running watch, Switzerland’s retirement system is keeping pace with retirees’ expectations and needs, suggests the 2014 Global Retirement Index. The Swiss system ranked No. 1 in the survey by Natixis Global Asset Management, which examined 20 factors in four subcategories in retirement: health, material well-being, quality of life and finances. The U.S. system ranked 19th. Edward Farrington, executive vice president of Natixis Global Asset Management, U.S. distribution, tells PLANSPONSOR he feels the elements that make Switzerland’s system so successful are its simplicity, use of automatic enrollment, access of plans and the incentives.
Results from the Charles Schwab Money Myths survey show a prevailing sense of overconfidence and unfounded optimism among U.S. workers planning for finances after age 50. The survey also shows that while roughly three out of four Americans (76%) believe it is harder to plan for retirement now than it was for their parents’ generation, they may be overly optimistic about their financial options in the future. For instance, 39% of survey respondents who are still in the work force expect to receive income from a part-time job in retirement, Schwab says, yet only about 4% of current retirees actually do so.
Buyer's Market
TIAA-CREF to Acquire Nuveen Investments
Financial services provider TIAA-CREF announced an agreement to acquire Nuveen Investments, a diversified investment management company. The transaction will provide clients with additional investment choices and access to new products, according to the firms.
Industry Voices
Industry Voice: Roth Maximizes Retirement Savings Power
If you’re thinking of adding a Roth feature to your defined contribution (DC) plan, you’re not alone. Interest is growing around this option, and the existence of other after-tax retirement savings vehicles begs the question, why offer Roth accounts? Once familiar with Roth accounts, plan sponsors quickly realize there are many benefits to this DC plan design feature—for both the employer and the employee.
Economic Events
The U.S. Census Bureau announced that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $433.9 billion, an increase of 1.1% from the previous month, and 3.8% above March 2013. Total sales for the January 2014 through March 2014 period were up 2.5% from the same period a year ago. The January 2014 to February 2014 percent change was revised from 0.3% to 0.7%. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,715.6 billion, up 0.4% from January 2014 and up 4.2% from February 2013.
Market Mirror
Yesterday, the Dow was up 146.49 points (0.91%) at 16,173.24, the NASDAQ increased 22.96 points (0.57%) top 4,022.69, and the S&P 500 closed 14.92 points (0.82%) higher at 1,830.61. The Russell 2000 added 3.92 points (0.35%) to finish at 1,115.35, and the Wilshire 5000 closed at 19,454.42, up 133.27 points (0.69%). On the NYSE, 3.2 billion shares changed hands, with advancing issues outnumbering declining issues nearly 2 to 1. On the NASDAQ, 2.7 billion shares traded, with a slight lead for advancers. The price of the 10-year Treasury note was down 6/32, bringing its yield up to 2.649%. The price of the 30-year Treasury bond slipped 3/32, increasing its yield to 3.490%.
Rules & Regulators
Investment Adviser Restores Funds to Pension Plans
An investment adviser based in Johnston, Iowa, has paid $341,487 to 68 pension plans covered by the Employee Retirement Income Security Act (ERISA). The payments were made as part of a settlement agreement following an investigation by the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), which found the adviser, as well as entities he owns and representatives he employed, violated federal law when they recommended certain investments to clients participating in ERISA-covered employee benefit plans. Investigators also found the companies and advisers charged higher fees than those agreed to by their clients.
Multinational employers that sponsor non-U.S. retirement plans may have new requirements under the Foreign Account Tax Compliance Act (FATCA). An alert from the Chicago-based law firm Winston & Strawn notes these employers may be required to register those plans with the U.S. Internal Revenue Service (IRS) as foreign financial institutions (FFIs) by April 25. They may also need to comply with certain FATCA withholding and reporting obligations starting on July 1.
Coalition Defends Retirement Plan Tax Incentives
The Coalition to Preserve Retirement sent an open letter to Representative David Camp, R-Michigan, chairman of the House Ways and Means Committee, pushing back on certain tax reforms floated by the lawmaker. “While the spirit of the discussion draft serves as a catalyst for constructive discussion, there are several provisions that are of concern and could negatively impact retirement savings opportunities for working Americans,” the letter says. As an initial matter, the coalition warns lawmakers it is important to distinguish a tax deferral from a tax exclusion or deduction. Unlike a tax exclusion or deduction, tax deferral in retirement plans increases taxes paid when the taxpayer receives distributions from the plan. Not appreciating this distinction can lead to unintended policy choices, the coalition says.
Small Talk
More investors are planning to spend their federal income tax refund on a vacation, says a new survey. The Investor Sentiment Survey from John Hancock Financial Services finds that half of respondents expect to receive a 2013 federal refund, with 17% planning to spend it quickly and 56% earmarking their return for a vacation. Of those who aren’t spending their refund check, 63% say they will put the money into a savings account.
ON THIS DATE:  In 1783, the Continental Congress of the United States officially ratified the preliminary peace treaty with Great Britain that was signed in November 1782. In 1784, the first balloon was flown in Ireland. In 1817, the first American school for the deaf was opened in Hartford, Connecticut. In 1865, President Abraham Lincoln, the 16th president of the United States, died from an assassin’s bullet. In 1892, the General Electric Company was organized. In 1912, the RMS Titanic, billed as unsinkable, sunk into the icy waters of the North Atlantic after hitting an iceberg on its maiden voyage, killing 1,517 people. In 1947, Jackie Robinson, age 28, became the first African-American player in Major League Baseball when he stepped onto Ebbets Field in Brooklyn to compete for the Brooklyn Dodgers. In 1967, the Nancy and Frank Sinatra duet “Somethin’ Stupid” was No. 1 on the U.S. singles chart. It was the first father and daughter act to hit No. 1. In 1990, Swedish film star Greta Garbo died at the age of 84, in New York City. In 1994, the World Trade Organization was established. In 1997, Christopher Reeve received a star on the Hollywood Walk of Fame. In 2013, two bombs went off near the finish line of the Boston Marathon, killing three spectators and wounding more than 260 other people in attendance.   TUESDAY TRIVIA: The word “senate” is derived from the Latin senatus—”council of elders”—which originates from the word senex (as does the word “senile”), which means “old man” or “old.”
TRIVIAL PURSUITS: In 1967, Katherine Switzer became first woman to officially enter and run the Boston Marathon, though women were not allowed to officially enter the race until 1972. How did she manage that?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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