Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 17th, 2014
Webcast Event
Your defined contribution (DC) plan is an investment that can deliver returns, depending on variables such as employee attraction and retention. There are simple changes, though, that you can make to drive even greater benefits—for your firm and your participants. How can you get more from your plan? Should you maintain the status quo—or is standing still an even greater risk? Join Chad Ryan from PepsiCo, and BlackRock’s Laraine McKinnon and Scott Dingwell, for a lively discussion about how focused participant engagement and up-to-date plan design can boost savings and limit risks.
Benefit Briefs
Participants Have Low Level of Financial Literacy
A study by the National Association for Retirement Plan Participants (NARPP) finds a low level of financial literacy among retirement plan participants. Financial literacy in the NARPP study was measured using a widely accepted series of questions testing the participants’ ability to answer basic financial questions. Less than half (49%) of participants correctly answered the eight basic financial literacy questions. In addition, NARPP found few participants have a good understanding of common investing terms. NARPP says the study sets a baseline of financial literacy among plan participants.
Buyer's Market
Millennium Trust Company is offering an automated e-signature capability for its service agreement process. Using technology to automate the process of document creation, distribution, tracking and filing brings efficiency to a traditionally paper-heavy task, according to the automatic-rollover service provider.  “We anticipate [this] will greatly improve productivity for Millennium Trust and our institutional clients,” the firm says.
Schwab Makes Case for Open-Architecture TDFs
Charles Schwab Investment Management introduced a new unit class for its Schwab Managed Retirement Trust Funds (SMRT Funds) with a lower, 35-basis-point operating expense ratio. Jake Gilliam, managing director and senior portfolio manager at Charles Schwab Investment Management, tells PLANSPONSOR the SMRT Funds are collective investment trust (CIT) arrangements offered exclusively to qualified retirement plans. Beginning July 1, the new unit class will be available to retirement plans with $300 million or more in SMRT Fund assets. Gilliam says Schwab uses the SMRT collective trust vehicles to deliver more customized and cost-effective target-date solutions to large retirement plans—especially those looking to break away from proprietary approaches to target-date investing.
Credit unions providing a 401(k) program to 100 employees or more can save money and streamline their administrative tasks by joining a new multiple employer plan (MEP) administered by CUNA Mutual Group. The Credit Union Retirement Plan Association 401(k) Plan became available January 1. “This is the first national MEP designed exclusively for credit unions and their affiliates. When the Department of Labor [DOL] published its Advisory Opinion in 2012 on open MEPs (that they are not single ERISA plans), we worked hard to come up with a solution so credit unions could get the full benefits of an MEP, including not having to do an annual audit of their plan,” says Paul Chong, senior vice president of CUNA Mutual Retirement Solutions.
Industry Voices
Active Share Helps Fulfill Fiduciary Responsibilities
Plan sponsors can use active share to help them stay on top of three important fiduciary duties. Active share helps investors identify just how active their equity managers’ portfolios really are, but it is also proving to be a versatile fiduciary risk management tool for plan sponsors by providing quantitative evidence in three areas of fiduciary oversight.
Economic Events
Privately owned housing starts in March were at a seasonally adjusted annual rate of 946,000, according to the Census Bureau. This is 2.8% above the revised February estimate of 920,000, but is 5.9% below the March 2013 rate of 1,005,000. Single-family housing starts in March were at a rate of 635,000; this is 6.0% above the revised February figure of 599,000. The March rate for units in buildings with five units or more was 292,000.
Market Mirror
Wednesday, the Dow closed 162.29 points (1.00%) higher at 16,424.85, the NASDAQ climbed 52.06 points (1.29%) to 4,086.23, and the S&P 500 increased 19.33 points (1.05%) to 1,862.31. The Russell 2000 gained 12.31 points (1.10%) to finish at 1,131.80, and the Wilshire 5000 was up 220.17 points (1.12%) at 19,792.30.   On the NYSE, 3.2 billion shares traded, with advancing issues outnumbering declining issues nearly 4 to 1. On the NASDAQ, 2.7 billion shares changed hands, with a 2.4 advancing issues for every declining issue.   The price of the 10-year Treasury note was virtually unchanged, with its yield at 2.631%. The price of the 30-year Treasury bond was up 11/32, bringing its yield down to 3.446%.
Rules & Regulators
PBGC Action Preserves Saint-Gobain Plan
Under a settlement with the Pension Benefit Guaranty Corporation (PBGC), Saint-Gobain Containers Inc. has made $207.5 million of additional contributions to its pension plan. The settlement has significantly improved the plan’s financial standing, according to the PBGC. It will help preserve the plan and resolves the PBGC’s concerns about the plan’s sponsor being sold to a company with fewer financial resources. The settlement also ends ongoing litigation over the agency’s right to take control of the plan because of inadequate funding.
Amending Retirement Plans for New ‘Spouse’ Definition
Sponsors of both defined benefit (DB) and defined contribution (DC) retirement plans will need to review plan documents to ensure the definition of “spouse” conforms to current federal law. IRS Notice 2014-19 provides that retirement plans must recognize the marriages of same-gender couples as of June 26, 2013, the date of the Windsor decision. Plans are not required to change operations for events prior to that date, but retroactive application is permitted, if applicable qualification requirements are not jeopardized. Anne Waidmann, director of PwC’s Human Resource Services, tells PLANSPONSOR, “It’s very helpful to DC plan sponsors in that it didn’t retroactively disqualify plans, since these plans were acting in compliance with then-current federal law. If retroactive disqualification had been enacted, it would’ve been extremely costly and difficult to recover payouts, especially since most employers would not have maintained plan-related records on same-sex spouses or domestic partners.”
Financial Sense
Strong global equity market performance and higher liability discount rates worked wonders on the funded status of Standard & Poor’s (S&P) 500 Index companies during 2013, says Wilshire Consulting. According to the “2014 Wilshire Consulting Report on Corporate Pension Funding Levels,” defined benefit (DB) pension plans sponsored by companies included in the S&P 500 Index staged a remarkable improvement during 2013, with the aggregate funded ratio (assets divided by liabilities) increasing from 77.6% to 89.8% and the $371.2 billion funding shortfall shrinking to $153.9 billion by the start of this year.
Detroit Pensions Agree to Smaller Benefit Reductions
Negotiators for Detroit’s two pension boards have agreed to limited retiree benefit reductions. According to a news report from the Detroit Free Press, police and fire retirees would see no cuts to monthly pension checks under the preliminary agreement, but they would absorb a reduction in cost-of-living adjustment (COLA) increases, down to 1% from 2.25%. Other retirees would see a 4.5% reduction to their monthly pension checks and the elimination of COLA increases. One source familiar with the deal told the Detroit Free Press that the proposed pension cuts are lower than Orr’s initial offer, in part because the stock market’s surge in the last 18 months improved the financial health of the pension funds, while the higher investment rate of return also lowered the unfunded liability.
The World at Large
Nearly one-third of UK firms do not know how much they are being charged for their defined contribution (DC) plans, according to research, while 20% are paying more than the 0.75% cap.
Small Talk
ON THIS DATE:  In 1790, American statesman, printer, scientist and writer Benjamin Franklin died in Philadelphia at age 84. In 1860, New Yorkers learned of a new law that required fire escapes to be provided for tenement houses. In 1861, Virginia became the eighth state to secede from the Union. In 1961, the Bay of Pigs invasion began when a CIA-financed and -trained group of Cuban refugees landed in Cuba and attempted to topple the communist government of Fidel Castro. In 1964, the Ford Mustang—a two-seat, mid-engine sports car—was officially unveiled by Henry Ford II at the World’s Fair in Flushing Meadows, New York. In 1970, Apollo 13, a U.S. lunar spacecraft that suffered a severe malfunction on its journey to the moon, safely returned to Earth. In 1985, the U.S. Postal Service unveiled its new, 22-cent, “LOVE” stamp.
SURVEY SAYS: Participant mobility and the increasing use of automatic enrollment in retirement plans may result in many small balances in different plans. For plan sponsors, this could be an administrative and cost concern. Regulations have been enacted allowing plans to roll over small account balances to an individual retirement account (IRA). The safe harbor IRA law now requires that if a plan adopts mandatory distributions of balances less than $5,000, retirement plan mandatory distributions of $1,000 to $5,000 must be automatically rolled into an IRA instead of being paid out in cash, unless the participant elects otherwise. There isn’t much information available about adoption of a mandatory distribution policy and usage of safe harbor IRAs, so this week, I’d like to know, do you have a small balance in a prior employer’s plan, or has it been automatically rolled over for you? Does your current firm automatically roll over small plan balances? Why or why not? You may respond to this week’s survey by 6 p.m. Pacific time today.
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Editorial: Alison Cooke Mintzer


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