Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 2nd, 2014
Benefit Briefs
Tide Is Shifting Toward Custom TDFs
Defined contribution (DC) plan sponsors are evaluating their current target-date funds (TDFs) and considering whether or not custom TDFs are a better option, a survey shows. Of those plan sponsors already offering TDFs, 12% currently use custom funds rather than proprietary or pre-packaged options, according to recently published poll results from SEI. The poll suggests the use of custom TDFs is rising as more than one-third (37%) of those surveyed said their organization is likely or somewhat likely to implement or revise custom target-date solutions in the next 18 months.
How Accurate Are Retirement Plan Coverage Stats?
New research indicates it is probably reasonable to say about 50% of private-sector workers participate in a retirement plan. However, an issue brief from the Center for Retirement Research at Boston College notes that the four major household data sets that provide information about pension coverage use different measures of coverage and participation and are subject to individual reporting error. For example, the Current Population Survey (CPS), produced jointly by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics, asks individuals two questions. First, did the employer you worked for have a pension or other type of retirement plan for any of its employees? And second, were you included in the plan? The survey does not gather any information about whether the plan was defined benefit or defined contribution.
Plan Sponsor of the Year and Finalists: Large 401(k)
Meet Our Plan Sponsor of the Year Winner: Large 401(k)
“It’s important to understand where retirement fits into our broader strategy,” says John Casey, director of benefits at Google, in Mountain View, California. “Retirement is a cornerstone of our financial-wellness strategy. However, it’s only one component.” According to Casey, Google hires many young employees who have diverse career plans. “Retirement is a traditional concept,” he says. “And the concept of getting to 65% replacement income or 80% replacement is an old concept. When we speak to our employees, they say it’s about ‘financial independence.’ But what does financial independence mean to a 20-year-old? Not necessarily that they’re going to stop working when they’re age 65. It’s a more personalized thing.”
In 2013, Eastman Chemical Co. decided to do a “deeper dive” to see what in its 401(k) plan worked well and what did not, says Becki Patterson Holmes, U.S. retirement plans manager at the Kingsport, Tennessee-based company. So, it collaborated with its recordkeeper, Fidelity Investments, to do a comprehensive benchmarking study of plan features and participants’ results.
The idea of retirement—and how much needs to be saved for it—means very different things to different Microsoft Corp. employees. “The notion of retirement keeps changing,” says Sonja Kellen, director of global retirement at the Redmond, Washington-based software and technology services company. “Today, it’s less about just cutting off their career on one day and then moving to the golf course.” So Microsoft does not calculate retirement-income projections for its 401(k) participants.
Buyer's Market
Alliance Benefit Group North Central States, Inc. launched a new mobile application that provides users with centralized access to retirement and health-related savings accounts. The app also provides access to benefits news, an educational video library and a suite of tools and resources to help participants reach successful retirement plan outcomes.
The Center for Due Diligence (CFDD) launched a liquid alternatives Web page designed to help manufacturers, distributors and advisers of these products. The page provides fund information, education, due diligence and research on liquid alternative investments for defined contribution (DC) plans. The CFDD anticipates the free resource will assist in the appropriate use of these investments as a plan level option or as a diversifier in a custom asset-allocation solution.
CenterSquare Investment Management, Inc. has launched the CenterSquare Value-Added Fund III, L.P. The fund will invest in middle-market, transitional real estate assets in the U.S., focusing on the office, multifamily, retail, industrial, parking and hospitality sectors. Scott Maguire, global head of client service and marketing at CenterSquare in Philadelphia, tells PLANSPONSOR the key benefit of real estate investments for defined benefit retirement plan sponsors is diversification.
Industry Voices
Industry Voice: Implementing an LDI Strategy
Traditionally, pension plan investing has focused on maximizing returns. Liability-driven investing (LDI) reorients this traditional approach, and instead aims at reducing the risk to funded status through investment strategy and asset allocation. Its rationale: if the goal of a pension plan is to meet liabilities, then the investing goal should be focused on that larger plan goal. There are no hard-and-fast rules on what qualifies as LDI; in some respects, it is still evolving.
Economic Events
The U.S. Census Bureau of the Department of Commerce announced that construction spending during February was estimated at a seasonally adjusted annual rate of $945.7 billion, 0.1% above the revised January estimate of $944.6 billion. The February figure is 8.7% above the February 2013 estimate of $869.9 billion. During the first two months of this year, construction spending amounted to $128.0 billion, 8.9% above the $117.5 billion for the same period in 2013.
Market Mirror
Tuesday, the Dow was up 74.95 points (0.46%) at 16,532.61, the NASDAQ climbed 69.05 points (1.64%) to 4,268.04, and the S&P 500 closed 13.18 points (0.70%) higher at 1,885.52. The Russell 2000 gained 15.66 points (1.34%) to finish at 1,188.70, and the Wilshire 5000 increased 174.23 points (0.87%) to 20,170.24. On the NYSE, 3.2 billion shares traded, with 2.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares changed hands with a 3 to 1 lead for advancers. The price of the 10-year Treasury note decreased 10/32, increasing its yield to 2.756%. The price of the 30-year Treasury bond fell 28/32, bringing its yield up to 3.607%.
Rules & Regulators
PBGC Proposes DC Rollovers into Pensions
The Pension Benefit Guaranty Corporation (PBGC) outlined a proposal it says makes it easier for participants in defined contribution (DC) plans to get higher returns and get lifetime income. The agency wants employees who have rollover options to move their benefits from DC plans to defined benefit (DB) plans. A proposed rule published in the Federal Register outlines safeguards for benefits that are rolled over from defined contribution plans.
Financial Sense
A lawsuit filed by the Massachusetts Bay Transportation Authority (MBTA) pension fund claims New York investment manager Alphonse Fletcher Jr. defrauded investors of $50 million. Fletcher is being sued by the MBTA Retirement Fund and some of his own hedge funds on fraud accusations, according to a news report from The Boston Globe. The lawsuit, filed in New York, accuses Fletcher Asset Management and other parties of conducting a “long-running fraud” in which they misused client money for their own benefit, inappropriately took inflated management fees, and overstated the value of assets.
The Downsides of LDI
Liability-driven investing (LDI) can be a great choice for defined benefit plans, but the strategy has its downsides, says Bob Schmidt of the Brandes Institute. “Liability-Driven Investing: Investment Strategy vs. Business Strategy,” a report from the Brandes Institute, delineates pros and cons of LDI for plan sponsors. On the positive side, LDI protects against short-term equity price volatility and raises exposure to longer-duration bonds that are more closely correlated with interest rate changes than equities. The downside: Some long-duration bonds are in short supply, possibly requiring leverage and thereby increasing counterparty risks, the paper says.
The World at Large
Government moves to reform annuities and introduce a cap on pension plan fees has seen the UK dramatically reduce its need for further pension reforms, according to the latest Allianz Global Investors Pension Sustainability Index (PSI).
Small Talk
ON THIS DATE:  In 1513, near present-day St. Augustine, Spanish explorer Juan Ponce de Leon came ashore on the Florida coast, and claimed the territory for the Spanish crown. In 1917, President Woodrow Wilson asked Congress to send U.S. troops into battle against Germany in World War I. In 1917, Jeannette Pickering Rankin, the first woman ever elected to Congress, took her seat in the U.S. Capitol as a representative from Montana. In 1992, a jury in New York found mobster John Gotti, nicknamed the Teflon Don for his ability to elude conviction, guilty on 13 counts, including murder and racketeering. In 2005, John Paul II, history’s most well-traveled pope and the first non-Italian to hold the position since the 16th century, died at his home in the Vatican.   WEDNESDAY WISDOM: “It is easy to sit up and take notice, what is difficult is getting up and taking action.”—Honore de Balzac, French novelist and playwright
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