Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 21st, 2014
Benefit Briefs
Are Retirement Benefits Wages?
In the June 2013 paper “Cost Shifting and the Freezing of Corporate Pension Plans,” authors Joshua D. Rauh, Irina Stefanescu and Stephen P. Zeldes conclude that the freeze of defined benefit (DB) plans and subsequent shift to defined contribution (DC) plans at U.S. corporations resulted in savings of 2.7% to 3.6% of payroll per year. At the end of this paper, they raise a question: “… whether pension freezes are bringing employee compensation more in line with their marginal product or moving it further away. If freezes represent the ability of employers to seize rents through bargaining power, the implications for economic efficiency are quite different than if they represent the ability of employers to restore balance between compensation and marginal product.” In other words: Before the freeze, were the employees in the defined benefit plans being paid too much or were they, after the freeze, being paid too little?
Buyer's Market
Firm Offers Education for New Retirement Plan Fiduciaries
Investment advisory firm Arnerich Massena has expanded its fiduciary education program to include retirement plans. The program, Blueprints, was previously available only to fiduciaries or investment committee members of endowments and foundations. The expansion now allows new investment committee members of employer-sponsored retirement plans to take advantage of this program.
Economic Events
THE ECONOMIC WEEK AHEAD: Tomorrow, we’ll see a report about existing home sales in March from the National Association of Realtors, and Wednesday, the Census Bureau will report about new home sales for March. Thursday, the Labor Department will issue its initial claims report and the Census Bureau will report about durable goods orders for March.
Market Mirror
WEEK’S WORTH: For the trading week shortened by the Good Friday holiday, the Dow increased 2.38%, the NASDAQ was up 2.39%, and the S&P 500 climbed 2.69%. The Russell 2000 finished 2.37% higher, and the Wilshire 5000 gained 2.64%.
Rules & Regulators
State Street Cleared of Wrongdoing in GM Stock Suit
For the second time, a U.S. district court has found State Street Bank and Trust did not violate its duties to General Motors (GM) retirement plan participants in its decisions about holding company stock. The U.S. District Court for the Eastern District of Michigan used the presumption of prudence precedent adopted by most courts and found participants did not allege facts sufficient to overcome this presumption. The participants argued there were various dates on which State Street should have acted to divest the retirement plan’s holdings in GM stock prior to the time it actually did, but in each instance, the court found State Street had presented evidence in support of its stance.
DOL Fee Guide Proposal Misses the Point, Some Say
Value, not just cost, is what plan sponsors and participants should see when reviewing fee disclosures, some contend. A summary approach to fee disclosures would be very helpful to plan sponsors, says Kevin Watt, senior vice president of Security Benefit’s defined contribution group. “The first round of 408(b)(2) needed some guidance,” he tells PLANSPONSOR. “We realized plan sponsors received disclosures from covered service providers from multiple places: third-party administrators, advisers, recordkeepers and other parties.” But so far, Watt says, “the outcome of fee disclosure has been lopsided.” The 408(b)2 regulations show only half the story—the disclosures put the emphasis on costs and omit any discussion of value for that cost.
Sponsored message from PNC
PLANSPONSOR interviews Jim Sandidge of PNC
PLANSPONSOR Editor-in-Chief Alison Cooke-Mintzer sits down with Jim Sandidge, Product Director of Retirement Products at PNC Bank. Click here to watch the full interview.
Small Talk
Health Care Costs Will Exceed Social Security Benefits
Middle-class Americans’ retirement health care costs are on a path to exceed their Social Security benefits, The Retirement Health Care Cost Index from HealthView Services shows. The index measures the percentage of Social Security benefits required to pay for health care-related costs in retirement for a healthy couple receiving the average projected Social Security benefit at full retirement age. The index indicates retirement health care costs will increase from 69% of Social Security benefits for a couple retiring in one year to 98% of Social Security benefits for a healthy couple retiring in 10 years.
ON THIS DATE:  In 1789, John Adams was sworn in as the first U.S. Vice President. In 1862, the U.S. Congress established the U.S. Mint in Denver, Colorado. In 1895, Woodville Latham and his sons, Otway and Gray, demonstrated their “Panopticon,” the first movie projector developed in the United States. In 1918, in the skies over Vauz sur Somme, France, Manfred von Richthofen, the notorious German flying ace known as “The Red Baron,” was killed by Allied fire. In 1973, “Tie a Yellow Ribbon Round the Old Oak Tree” by Tony Orlando and Dawn topped the U.S. pop charts. In 1977, “Annie” opened on Broadway.
SURVEY SAYS: Using Safe Harbor IRAs
Last week, I asked NewsDash readers if their current firms automatically roll over small plan balances of $5,000 or less into a safe harbor IRA, and why or why not? All responding readers reported they do not themselves have a defined contribution (DC) plan account balance of less than $5,000 in a former employer’s plan. In addition, all reported they have not had an account balance of less than $5,000 automatically rolled into a safe harbor IRA by a previous employer? Among those whose firms do have such a policy, 53% said their firms adopted it because they wanted to reduce cost from additional participants or participant balances, and 47% said it was because they wanted to reduce complexity/administration of tracking too many terminated, non-cashed-out participants. Nearly 24% wanted to reduce responsibility for investment of those balances, and 11.8% indicated they do not know why their firms chose to adopt the policy. Among those whose firms have not implemented such a policy, 43% said they haven’t considered the policy, or discussed it with the plan committee. More than 28% indicated they do not have a problem with a lot of small balances, and 14.3% each said they want to allow participants to take advantage of plan investments/costs, and they’ve considered it, but haven’t implemented it yet. However, the majority (57.1%) specified another reason for not adopting such a policy. Among the few verbatim comments were a couple more important considerations for whether to adopt a policy to distribute small plan balances. Editor’s Choice goes to the reader who said: “Hmmm, I would submit that if I answered “yes” to the lead question [about having a small plan balance in another employer’s plan] I shouldn’t be in this business.” Thank you to everyone who participated in the survey!
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EBSA Head Lisa Gomez Says DOL Continues Honing Retirement Security Rule
Data and Research
Early Withdrawals Found to Exacerbate 401(k) Account Disparities Across Race, Gender
Final Fiduciary Rule Expected Soon

Editorial: Alison Cooke Mintzer


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