Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
April 24th, 2014
Benefit Briefs
Many Retirement Savers Missed 2013 Gains
For the second year in a row, Putnam’s Lifetime Income Scores survey shows, when factoring in projected Social Security payments, U.S. workers are on pace to replace a median 61% of their monthly income in retirement. Putnam says the 61% replacement rate itself is somewhat encouraging, but the flat results were a surprise considering the record-setting pace of stock market gains experienced during 2013. Putnam says one explanation for this counterintuitive result has to do with asset allocation. Among workers who contribute to a 401(k) plan and have a balance greater than $1,000, Putnam finds the allocation to underperforming assets like bonds and cash (46%) during 2013 strongly outweighed the typical allocation to equities (39%).
Defined contribution (DC) plan participants seem committed to keeping their savings in tact as DC accounts make up a growing percentage of U.S. retirement assets. A report, “Defined Contribution Plan Participants’ Activities, 2013,” released by the Investment Company Institute (ICI), says the majority of participants continued contributing to their plans in 2013, with only 2.7% stopping contributions, compared with 2.6% in 2012. Most DC participants stayed the course in terms of asset allocations as stock prices generally increased during 2013.
Buyer's Market
Marcum Financial Services has launched the Marcum Benefits Marketplace, a one-stop shopping resource for health insurance delivery for groups and individuals. The Marcum Benefits Marketplace comprises multiple private exchange platforms designed to facilitate selection, enrollment and administration of health insurance, as well as other benefits, for small to middle-market businesses.
Plan Administrators, Inc. (PAi), headquartered in Green Bay, Wisconsin, will open its second office in Sioux Falls, South Dakota, on May 5. The office will house a customer care team providing 401(k) plan services to business owners and their employees, as well as PAi’s Trust Company.
Industry Voices
Industry Voice: Cost Considerations When Using Index Funds
The debate over investing in actively managed funds versus passive index funds will probably go on forever. Passive investors like the low costs and broad diversification of index funds. Passive investing can also assure that the portfolio has the same risk profile as the index. What effect does the use of index funds in defined contribution plans have on plan and participant costs? The answer is “it depends.”
Economic Events
Sales of new single-family houses in March 2014 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 14.5% below the revised February rate of 449,000 and is 13.3% below the March 2013 estimate of 443,000.
Market Mirror
Wednesday, the Dow slipped 12.72 points (0.08%) to 16,501.65, the NASDAQ fell 34.49 points (0.83%) to 4,126.97, and the S&P 500 closed 4.16 points (0.22%) lower at 1,875.39. The Russell 2000 lost 8.53 points (0.74%) to finish at 1,147.08, and the Wilshire 5000 decreased 65.40 points (0.33%) to 19,955.15. On the NYSE, 3.2 billion shares traded, with a slight lead for decliners. On the NASDAQ, 2.7 billion shares changed hands, with declining issues outnumbering advancing issues more than 2 to 1. The price of the 10 year Treasury note was up 2/32, bringing its yield down to 2.699%. The price of the 30-year Treasury bond was unchanged, with its yield at 3.485%.
Rules & Regulators
Initiative to Examine Retirement Savings Policy
To improve the retirement readiness of Americans, the Bipartisan Policy Center has launched a Personal Savings Initiative. The initiative is being co-chaired by former Senate Budget Committee Chairman Kent Conrad and former Deputy Commissioner of the Social Security Administration Jim Lockhart. Over the course of the next year, says Conrad, the initiative will craft a package of realistic policy recommendations to address the future savings needs of Americans and will model the recommendations’ impact on retirement security and the federal budget. The final recommendations are slated to be released in early 2015.
Financial Sense
More Reasons for De-Risking DB Plans
A report, “Employers Finding More Reasons to De-Risk Retirement Plans,” from Buck Consultants, observes how improvements in the funding status of defined benefit (DB) retirement plans are prompting DB plan sponsors and fiduciaries to take steps that will reduce future volatility in plan costs. Other reasons for de-risking efforts discussed in the report include current certainty versus the unknown; increased Pension Benefit Guaranty Corporation (PBGC) premiums, and avoiding one-time accounting charges.
Some defined benefit (DB) plan sponsors are reluctant to transfer liabilities to an insurer, saying it is too expensive, particularly compared with the accounting liability, Mercer says. However, Mercer points out that accounting liability does not include all costs associated with maintaining the plan. Since October 2013, the cost of maintaining a DB plan continues to be approximately the same as the cost of transferring liabilities to an insurer for the sample plan modeled for Mercer’s U.S. Pension Buyout Index. The current environment allows plan sponsors who have evaluated a risk transfer to execute under favorable conditions, the consultant says.
Deciding When to End a DB Plan in Hibernation
Frozen plans will inevitably be terminated, says James Gannon of Russell Investments. It’s just a matter of when, not if. A new paper from Russell Investments, “Hibernation Versus Termination: Evaluating the Choice for a Frozen Pension Plan,” details the decision-making process for plan sponsors of frozen plans. A lot of plans are currently frozen, Gannon tells PLANSPONSOR. “They operate under what we call hibernation,” he says, which he describes as the act of managing the plan for a period of time while preparing for termination at a later date. “Part of the paper’s purpose is to alert plan sponsors that they should have some idea about how to evaluate costs.”
Small Talk
ON THIS DATE:  In 1800, President John Adams approved legislation to appropriate $5,000 to purchase “such books as may be necessary for the use of Congress,” thus establishing the Library of Congress. In 1962, the Massachusetts Institute of Technology (MIT) sent a TV signal by satellite for the first time. In 1990, the space shuttle Discovery blasted off from Cape Canaveral, Florida. It was carrying the $1.5 billion Hubble Space Telescope.
SURVEY SAYS: We recently covered a survey that found those who read books electronically tend to read more than those who read books in print. This week, I’d like to know how much you read, books and magazines, and how you prefer to read, in print or electronically. You may respond to this week’s survey by 6 p.m. Pacific time today.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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