Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 1st, 2014
Webcast Event
Exchange-traded funds can offer retail investors low operating expenses, access to diverse asset classes and transparency—with the ability to respond to market conditions during the day. Now, retirement plan participants can access the benefits exchange-traded funds provide within a framework built specifically for retirement plans. Join us as Schwab Retirement Plan Services shares a new approach, one that supports exchange-traded funds as core investment options in 401(k)s and addresses common questions from the industry.
Benefit Briefs
A Fiduciary Roadmap for Picking Lifetime Income Options
An analysis published recently in the Benefits Law Journal guides retirement plan sponsors through the process of building a fiduciary framework for selecting lifetime income options for their plans. The analysis, “Guaranteed Lifetime Withdrawal Benefits: Fiduciary Considerations for Plan Sponsors,” was developed by Robert Eccles, Gregory Jacob and Wayne Jacobsen, all of the law firm O’Melveny and Myers LLP. It outlines an approach that can be used to fulfill plan fiduciary obligations to act in a prudent manner, the attorneys say. IRIC, a nonprofit think tank supporting the retirement income planning community, helped to underwrite the research effort.
Consistency Is Key for Retirement Savings
The average account balance of consistent participants in 401(k) plans saw a 6.8% annualized increase between year-end 2007 and year-end 2012, says a new study. The increase reflects both employer and worker contributions, according to joint research from the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), as well as investment returns, withdrawals and loans. As the study points out, this relatively strong yearly growth comes despite a 34.7% drop in the average 401(k) account balance experienced during the depths of the most recent financial crisis, circa 2008.
NQDC Plans Play Important Retirement Readiness Role
Key employees who participate in non-qualified deferred compensation (NQDC) plans are increasingly recognizing the role these benefits play in preparing for retirement. Principal Financial Group’s “2013 Trends in Nonqualified Deferred Compensation: Spotlight on Plan Participants” finds more than nine in 10 (91%) participants say NQDC plans are important in reaching retirement goals. On average, participants say these plans will provide 26% of their retirement income, with 18% saying their plans will provide between 24% and 39% of retirement income, and 23% of participants saying they will provide 40% or more of retirement income.
More Could Use DC Compliance, Design Best Practices
A survey of sponsors of many different types of defined contribution (DC) retirement plans finds not all are following plan design and compliance best practices. The good news, according to the “2014 Retirement Survey Report” from retirement plan consulting firm Strategic Benefit Services (SBS), is roughly 83% of respondents said they were comfortable or very comfortable with their understanding of 408(b)(2) service provider fee disclosures, and about 79% of survey participants said they have an investment committee. But, 21% of survey participants said they have never put their plan out to bid, with an additional 24% saying they were unsure how often they put their plan out to bid.
UK Offers a Lesson About Boosting Retirement Savings
There are times when telling people what to do is the right thing for them. Fredrik Axsater, managing director and global head of defined contribution plans at State Street Global Advisors (SSgA) in San Francisco, tells PLANSPONSOR, “Automatic features, such as auto-enrollment and auto-escalation, are having a significant and positive impact on DC plans in the United States.” While plan participation is increasing, he says, plan sponsors should not overlook the importance of encouraging participants to start saving earlier for retirement and deferring more into their DC accounts. DC plans in the United States can learn from their counterparts abroad, Axsater says, noting that the UK is, in some ways, at the cutting edge of plan design regarding automatic enrollment.
Economic Events
In the week ending July 26, the advance figure for seasonally adjusted initial claims was 302,000, an increase of 23,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised down by 5,000 from 284,000 to 279,000. The four-week moving average was 297,250, a decrease of 3,500 from the previous week’s revised average. This is the lowest level for this average since April 15, 2006 when it was 296,000. The previous week’s average was revised down by 1,250 from 302,000 to 300,750. The average interest rate for a 30-year fixed-rate mortgage is 4.12%, down slightly from 4.13% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.23%, down from 3.26%.
Market Mirror
Yesterday, the Dow lost 317.06 points (1.88%) to finish at 16,563.30, the NASDAQ took a 93.13-points (2.09%) dive to 4,369.77, and the S&P 500 tumbled 39.40 points (2.00%) to 1,930.67. The Russell 2000 fell 26.50 points (2.31%) to 1,120.07, and the Wilshire 5000 dropped 419.73 points (2.02%) to 20,410.81. On the NYSE, 3.2 billion shares traded, with declining issues outnumbering advancing issues more than 9 to 1. On the NASDAQ, 2.8 billion shares changed hands with a more than 5 to 1 lead for decliners. The price of the 10-year Treasury note was down 1/32, bringing its yield up to 2.560%. The price of the 30-year Treasury bond decreased 3/32, increasing its yield to 3.318%.
Financial Sense
Two Different, but Successful, Global Equity Strategies
The rationale for investing in equities outside the U.S. is well-established but deserves reprise. First, reaching out to foreign markets greatly expands an investor’s opportunity set: The MSCI All Country World Index ex USA (or ACWI ex US, which includes emerging markets) contained 1,824 companies and was valued at $18.8 trillion at May 30, a bit larger than the $18.1 trillion in MSCI’s 609-company USA index, designed to measure performance of the large- and mid-cap segments. Second, non-U.S. markets can provide diversification through variety in the pattern of returns. PLANSPONSOR profiles two successful international equities’ active strategies.
Small Talk
ON THIS DATE:  In 1498, Italian explorer Christopher Columbus set foot on the American mainland for the first time, at the Paria Peninsula in present-day Venezuela. Thinking it an island, he christened it Isla Santa and claimed it for Spain. In 1774, oxygen was isolated from air successfully by chemist Carl Wilhelm and scientist Joseph Priestly. In 1790, the first U.S. census was completed with a total population of 3,929,214 recorded. The areas included were the present states of Connecticut, Delaware, Georgia, Kentucky, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, North Carolina, South Carolina, Tennessee, Vermont and Virginia. In 1876, Colorado became the 38th state to join the United States. In 1956, the Social Security Act was amended to provide benefits to disabled workers ages 50 to 64 and disabled adult children. In 1961, Six Flags Over Texas, the first park in the Six Flags chain, opened. In 1981, MTV: Music Television went on the air for the first time ever, with the words (spoken by one of MTV’s creators, John Lack): “Ladies and gentlemen, rock and roll.” The Buggles’ “Video Killed the Radio Star” was the first music video to air on the new cable television channel, which initially was available only to households in parts of New Jersey. In 1993, Reggie Jackson was admitted into the Baseball Hall of Fame in Cooperstown, New York. In 1995, Westinghouse Electric Corporation announced a deal to buy CBS for $5.4 billion.   And now it’s time for FRIDAY FILES!
Fast, easy way to cut a watermelon.
In Enid, Oklahoma, a 54-year-old woman called police and asked them to come to her house to check out something of which she was suspicious—she thought her me.th was laced with something. When an officer arrived, she invited him in and told him she had me.th in a tin container in the kitchen. The officer asked to see the tin and she showed him. Inside was a light bulb used to smoke me.th and two small bags that contained the drug, crushplate.com reports.  The woman then walked into her living room, sat down and began to sweat and hallu.cinate.  She told the officer she had recently smoked me.th and asked not to be arrested.  She was arrested. Somewhere over Australia, an attendant on a Sydney-bound flight warned passengers to flush their dru.gs down the toilet before landing. According to the BBC, the attendant reportedly said sniffer dogs and inspectors were waiting, and told passengers to flush “anything you shouldn’t have.” Some people were returning from a music festival and the warning reportedly sparked a rush to the toilets. Jetstar apologized, and said the crew member had acted unprofessionally and would be reprimanded. But, some people have taken to Jetstar’s Facebook page asking the airline to be lenient on the flight attendant, with one saying, “Promote that person.”
Some people get sleep any chance they get.
In Omaha, Nebraska, a 23-year-old woman walked into a Wells Fargo branch and gave a note to the teller claiming she had a bomb. She fled with $1,200 in cash, but it wasn’t hard for police to catch her. Apparently, she became winded on the run, which was partially uphill, and slowed to a walk, then “shuffled a little bit,” a witness said, according to the local NBC station. Finally, she just laid down and put her hands out. She was having trouble breathing and needed medical attention before going to jail. In Darwin, Australia, at least four inmates escaped from a work release center at the Berrimah Jail. They met up with friends and partied—then returned to the jail, dru.nk. Guards said they heard them fighting over a phone. Police found five cellphones, two empty bottles of alco.hol and a small quantity of a substance, believed to be mari.juana during a search.
Can this robber not see which side of the door has an opening, or remember which side he busted out?
In Madison, Illinois, police went to a home to arrest a burglary suspect, but when they go there, he went up to his attic, climbed onto his roof and got into a tree. According to FOX in St. Louis, witnesses said police tried to be friendly at first giving him water and electronic ciga.rettes. But, after hours of the standoff, they shined lights into the tree and pumped irritating music or sounds at the man. He finally gave up. In West Yorkshire, England, a 27-year-old woman was spotted in a supermarket parking lot walking backwards and swaying side to side barely able to stand up. The Mirror reports she had downed close to a bottle of gin after spending the evening in a pub drinking lager. She had returned home, then drove to the supermarket. Magistrates told her they had no choice but to send her to prison due to her “off the Richter Scale” reading, according to the news report. Her alco.hol level was nearly five times the legal limit. Happy weekend, everyone!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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