Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 11th, 2014
Benefit Briefs
Multiple Options for Reducing Investment Costs
Adviser Jason Dagley has long suggested to his plan sponsor clients ways to reduce their plans’ investment fees. Now, sponsors also come to him with ideas, wanting to know whether certain lower-cost options might work for their retirement plans. “I’m seeing plan sponsors much more proactively say, ‘Hey, can we do this?’” says Dagley, president of retirement plan consulting at Alpha Squared LLC in Alpharetta, Georgia. “The biggest thing I’m seeing is an awareness of fee issues among plan sponsors and a willingness to make the effort to reduce investment costs for participants.” Much of that stems from increased fiduciary awareness, he believes.
Retirement Uncertainty Dogs Many Households
A recent Federal Reserve report suggests many U.S. households are faring well on short-term finances, but sizable fractions of the population are failing to prepare adequately for retirement. Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19% of those ages 55 to 64. Additionally, almost half of adults were not actively thinking about financial planning for retirement, with 24% saying they had given only a little thought to financial planning for their retirement and another 25% saying they had done no planning at all.
July was light in trading activity for defined contribution plans, with only 0.019% of balances transferring, according to Aon Hewitt’s 401(k) Index. This marked the ninth consecutive month that trading activity was below 0.03%. The index also shows that total transfer activity was $291 million, with only one day in July having above-normal trading activity. When trading occurred, notes the index, plan participants favored equity funds over fixed-income funds for 64% of the trading days. This was the first time since January that the month had a majority of equity-favored days.
Preparing for Health Benefits Open Enrollment Period
Employers should use their open enrollment period to convey the most current information about health care coverage to employees, according to speakers for a recent Mercer webinar. During the webinar titled “Preparing for 2015 Open Enrollment,” Mike Sinkeldam, a principal for Mercer’s Health and Benefits practice in Irvine, California, pointed to some employee-focused objectives of open enrollment that are important. “Communicating changes about benefit programs to employees, reminding them of the benefits available, and giving them the chance to make changes to their benefits should all be carried out during this period.” He said this is also a time to carry out more employer-based objectives, including administrative needs, such as making sure beneficiary designations and dependent information are correct, and employee relation goals, such as educating them about the Patient Protection and Affordable Care Act (ACA) and how it affects them. Employers should also use this time to manage legal compliance requirements via communications, which can include various notifications and reporting that are required by state or federal law.
Industry Voices
Industry Voice: Baltimore Takes Bold Step Towards Pension Reform
The main reason that the funding issues in the public defined benefit pension plan market have reached near crisis proportions for many public entities is simply due to lack of leadership. The severity of issues many public employers face today is a result of decades of failed leadership by mayors, city council members, and union officials. The common practice has been to “kick the can down the road” with a lot of accounting adjustments and temporary patches that were labeled as “pension reform.” The City of Baltimore has put an end to this practice.
Economic Events
The U.S. Census Bureau announced that June sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $454.4 billion, up 0.2% from the revised May level and up 6.5% from the June 2013 level. June sales of durable goods were up 1.4% from last month and were up 6.6% from a year ago. Sales of nondurable goods were down 0.7% from May, but were up 6.5% from last June. Sales of farm product raw materials were down 8.1% from last month. THE ECONOMIC WEEK AHEAD: Wednesday the Census Bureau will report about retail sales for July and business inventories for June. Thursday, the Labor Department will issue its initial claims report. Friday, we’ll learn the producer price index (PPI) for July from the Bureau of Labor Statistics.
Market Mirror
Friday, the Dow climbed 185.66 points (1.13%) to 16,553.93, the NASDAQ was up 35.93 points (0.83%) at 4,370.90, and the S&P 500 gained 22.02 points (1.15%) to finish at 1,931.59. The Russell 2000 closed 11.59 points (1.04%) higher at 1,131.35, and the Wilshire 5000 increased 219.78 points (1.09%) to 20,436.16. On the NYSE, 3.2 billion shares traded, with advancing issues outnumbering declining issues more than 3 to 1. On the NASDAQ, 2.8 billion shares changed hands, with a more than 2 to 1 lead for advancers. The prices of the 10-year Treasury note and 30-year Treasury bond each were down 2/32, increasing their yields to 2.420% and 3.229%, respectively. WEEK’S WORTH: For the week ending August 8, the Dow increased 0.37%, the NASDAQ closed 0.42% higher, and the S&P 500 was up 0.33%. The Russell 2000 climbed 1.48%, and the Wilshire 5000 gained 0.44%. 
Rules & Regulators
Litigators Call for Supreme Court Review of Tussey Case
The law firm of Schlichter, Bogard & Denton has petitioned the U.S. Supreme Court to review a federal appellate court decision in Tussey v. ABB, Inc. While the appeals court agreed that ABB and its plan fiduciaries failed to adequately monitor recordkeeping fees, it decided other parts of the decision were in error. Namely, the appeals court decided ABB did not further breach its fiduciary duties when it decided to drop the Vanguard Wellington Fund as an investment option to be replaced with Fidelity’s Freedom Funds—using the assumption that plan fiduciaries must be given discretion when choosing investment options. Jerry Schlichter, tells PLANSPONSOR, it is inappropriate to give such discretion to plan fiduciaries that have already been proven by the same appeals court (and as part of the same case, no less) to have breached their fiduciary duty.
Charles David Snyder, fiduciary to the Cleveland-based Attevo 401(k) retirement plan, has been ordered by a judge to restore $143,481.42 to the plan. Judge Christopher A. Boyko of the U.S. District Court for the Northern District of Ohio issued a consent judgment and order requiring Snyder to pay. The judgment resolves a Department of Labor (DOL) lawsuit, Perez v. Snyder, et al (civil action number 1:13-cv-02474-CAB), which alleged the plan’s fiduciaries violated the Employee Retirement Income Security Act (ERISA) when they failed to remit participant contributions and loan repayments withheld from paychecks to the retirement plan.
The World at Large
In the UK, two different regulators oversee the two different types of arrangements that dominate defined contribution (DC) plans—the Pensions Regulator oversees trustee-run arrangements and the Financial Conduct Authority (FCA) oversees contract-based schemes. The spotlight has fallen on contract-based schemes—for which insurance firms manage the plans on behalf of employers—and how they can improve standards. The solution, put forward by the FCA, has been to call for independent governance committees (IGCs), and this week the watchdog launched a consultation on what these should look like.
Small Talk
ON THIS DATE:  In 1896, Harvey Hubbell received a patent for the electric light bulb socket with a pull-chain. In 1934, a group of federal prisoners classified as “most dangerous” arrived at Alcatraz Island, a 22-acre rocky outcrop situated 1.5 miles offshore in San Francisco Bay. The convicts—the first civilian prisoners to be housed in the new high-security penitentiary—joined a few dozen military prisoners left over from the island’s days as a U.S. military prison. In 1992, in Bloomington, Minnesota, the Mall of America opened. It was the largest shopping mall in the United States. In 1994, the longest work stoppage in major league baseball history began. Because of the strike, the 1994 World Series was cancelled; it was the first time baseball did not crown a champion in 89 years.
SURVEY SAYS: 40 Years of ERISA
Next month, specifically September 2, will mark the 40th anniversary of the passage of the Employee Retirement Income Security Act (ERISA). In the past 40 years, a number of changes have been made to the law through various legislation. Last week, I asked NewsDash readers which change to ERISA in the past 40 years they think has MOST helped participant retirement savings outcomes, and what suggestions they have for changes that would be helpful. The change to ERISA during the past 40 years that received the greatest percentage of votes for being the one that most helped participant retirement savings outcomes was the establishment of Section 401(k) qualified deferred compensation plans, at 44.7%. This was followed by the sanctioning of automatic enrollment subject to certain requirements, at 21.3%. When asked what changes to ERISA they suggest to improve participant retirement savings outcomes, common responses included simplifying language of disclosures/communications to employees, removing deferral/contribution limits, eliminating rules that make DBs unattractive to offer, and making automatic enrollment mandatory. In comments, responding readers noted that ERISA’s intent was to protect pensions and commented on how the shift in the retirement landscape to employee retirement savings being mostly in defined contribution (DC) plans no longer matches that intent. Some shared memories or “birthday wishes,” and one reader offered us a benefit of ERISA not considered within the survey: “[I]t has provided me with a great livelihood – and more importantly, great prospects for a comfortable and fulfilling retirement.” Editor’s Choice goes to the reader whose comment could be viewed as either a humorous 40th-birthday “warning” or a commentary on revisiting the appropriateness of the law’s provisions: “Time for ERISA to have a mid-life crisis.” A big thank you to everyone who participated in our survey!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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