Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 12th, 2014
Benefit Briefs
Hispanics Seeking Investment Education
Nearly three-quarters (72%) of Hispanic investors polled for a Wells Fargo survey said they wish they could learn more about investing in mutual funds, stocks and bonds. Almost half of surveyed Hispanics (45%) say that no one ever taught them about saving and investing, compared with 31% of U.S. investors overall, according to Wells Fargo. Despite a strong interest in personal finance and investing, one in three Hispanic investors surveyed (34%) does not feel comfortable investing in mutual funds, stocks, or bonds—versus 27% among U.S. investors overall. Fifty-five percent of Hispanic investors agree that “raising and investing in kids is the best retirement plan.”
Phased Retirement Program Set Up for Federal Employees
The U.S. Office of Personnel Management (OPM) has issued final regulations on Phased Retirement, a program allowing full-time federal employees to work part-time schedules and begin to draw retirement benefits. During Phased Retirement, an employee will receive a partial annuity and will keep accruing additional service credit toward their final annuity. Employees approved for phased retirement will spend 20% of their time in mentoring activities to facilitate the transfer of their knowledge and skills to other employees within the agency.
Buyer's Market
Mercer announced four hires within its Midwest U.S. Health & Benefits business to meet growing client needs in the region. Jeff Smith has joined Mercer as a principal, and senior health and benefits consultant. Tyler Harshey has rejoined Mercer’s consulting team in Chicago as a principal and lead actuary for the Mercer Marketplace Group Active Exchange. Matthew Rehmann has been named the Midwest exchange sales leader, where he will be responsible for implementing the client development strategy for Mercer Marketplace in the Midwest. Rey Balcazar has assumed the role of Midwest exchange solution leader, in which he will focus on market education, sales support and client engagement around Mercer Marketplace.
BNY Mellon Launches New Retirement Group
BNY Mellon named Michael Gordon to head the firm’s new Retirement and Strategic Solution Group, which specializes in retirement and insurance solutions that can complement traditional strategies. The new business unit is dedicated to meeting current and anticipated investing and risk management needs for retirement plan and other institutional clients, according to BNY Mellon. Kim Mustin, BNY Mellon Investment Management’s head of North American distribution, says the firm is looking to add non-traditional investment solutions to complement its suite of more traditional retirement plan and insurance offerings.
Market Mirror
Yesterday, the Dow ticked up 16.05 points (0.10%) to 16,569.98, the NASDAQ gained 30.43 points (0.70%) to finish at 4,401.33, and the S&P 500 was up 5.33 points (0.28%) at 1,936.92. The Russell 2000 climbed 10.59 points (0.94%) to 1,141.94, and the Wilshire 5000 closed 90.97 points (0.45%) higher at 20,527.13. On the NYSE, 3.2 billion shares traded, and on the NASDAQ, 2.8 billion shares changed hands, with 2.7 advancing issues for every declining issue on both exchanges. The prices of the 10-year Treasury note and 30-year Treasury bond both increased 1/32, decreasing their yields to 2.421% and 3.235%, respectively.
Rules & Regulators
A federal appellate court has found reforms made to the pension plan covering public safety workers in Baltimore, Maryland, did not violate the Contract Clause of the U.S. Constitution. Reversing a district court decision, the 4th U.S. Circuit Court of Appeals concluded that the members’ rights under the Contract Clause were not impaired, because the members retained a state law remedy for breach of contract. The plaintiffs—active and retired members of the police and firefighters pension fund as well as unions representing them—contend that the city extinguished any state law remedy for breach of contract, because the city has not waived all available defenses based on its enactment of the ordinance reforming benefits. They also maintain that, by relying on its reserved legislative power to modify the retirement plan, the city has refused to pay damages for breach of contract and has deprived the plaintiffs of a remedy under state law.
Employers Should Stay the Course on ACA Compliance
Despite newly created uncertainties, employers should get a process in place now to comply with employer shared responsibility and reporting requirements of the Patient Protection and Affordable Care Act (ACA). The Internal Revenue Service (IRS) recently issued draft forms for employers to report health care coverage to workers and the agency, but no instructions have been issued yet. Also, two recent court cases call into question whether individuals who get insurance through exchanges in states that use federally run exchanges are allowed by the law to get subsidies. John Haslinger, vice president of strategic advisory services at ADP in Alpharetta, Georgia, says employers should become familiar with the draft forms. Each employee must receive a Form 1095C and will have to include that with their income tax filing. He notes that for each employee, there are 11 different possible codes about the offer of coverage, including safe harbor codes about why employees were not offered coverage. “It will be somewhat of a time-consuming process for employers. They will have to pull data from three or four different systems to fill out the form,” he tells PLANSPONSOR.
Financial Sense
The Securities and Exchange Commission (SEC) has filed charges of securities fraud against the state of Kansas related to municipal bond offerings. The problem, according to the SEC, is that the state’s municipal bond offering documents failed to disclose that the state’s pension system was significantly underfunded and the unfunded pension liability created a repayment risk for investors in those bonds. These findings resulted in a cease-and-desist order instituted against Kansas by the SEC.
The median return of the BNY Mellon U.S. Master Trust Universe was 3.74% for the second quarter of 2014, which is the fourth straight quarter of positive results. The universe’s median plan was up 16.22% for the 12 months ending June 30. Median allocations by asset class continue to show institutions more invested in alternatives, real estate and other real assets compared to three years ago, with a corresponding decrease in U.S. equity allocations.
Proper Analysis Ensures Right Pension Risk Transfer Decision
If defined benefit plan sponsors start a pension risk transfer process with the wrong assumptions, information or consulting team, they may end up making the wrong decision. During a webinar sponsored by Dietrich & Associates, Mark Unhoch, vice president and senior consultant at the firm, advised plan sponsors considering a pension risk transfer to start the planning process immediately because planning could take three to six months. He said plan sponsors should develop clear and concise goals and objectives, set parameters for their analysis for determining whether to initiate a risk transfer and which kind, and identify the deliverables and appropriate contributors to the analysis.
Large retirement plans outperformed small plans in the second quarter of 2014. This performance propelled the median return for all institutional assets tracked by the Wilshire Trust Universe Comparison Service (Wilshire TUCS) to 3.43%. “This is the fourth positive quarter in a row that combined to make the median one-year return 15.71%, which in turn helped move the 10-year median return to 7.01%,” says Robert J. Waid, managing director at Wilshire Associates, based in Santa Monica, California. “This is the first time the 10-year median return has been above 7% since the third quarter of 2013.”
Small Talk
ON THIS DATE:  In 1851, Isaac Singer was issued a patent on the double-headed sewing machine. In 1865, disinfectant was used for the first time during surgery by Joseph Lister. In 1867, U.S. President Andrew Johnson sparked a move to impeach him when he defied Congress by suspending Secretary of War Edwin M. Stanton. In 1877, Thomas Edison invented the phonograph and made the first sound recording. In 1898, the Spanish-American War was ended with the signing of the peace protocol. The U.S. acquired Guam, Puerto Rico and the Philippines. Hawaii was also annexed. In 1939, the film “The Wizard of Oz” premiered in Oconomowoc, Wisconsin. In 1964, Mickey Mantle set a major league baseball record when he hit home runs from both the left and ride sides of the plate in the same game. In 1981, IBM unveiled its first personal computer (PC). In 1990, fossil hunter Susan Hendrickson discovered three huge bones jutting out of a cliff near Faith, South Dakota, which turned out to be part of the largest Tyrannosaurus Rex skeleton ever discovered.   TUESDAY TRIVIA: According to the U.S. Federal Reserve, the average life span of a $1 bill is 21 months, while a $100 bill usually lasts 7.5 years. 
TRIVIAL PURSUITS: When did the practice of leaving a tip for restaurant staff originate?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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