NewsDash – August 15, 2014

August 15th, 2014

Benefit Briefs

Not the Time for In-Plan Income Solutions, PEI Says

Current conditions in the retirement benefits arena make in-plan lifetime income solutions a difficult proposition for many plan fiduciaries, despite growing demand for the products. A new analysis from Portfolio Evaluations, Inc. (PEI) suggests while in-plan lifetime income solutions can be a powerful tool for some participants to address lifetime income needs, the current regulatory framework governing such products is ambiguous as to the extent of fiduciary risk involved. This makes it exceedingly difficult for prudent plan officials to implement in-plan income guarantees. PEI suggests this perceived fiduciary risk and regulatory uncertainty is enough to scare most plan sponsors and advisers off of in-plan income solutions—fearing they will somehow be on the hook for participants’ lifetime income needs should a provider of an in-plan income product fail to deliver “promised” benefits. However unlikely that is, PEI says, it’s still a risk to be taken seriously.

The lack of key considerations, such as the effect of future contributions to retirement plans, leads some research to paint an inaccurate picture of Generation X’s retirement readiness. In the latest edition of its Notes publication, the Employee Benefit Research Institute (EBRI) points out that its own studies since 2010 have consistently found the overall retirement income adequacy prospects for Gen Xers are approximately the same as Early Boomers and Late Boomers; however, a number of other studies and research groups suggest Gen Xers are set to fare much worse than Boomers in terms of projected retirement income adequacy. EBRI says there are a number of possible explanations for these very different conclusions.

Employers Want to Boost NQDC Plan Participation

Non-qualified executive retirement plan sponsors report that they would like to see participation levels in these plans increase. According to the 2014/2015 edition of Executive Benefits: A Survey of Current Trends from The Newport Group, 78% of survey respondents offer a non-qualified deferred compensation (NQDC) plan to executives, while there is a declining prevalence of supplemental executive retirement plans (SERPs), from 67% offering them in 2009 to only 30% offering them now. Since 2006, participation rates for NQDC plans have averaged 46%.

Buyer's Market

The Principal Financial Group has hired Mike Parrett as vice president of consulting. Parrett, who takes on the VP role effective August 18, will provide advanced consulting to employee stock ownership plans (ESOPs), including financial analysis and transaction structuring.

Economic Events

In the week ending August 9, the advance figure for seasonally adjusted initial claims for unemployment insurance was 311,000, an increase of 21,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 289,000 to 290,000. The four-week moving average was 295,750, an increase of 2,000 from the previous week’s revised average. The previous week’s average was revised up by 250 from 293,500 to 293,750. The average interest rate for a 30-year fixed-rate mortgage is 4.12%, down from 4.14% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.24%, down from 3.27%.

Market Mirror

Thursday, the Dow closed 61.78 points (0.37%) higher at 16,713.58, the NASDAQ gained 18.88 points (0.43%) to finish at 4,453.00, and the S&P 500 was up 8.46 points (0.43%) at 1,955.18. The Russell 2000 increased by 1.56 (0.14%) to 1,143.34, and the Wilshire 5000 climbed 86.82 points (0.42%) to 20,704.33. On the NYSE, 3.2 billion shares traded, with a more than 2 to 1 lead for advancers. On the NASDAQ, 2.8 billion shares changed hands, with 1.3 advancing issues for every declining issue. The price of the 10-year Treasury note was up 7/32, bringing its yield down to 2.405%. The price of the 30-year Treasury bond increased 1 1/32, decreasing its yield to 3.192%.

Financial Sense

Structural Challenges Impact Multiemployer Plan Funding

Multiemployer retirement plans face three structural challenges that affect their funding, according to a brief from the Center for Retirement Research at Boston College. In “Private Sector Multiemployer Pension Plans – A Primer,” researchers note the construction industry, which supports the largest component of multiemployer participants, is highly cyclical; the lack of new entrants to multiemployer plans leads to a very high ratio of retirees to workers; and withdrawal liability–the payments required when an employer exits a plan–is often inadequate so that “orphaned” participants–those left behind when employers exit–create a burden for remaining employers.

DB Sponsors May Pay Later for Funding Relief

Although pension funding stabilization will ease financial constraints on defined benefit (DB) plan sponsors in the near term, it may place a heavier burden on them later. An analysis from Towers Watson suggests minimum required contributions for DB plan sponsors will be reduced by about $69 billion for plan years 2013 to 2017 under the Highway and Transportation Funding Act signed into law by President Obama August 8. The bill extends relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average. However, between plan years 2013 and 2021, total minimum required contributions will increase by about $32 billion, according to Towers Watson’s estimates. This reflects both the elimination of stabilization and the reduced capital accumulation in the pension plan resulting from lower contributions.

Small Talk

Supporting Family Hindering Plans for Retirement

Providing financial support for family members is throwing a wrench in some Americans’ plans for retirement. Fifty-six percent of Americans are providing some form of financial support to either their elder parents or young adult children by means of housing, living expenses and transportation, according to a recent survey by financial education nonprofit American Consumer Credit Counseling. For employees indicating they play a financially supportive role in a parent or child’s life, nearly 20% are unable to pay off their debts or are accruing more debt because of it. In addition, 12% have delayed retirement.

ON THIS DATE: In 1848, the dental chair was patented by M. Waldo Hanchett. In 1911, the product Crisco was introduced by Procter & Gamble Company. In 1914, the Panama Canal was officially opened to commercial traffic as an American ship sailed from the Atlantic to the Pacific Ocean. In 1948, CBS-TV inaugurated the first nightly news broadcast with anchorman Douglas Edwards. In 1961, two days after sealing off free passage between East and West Berlin with barbed wire, East German authorities began building a wall—the Berlin Wall—to permanently close off access to the West. In 1969, the Woodstock Music Festival opened on a patch of farmland in White Lake, a hamlet in the upstate New York town of Bethel. In 1994, the U.S. Social Security Administration became an independent government agency. It had been a part of the Department of Health and Human Services agency. In 2001, astronomers announced the discovery of the first solar system outside our own. They had discovered two planets orbiting a star in the Big Dipper. And now it’s time for FRIDAY FILES!

Ok, I admit, this is silly, but it may be funny to some folks. It wasn’t funny to me until it regur.gitated (not gross, I promise).

This is how birds go fishing.

In Chicago, Illinois, two men went to a restaurant demanding food and telling the owner they had a g.un and would k.ill him. According to the Huffington Post, the owner told the men he was too busy at the moment and to come back in one hour—and they did. When they showed up the second time, they demanded $100 in addition to food. The owner told the men he needed to get his wife’s check book, but went and called the police. The men were each charged with one count of attempted aggravated robbery. One man was also charged with possession of a replica fire.arm—the g.un they had was a squirt g.un. In Fletcher, Vermont, state police responded to a single-vehicle rollover with possible injuries and found the driver had a criminally suspended license and was operating the motor vehicle while into.xicated. A preliminary breath test found he was three times over the legal limit. He was arrested and processed for his second DUI after he was released from the hospital. According to the local NBC station, while on the scene, troopers say the driver’s brother drove up to the scene, and police observed that he was under the influence as well, and performed a breath test which confirmed his impairment. He was also charged for DUI, and this is his second incident in two weeks for getting arrested and charged with DUI. Meanwhile, the father of the two boys got behind the wheel of second one’s truck and drove closer to the scene. The warden said he also appeared impaired and police ordered him to stop the vehicle. The father was tested and found to have an alc.ohol level three times over the legal limit as well. He was also arrested and charged with DUI.

August 13 was International Left-Handers Day. Here are some interesting findings about left-handers.

In Halifax, Nova Scotia, a woman went to an airline counter at the Halifax airport asking the company to stop one of its planes because she believed her partner was leaving to see another woman, an employee at the airport said in an interview with The ChronicleHerald. The woman then drove toward the hangar and climbed the fence. “She ended up going onto the bigger runway and she was essentially wandering around there,” the employee said. “She was literally going to try to stop the plane.” An airport authority worker got the woman into a truck. Another subdued her after she opened the door of the vehicle and began shouting, the employee said. The airline contacted the woman’s partner who indicated he was not on the aircraft. The Royal Canadian Mounted Police do not expect to make any charges. In Ibiza, Spain, police stopped a van for a routine breath.alyzer test (Ibiza is known as a party island). They found the driver had not been drinking, but he was carrying three married Swiss couples who were having relations in the back of the van, The Local reports. All six tourists were cited for not wearing their seatbelts. In Braintree, Massachusetts, a police officer pulled up in his cruiser behind a Maserati sports car with the body painted black and white, a police-style shield on the doors, and decals for 911, K-9 and speed enforcement. The officer said he “didn’t know of any (police) department that had a Maserati,” so he turned on his cruiser’s lights and stopped the car, according to The Patriot Ledger. The driver, who was arrested for impersonating a police officer, told the arresting officer he believed he was assisting the police “because other drivers noticed him and slowed down, thinking it was a police vehicle.” However, the police chief told the newspaper that the Maserati’s police-style shield decorations said “Decepticons punish and enslave,” rather than the usual police motto “protect and serve.” In Chicago, Illinois, a would-be rob.ber went to a bar in the Wicker Park neighborhood and used a tool to easily get the lock off the door. He then pulled on the door, but couldn’t get it open. The rob.ber tried pulling on the door for three minutes, according to news reports, before giving up and going away. The problem wasn’t with the door; a sign on it clearly said “Push.” Have a great weekend!

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