Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 18th, 2014
Benefit Briefs
How the Government Views Retirement Plan Tax Deferrals
A new report from the U.S. Congress’ Joint Committee on Taxation offers a glimpse into the federal government’s perception of the tax benefits associated with retirement savings. In a word, the committee sees the income tax deferrals associated with qualified defined contribution (DC) retirement plans as expenditures—despite the fact that income tax will eventually be paid on qualified DC account assets when participants use them for annual income in retirement. Under current law, payments from Social Security retirement benefits are also partially excluded or fully excluded from an individual’s gross income, further adding to the government’s “expenditures” for retirement tax benefits. It’s not that the joint tax committee is unaware of the fact that taxes will eventually be paid on qualified retirement plan assets (at least when it comes to DC accounts), says Rep. Reid Ribble (R-Wisconsin). The problem is rather how the Congressional Budget Office (CBO) and other key players in the tax assessment, collection and expenditure process are forced to account for tax-deferred savings under current law.
PLANSPONSOR’s 2014 Defined Benefit Administration Survey
Retirement plan sponsors that want to bring together defined benefit (DB) and/or nonqualified (NQ) plan services with defined contribution (DC) plan services under one provider have many options. In the retirement industry, discussions about “bundling plan services” can mean different things. A defined contribution plan sponsor can bundle its plan services with payroll services using a payroll provider; a retirement plan sponsor can bundle all services pertaining to one retirement plan—defined contribution, defined benefit or nonqualified—with one service provider; or a plan sponsor can bundle all services for all of its retirement plans at one provider. The latter is generally referred to as total retirement outsourcing (TRO).
PLANSPONSOR’s 2014 NQDC Buyer’s Guide
It is not surprising to find a certain nexus between the administrative underpinnings of today’s deferred comp programs and that of the most widely utilized deferred compensation arrangement: the 401(k) plan. In fact, the services offered to participants in deferred compensation programs are much like those offered to qualified plans. This survey provides a listing of which plan types, financing vehicles and service channels each provider offers as well as a survey of plan sponsors’ experiences with deferred compensation plans.
Buyer's Market
A new target-date fund series will be co-managed by Morningstar Associates and AllianceBernstein, and boasts a diverse cast of managers, including Franklin Templeton and PIMCO. The AllianceBernstein Multi-Manager Select Retirement Funds offer access to high-quality managers, based off assessments delivered through Morningstar Associates’ independent investment selection process. The goal is to deliver a better target-date design to plan sponsors and participants by working with industry peers, AllianceBernstein says.
Industry Voices
Industry Voice: Do PRTs Consider Retiree Concerns?
Retirement industry publications discussing pension risk transfer (PRT) actions by plan sponsors often fail to mention those most impacted by de-risking: the retirees. Shouldn’t someone be in the room representing the retirees being subjected to the de-risking? And, shouldn’t that someone be chosen by the retirees?
Economic Events
The Producer Price Index (PPI) for final demand rose 0.1% in July, according to the Bureau of Labor Statistics. This increase followed a 0.4% advance in June and a 0.2% decline in May. In July, index for final demand services rose 0.1% and prices for final demand goods were unchanged. THE ECONOMIC WEEK AHEAD: Tomorrow, we’ll learn the consumer price index for July from the Bureau of Labor Statistics, and the Census Bureau will report about housing starts for July. Thursday, the Labor Department will release its initial claims report, and the National Association of Realtors will report about existing home sales for July.
Market Mirror
Friday, the Dow closed 50.67 points (0.30%) lower at 16,662.91, the NASDAQ was up 11.93 points (0.27%) at 4,464.93, and the S&P 500 decreased by 0.12 (0.01%) to 1,955.06. The Russell 2000 decreased by 1.69 (0.15%) to 1,141.65, and the Wilshire 5000 was virtually unchanged at 20,704.88. On the NYSE, 3.2 billion shares traded, with only a slight lead for decliners. On the NASDAQ, 2.7 billion shares changed hands, with 1.4 declining issues for every advancing issue. The yields for the 10-year Treasury note and 30-year Treasury bond were 2.342% and 3.136%, respectively. WEEK’S WORTH: For the week ending August 15, the Dow was up 0.66%, the NASDAQ climbed 2.15%, and the S&P 500 increased 1.22%. The Russell 2000 finished 0.91% higher, and the Wilshire 5000 gained 1.31%.
Financial Sense
The funded status of the largest corporate defined benefit (DB) pension plans decreased by $5 billion during July, according to data from Milliman, Inc. The Milliman Pension Funding Index (PFI) tracks the nation’s 100 largest corporate-sponsored defined benefit pension plans. During the month of July, these plans experienced a $3 billion decrease in pension liabilities and an $8 billion decrease in asset values.
Do You Need a Transition Manager?
The need for transition management services depends on the size and liquidity of the assets, as well as investment strategies of fund managers. Whenever a large institutional investor or asset owner needs to move assets between investing mandates, they need a transition manager to do that effectively, says Travis Bagley, director, transition management-Americas at Russell Investments. “Turning to an experienced transition manager can minimize the cost and the risk, in order to gain a better performance outcome,” Bagley says. A transition manager knows strategies for minimizing the time assets are out of the market and are often able to perform transactions at a lower cost than the plan sponsors can themselves. It’s equally relevant to defined contribution (DC) and defined benefit (DB) plans, he notes: Both plans are sensitive to risk and want to manage investment risk. But not every single move of assets requires these services, Kevin Byrne, head of the transition management group at Fidelity, points out.
The World at Large
While the bad guys in the Star Wars mythology may be accused of tyranny and megalomania, one point in their favor is they never practiced age discrimination when recruiting apprentices. While Jedi master Yoda tells Luke Skywalker he is too old to complete his training, Emperor Palpatine takes on an aged Count Dooku as his apprentice following the death of Darth Maul. It seems whichever galaxy you’re in whether it be far, far away or nearby, age discrimination in recruiting apprentices is a hot button topic, while growing life expectancy is making people put retirement off further and further.
Scottish members of the UK’s National Employment Savings Trust could find themselves “kicked out” of the scheme following a Yes vote on independence, a pension lawyer has claimed.
Small Talk
ON THIS DATE:  In 1587, Virginia Dare became the first child to be born on American soil of English parents in the Roanoke Island colony. In 1590, John White, the governor of the Roanoke Island colony in present-day North Carolina, returned from a supply-trip to England to find the settlement deserted. White and his men found no trace of the 100 or so colonists he left behind, and there was no sign of violence. In 1894, the Bureau of Immigration was established by the U.S. Congress. In 1920, the 19th Amendment to the Constitution, guaranteeing women the right to vote, was ratified by Tennessee, giving it the two-thirds majority of state ratification necessary to make it the law of the land. In 1966, the first pictures of earth taken from moon orbit were sent back to the U.S. In 1979, the group Chic’s song “Good Times” hit No. 1 on the U.S. pop charts.
SURVEY SAYS: Salary and Career Success
We recently covered a survey that found most employees say they can feel successful without earning large paychecks. Last week, I asked NewsDash readers, are you satisfied with your salary, and what salary would make you feel successful? More than half (55.6%) of responding readers indicated they are satisfied with their current salaries, while the rest are not. One-third (33.8%) of respondents said their salary would need to be $100,000 up to $200,000 in order to feel successful in their careers. Nearly three in ten (29.6%) reported they need $75,000 up to $100,000 to feel successful. Nearly two in ten (18.3%) responded that their feeling successful is not based on salary. Fifty-five percent of responding NewsDash readers said they have asked for a raise, and among those, 68.3% received a raise by asking for one, while 31.7% did not. In verbatim comments, some readers shared why their salaries make them feel successful or not, and some discussed salary fairness and perceptions in general. Many expounded on what other factors they think signify (or should make people have a feeling of) success. Editor’s Choice goes to the reader who shared these words of wisdom: “As far as career [and salary], I’ve seen the desks of altruists and status seekers cleaned off with the same disinterest. I’m reminded, then, of a well-known recovery program axiom, ‘To thy own self be true.’ There is my measuring stick.” Thanks to everyone who participated in our survey!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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