Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 19th, 2014
Benefit Briefs
Health Care Reform Affecting Retirement Savings
Bill Heestand, president of The Heestand Co., an employee benefits advisory firm in Portland, Oregon, fields a lot of client queries about “defined contribution health benefits.” Some questions are basic—what is a defined contribution (DC) health insurance plan? Where can I buy one? Others are more sophisticated—should I complement my company’s high-deductible offerings with a flexible spending account (FSA) or a health reimbursement account (HRA)? And what is the proper role of a health savings account (HSA) within the context of the Patient Protection and Affordable Care Act (ACA)? Whether or not they get lost in the alphabet soup of health care reform, Heestand says employers are adopting the defined contribution terminology as shorthand for workplace health insurance arrangements built to give employers more control over the cost and delivery of health benefits.
Thirty-six percent of Americans polled have not saved any money for retirement, according to a new report. A survey found, in the age 18 to 29 demographic, nearly seven in 10 (69%) workers have not started saving for retirement. Those in the 30 to 49 age bracket are doing somewhat better but still struggle—with 33% having no amount saved for retirement.
Thoughts About the IPS and Unsuspecting Fiduciaries
In the case of Tussey v. ABB Inc., a federal appeals court found that the members of a plan committee had violated their fiduciary duties by failing to follow the terms of the investment policy statement (IPS). That brings several things to mind: The committee could have easily avoided the problem by amending the IPS or by having an IPS that permitted decisions that are inconsistent with the IPS—and, in case you are asking, yes, that is possible; the committee members may have forgotten about the IPS provision that they violated; and did the plan’s investment adviser make a recommendation that was inconsistent with the IPS?
Buyer's Market
Northern Trust Asset Management has made a number of senior hires in support of its growing outsourced chief investment officer (OCIO) services. Patrick Groenendijk is a client investment officer in the firm’s Multi-Manager Solutions business. James Hayes and Tracey Nykiel also recently joined Northern Trust as client investment officers. Nazneen Kanga has joined as a solutions strategist focusing on foundations, endowments and global family offices. Kurt Zemaier has joined as a pension risk strategist.
Webcast Event
Although defined contribution (DC) plan assets have largely flowed to target-date funds (TDFs) in recent years, many advisers still prefer customized solutions for their retirement plan clients. The next generation of asset-allocation strategies is here. Can customized glidepaths that factor in features such as employee demographics, savings rates, and defined contribution and defined benefit (DB) plan features be an alternative to managed accounts? Are your defined contribution (DC) plan clients ready for a customized, lower-cost alternative to managed accounts with Employee Retirement Income Security Act (ERISA) 3(38) protection on the asset allocation? Discover how the next generation in asset-allocation strategies—MassMutual Managed Allocations, powered by BlackRock—combines the simplicity of a glidepath approach, professional management and fiduciary oversight in a way that adds value for participants—and helps you demonstrate your value to retirement plan sponsors. This webcast is for plan advisers only.
Market Mirror
Yesterday, the Dow gained 175.83 points (1.06%) to finish at 16,838.74, the NASDAQ closed 43.39 points (0.97%) higher at 4,508.31, and the S&P 500 increased 16.68 points (0.85%) to 1,971.74. The Russell 2000 climbed 16.75 points (1.47%) to 1,158.40, and the Wilshire 5000 was up 187.74 points (0.91%) at 20,892.62. On the NYSE, 3.2 billion shares changed hands, with 3.4 declining issues for every advancing issue. On the NASDAQ, 2.8 billion shares traded, with a 2.8 to 1 ratio of decliners to advancers. The price of the 10-year Treasury note decreased 14/32, increasing its yield to 2.392%. The price of the 30-year Treasury bond fell 1 7/32, bringing its yield up to 3.198%.
Rules & Regulators
DOL Issues Guidance for Locating Missing Participants
Sponsors of terminated defined contribution (DC) plans can use new guidance from the Department of Labor (DOL) to satisfy the regulator’s expectations for finding and paying missing participants. Field Assistance Bulletin (FAB) 2014-01 addresses ways for fiduciaries of terminated DC plans to fulfill their obligations under the Employee Retirement Income Security Act (ERISA) to locate missing participants and properly distribute the participants’ account balances. The FAB eliminates the requirement in FAB 2004-02 to use the discontinued Internal Revenue Service (IRS) letter-forwarding service or the Social Security Administration (SSA) letter-forwarding service. In their place, the required search steps have been expanded to include the use of electronic search tools that do not charge a fee.
Wells Fargo Bank has reached an agreement with several pension funds to settle a lawsuit related to securities lending practices. The U.S. District Court for the District of Minnesota granted final approval of a $62.5 million settlement in the class action against Wells Fargo. The settlement proceeds will be shared by a class of approximately 100 pension funds, corporations, insurance companies and others who participated in Wells Fargo Bank’s securities lending program from January 2006 to the present.
ERISA and Health Benefits: Yesterday, Today and Tomorrow
This September will mark 40 years since the Employee Retirement Income Security Act (ERISA) was enacted. While the focus of ERISA is retirement plans, the law created rules and protections for other employee benefits, including group health plans. “ERISA was enacted in 1974 and established minimum standards for both pension and health care plans,” Neal Schelberg, partner at law firm Proskauer Rose in its Labor and Employment Law Department, tells PLANSPONSOR.  For health benefit plans, ERISA created standards for reporting certain plan information to the government and disclosing certain plan information to participants, as well as creating a claims and appeals process, says the New York-based Schelberg, who is also a member of his firm’s Employee Benefits, Executive Compensation and ERISA Litigation Practice Center. Amy Bergner, managing director, PwC Human Resource Services’ health care practice, explains to PLANSPONSOR, “What ERISA basically does is to govern the way that group health plans are administered.”
Financial Sense
The Options in Lieu of DB Plan Termination
These are interesting times for sponsors of defined benefit (DB) pension plans subject to the Employee Retirement Income Security Act (ERISA). We are witnessing a significant shift of plan assets from the defined benefit retirement system to tax-qualified and other defined contribution (DC) and individual retirement accounts (IRAs). We should expect this trend to persist as the cost of maintaining DB plans continues to rise and their funding status continues to wreak havoc on plan sponsor balance sheets. Meanwhile, numerous sponsors still operate defined benefit plans, and many are looking to “de-risk” them.
The Feeling’s Mutual
Long-term funds of all types attracted $30 billion in July, lifting year-to-date net inflows to $293 billion, according to Strategic Insight (SI), an Asset International company. Inflows to equity funds in July totaled $18.2 billion, driven by a $15.2 billion inflow to international equity funds. The international total return category had the most inflows, with $1.8 billion, and emerging market equity finished in a close second for the asset class, at $1.6 billion.
Small Talk
ON THIS DATE:  In 1812, during the War of 1812, the U.S. Navy frigate Constitution defeated the British frigate Guerrière in a furious engagement off the coast of Nova Scotia. Witnesses claimed that the British shot merely bounced off the Constitution’s sides, as if the ship were made of iron rather than wood. By the war’s end, “Old Ironsides” destroyed or captured seven more British ships. In 1848, the discovery of gold in California was reported by the New York Herald. In 1856, Gail Borden received a patent for his process of condensing milk by vacuum.  In 1909, the first race was held at the Indianapolis Motor Speedway, now the home of the world’s most famous motor racing competition, the Indianapolis 500. In 1929, “Amos and Andy,” the radio comedy program, made its debut on NBC starring Freeman Gosden and Charles Correll. In 1934, Adolf Hitler was approved for sole executive power in Germany as Fuehrer. In 1964, The Beatles kicked off their first U.S. tour at San Francisco’s Cow Palace. In 1999, Lorne Michaels received a star on the Hollywood Walk of Fame. In 2004, Google Inc. stock began selling on the Nasdaq Stock Market. The initial price was set at $85 and ended the day at $100.34 with more than 22 million shares traded.   TUESDAY TRIVIA: In the United States, the question of whether a tomato is a vegetable or fruit was put to rest by an 1893 Supreme Court decision which held that tomatoes should be considered vegetables for customs purposes.
TRIVIAL PURSUITS: In which state did the first gold rush in American history take place?
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2022 Recordkeeping Survey
IRS Updates Life Expectancy Tables for Retirees
TRIVIAL PURSUITS: How Many States Are in More Than One Time Zone?
TRIVIAL PURSUITS: Meaning and Origin of the Idiom “Watershed Moment?”
TRIVIAL PURSUITS: Which are the most northern, southern, eastern and western U.S. States?

Editorial: Alison Cooke Mintzer


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