Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 20th, 2014
Benefit Briefs
Retirement Plan Participants Not Utilizing Help
Plan participants increasingly realize they are responsible for generating their own retirement income, but many still pass over investment advice offerings, a survey from Schwab Retirement Plan Services finds. Today, many 401(k) plans offer some type of professional, personalized investment advice, but while many of the participants surveyed believe they would likely benefit from this type of assistance, relatively few are actually taking advantage of it. Less than one quarter (23%) of those with access to professional 401(k) advice say they have used it. According to Steve Anderson, head of Schwab Retirement Plan Services, the survey didn’t explore why participants are not using the help offered to them, but Schwab did not find the results surprising. “It’s similar to behaviors we’ve observed in the industry for some time,” he tells PLANSPONSOR. “Plan sponsors may create tools for participants, but if they have to seek them out by going to a website or making a phone call, rarely do they take advantage.” Anderson believes plan sponsors need to use what the industry has learned from behavioral finance and enroll participants in a program that offers help or advice.
The Social Security Administration has declared this week “National my Social Security Week.” The administration is asking for help encouraging Americans to sign-up for their own my Social Security account. It is offering posters, publications, social media content and other tools to use for promotion. In a recent report, Mercer and the Stanford Center on Longevity suggest retirement plan participants make a variety of common and costly mistakes when it comes to optimizing their retirement readiness. One of the most widespread is not knowing how to most effectively time the start of Social Security payments.
Defined contribution (DC) retirement plan participants across all age groups are taking to social media for financial information and advice, according to Spectrem Group. A new report from Spectrem’s DC Participant Insight Series, “Using Social Media and Mobile Technology in Financial Decisions,” shows more than two-thirds of plan participants ages 50 and older are on Facebook. Around half are on LinkedIn, and 12% of participants overall say they regularly research financial information on social media.
Buyer's Market
Fund Brings Endowment Style Investing to DC Plans
A new collective investment fund from Alta Trust Company strives to bring an endowment investment philosophy and liquid alternative opportunities to defined contribution retirement plans. Alta says it partnered with ETF Model Solutions LLC to develop and launch the Endowment Collective Investment Fund. As the firms explain, the Endowment Collective Investment Fund (CIF) seeks to improve risk-adjusted returns of traditional portfolios of stocks and bonds by adding alternative investments. The CIF incorporates asset classes such as private equity, hedge strategies and real assets to create a “three-dimensional portfolio.”
Given regulatory guidelines that can be difficult to follow, many non-profit 403(b) plan sponsors are finding it harder to maintain a fully compliant non-Employee Retirement Income Security Act (ERISA) plan, one advisory firm says. Strategic Benefit Services (SBS) notes that historically, non-ERISA plans were subject to relatively little regulation and were a popular choice for many non-profit organizations; however, Internal Revenue Service (IRS) regulations passed in 2007 require more plan oversight. Inadvertent or unintentional involvement by the employer can make the plan subject to ERISA, meaning non-profits run the risk of being penalized by the Department of Labor (DOL) for breach of ERISA requirements, SBS contends. Limited plan sponsor involvement can also hinder efforts to encourage greater employee plan participation.
Industry Voices
Industry Voices: Tips to Make Participant Education Meaningful
“Education is the most powerful weapon which you can use to change the world.”– Nelson Mandela. Given the fact that most Americans are underfunded for retirement, the cold, hard truth is retirement will actually remain a pipe dream for most people. It’s as if we’re watching a race that will never have a finish line. The question is: Can you, the plan sponsor, change this scenario? When planning an employee financial or retirement education event, you may not think you have the power to change the world. We would argue, however, that a meaningful education strategy can be the first step in changing your workforce’s financial future; in turn, changing their world.
Economic Events
On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1% in July after rising 0.3% in June, the Bureau of Labor Statistics reports. The index for all items less food and energy rose 0.1% in July, the same increase as in June. Real average hourly earnings was unchanged in July, seasonally adjusted. Average hourly earnings was unchanged and the CPI-U rose 0.1%. Real average weekly earnings was unchanged over the month. Privately owned housing starts in July were at a seasonally adjusted annual rate of 1,093,000, according to the Census Bureau. This is 15.7% above the revised June estimate of 945,000 and 21.7% above the July 2013 rate of 898,000. Single-family housing starts in July were at a rate of 656,000; this is 8.3% above the revised June figure of 606,000. The July rate for units in buildings with five units or more was 423,000.
Market Mirror
Tuesday, the Dow was up 80.85 points (0.48%) at 16,919.59, the NASDAQ increased 19.20 points (0.43%) to 4,527.51, and the S&P 500 closed 9.86 points (0.50%) higher at 1,981.60. The Russell 2000 climbed 4.07 points (0.35%) to 1,162.47, and the Wilshire 5000 closed at 20,989.23, up 96.61 points (0.46%). On the NYSE, 3.2 billion shares changed hands, with 1.8 advancing issues for every declining issue. On the NASDAQ, 2.8 billion shares traded, with a slight lead for decliners. The price of the 10-year Treasury note slipped 2/32, increasing its yield to 2.402%. The price of the 30-year Treasury bond was down 11/32, bringing its yield up to 3.218%.
Rules & Regulators
Stakes High for Church Plans, Lawyers Say
Attorneys representing Catholic Health Initiatives (CHI) have requested that a federal court hear oral arguments in a case challenging the “church plan” status of the pension plan it offers employees, noting that “the stakes in this matter are high,” not only for CHI, but for sponsors of retirement plans across the country. The motion follows a recommendation by a U.S. magistrate judge that the U.S. District Court for the District of Colorado enter a declaratory judgment holding that the CHI Retirement Plan is not a church plan within the meaning of the Employee Retirement Income Security Act (ERISA).
The Internal Revenue Service (IRS) is holding a repeat of its free webcast, “The Affordable Care Act: How Applicable Large Employers Should Report Health Care Coverage under IRC Section 6056.”
Financial Sense
Insurance general account assets are trending towards expanded use of alternative investments, suggests new Cerulli Associates research, accelerated by an anticipated rise in interest rates. Certain retirement plan investments, such as annuity contracts and guaranteed fixed-income investments often are held in insurance company general accounts. Low interest rates and regulatory constraints are putting pressure on insurers to achieve adequate returns on invested capital while staying within strict risk budgets, according to Cerulli.
LDI May Still Leave Risk on the Table
Liability-driven investing (LDI) helps a defined benefit (DB) plan meets its liabilities, but liability benchmarking adds precision. LDI is a good start, but it may not be enough to reduce exposure in a DB plan, says Kim Lisella, senior client portfolio manager and assistant head of distribution at Legal and General Investment Management America (LGIMA). “We’ve been looking at how assets performed against the liabilities, not their market benchmarks,” Lisella tells PLANSPONSOR. LGIMA believes hedging a portfolio against mismatches between assets and liabilities at different points along the yield curve reduces DB plan risk better than a traditional LDI strategy.
Many Americans hold serious reservations about investing in the stock and bond markets, according to a recent COUNTRY Financial investor confidence index survey. About 45% of people surveyed by COUNTRY say they are currently investing in stocks and bonds, and many individuals do so through a workplace retirement plan. While the stock market has rebounded significantly following the financial crisis, more than half of Americans (51%) still say they do not invest in the stock and bond markets in any way.
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Small Talk
Children Have Major Effect on Finances
A baby born in 2013 will cost more than a quarter-million dollars to raise, and that’s not including college costs. The U.S. Department of Agriculture’s (USDA) annual report, “Expenditures on Children by Families, 2013,” shows that a middle-income family with a child born in 2013 can expect to spend about $245,340 ($304,480 adjusted for projected inflation) for food, housing, childcare, education, and other child-rearing expenses up to age 18. A recent survey found that, in addition to concerns about being able to retire, more than three in five respondents with children younger than 18 (63%) are worried they will not have enough money for one or more of their children to go to college. More than one-third of parents of children of all ages (36%) are worried their children will have to move back in with them because they will not be able to afford housing. The USDA report does not include expenses occurred after age 18, including for higher education. “In today’s economy, it’s important to be prepared with as much information as possible when planning for the future,” says USDA Food, Nutrition and Consumer Services Under Secretary Kevin Concannon.
ON THIS DATE:  In 1833, future President Benjamin Harrison was born in North Bend, Ohio. In 1911, a dispatcher in the New York Times office sent the first telegram around the world via commercial service. In 1920, seven men, including legendary all-around athlete and football star Jim Thorpe, met to organize a professional football league at the Jordan and Hupmobile Auto Showroom in Canton, Ohio. The meeting led to the creation of the American Professional Football Conference (APFC), the forerunner to the National Football League. In 1975, Viking 1, an unmanned U.S. planetary probe, was launched from Cape Canaveral, Florida, on a mission to Mars. In 1977, “Best of My Love,” by the Emotions, hit the top of the U.S. pop charts. In 1985, the original Xerox 914 copier was presented to the Smithsonian Institute’s Museum of American History.   WEDNESDAY WISDOM: “You are never too old to set another goal or to dream a new dream.”—C. S. Lewis, novelist
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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