Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 22nd, 2014
Benefit Briefs
Retirement Plan Size, Equity Holdings Drive Fees
Plan size, average participant account balance, and percentage of plan assets invested in diversified equity holdings are drivers of defined contribution (DC) plan fees, a study finds. “Consistent with prior years, this study helps to differentiate the factors that drive fees from a number of other plan features that do not appear to have a significant impact on fees for the companies studied,” explains Scott Parker, a principal with Deloitte Consulting LLP, who led the research effort. “It’s notable that the primary drivers of fees continue to be the size of the plan as measured by number of participants and average account balance, as opposed to other features that might be associated with complexity in servicing plans, which did not appear to have a significant effect on fees.”
Buyer's Market
Jean-Dominique Butikofer joined the fixed-income team as head of emerging markets at Voya Investment Management, the asset management business of Voya Financial Inc. Butikofer brings 18 years of experience in emerging markets to this role, in which he will direct the investment strategy for emerging markets, including sovereign and corporate debt, macro analysis, country research, sovereign risk, currencies, local rates, and asset allocation across sub asset classes.
Lincoln Enhances Investment Choice for Small Plans
Lincoln Financial Group’s Retirement Plan Services business enhanced its Ibbotson Insight Series investment lineup available in the Lincoln Director employer-sponsored retirement plan program. The new lineups are designed to provide small market plan sponsors and their advisers with more flexibility in both fund and lineup selection. The investment lineups address the individual investment preferences of participants based on an employer’s workforce demographics, and can also include target-date and qualified deferred investment alternative (QDIA) investment options.
Pete Schroedle has joined OneAmerica in a new executive sales position, in which he will target new and existing clients in the firm’s recently created central region. Schroedle has been named regional vice president of retirement sales for the central region of the companies of OneAmerica. In this newly created role, he will oversee the firm’s Chicago, Cleveland, Detroit, Indianapolis, Kansas City, Minnesota, San Antonio and St. Louis offices.
Economic Events
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4% to a seasonally adjusted annual rate of 5.15 million in July from a slight downwardly revised 5.03 million in June, according to the National Association of Realtors. Sales are at the highest pace of 2014 and have risen four consecutive months, but remain 4.3% below the 5.38 million-unit level from last July, which was the peak of 2013. In the week ending August 16, the advance figure for seasonally adjusted initial claims for unemployment insurance was 298,000, a decrease of 14,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 311,000 to 312,000. The four-week moving average was 300,750, an increase of 4,750 from the previous week’s revised average. The previous week’s average was revised up by 250 from 295,750 to 296,000. The average interest rate for a 30-year fixed-rate mortgage is 4.10%, down from 4.12% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.23%, down from 3.24%.
Market Mirror
Thursday, the Dow closed 60.36 points (0.36%) higher at 17,039.49, the NASDAQ increased 5.62 points (0.12%) to 4,532.10, and the S&P 500 was up 5.86 points (0.30%) at 1,992.37. The Russell 2000 ticked up 2.52 points (0.22%) to 1,160.03, and the Wilshire 5000 gained 52.96 points (0.25%) to finish at 21,084.51. On the NYSE, 3.2 billion shares changed hands, with 1.5 advancing issues for every declining issue. On the NASDAQ, 2.8 billion shares traded, with a 1.2 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note was up 6/32, bringing its yield down to 2.410%. The price of the 30-year Treasury bond increased 21/32, decreasing its yield to 3.190%.
Rules & Regulators
The Department of Treasury and Internal Revenue Service (IRS) have established a new user fee form for employee plan opinion or advisory letter requests. The updated form must be used for all applications postmarked on or after August 1, 2014.
IRS to Host Corrections Programs Webinar
The Internal Revenue Service (IRS) is hosting a free webinar, “Correcting Retirement Plan Mistakes Using IRS Correction Programs.” The event, to be held September 4 at 2:00 p.m. Eastern time, will cover how the Employee Plans Compliance Resolution System (EPCRS) corrections programs work, how to address common plan failures, tips to expedite submissions and how to resolve issues that cannot be addressed with EPCRS.
Financial Sense
New Ways of Measuring Target-Date Funds
“Everything should be made as simple as possible, but not simpler,” Albert Einstein supposedly said in a 1933 lecture. He may have been predicting the future of retirement investing and the industry’s effort to crystallize the complex nature of target-date retirement funds (TDFs) into two categories. One invests “to” retirement and sharply cuts equity holdings when participants reach age 65, to avoid market risk; the other invests “through” retirement and stays in equities for the long haul, to keep earning high returns, volatility notwithstanding. The designation of “to” versus “through” likely falls into Einstein’s “simpler” class: It offers only a thumbnail sketch of a fund’s investment strategy and, as it considers only the asset side of the equation, cannot address the full results.
Bank of America has agreed to a settlement of Securities and Exchange Commission (SEC) claims related to its sales of mortgage-backed securities. Bank of America has agreed to settle the two SEC cases by paying $245 million, but the bank will also pay $16.65 billion to resolve various investigations involving violations of laws regulated by other federal agencies. California Attorney General Kamala D. Harris announced California will recover $300 million in damages, which will reimburse the California Public Employees Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS) for losses on investments in mortgage-backed securities of Bank of America and its affiliates. New York Attorney General Eric T. Schneiderman announced $800 million will go to New York State.
Industries Have Differing Pension Investment Risk Tolerance
Financial services, energy and consumer staples have the best-funded defined benefit (DB) plans, according to an analysis by the BNY Mellon Investment Strategy and Solutions Group (ISSG). The analysis of the DB plans of 931 public companies revealed information technology (IT) and health care companies tend to have the lowest-funded plans. Companies in financial services also tended to have higher-than-average allocations to equities, while well-funded plans in other business sectors had higher allocations to fixed income and liability driven investing (LDI) strategies. “While financial services companies may be in a better position than most sectors to adopt a de-risking strategy, many have elected to be aggressively invested,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG. “They can do this as they have the best ability to take on risk.”
As of the second quarter of 2014, target-date fund (TDF) assets grew to $677 billion, reflecting an asset change of 10.9% year-to-date. This change is being driven by a continued new demand for the funds. They have attracted $31.9 billion in year-to-date net inflows as well as market appreciation—the average target-date fund grew 5.4% over the first six months of this year. A generous market backdrop has allowed certain fund series to demonstrate management value over recent quarters.
The World at Large
The first risk-transfer transaction by a pension in a pooled liability-driven investment (LDI) vehicle has been carried out by a UK fund.
Small Talk
ON THIS DATE: In 1776, General William Howe’s army arrived in Long Island hoping to capture New York City and gain control of the Hudson River, a victory that would divide the rebellious colonies in half.  In 1846, the U.S. annexed New Mexico. In 1851, the schooner America outraced the Aurora off the English coast to win a trophy that became known as the America’s Cup. In 1864, the International Red Cross was founded. In 1865, a patent for liquid soap was issued to William Sheppard. In 1906, the Victor Talking Machine Company of Camden, New Jersey, began to manufacture the Victrola. The hand-cranked unit, with horn cabinet, sold for $200. In 1932, the BBC (British Broadcasting Corporation) began its first TV broadcast in England. In 1950, officials of the United States Lawn Tennis Association (USLTA) accepted Althea Gibson into their annual championship at Forest Hills, New York, making her the first African-American player to compete in a U.S. national tennis competition. In 1989, Nolan Ryan of the Texas Rangers became the first pitcher in major league baseball history to register 5,000 career strikeouts. Ryan went on to rack up a total of 5,714 strikeouts, greater than 1,500 more than his closest competition.   And now it’s time for FRIDAY FILES!
A couple tries entirely too long to fit a sofa into a hatchback. Did they really think taking the cushions off (I fast forwarded to 1:25) would help?
In Albuquerque, New Mexico, an 18-year-old showed up to a meeting with his probation officer driving an electric shopping cart. When the probation officer asked him where he got it, he admitted to taking it from a Walmart about five miles from the courthouse. According to The Smoking Gun, the police contacted Walmart, which indicated it wants to press charges. In Manchester, New Hampshire, police set up a “controlled delivery” of a package after the U.S. Postal Service notified them it may contain drugs. After the man signed for the package, detectives asked if they could open and search it. The man consented, and police discovered the package contained 16 pounds of mari.juana. While still at the man’s house, a FedEx truck showed up with another package for the man. A police K-9 alerted the police there were drugs in that package as well. Police found another 17 pounds of mari.juana inside.
This is an amazingly lucky landing for a motorcyclist who hits a car.
In Ocala, Florida, the city council will reconsider a law banning saggy pants on city property, less than one month after it was passed. Mayor Kent Guinn said he wants the ordinance, which fines violators up to $500 and threatens jail time, repealed. He told the local News 13 TV station he actually meant to veto it when it came across his desk, but there were many papers and he mistakenly signed it into law. In Ottowa, Canada, police were called to a home for a report of vandals breaking in. The owner’s wife, a house guest and the owner’s three young children were asleep inside when the incident happened. According to CBC News, a police source said when officers looked around the back door of the home, they found a letter purportedly left by the vandals. It was set on a pile of items including kitchen knives, and stated that items could have been stolen from the home, but weren’t, so the family should lock its doors in the future. 
Turtles can move fairly quickly when they want something.
In San Marcos, California, the Cal State San Marcos campus was put on lockdown—with people asked to shelter in place and traffic diverted from the campus, after a report of a man carrying a g.un. Police searched the campus room by room and located the suspect—who was carrying an umbrella. The campus was given the all clear. In East Hanover, New Jersey, Herman “Hy” Goldman celebrated his birthday Monday with coworkers. He turned 101. According to the Associated Press, aside from a brief absence to serve in the U.S. Army in World War II, Goldman has worked at Capitol Lighting since 1941. The store says he was first hired to sell items and stock and clean the displays. He now specializes in rebuilding items that were damaged or unusable. Goldman also still drives himself to work. Have a wonderful weekend, everyone!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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