Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 25th, 2014
Benefit Briefs
From Participation to Engagement
Retirement plan participants who receive regular advice from a financial professional are more aggressive and engaged when it comes to pursuing individualized savings targets, a new study shows. The results of a Natixis Global Asset Management study reveal participation in employer-sponsored retirement plans is substantial. About 90% of all employees with access to workplace retirement programs elect to participate. But, contribution rates tend to rise with advice. On average, advised investors put 9.5% of annual salary into a defined contribution (DC) retirement plan, compared with 7.8% by those without advisers. Ed Farrington, an executive vice president of Natixis Global Asset Management, tells PLANSPONSOR that the mixed study findings show the DC retirement industry has a lot of work to do before it can ensure retirement readiness for most Americans. Advisers and sponsors have a critical role to play in helping participants understand both savings needs and strategies for maximizing readiness.
How Social Security Calculates Income Replacement
Actuaries with the Social Security Administration (SSA) have determined a comparison of benefits relative to wage-indexed career-average earnings is the best approach for calculating income replacement rates. An actuarial note from the SSA’s Office of the Chief Actuary (OCACT) explains that individuals consulting with financial planners about the income replacement rate generated in retirement by their personal savings or employer-sponsored retirement plans may see replacement rates calculated by comparing benefits to total income (often net of taxes) just before retirement. In contrast, income replacement rates calculated by SSA use a career-average earnings level based on the average of the 35 highest years of wage-indexed earnings.
Reform Calls for New Look at Money Market Funds
Plan sponsors that offer money market investments in their defined contribution plans should start talking with their investment advisers to evaluate their money market strategy, says Robert C. Lawton. Aside from the need to regularly evaluate investment strategies anyway, certain money market fund reforms recently enacted by the Securities and Exchange Commission (SEC) require plan sponsors’ attention, Lawton, president of Lawton Retirement Plan Consultants, LLC in Milwaukee, says in a blog post on his website. “Plan sponsors and participants look at money market funds as savings accounts because they feel they can’t lose money, but that will change,” he tells PLANSPONSOR.
Industry Voices
Industry Voice: Stock Fund Prudence After Dudenhoeffer
The death of the Moench presumption means that fiduciaries responsible for employer stock funds should revisit their plan documents, plan governance structures and fiduciary procedures in light of the Supreme Court’s articulation of the prudence standard that applies to employer stock. In addition, fiduciaries and their advisers should be alert to future decisions of lower courts interpreting and applying the Supreme Court’s ruling to claims of fiduciary breach when employer stock funds plummet in value.
Economic Events
THE ECONOMIC WEEK AHEAD: Today, the Census Bureau will report about new home sales for July, and tomorrow, it will report about durable orders for July and the Conference Board will release its Consumer Confidence Index for August. Thursday, the Labor Department will issue its initial claims report.
Market Mirror
The Dow slipped 38.27 points (0.22%) Friday to 17,001.22, while the NASDAQ moved up 6.45 points (0.14%) to 4,538.55, and the S&P 500 was down 3.97 points (0.20%) at 1,988.40. The Russell 2000 increased by 0.31 (0.03%) to 1,160.34, and the Wilshire 5000 decreased 29.65 points (0.14%) to 21,054.86. On the NYSE, 3.2 billion shares traded, with 1.6 declining issues for every advancing issue. On the NASDAQ, 2.8 billion shares changed hands, with a slight lead for advancers. The price of the 10-year Treasury note was up 1/32, bringing its yield down to 2.405%. The price of the 30-year Treasury bond increased 21/32, decreasing its yield to 3.157%. WEEK’S WORTH: For the week ending August 22, the Dow climbed 2.03%, the NASDAQ increased 1.65%, and the S&P 500 gained 1.71%. The Russell 2000 was up 1.64%, and the Wilshire 5000 finished 1.69% higher.
Rules & Regulators
Court Tosses Multiemployer Plan Withdrawal Liability Challenge
An employer that participated in a multiemployer pension plan cannot sue plan trustees regarding the amount of its plan withdrawal liability. The 6th U.S. Circuit Court of Appeals found the employer had standing under the Employee Retirement Income Security Act (ERISA) to sue the plan trustees for negligence, but only regarding actions that violated the purpose of ERISA, which is “to promote the interests of employees and their beneficiaries in employee benefit plans.”
Small Talk
Early Financial Lessons Can Deliver
Even basic financial education in high school may help people feel more comfortable with financial matters later in life, according to a survey from MoneyRates.com. The survey suggests relatively few Americans—and especially few women—have received much financial education in a formal academic setting. Respondents who received little or no financial education were much less likely to rate themselves as proficient in financial concepts than the respondents who reported receiving more financial education in high school.
ON THIS DATE:  In 1840, Joseph Gibbons received a patent for the seeding machine. In 1916, the National Park Service was established as part of the U.S. Department of the Interior. In 1939, the movie “Wizard of Oz” opened around the United States. In 1962, 17-year-old singer Eva Narcissus Boyd (Little Eva) scored her first and only No. 1 hit with “The Loco-Motion.” In 1984, Truman Capote, the author of the pioneering true-crime novel “In Cold Blood” died at age 59 in Los Angeles. In 2009, Edward “Ted” Kennedy, the youngest brother of President John F. Kennedy and a U.S. senator from Massachusetts from 1962 to 2009, died of brain cancer at age 77 at his home in Hyannis Port, Massachusetts.
SURVEY SAYS: Employer Changes
Last week, I asked NewsDash readers, for how many employers have you worked? Do you expect your current employer to be the one from which you retire? Did you start out in a retirement plan-related field? The vast majority of those who responded have either had two to five employers (43.2%) or six to 10 employers (40.8%) since the age of 18. Nearly four percent have only worked for one employer, 8% have had 11 to 15 employers, nearly 3% have had 16 to 20 employers, and 1% have worked for more than 20 employers since age 18. Six-in-ten (60.7%) NewsDash readers who responded to the survey expect their current employer to be the one from which they retire, while 18% do not, and 21.4% are unsure. When asked if their first career job (not counting jobs before finishing school or while still supported by parents/guardians) was in a retirement plan-related field, 30.2% of respondents indicated it was, while 69.8% said it was not. Just for fun, I asked respondents to share what was the first job they ever held, including before they finished high school. There were a number of common responses—cashier, stocker, waiter/waitress, babysitter, newspaper deliverer—to name a few. Some jobs were not so typical, and some responses elicit some nostalgia—or even a testament to the evolution of workplace laws. Verbatim responses showed it is still possible to have a long career with one employer, but quite a few readers who left comments recounted situations in which they worked at the same desk but had several different employers. And, readers shared some good reasons to change employers. Editor’s Choice goes to the reader who said: “When I was younger I moved for salary and title, then it was for breadth and depth of experience until now where I just want to be ‘that person who has been here forever’ and knows all the answers.” A big thank you to all who responded to the survey! It was fun getting to know our readers better!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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