Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 26th, 2014
Benefit Briefs
Researchers Propose Trusteed Retirement Funds
A new paper published by the Social Science Research Network recommends a single private defined contribution (DC) pension system that can cover all working Americans, with a single set of rules. A key part of the proposal is the creation of broadly diversified Trusteed Retirement Funds (TRFs), whose sponsors are trustees, with fiduciary responsibilities. Payroll deduction of every employee’s salary would automatically go into a broadly diversified TRF unless the employee either opts out or selects a preferred TRF, or if the employer already sponsors a defined benefit (DB) pension plan. TRFs will relieve employers from fiduciary responsibility for all future DC contributions.
Health Benefit Cost Mitigation Receives Increasing Attention
Companies plan to continue subsidizing and managing health benefits while taking aggressive action to keep costs down, a Towers Watson study finds. According to the 2014 Towers Watson Health Care Changes Ahead Survey, two-thirds of CEOs and chief financial officers (CFOs) are more directly involved in developing their company’s health benefit strategies. This is because companies are particularly concerned about the Patient Protection and Affordable Care Act (ACA)’s excise tax, which goes into effect in 2018. In response to short- and long-term cost concerns, a growing percentage (81%) of employers plan moderate to significant changes to their health care plans over the next three years.
Plan sponsors thinking about putting target-date funds (TDFs) in their investment lineup must determine an implementation process that will support the plan’s goals, Towers Watson says in a white paper. “Are You in the Wrong Target-Date Fund? Now Is a Good Time to Reevaluate,” by Towers Watson, gives an overview of the growth of TDFs, and touches on guidance from the Department of Labor (DOL) issued in 2013.
Defining Global Best Practices for Retirement Plans
Only with the realization that a long-term retirement income guarantee won’t be in place at the end of the road will workers get more engaged in their retirement planning responsibilities, Ernst & Young says in a new report. Retirement systems where this fact is acknowledged within relevant policy are therefore more successful at motivating people to prepare for their own retirement. Countries that have allowed or mandated automatic enrollment in private-sector defined contribution (DC) plans, for example, are better positioned to fill the gap left by the widespread freezing and closure of defined benefit (DB) plans, Ernst & Young contends. A separate PIMCO report focuses on best asset-allocation practices across retirement systems.
Economic Events
Sales of new single-family houses in July were at a seasonally adjusted annual rate of 412,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4% below the revised June rate of 422,000, but is 12.3% above the July 2013 estimate of 367,000.
Market Mirror
Yesterday, the Dow closed 75.65 points (0.45%) higher at 17,076.87, the NASDAQ was up 18.80 points (0.41%) at 4,557.35, and the S&P 500 increased 9.52 points (0.48%) to 1,997.92. The Russell 2000 climbed 4.88 points (0.42%) to 1,165.22, and the Wilshire 5000 finished at 21,153.17, up 98.31 points (0.47%). On the NYSE, 3.2 billion shares changed hands, with 1.6 advancing issues for every declining issue. On the NASDAQ, 2.8 billion shares traded, with a 1.3 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note was up 6/32, bringing its yield down to 2.386%. The price of the 30-year Treasury bond increased 14/32, decreasing its yield to 3.134%.
Rules & Regulators
Court Finds Verbal Agreement Satisfied COBRA Notice
A verbal exchange between a terminated employee and her former employer has been found by a federal court to satisfy COBRA notification requirements. Elisa Madonia, a former employee of S 37 Management Inc., contends the company never gave her the notice about how to continue health coverage required by the Consolidated Omnibus Budget Reconciliation Act (COBRA). At the time Madonia was terminated, she was told she would only continue to have medical coverage “if a check for the premium was immediately tendered,” so she gave the company a check.
Financial Sense
Last week, the California Public Employees Retirement System (CalPERS) Board added to the definition of pensionable compensation for the state’s new public employees. The vote adds 99 types of supplemental pay that will be used in calculations of pension benefits. CalPERS says it brings much needed clarity to the definition of what is pensionable compensation under the Public Employees’ Pension Reform Act of 2013 (PEPRA). However, in a statement, California Governor Jerry Brown said: “This vote undermines the pension reforms enacted just two years ago.” PEPRA barred one-time or ad-hoc payments aimed at spiking salaries in order to increase pension benefits. An article by credit rating agency Fitch Ratings said the “decision expands the definition of pensionable compensation, in apparent conflict with PEPRA, and will increase pension costs for public employers if implemented.”
Looking Beyond Past Performance in Manager Selection
A new analysis from Segal Rogerscasey argues past performance is only one of many factors that should be evaluated when assessing active investment manager performance. Many retirement plan sponsors and other institutional investors feel they are being thorough in looking back as far as five years both in selecting new investment managers and making termination decisions. However, even five-year performance can be a poor indicator of future success, according to Segal Rogerscasey, mainly due to a decided lack of long-term performance persistence within nearly all investment classes.
The World at Large
A year ago if you were to upload a video of yourself to Facebook or Twitter intentionally throwing a bucket of ice-cold water upon yourself, people in your network may be forgiven for thinking you a tad eccentric. But, over the past couple of weeks, in the UK, the said act in support of cancer charity Macmillan has become commonplace—one may even call it a social norm. Last week, the UK government hailed signs indicating saving into a workplace pension is now becoming a social norm. But, what does the data actually say? Is this social norm reflected in employers’ experiences? What work still needs to be done and how can the employer message be improved still further?
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Small Talk
ON THIS DATE:  In 1842, the first fiscal year was established by the U.S. Congress to start on July 1. In 1873, the school board of St. Louis, Missouri, authorized the first U.S. public kindergarten. In 1920, the 19th Amendment, guaranteeing women the right to vote, was formally adopted into the U.S. Constitution by proclamation of Secretary of State Bainbridge Colby. In 1939, the first televised Major League baseball game was broadcast on station W2XBS, the station that was to become WNBC-TV. Announcer Red Barber called the game between the Cincinnati Reds and the Brooklyn Dodgers at Ebbets Field in Brooklyn, New York. In 1973, a U.S. Presidential Proclamation was declared that made August 26 Women’s Equality Day. In 1978, the Grease movie soundtrack earned its second No. 1 hit when Frankie Valli’s “Grease” reached the top spot on the Billboard Hot 100.   TUESDAY TRIVIA: By 1916, Henry Ford’s Model T accounted for more than 50% of all the cars in the world.
TRIVIAL PURSUITS: When were the first car license plates issued?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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