Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 29th, 2014
Benefit Briefs
Gen X Needs Aggressive Action to Be Retirement Ready
Generation X workers face some formidable obstacles to achieving retirement readiness, according to Transamerica, but there is hope for the generation if aggressive action is taken. A new survey report from the Transamerica Center for Retirement Studies (TCRS) finds nearly nine in 10 (85%) Gen X workers—defined by Transamerica as those born between 1965 and 1978—believe they will have a much harder time achieving financial security in retirement than their parents. Catherine Collinson, president of TCRS, explains that Gen X workers are worried that Social Security and other government-provided benefits will not be available by the time they reach retirement age, and many carry insufficient defined contribution (DC) plan account balances to successfully self-fund even a modest retirement. In an encouraging sign, 84% of Gen Xers who are offered a 401(k) or similar defined contribution (DC) plan participate in that plan at an annual median contribution rate of about 7%, according to Transamerica. This is still below the industry’s general saving targets ranging between 10% and 15% of yearly income, Collinson explains, but there is still time for most Gen Xers to ramp up their savings rates and get closer to a fully funded retirement.
Getting Employees Attention for Retirement Planning
Defined contribution plan sponsors may find it challenging to get employees to engage in retirement saving and planning, but there are ways to get employees’ attention. Employee engagement is one of four critical drivers that contribute to a successful retirement plan, along with plan design, plan management and investment solutions, according to a white paper from TIAA-CREF, “Retirement readiness starts with employee engagement.” An employer has direct control over these last three drivers, but without an effective employee engagement strategy, their impact will likely be diminished. In addition, employee engagement plays a critical part in fulfilling a plan sponsor’s fiduciary responsibility to help employees achieve the best possible outcomes. According to the paper, the good news is plan sponsors are in a position to positively influence their employees’ behavior: Eighty-one percent of employees trust the financial advice provided by their employers, according to TIAA-CREF’s Investment Options Survey. In addition to the white paper, TIAA-CREF offers a checklist of five steps to successful employee engagement.
Buyer's Market
Fiduciary Management Associates (FMA) has added two senior investment professionals, John Nelson and Xiaoling Wang, to its investment research and analysis staff. Nelson and Wang both join FMA as research analysts. Nelson will have analytical responsibility for the financial services sector, and Wang will be responsible for analyzing the basic materials and utility sectors.
Aon Adds More Benefits to Health Exchange
Aon Hewitt is expanding the Aon Active Health Exchange to include more than just health care benefits. Participating employers will have the option of offering their employees a wide range of elective benefit plans during this fall’s annual enrollment season, from critical illness insurance to pet insurance.
Economic Events
In the week ending August 23, the advance figure for seasonally adjusted initial claims for unemployment insurance was 298,000, a decrease of 1,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 298,000 to 299,000. The four-week moving average was 299,750, a decrease of 1,250 from the previous week’s revised average. The previous week’s average was revised up by 250 from 300,750 to 301,000. The average interest rate for a 30-year fixed-rate mortgage is 4.10%, unchanged from one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.25%, up from 3.23% one week ago.
Market Mirror
The Dow fell 42.44 points (0.25%) Thursday to 17,079.57, the NASDAQ was down 11.93 points (0.26%) at 4,557.69, and the S&P 500 decreased 3.38 points (0.17%) to 1,996.74. The Russell 2000 lost 6.76 points (0.58%) to finish at 1,165.95, and the Wilshire 5000 closed 41.93 points (0.20%) lower at 21,150.55. On the NYSE, 3.2 billion shares changed hands, with 1.3 declining issues for every advancing issue. On the NASDAQ, 2.8 billion shares traded, with a near 2 to 1 lead for decliners. The yield for the 10-year Treasury note was 2.375%, and the yield for the 30-year Treasury bond was 3.125%.
Rules & Regulators
Court Blocks DC Participant Madoff Claims
A federal bankruptcy judge has affirmed the denial of recovery claims from retirement plan participants who indirectly invested in the now-infamous Bernie Madoff Ponzi scheme. U.S. Bankruptcy Judge Stuart Bernstein of the Unites States Bankruptcy Court for the Southern District of New York agreed with a lower court ruling finding that participants in the retirement plans were not “customers” of Bernard Madoff Investment Securities LLC (BLMIS) and thus, are not entitled to recovery. Bernstein cited another case in finding: “The fact that Individual Claimants participated in defined contribution plans, to which they could contribute their own money, does not change the fact that title to this money passed to their plan when they made such contributions. Participants’ ability to control the size of their investments, withdrawals, and rollover funds, and to choose among a limited set of investment alternatives is not equivalent to having a direct financial relationship with or directly entrusting one’s own funds to a broker/dealer, or exercising sole control over investment decisions. Nor is any awareness of or contact with the claimants on the part of BLMIS equivalent to the kind of ‘repeated business dealings’ associated with customer status.”
“I noticed in our 403(b) plan document that there is a minimum annual deferral requirement of $200. Is this required under the 403(b) final regulations? My preference would be to eliminate the requirement since it is another administrative item for our staff to monitor. What say you, Experts?”
Company Owner Falsified ERISA Disclosures
The owner of a Maryland electrical contracting company pleaded guilty to falsifying plan documents to avoid making contributions to several employee benefits plans. Michael E. Sewell admitted that the union agreement between his company, MESCO Inc., and the International Brotherhood of Electrical Workers Local 24 required him to make monthly contributions to seven employee health, welfare and pension benefit plans, and to file monthly remittance reports with the administrators of those plans. Sewell pleaded guilty to falsifying disclosure documents required under the Employee Retirement Income Security Act (ERISA) by intentionally under-reporting hours worked by employees to avoid contractually required contributions to the plans.
Financial Sense
SEC Adopts Reforms to Increase Investment Transparency
The Securities and Exchange Commission (SEC) adopted revisions to rules governing the disclosure, reporting and offering process for asset-backed securities (ABS), as well as new requirements for credit rating agencies. ABS holders, including pension funds, suffered significant losses during the 2008 financial crisis, the SEC explained. The crisis revealed that many investors in the securitization market were not fully aware of the risks underlying the securitized assets. Investors tended to over-rely on ratings assigned by credit rating agencies, which in many cases did not appropriately evaluate the credit risk of the securities. The crisis also exposed a lack of transparency and oversight by the principal officers in the securitization transactions. The revised rules are designed to address these problems and to enhance investor protection.
Small Talk
AAA sees it as a sign of the improved economy that more Americans are planning to travel during the Labor Day weekend this year. AAA Travel projects 34.7 million Americans will journey 50 miles or more from home during the Labor Day holiday weekend, the highest volume for the holiday since 2008, and a 1.3% increase over 2013. Nearly 86% of travelers (29.7 million) will celebrate the holiday with a final road trip before summer comes to a close and children head back to school. Automobile travel will increase by 1.4% this year, with 29.7 million travelers hitting the road. Nearly 8% of travelers (2.65 million) will travel by air, a 1% increase from last year.
ON THIS DATE:  In 1971, Hank Aaron became the first baseball player in the National League to hit 100 or more runs in each of 11 seasons. In 1982, the Swedish-born actress and three-time Academy Award winner Ingrid Bergman died of cancer in London on her 67th birthday. In 1987, “La Bamba” became a No. 1 hit for Los Lobos and, posthumously, Ritchie Valens. In 2005, Hurricane Katrina made landfall near New Orleans, Louisiana, as a Category 4 hurricane.   And now it’s time for FRIDAY FILES!
We should all be so happy at work as this dancing roofer.
Batman has been spotted in Japan, but not driving the Batmobile.
A rapper inspired by a fan who is a high school music teacher created this inspiring rap to the music of Mozart.
In Centreville, Virginia, commuters on Interstate 66 were confused by a line-striping mishap on Monday. The striping led drivers to follow crooked, curvy lines. The bad lane striping occurred after crews put down temporary tape striping, which peeled up and moved the lines, Joan Morris, public affairs director at the Virginia Department of Transportation, told WTOP. VDOT is looking into what caused the striping to peel up and move. The lane striping didn’t cause any major delays or crashes, and the problem was fixed by 5 a.m. Tuesday. “We apologize for contributing to a lousy Monday morning on 66,” Morris said.
In Bolton, Manchester, England, a woman called her 32-year-old boyfriend and was told by the person who answered the phone that a £50 ransom had to be paid for him to return home. According to Mancunian Matters, an extensive police investigation was then launched as houses were searched, before a man was arrested on suspicion of kidnapping. He told officers it was a “ruse” so the man could continue drinking, and he was subsequently released without charge. The “kidnapped” man was then found at another house and admitted to officers it was a trick. He was arrested and given a fixed penalty notice for wasting police time. A detective said: “The man’s girlfriend was absolutely beside herself with worry and genuinely concerned that he would come to harm.” In Winchester, England, a woman’s son went to look for something in an unused spare room in her house and found unwelcome visitors. Wasps had built a three-foot wide nest across the bed. According to the Huffington Post, an exterminator estimated the nest housed 5,000 wasps and took three months for them to build. It took him a few hours to destroy it. In Salvador, Brazil, doctors declared a 54-year-old man dead after “respiratory and multiple organ failure.” His family was notified and made arrangements for the funeral later that day. The man’s brother was let into the morgue to dress the body when he noticed something weird. “As I got closer I could see it wriggling. Then I saw it raising and falling as if he was breathing,” he told the Mirror. “I went crazy and shouted for the medical team, the nurse, so they could see what was happening. They checked him and confirmed that he was still alive.” The staff had to rush to free him; his body had been tied up and his nose and ears were filled with cotton wool, according to the BBC. The hospital where the doctors work has launched an investigation. Have a great Labor Day weekend, everyone! NewsDash will be back in your inbox Tuesday.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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