Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 5th, 2014
Benefit Briefs
A Retirement Plan Sponsor Uses the Power of Inertia
Retirement plan participant inertia has previously been viewed as a bad thing, but one plan sponsor sees it in a different way. “For years, employee engagement was a primary goal of our retirement plan strategy, but we realized it was hard to engage younger workers. Then a light bulb went on, and we decided to use inertia as an asset [for our strategy],” Joseph Huber, managing director and chairman of Credit Suisse’s pension investment committee, tells PLANSPONSOR. Credit Suisse had a defined benefit pension plan, and a 401(k) plan that started as a supplemental retirement savings vehicle for employees. But, it froze its pension plan, making the 401(k) the primary retirement savings vehicle. Huber says as the company made this transition, it realized its average employee was 35 or 36 years old. “But, whenever we had info meetings, hardly anyone under 40 showed up,” he notes. “It’s hard to engage younger employees.”
Re-enrolling into TDFs Can Put Participants on Right Path
In an effort to combat participant inertia, more plan sponsors are considering the process of re-enrollment, says a recent brief from J.P. Morgan Asset Management. The brief, “Understanding Re-Enrollment: Benefits for Participants and Plan Sponsors,” defines the term re-enrollment as a process by which retirement plan participants are notified that their existing assets and future contributions will be invested in the plan’s qualified default investment alternative (QDIA), which is usually a target-date fund (TDF), based on the participant’s date of birth. Participants are automatically moved into the QDIA on a certain date unless they make a new investment election during a specified time period. Catherine Peterson, head of Retirement Insights at J. P Morgan Asset Management, tells PLANSPONSOR re-enrollment has benefits for both plan participants and plan sponsors. “There are a number of reasons why plan sponsors would want to do a re-enrollment, chief among them is the opportunity to help improve the outcomes of their plan participants,” she explains.
College Savings Trumps Retirement Savings for Single Parents
Many single parents prioritize saving for their children’s college costs over saving for their own retirement, according to an Allianz study. When asked about their motivation for developing and executing a long-term financial plan, nearly half (45%) of single-parent respondents identified “saving for my kids’ education” as the top priority. This is six points higher than the figure for “traditional families” (39%), which Allianz identifies as married couples of the opposite gender with at least one child younger than 21 living at home. Other household structures examined by Allianz, i.e. “modern families,” prioritized children’s future education costs 26% of the time.
In a Form 8-K filing with the Securities and Exchange Commission (SEC), Eastman Kodak Company announced that effective January 1, 2015, it will implement changes to the Kodak Retirement Income Plan (KRIP) and the Eastman Kodak Employees’ Savings and Investment Plan (SIP). Kodak explains that currently, under the KRIP, participants accrue a benefit pursuant to a traditional pension formula, which is based upon average participating compensation and years of service, or a cash balance formula, which is calculated based upon a credit equal to 4% of monthly compensation and one-twelfth of the annual interest rate on 30-year Treasury securities. Beginning in 2015, participants in the traditional pension formula will participate in the cash balance formula and will be eligible for a benefit equal to the sum of the pre-2015 traditional benefit and the post-2014 cash balance benefit.
Buyer's Market
Lockton, a provider of risk management, insurance and employee benefits consulting services, will add two employee benefits experts to its Chicago office. Joining Lockton in vice president, producer roles will be David Cooke and Mark Haye. Both will be responsible for business development and client strategy at Lockton. “We are so pleased to add the impressive credentials of David Cooke and Mark Haye to our practice. Lockton’s prospects and clients will benefit greatly from their expertise in group medical benefits strategy, design, funding and administration. Mark and David have both developed effective benefits strategies for employers of every shape and size during their careers,” says Tom Schaffler, president of Lockton’s Chicago office.
Market Mirror
Yesterday, the Dow was up 75.91 points (0.46%) at 16,569.28, the NASDAQ climbed 31.25 points (0.72%) to 4,383.89, and the S&P 500 gained 13.84 points (0.72%) to finish at 1,938.99. The Russell 2000 increased 9.96 points (0.89%) to 1,124.82, and the Wilshire 5000 closed 155.19 points (0.76%) higher at 20,501.20. On the NYSE, 3.2 billion shares traded, and on the NASDAQ, 2.8 billion shares changed hands, with 1.7 advancing issues for every declining issue on both exchanges. The price of the 10-year Treasury note was up 2/32, bringing its yield down to 2.487%. The price of the 30-year Treasury bond was down, increasing its yield to 3.294%.
Rules & Regulators
IRS to Discuss Employer Reporting Under ACA
The Internal Revenue service is hosting a free webcast about employer reporting requirements under the Patient Protection and Affordable Care Act (ACA). The webcast will cover Internal Revenue Code Section 6056; who is required to report; what elements are required to be reported; when Applicable Large Employers must report; and how do government entities designate reporting.
Financial Sense
The funded status of U.S. corporate pension plans declined in July to 90.8%, according to BNY Mellon’s Investment Strategy and Solutions Group (ISSG). The BNY Mellon Institutional Scorecard for July notes assets for the typical corporate plan fell 1% during the month while liabilities rose 0.3%, leading to the net decline in funded status. The slight increase in liabilities for corporate plans in July was mainly due to the Aa corporate discount rate remaining at 4.32%.
Are Active Managers ‘Evil’?
One of the talking points that is emerging from the ongoing critique of 401(k) plan fees is that “good enough” investment management can be delivered for around 20 to 25 basis points (BPS). Obviously, you only get fees down to 25 basis points by using index funds. So, part of what is going on here is an attack by the random-walk people—those who believe it’s impossible to outperform the market without assuming additional risk—against the active management people. There’s a lot to what these critics are saying.
Small Talk
ON THIS DATE:  In 1858, the first telegraph line across the Atlantic Ocean was completed. Unfortunately, the cable proved weak and the current insufficient and by the beginning of September had ceased functioning. In 1861, Lincoln imposed the first federal income tax by signing the Revenue Act. Strapped for cash with which to pursue the Civil War, Lincoln and Congress agreed to impose a 3% tax on annual incomes over $800. In 1914, the world’s first electric traffic signal was put into place on the corner of Euclid Avenue and East 105th Street in Cleveland, Ohio. In 1924, the New York Daily News debuted the comic strip “Little Orphan Annie,” by Harold Gray. In 1957, the iconic TV show American Bandstand began broadcasting nationally. In 1962, movie actress Marilyn Monroe was found dead in her home in Los Angeles. It was determined she committed sui.cide. In 1981, President Ronald Reagan began firing 11,359 air-traffic controllers striking in violation of his order for them to return to work. The executive action, regarded as extreme by many, significantly slowed air travel for months. In 2002, the U.S.S. Monitor was raised from the floor of the Atlantic, where it had rested since it went down in a storm off Cape Hatteras, North Carolina, during the Civil War.   TUESDAY TRIVIA: The first official telegram to pass between two continents was a letter of congratulation from Queen Victoria of the United Kingdom to the President of the United States James Buchanan on August 16, 1858.
TRIVIAL PURSUITS: Last Wednesday marked the 49th anniversary of Medicare. Do you know which famous America was the first Medicare enrollee?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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