Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
August 7th, 2014
Benefit Briefs
Can Social Security Be a Silver Bullet?
Employers can quickly boost outcomes in their defined contribution (DC) retirement plans by improving participants’ Social Security withdrawal behaviors, an analysis suggests. In a new report, Mercer and the Stanford Center on Longevity suggest retirement plan participants make a variety of common and costly mistakes when it comes to optimizing their retirement readiness, but one of the most widespread problems is a lack of awareness around how to most effectively time the start of Social Security payments.  
More than three-quarters (78%) of the world’s employers are strongly committed to creating a workplace culture of health, according to survey results from Buck Consultants. “Working Well: A Global Survey of Health Promotion and Workplace Wellness Strategies” finds that employers worldwide are investing in the wellness of their employees: 43% say they created a brand identity for their employee wellness programs; 52% offer health insurance premium reductions; and 65% believe wellness programs are extremely or very important in attracting and retaining employees. “When we began this survey in 2007, employers were focused on basic health promotion activities,” says Dave Ratcliffe, principal, Buck Consultants, based in New York. “Our latest survey shows an evolution in employer thinking to a much more holistic and measurable approach.”  
Stressed Retirement Plan Participants Carry a Cost
Financial stress is a significant part of the overall strain that plan participants feel, a survey says, but plan sponsors can take steps to ease their pain. Today’s workers are stressed, and one of the reasons is rising levels of financial stress. The majority of retirement plan participants polled have felt moderate to severe financial stress over the last six months, according to a survey by New York Life Retirement Plan Services. And, the survey found, women feel less prepared overall than their male counterparts for retirement and report higher amounts of stress as a result.  
The assets of health savings accounts (HSAs) reached an estimated total of $22.8 billion as of June 30, according to Devenir Group LLC. The Devenir 2014 Midyear HSA Survey shows a year-over-year increase of 26% for HSA assets for the period of June 30, 2013, to June 30, 2014. Over this same time frame, the number of HSA accounts increased by 29% to 11.8 million accounts. The survey found health plans are driving this growth. In the first half of 2014, health plans were the leading driver of new account growth, accounting for 31% of new accounts.  
Buyer's Market
Quiz Helps Plan Sponsors Understand Fiduciary Role
The Guardian Insurance & Annuity Company Inc. (GIAC) released a new tool to help financial professionals mitigate fiduciary risk for their plan sponsor clients. GIAC, a subsidiary of The Guardian Life Insurance Company of America, launched its Fiduciary Awareness Quiz to help plan sponsors better understand their fiduciary obligations and responsibilities. The quiz consists of 15 yes-or-no questions designed to assess a 401(k) plan sponsor’s knowledge of qualified plan fiduciary best practices, as well as which of these practices is currently being applied to the administration of the 401(k) plan. Plan sponsors can benchmark their scores to determine where their fiduciary knowledge ranks against their peers.  
Market Mirror
Wednesday, the Dow ticked up 13.87 points (0.08%) to 16,443.34, the NASDAQ increased 2.22 points (0.05%) to 4,355.05, and the S&P 500 was virtually unchanged at 1,920.24. The Russell 2000 closed 3.99 points (0.36%) higher at 1,125.55, and the Wilshire 5000 decreased by 1.06 (0.01%) to 20,319.41.   On the NYSE, 3.2 billion shares changed hands, and on the NASDAQ, 2.7 billion shares traded, with 1.5 advancing issues for every declining issue on both exchanges.   The price of the 10-year Treasury note was up 5/32, bringing its yield down to 2.468%. The price of the 30-year Treasury bond increased 9/32, decreasing its yield to 3.270%.
Rules & Regulators
Rulings Signal Retiree Lump-Sum Windows Comply with Law
The Internal Revenue Service (IRS) has issued a number of private letter rulings finding defined benefit (DB) plan lump-sum windows offered to beneficiaries already in pay status do not violate the law. Specifically, the IRS determined that the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code (IRC) would not be violated if the companies requesting the private letter rulings amended their plans to offer a lump-sum payment option, during a limited window period, to certain participants and beneficiaries for whom annuity payments have already begun. Companies use lump-sum windows to transfer pension liability, and thus risk, off their books. It is important to note that private letter rulings only apply to the company and situation about which the ruling is requested; however, they can provide a clue about the regulator’s stance.  
Financial Sense
The aggregate funded ratio for U.S. corporate pension plans fell to 86% during the month of July, according to Wilshire Consulting. This represents a 1% drop in funding status from June’s aggregate figure (87% funded), Wilshire says. The setback was primarily the result of a decrease in asset values driven by negative equity returns.  
Process for Terminating Investment Managers Is Important
While much time is spent selecting investment managers, not nearly enough time is spent in establishing a process for terminating such managers, says a recent paper from the Strategic Investment Group. “The Art and Science of Manager Termination” looks at reasons retirement plan sponsors may want to terminate investment managers and offers investment committees criteria by which they can evaluate the underperformance of investment managers. There are many sound and valid reasons to terminate and replace an investment manager, once the facts have been properly analyzed and considered, says the paper. These reasons can apply similarly or differently for defined benefit (DB) or defined contribution (DC) plans, says Ronald Klotter, managing director of the Arlington, Virginia-based Strategic Investment Group.  
The average target-date fund (TDF) enjoyed nearly a 4% return for the second quarter of 2014, buoyed by U.S. large-cap, emerging market and real estate equity holdings. While TDF performance was relatively strong for the quarter, many target-date products continue to underperform relative to their Morningstar Moderate Index counterparts, according to research from Ibbotson, part of the Morningstar Investment Management group of Morningstar Inc.  
Small Talk
The Wells Fargo/Gallup Investor and Retirement Optimism Index slipped eight points in the second quarter to reach +29, driven by increased pessimism among retirees. The fall from +37 at the beginning of the year was driven largely by a 17-point decline (from +41 to +24) in optimism among retired investors, whose view of inflation and economic growth deteriorated during the quarter. Still, the majority of investors surveyed by Wells Fargo and Gallup believe that the “American Dream” is still attainable, despite concerns about saving for retirement.  
ON THIS DATE:  In 1782, General George Washington, the commander in chief of the Continental Army, created the “Badge for Military Merit,” a decoration consisting of a purple, heart-shaped piece of silk, edged with a narrow binding of silver, with the word Merit stitched across the face in silver. The badge—commonly called the “purple heart”—was to be presented to soldiers for “any singularly meritorious action” and permitted its wearer to pass guards and sentinels without challenge. The honoree’s name and regiment were also to be inscribed in a “Book of Merit.” In 1888, Theophilus Van Kannel received a patent for the revolving door. In 1959, the U.S. launched Explorer 6, which sent back a picture of the Earth. In 1964, the United States Congress approved the Gulf of Tonkin Resolution, giving President Lyndon B. Johnson nearly unlimited powers to oppose “communist aggression” in Southeast Asia. In 1974, French stuntman Philippe Petit walked a tightrope strung between the twin towers of New York’s World Trade Center. In 1976, scientists in Pasadena, California, announced that the Viking 1 spacecraft had found strong indications of possible life on Mars. In 1990, President George Herbert Walker Bush ordered the organization of Operation Desert Shield in response to Iraq’s invasion of Kuwait on August 2. The order prepared American troops to become part of an international coalition in the war against Iraq that would be launched as Operation Desert Storm in January 1991.
SURVEY SAYS: Next month, specifically September 2, will mark the 40th anniversary of the passage of the Employee Retirement Income Security Act (ERISA). In the past 40 years, a number of changes have been made to the law through legislation. This week, I’d like to know, which change to ERISA in the past 40 years do you think has MOST helped participant retirement savings outcomes? What suggestions do you have for changes that would be helpful? You may respond to this week’s survey by 6 p.m. Pacific time today.  
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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