Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
February 10th, 2014
Industry Insights
Providers Increase Investment in Participant Retirement Readiness
Results of Sterling Resources’ 2012 DC Plan Provider Profitability From 2006-2012 study shows defined contribution (DC) providers’ investment in participant communications staff and educational materials—key areas of expense that impact participant retirement readiness—has grown at an average rate of 13% per year,  more than twice as fast as their total expense. During the same period, provider profitability (ROR), has declined by 1.6% annually to just less than 20%. While expenses to support participant retirement readiness have increased and provider profitability has declined, participant outcomes have improved. Since 2009, the DC industry has added an estimated 16 million participants, more than offsetting the estimated eight million participants who retired between then and year end 2012.
Benefit Briefs
AOL Changes Mind About 401(k) Match Change
Last week, AOL confirmed it was changing the timing of employer matching contributions for its 401(k) retirement plan to a lump sum at year’s end. Media reports were negative, so, the company had a change of mind.
Economic Events
Total nonfarm payroll employment rose by 113,000 in January, and the unemployment rate was little changed at 6.6%, the Bureau of Labor Statistics reported. Employment grew in construction, manufacturing, wholesale trade, and mining. THE ECONOMIC WEEK AHEAD: Tomorrow, the Census Bureau will report about wholesale inventories for December. Thursday, the Labor Department will issue its initial claims report, and the Census Bureau will announce retail sales numbers for January and business inventories figures for December.
Market Mirror
Friday, the Dow was up 165.55 points (1.06%) at 15,794.08, the NASDAQ climbed 68.74 points (1.69%) to 4,125.86, and the S&P 500 gained 23.59 points (1.33%) to finish at 1,797.02. The Russell 2000 increased 12.63 points (1.14%) to 1,116.55, and the Wilshire 5000 closed 246.83 points (1.30%) higher at 19,203.91. On the NYSE, 3.2 billion shares traded, with advancing issues outnumbering declining issues more than 3 to 1. On the NASDAQ, 2.6 billion shares changed hands, with a more than 2 to 1 lead for advancers. The yield for the 10-year Treasury note was 2.684%. The yield for the 30-year Treasury bond was 3.672%. WEEK’S WORTH: For the week ending February 7, the Dow was up 0.61%, the NASDAQ increased 0.54%, and the S&P 500 climbed 0.81%. The Russell 2000 fell 1.26%, and the Wilshire 5000 finished 0.52% higher.
Financial Sense
Lump Sum Offerings Lead De-Risking Efforts, For Now
Corporate employers have largely favored lump sum offerings as a means to settle pension liabilities, but changing market conditions could buck the trend this year. Terry Dunne, managing director for the Millennium Trust Rollover Solutions Group, tells PLANSPONSOR that an unprecedented number of lump sum payouts have been offered by corporate pension plans in recent years. Dunne’s firm explores the trend in a new whitepaper, “Managing Risk and Opportunity: Trends and Challenges in Defined Benefit Plans,” and finds several causes for the popularity of lump sum payouts.
Rules & Regulators
DOL Cracking Down on Unremitted Contributions
The Department of Labor (DOL) announced enforcement efforts against two retirement plan sponsors that failed to timely remit employee contributions. This month, the DOL obtained a consent judgment to restore unremitted employee contributions to the Loudonville, Ohio-based Sunset Golf. In January, the agency filed a lawsuit against the fiduciary of a Weymouth, Massachusetts-based profit-sharing plan to recover unremitted employee contributions.
PBGC Takes Over Plan of Plastic Container Manufacturer
The Pension Benefit Guaranty Corporation (PBGC) announced it will pay retirement benefits for a plastic container manufacturer based in Trevose, Pennsylvania. More than 4,400 current and future retirees of Constar Inc. will be assisted by the PBGC as a result of the company selling most of its assets in bankruptcy proceedings and the buyer not assuming responsibility for the existing pension plan.
Small Talk
ON THIS DATE:  In 1763, the Seven Years’ War, a global conflict known in America as the French and Indian War, ended with the signing of the Treaty of Paris by France, Great Britain, and Spain. In 1861, Jefferson Davis, a former U.S. senator from Mississippi who served as U.S. secretary of war in the 1850s, received word he had been selected president of the new Confederate States of America. Delegates at the Confederacy’s constitutional convention in Montgomery, Alabama, chose him for the job. In 1916, as a result of bitter disagreements with President Woodrow Wilson over America’s national defense strategies, Lindley M. Garrison resigned his position as the United States secretary of war. In 1942, a Japanese submarine launched a brutal attack on Midway, a coral atoll used as a U.S. Navy base. It was the fourth bombing of the atoll by Japanese ships since December 7, 1941. In 1957, Laura Ingalls Wilder, author of the best-selling “Little House” series of children’s novels based on her childhood on the American frontier, died at age 90 in Mansfield, Missouri. In 1996, after three hours, world chess champion Gary Kasparov lost the first game of a six-game match against Deep Blue, an IBM computer capable of evaluating 200 million moves per second.  Man was ultimately victorious over machine, however, as Kasparov bested Deep Blue in the match with three wins and two ties and took home the $400,000 prize. An estimated six million people worldwide followed the action on the Internet.
SURVEY SAYS: ETFs for Retirement Plans
Last week I asked NewsDash readers if they would invest their retirement savings in exchange-traded funds (ETFs) if their companies’ retirement plans offered them. Nearly all (96.3%) responding readers indicated their companies do not offer ETFs in their retirement plan lineups. If their companies did offer them, 33% said they did not know enough about ETFs to say whether they would invest in them or not. More than 22% each said they would invest in them if they were offered, they would not invest in them if they were offered, or it depends on what type of ETFs were offered. Asked if they think ETFs in general are good options for investing retirement savings, one-third of respondents said yes, nearly three in ten (29.6%) said no. Reasons respondents think ETFS are a bad idea for retirement savings include: collective trusts are lower-cost; too much education required; active trading still has merits in many asset classes; and possible promotion of day trading. Most of those who made verbatim comments seemed to be on the side against using ETFs in retirement plans, though one reader suggested we just try them and see. Editor’s Choice goes to the reader who said: “You can lead a horse to a better mouse trap but don’t put your eggs in the kettle black over the rainbow. It’s retirement savings, not Wall Street! Keep it Simple and they’ll come, to see monkeys fishing in a barrel. Rocket science is easier, me thinks.” Thank you to everyone who participated in the survey!
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