Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
February 28th, 2014
Industry Insights
Evaluating In-Plan Guaranteed Income Alternatives
Plan sponsors need to pay careful attention to their participant’s unique challenges and other sources of retirement income when weighing the benefits and shortcomings of in-plan guaranteed income alternatives, says Jerry Huggins, CFP, MBA, vice president at Innovest Portfolio Solutions. No single income alternative protects against all of the risks that participants may encounter and certain features accommodating certain risks may not be appropriate and/or may prove to be a problem for a participant in the future.
Benefit Briefs
Employer Strategies for Implementing Health Care Reform
Consulting firm Mercer has released a list of recommended strategies to help employers navigate the complexities of the health care reform law and fulfill its requirements. The five key topics discussed in the list include avoiding the Patient Protection and Affordable Care Act (ACA) excise tax, rethinking dependent coverage strategies, classifying part-time and variable-hour employees, next generation wellness strategies and consideration of private exchanges.
While many older employees say they are delaying retirement, the delay rate is lower than in previous years, says a new survey. According to an annual survey from CareerBuilder, 58% of employees age 60 and older say they will delay retirement in 2014. However, this figure is lower than 2013 (61%) and 2010 (66%). Survey results also show that 10% of employees in this age group feel they will never be able to retire, which is relatively unchanged from 2013 (11%). Half of this group (50%) believes they will be able to retire within four years, compared with 47% in 2013.
Buyer's Market
Rethinking the 4% Withdrawal Rule
Financial professionals often suggest a 4% annual withdrawal rate for retired workers living off accumulated assets, but one service provider is pushing a more sophisticated approach. In a new study called “Breaking the 4% Rule,” researchers from J.P. Morgan argue that retirees—and the service providers supporting them—should take a more dynamic approach to managing retirement account withdrawals. The study finds more rigid, percentage-based withdrawal rules can expose retirees to an increased chance of outliving their retirement assets or leaving too much wealth untapped, mainly because these strategies ignore the specifics of a retiree’s financial situation.
Wells Fargo Retirement has named Betsy Hammond as head of its Nashville-based retirement benefits consulting division. Hammond will report to Joe Ready, director of Wells Fargo Institutional Retirement and Trust.
Economic Events
In the week ending February 22, the advance figure for seasonally adjusted initial claims for unemployment insurance was 348,000, an increase of 14,000 from the previous week’s revised figure of 334,000, the Labor Department reported. The four-week moving average was 338,250, unchanged from the previous week’s revised average. New orders for manufactured durable goods in January decreased $2.2 billion or 1.0% to $225.0 billion, the U.S. Census Bureau announced. This decrease, down three of the last four months, followed a 5.3% December decrease. Excluding transportation, new orders increased 1.1%. Excluding defense, new orders decreased 1.8%. The average interest rate for a 30-year fixed-rate mortgage is 4.37%, up from 4.33% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.39%, up from 3.35%.
Market Mirror
Thursday, the Dow was up 74.24 points (0.46%) at 16,272.65, the NASDAQ increased 26.87 points (0.63%) to 4,318.93, and the S&P 500 gained 9.13 points (0.49%) to finish at 1,854.29. The Russell 2000 climbed 6.22 points (0.53%) to 1,187.94, and the Wilshire 5000 closed 98.24 points (0.50%) higher at 19,917.22. On the NYSE, 3.2 billion shares traded, with advancing issues outnumbering declining issues more than 2 to 1. On the NASDAQ, 2.7 billion shares changed hands, with a near 2 to 1 lead for advancers. The yields for the 10-year Treasury note and 30-year Treasury bond were 2.641% and 3.593%, respectively.
Financial Sense
The cost of purchasing pension buyout annuities from an insurer remained level during January, at 108.5% of a plan’s accounting liability, but the cost of maintaining the liability ticked up. According to the Mercer U.S. Pension Buyout Index, the real cost of maintaining pension liabilities increased from 108.6% to 108.7% of the balance sheet liability during January.
Brookings Gets Ball Rolling for Public Pension Policy Discussions
During a discussion at The Brookings Institution in Washington, D.C., speakers discussed a framework and political process for pension reform policies. The Brown Center on Education Policy at Brookings will release two papers that examine pension reform efforts across the nation and provide actionable policy solutions aimed at those states still struggling with underfunded pension systems. Patten Priestley Mahler, economics Ph.D. candidate at the University of Virginia, told event attendees that “Improving Public Pensions, Balancing Competing Priorities” offers a framework for evaluating reforms and discusses a pension plan that meets these goals. “It’s not a silver bullet, but it shows how workers’ and taxpayers’ competing interests can be met,” she says.
A new report, “The Multiemployer Defined Benefit Pension Plan Landscape: A Ten-Year Look (2002-2011),” jointly released by the International Foundation of Employee Benefit Plans and Horizon Actuarial Services, LLC, reveals that multiemployer DB plans have a strongly positive outlook as financial markets improve and plan trustees take steps to ensure their plans remain viable. Multiemployer DB plans remained resilient despite an unstable period between 2002 and 2011, according to the report. Due to the volatility of the financial markets, most notably the market collapse in 2008, many plans suffered sizable losses. Since that time, the markets have shown significant recovery and resulted in the majority of multiemployer DB plans becoming more stable.
Changes in bond market conditions and institutional portfolio strategies are driving the largest U.S. investors to add more exchange-traded funds (ETFs)—especially those built on fixed-income investments. The increased attention means fixed-income ETFs are poised to take on a bigger role in institutional portfolios, according to a new report, “Institutional Investors Turning to Fixed-Income ETFs in Evolving Bond Market,” from financial research and consulting firm Greenwich Associates.
The Feeling’s Mutual
Investors around the world contributed almost $1 trillion in net flows to investment funds during 2013, similar to levels observed in the preceding year. Research from fund research firm Strategic Insight (SI), an Asset International company, shows while the net flows into investment funds remained essentially level during 2013, the allocations changed dramatically in terms of the types of funds seeing the strongest interest.
Rules & Regulators
Industry Groups Raising Alarms About Tax Reform
A U.S. Senate leader has introduced a sweeping tax reform bill that has many in the retirement industry alarmed about its proposals concerning retirement plans. While the 979-page document introduced by U.S. House Ways and Means Committee Chairman Dave Camp (R-Michigan) does not include taxation of retirement contribution amounts and benefits caps President Obama suggested in earlier budget proposals, there are similar or new provisions industry groups say will result in double taxation and discouraging retirement plan benefit offerings.
The Pension Benefit Guaranty Corporation’s (PBGC) Open Government Web page hosts popular data sets like a list of pension plans PBGC’s trusteed, as well as ones that it currently insures. The agency would like to add even more information, and is asking users for help identifying additional information it can provide. What PBGC data should PBGC make more readily available? Which PBGC online service or data would you like to be easier to use? Which PBGC service would you like to use on your mobile device? Direct your feedback to
Sponsored message from PLANSPONSOR
PLANSPONSOR Plan Sponsors of the Year – Corporate 401(k) – $50-$1B Finalists include Akin Gump Strauss Hauer & Feld LLP, American Woodmark Corporation, O.C. Tanner Company, Range Resources Corporation and Vermeer Corporation. Winners in each category will be announced in February and recognized at the Awards for Excellence dinner. View other categories.
Small Talk
ON THIS DATE:  In 1784, John Wesley chartered the first Methodist Church in the United States. In 1861, with the region’s population booming because of the Pike’s Peak gold rush, Congress created the new Territory of Colorado. In 1953, Cambridge University scientists James D. Watson and Frances H.C. Crick announced they had determined the double-helix structure of DNA, the molecule containing human genes. In 1983, the celebrated sitcom M*A*S*H bowed out after 11 seasons, airing a special two-and-a-half hour episode watched by 77% of the television viewing audience. It was the largest percentage ever to watch a single TV show up to that time. In 1993, agents from the Bureau of Alcohol, Tobacco and Firearms raided the Branch Davidian cult compound in Waco, Texas, prompting a gun battle in which four agents and six cult members are killed. The federal agents were attempting to arrest the leader of the Branch Davidians, David Koresh, on information that the religious sect was stockpiling weapons. A nearly two-month standoff ensued after the unsuccessful raid. In 1994, in the first military action in the 45-year history of the North Atlantic Treaty Organization (NATO), U.S. fighter planes shot down four Serbian warplanes engaged in a bombing mission in violation of Bosnia’s no-fly zone.   And now it’s time for FRIDAY FILES!
Love Girl Scouts cookies? There’s an app for that.
In Kansas City, Missouri, after 19 rounds in a Missouri county’s annual spelling bee, only two of the 25 contestants who started the competition remained. Several hours and 47 rounds later, an 11-year-old and her 13-year-old adversary had used up all of the available words, forcing organizers of the Jackson County Spelling Bee to temporarily halt the showdown. The contestants buzzed through the list of words provided by the Scripps National Spelling Bee, then they ran through a list of about 20 additional words bee officials picked out of their Merriam-Webster’s 11th Edition during the lunch break, The Kansas City Star reported. Officials decided not to pull more words from the dictionary because they worried one speller might get a tough word and the other a relatively easy one, which wouldn’t be fair. The contest will resume March 8.
Throwing out the trash is not always as easy as it sounds.
In Braintree, Massachusetts, an 18-year-old driving up on an accident scene decided to record the scene with his cellphone. As he was recording though, he smashed into the rear of a vehicle himself—a police cruiser with an officer inside. Other officers said they smelled mari.juana when they approached the vehicle. The teenager was taken into custody.
Russian filmmaker Vyacheslav Ivanov used an ultra-high-speed camera to show what snowflakes look like as they form.
In Arnold, Missouri, Windsor high school’s female basketball team’s senior guard had a season-ending knee injury before a big game with one of their top rivals. She has been a starter for Windsor ever since she was a freshman, and this year, she was the team captain. But, it was senior night at Windsor, and despite her injury, she was put in the starting lineup. At the opening tip-off, a very cool coach for the rival team told his team to stand down, while the Windsor team passed the ball to their team captain so she could make her final layup. In Stockholm, Sweden, job seekers were pleased to get an e-mail invitation for a recruiting meeting at an employment office. Until they arrived and saw that a crowd filled up the alley containing the office and spilled out into adjacent streets in central Stockholm. Apparently, the e-mail had accidentally been sent to a mailing list of 61,000 people—all the registered job seekers in the city. Police had to be called to calm the situation. In Glasgow, Scotland, a man entered a bookmakers shop armed with a “long cylindrical object covered in a black sock” and went to the counter for cash. A worker thought it may be a gun but refused to give him money. A police detective also happened to be in the betting shop and when he heard the commotion, he knocked the man to the ground with one blow. The black sock was then taken off the “weapon” revealing it to be a cucumber. The man initially told police it was “a joke” and said, “It was a dare. It was a f****** cucumber. Am I getting the jail for this?” Have a wonderful weekend!
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PLANSPONSOR’s 2014 Plan Sponsor of the Year Winner
Finalists for PLANSPONSOR’s 2014 Plan Sponsor of the Year Award in the 403(b) category include Gilman School (Baltimore, Maryland); Moffitt Cancer Center (Tampa, Florida); Texas Association of School Boards Inc. (Austin, Texas); and Washington St. Board for Community & Technical Colleges (Olympia, Washington). And, the winner is…