Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
February 7th, 2014
Benefit Briefs
DC Participants Maintained Status Quo in 2013
Most defined contribution (DC) retirement plan participants stayed the course with their asset allocations as stock values generally rose over the first nine months of 2013. According to a report from the Investment Company Institute (ICI), during the first three quarters of 2013, 9.2% of DC plan participants changed the asset allocation of their account balances and 6.8% changed the asset allocation of their contributions. These levels of reallocation activity were similar to the reallocation activity observed in the same time frame a year earlier, the ICI says. Contribution activity was similar as well.
Plan Sponsors Still Working to Reduce Health Benefit Costs
While medical plan cost increases continue to decelerate, overall health plan costs are still on the rise, according to data compiled in the 2014 Segal Health Plan Cost Trend Survey. Faced with this reality, plan sponsors are becoming increasingly more progressive and creative in their efforts to manage costs while delivering high-quality, cost-effective health care, the survey report says. Many plan designs, for example, now include greater levels of participant out-of-pocket costs.
Will Employers Respond to Long-Term Care Concerns?
As the population ages and long-term care is a greater concern for retirement, long-term care insurance may become a more widespread employee benefit offering. Long-term care insurance companies paid nearly $7.5 billion in claim benefits to 273,000 individuals in 2013, a rise of 13%, the American Association of Long Term Care Insurance reports. According to Jesse Slome, director of the national trade group, historic low interest rates for a long period of time drove the marketplace to its current state. “The vast majority of long-term care insurance is now sold on an individual basis,” Slome tells PLANSPONSOR.
Buyer's Market
Taking Auto Plan Features a Step Further
Automatic retirement plan features are gaining traction as a best practice way to help participants achieve retirement readiness, but one provider is taking them a step further. Ted Goldman, national retirement leader with Buck Consultants in Washington, D.C., tells PLANSPONSOR, “We’ve crossed the hurdle of plan sponsors not wanting to force participants to save, but the shortfall [of automatic features] is plan sponsors are putting participants in or increasing their savings at a low level and treating everyone the same.” Buck has built a three-feature solution it feels could change the defined contribution (DC) retirement plan landscape going forward.
OneAmerica Joins Pension Buy-Out Marketplace
American United Life Insurance Company (AUL) introduced a pension risk transfer solution. AUL, a OneAmerica company, is offering Pension Risk Transfer, a Single Premium Group Annuity (SPGA) guaranteed buy-out product that allows plan sponsors to transfer pension risk to AUL. It is a true buy-out product by which AUL will assume all liability and contact with participants, Andy Wilkinson, vice president and actuary at OneAmerica in Indianapolis, Indiana, tells PLANSPONSOR.
Economic Events
In the week ending February 1, the advance figure for seasonally adjusted initial claims for unemployment insurance was 331,000, a decrease of 20,000 from the previous week’s revised figure of 351,000, the Labor Department reported. The four-week moving average was 334,000, an increase of 250 from the previous week’s revised average of 333,750. The average interest rate for a 30-year fixed-rate mortgage is 4.23%, down from 4.32% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.33%, down from 3.40%.
Market Mirror
Yesterday, the Dow climbed 188.30 points (1.22%) to 15,628.53, the NASDAQ was up 45.57 points (1.14%) at 4,057.12, and the S&P 500 rose 21.79 points (1.24%) to 1,773.43. The Russell 2000 gained 10.33 points (0.94%) to finish at 1,103.93, and the Wilshire 5000 closed 218.83 points (1.17%) higher at 18,957.08. On the NYSE, 3.2 billion shares traded, with advancing issues outnumbering declining issues nearly 3 to 1. On the NASDAQ, 2.7 billion shares changed hands, with a near 2 to 1 lead for advancers. The price of the 10-year Treasury note was unchanged, with its yield at 2.702%. The price of the 30-year Treasury bond slipped 1/32, increasing its yield to 3.672%.
Financial Sense
Time to Overhaul the Bond Portfolio
Corporate pensions will continue de-risking; allocations will shift with outcomes in mind, and rising interest rates are on everyone’s mind, says a report by eVestment and Casey, Quirk & Associates. In the 2014 Global Investor Survey, investment consultants, institutional asset owners and intermediaries worldwide forecast significant fixed-income restructuring this year amid concern about rising interest rates and a jump in real assets investing. Investors and their managers will continue to strengthen outcome-oriented investing, as investors splinter into more specific types of asset allocation and buying behavior.
Stable Value Performance Down, Products Improved
Stable value funds’ returns were lower in 2013, but the product offerings continue to improve. In general, underlying portfolio performance was weak during the most recent quarter due to a sell-off in many of the fixed income markets, according to Blue Prairie Group’s (BPG) Stable Value Database Executive Summary. The data shows this downward movement in performance has been occurring over the last six quarters or so, mostly due to the sustained low interest rate environment.
Small Talk
ON THIS DATE:  In 1914, the silent film “Kid Auto Races at Venice” premiered in theaters, featuring the actor Charlie Chaplin in his first screen appearance as the “Little Tramp,” the character that would become his best-known onscreen alter ego. In 1964, “Beatlemania” arrived in America with the first visit to the United States by the Beatles. The British rock-and-roll quartet had just scored its first No. 1 U.S. hit six days before with “I Want to Hold Your Hand.” In 1984, while in orbit 170 miles above Earth, Navy Captain Bruce McCandless became the first human being to fly untethered in space when he exited the U.S. space shuttle Challenger and maneuvered freely, using a bulky white rocket pack of his own design. In 1992, the nations of Western Europe united in the spirit of economic cooperation with the signing of the Maastricht Treaty of European Union. In 1999, King Hussein bin Talal, the 20th century’s longest-serving executive head of state died, and his son Prince Abdallah bin Hussein ascends to the Jordanian throne.   And now it’s time for FRIDAY FILES!  
Is this driver out of control or does he always parallel park this way?
In China, Maine, a woman called last week after hearing what she believed to be a fight coming from a neighbor’s home in the town of China. The caller said she heard screaming and thought there was a domestic assault. The Morning Sentinel reports four state troopers responded and talked to the neighbor. The neighbor explained she raises pigs and the screaming was coming from an overjoyed male pig that had been placed in a pen with five sows in heat. In Houston, Texas, Jim “Mac” Macinvale, owner of Gallery Furniture, made a deal with his customers. He said if a customer bought $6,000 worth of furniture within two weeks of the Super Bowl and had it delivered by game day, they would get their money back, but only if the Seahawks won. The bet cost him over $ 7 Million and he kept his end of the deal. “As far as financially we didn’t do well but we did a great job building the brand and delighting customers.  If we do that the business would continue to grow, “he said, according to Philadelphia’s Fox News website.
What children think about luxury food.
In Roseland, Ilinois, a man entered woman’s garage and demanded she hand over her 2012 Honda MDX’s keys. She surrendered the keys and then fled the garage, but not before closing the garage door behind her. She called police who arrived and opened the garage door to find the would-be thief sitting in the driver’s seat with the keys in the ignition, according to the Chicago Tribune. In Vero Beach, Florida, a caller reported a man was “very intoxicated” and driving a blue Nissan. Deputies spotted the blue Nissan turn into the driveway of a residence. The driver, who smelled of booze and slurred his speech, said he’d had a couple of Coors Lights. During one field sobriety test known as the “walk and turn” exercise, a deputy asked the man about 16 times to put his right foot in front of his left. At one point he began the exercise by going the wrong direction and used his arms for balance. He couldn’t finish the exercise. “I can’t do that,” the man is quoted as saying, according to “I can’t dance like (Britney) Spears.” Breath tests measured his blood alcohol content at 0.219 and 0.222.   
What your sleeping position says about you.
In Jensen Beach, Florida, a Taco Bell manager called police saying a truck was in the drive-thru lane with the engine revving and smoke coming out and that the driver may have fallen asleep, NBC Miami reports. When deputies arrived, they found the driver either passed or snoozing, smelling of booze with his foot on the truck’s accelerator, police said. When one of the deputies asked for Falkner’s identification, he replied “No.” When asked again, he reached into his fast food bag and took out a taco. When the man finally got out of the truck, the deputies discovered the truck was on fire, and quickly used extinguishers to douse the flames. The man told deputies he’d had “a beer,” but breath tests measured his blood alcohol content at 0.227 and 0.225. In Denver, Colorado, a woman walked into her home to find a broken window in the kitchen. She called police and told them she would wait at the local McDonald’s because she didn’t feel safe in her house, the local ABC news station reports. While waiting in her car in the parking lot, a man approached her and asked her if she’d like to purchase a PS3. She said no, but then noticed the man was with another man who was wearing a unique Washington Redskins jacket that belonged to her. Afraid to approach the men herself, she went to the gas station neighboring the McDonald’s and told two men what was going on. The two men just happened to be two off-duty police officers who promptly arrested the two men for investigation of burglary. Have a great weekend!
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