Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
July 1st, 2014
Benefit Briefs
Lifecycle Investing Through Managed Accounts and ETFs
Target-date funds (TDFs) are an important tool for workplace retirement investors, says Steven Anderson, of Schwab Retirement Plan Services, but more efficient methods of delegated lifecycle investing are emerging. Anderson, an executive vice president at Schwab RPS, says Schwab is working hard to get retirement plan sponsors to consider the opportunities presented by combining a 401(k) plan based on exchange-traded funds (ETFs) with an independent managed account service from a trusted plan adviser. Building plans in this style can significantly reduce expenses for participants and brings more transparency to sponsors and other fiduciaries, he contends.
Buyer's Market
A New Proposal for Monitoring TDFs
Whether a target-date fund (TDF) series is considered “to” or “through” retirement is not the appropriate basis for determining its peers for comparison, contends Cammack Retirement Group. Cammack says it found that relying too heavily on the “to” versus “through” label as a TDF classification system can be misleading. For example, if a plan sponsor currently offers a “to retirement” TDF option, most analytical tools would disregard all TDFs classified as “through retirement” options for comparison purposes. Yet the glide path of the plan’s “to retirement” option may be similar to the glide path of certain TDF options classified as “through retirement,” making them an appropriate member of the peer group.
As one might expect, more providers have created participant-oriented applications (apps) for mobile devices this year, according to PLANSPONSOR’s 2014 Recordkeeping Survey. But, the numbers are not overwhelming—perhaps due to low participant interest, need or adoption. Now 51% of providers claim to have an app for Apple iPhones (vs. 37% last year), 46% have one for iPads (vs. 30%), and 46% have an offering for Android phones (vs. 30%).
Industry Voices
Industry Voice: Retirement Plan Communications
Are you speaking to your employees or just at them? Either can be an effective strategy, depending on what you’re trying to accomplish with your organization’s retirement plan. Jim Phillips and Patrick McGinn discuss the difference between communicating just to comply or to have a great plan.
Market Mirror
Yesterday, the Dow was down 25.24 points (0.15%) at 16,826.60, the NASDAQ was up 10.25 points (0.23%) at 4,408.18, and the S&P 500 decreased by 0.73 (0.04%) to 1,960.23. The Russell 2000 closed 3.46 points (0.29%) higher at 1,192.96, and the Wilshire 5000 increased 16.74 points (0.08%) to 20,862.74. On the NYSE, 3.2 billion shares changed hands, with 1.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a 1.3 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note was up 1/32, bringing its yield down to 2.532%. The price of the 30-year Treasury bond increased 3/32, decreasing its yield to 3.362%.
Rules & Regulators
IRS to Discuss 403(b) Pre-Approved Document Program
The Internal Revenue Service (IRS) will host a free phone forum about 403(b) retirement plans. IRS representatives from the Employee Plans Technical and Guidance area will present an overview of the latest developments in the 403(b) world, primarily focusing on the IRS 403(b) Pre-Approved Plan Program.
The Governmental Accounting Standards Board (GASB) has opened registration to webinars about its recent exposure draft, “Fair Value Measurement and Application.” The webinars will feature GASB Research Manager Dean Mead, GASB Project Manager Randal Finden, and GASB Practice Fellow Deborah Beams discussing the exposure draft from the perspectives of state and local government practitioners and financial statement users, respectively.
PBGC Warns of Potential Insolvency of Multiemployer Program
While single-employer retirement plans are likely to improve over the next decade, the same cannot be said for multiemployer plans, the Pension Benefit Guaranty Corporation (PBGC) says. The PBGC’s “FY 2013 Projections Report” finds the financial condition of agency’s insurance program for single-employer plans, which covers about 30 million participants, is likely to improve over the next decade. Under current estimates, the fiscal year 2013 deficit of $27.4 billion is projected to narrow to, on average, $7.6 billion by fiscal year 2023. The PBGC notes it is highly unlikely the single-employer program will run out of funds in the next 10 years.
Financial Sense
Using Hedge Funds to Improve LDI Strategy
Plan sponsors should reconsider the growth portfolio in a liability-driven investing (LDI) strategy, Jeremy M. Kish of TeamCo Advisers says. Typically, plan sponsors want to address growth of the plan, reach a point where the plan is fully funded and minimize the downside of volatility, according to Kish, managing director of TeamCo and co-author of a white paper. In “Buckle Up, for (Your DB Plan) Safety—the Risk Paradox of Unrestrained Equity Volatility in Liability-Driven Investing Vehicles,” Kish makes a number of observations about LDI strategy and how to meet goals using hedge funds. Over a market cycle, a diversified portfolio of select hedge funds can offer returns similar to equities, he contends, but with a reduced amount of the downside deviation his firm thinks is more important.
Small Talk
ON THIS DATE:  In 1847, the U.S. Post Office issued its first adhesive stamps. In 1862, the U.S. Congress established the Bureau of Internal Revenue. In 1863, the largest military conflict in North American history began when Union and Confederate forces collided at Gettysburg, Pennsylvania. In 1874, the Philadelphia Zoological Society zoo opened as the first zoo in the United States. In 1941, Bulova Watch Company sponsored the first TV commercial in New York City. In 1943, the U.S. Government began automatically withholding federal income tax from pay checks. In 1963, the U.S. postmaster introduced five-digit ZIP (Zone Improvement Plan) codes. In 1979, Susan B. Anthony was commemorated on a U.S. coin, the Susan B. Anthony dollar. In 1979, the Sony Walkman, the first personal stereo cassette player, went on sale. In 1966, the Medicare federal insurance program went into effect. In 1984, the Motion Picture Association of America (MPAA), which oversees the voluntary rating system for movies, introduced a new rating, PG-13. The PG-13 category was added to indicate film content with a “higher level of intensity” than PG-rated films. In 2005, the last Ford Thunderbird was produced at a factory in Wixom, Michigan.   TUESDAY TRIVIA: There are 41,751 ZIP codes in the U.S., with an average of 4,708 changes to zip codes per year.
TRIVIAL PURSUITS: What do the digits in ZIP codes represent?
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