NewsDash – July 17, 2014

July 17th, 2014

Benefit Briefs

A New Approach to Providing Retirement Benefits

The employer-sponsored retirement benefits landscape is changing and PwC suggests “new paternalism” may be the answer to helping employers achieve retirement savings success. During a webcast about PwC’s Global Pension Survey results, Isaac Buchen, principal at PwC Human Resource Services in New York, said PwC is seeing that clients are looking for something new and asking if the risks of their current retirement plan offerings outweigh the value of their benefits program to employees. In the U.S., many defined benefit (DB) plans are frozen or closed, or plan sponsors are adopting risk transfer strategies. The cost of providing DB plans is increasing as employees live longer. In addition, the work force is changing; workers are not staying with one employer for a long period of time. The new paternalism concept PwC promotes is about investing in helping employees make better decisions.

More Confident, Women Still Not Preparing for Retirement

Prudential’s study on the financial experience of women shows a bumpy road with some steps forward and some back, five years after the financial meltdown. Prudential’s study, “Financial Experience and Behaviors Among Women,” found women’s concerns about protecting investments from volatility have shrunk, from 94% in 2010, to 74% today, when it was at an all-time high. “Now it’s coming back to prerecession levels,” said Lori Dickerson Fouche, chief executive officer of Prudential Group Insurance at a panel discussion in New York about the survey. But drilling down into the study data revealed some issues. “Despite feeling more financially secure, women don’t seem to be any more prepared,” Fouche said.

Retirement Plan Participants Support Auto Deferral Increase

Fifty-five percent of retirement plan participants favor automatic annual increases to their account contributions, a survey finds. “With non-stop family, health and life events and changing financial obligations over the course of one’s life, saving for retirement can easily fall to the bottom of the priority list,” says Marsha Whitehead, vice president of retirement services marketing for OneAmerica, the parent company of American United Life Insurance, which recently published a survey report about automatic plan design features. “Automatic features can help plan participants easily increase their retirement contributions and not get distracted by other financial matters.” The survey asked workplace retirement investors to rank the financial priorities that compete most with their retirement account contributions.

Subsidized Retirement Benefits for the ‘Have-Nots’

“Maddie is cheaper than a machine, as is common in factories; Standard invests only in machinery that will earn back its cost within two years. Maddie makes less in two years than the machine would cost, so her job is safe for now,” wrote Adam Davidson in “Making It in America,” published in The Atlantic, December 2011. The “Maddie” of Adam Davidson’s excellent article is a 22-year-old single mother living and working in Greenville, South Carolina. She is a high school graduate. She made $13 an hour at the time and likely makes little—if any—more now. Who will pay for Maddie‘s retirement? Her employer? You can “make” Maddie’s employer provide her with a retirement benefit—defined benefit (DB), defined contribution (DC), enhanced Social Security, take your pick. But doing so increases the cost of employing her. Someday, the company will replace her with a robot. So, any amount we force the employer to pay for her retirement will, in the long run, come out of her salary.

Buyer's Market

Prudential Investment Management has named Michael Schlachter as the head of its multi-asset class solutions group. The newly formed group will leverage the breadth of Prudential’s asset management capabilities across public and private fixed income, equities, real estate and alternatives to help investors solve issues around asset allocation, portfolio construction, dynamic de-risking and hedging.

Rocaton Investment Advisors, LLC has adopted RiskFirst’s PFaroe web-based platform to help clients better analyze and manage pension plan risk. PFaroe is a real-time, web-based valuation, analytics and reporting platform designed to help risk managers gain deeper insights into their risk exposure across multi-asset portfolios and master regulatory complexity.

Economic Events

The Producer Price Index (PPI) for final demand rose 0.4% in June. This increase followed a 0.2% decline in May and a 0.6% advance in April. In June, the index for final demand goods rose 0.5% and prices for final demand services increased 0.3%.

Market Mirror

Wednesday, the Dow closed 77.52 points (0.45%) higher at 17,138.20, the NASDAQ was up 9.58 points (0.22%) at 4,425.97, and the S&P 500 increased 8.29 points (0.42%) to 1,981.57. The Russell 2000 lost 2.26 points (0.20%) to finish at 1,151.55, and the Wilshire 5000 gained 68.35 points (0.33%) to finish at 20,934.20. On the NYSE, 3.2 billion shares changed hands, with 1.2 advancing issues for every declining issue. On the NASDAQ, 2.8 billion shares traded, with a 1.4 to 1 lead for decliners. The price of the 10-year Treasury note was up 6/32, bringing its yield down to 2.527%. The price of the 30-year Treasury bond increased 17/32, decreasing its yield to 3.339%.

Rules & Regulators

SCOTUS Decision Gives New Life to BP Stock Drop Suit

A federal appeals court has revived a stock drop case, filed against oil company BP Plc, based on a new precedent set by the U.S. Supreme Court. The U.S. District Court for the Southern District of Texas had dismissed Whitley v. BP Plc on the grounds that the plaintiffs had not overcome the “presumption of prudence” standard, as established in Moench v. Robertson, relating to investment in company stock. The district court also denied the plaintiffs’ request to amend their complaint. Following plaintiffs’ appeal to the 5th U.S. Circuit Court of Appeals, the Moench standard was impacted by a U.S. Supreme Court ruling in the separate case of Dudenhoeffer v. Fifth Third Bancorp.

The Feeling’s Mutual

Long-term funds netted $47 billion in June, increasing the year-to-date inflows to $266 billion, according to Strategic Insight (SI). SI, an Asset International company, finds International Equity ($17.6 billion) saw another month of consistent net intake as allocations to International Total Return ($2.5 billion) and International Emerging Market Equity ($2.1 billion) expanded.

Small Talk

ON THIS DATE: In 1821, Spain ceded Florida to the U.S. In 1867, Harvard School of Dental Medicine was established in Boston, MA. It was the first dental school in the U.S. In 1941, New York Yankees center fielder Joe DiMaggio’s 56-game hitting streak came to an end when he failed to get a hit against the Cleveland Indians. In 1950, the television show “The Colgate Comedy Hour” debuted featuring Dean Martin and Jerry Lewis. In 1955, Disneyland opened in Anaheim, California. In 1975, an Apollo spaceship docked with a Soyuz spacecraft in orbit. It was the first link up between the U.S. and Soviet Union. In 1995, the NASDAQ composite stock index rose above 1,000 for the first time. In 1997, after 117 years, the Woolworth Corp. closed its last 400 stores.

SURVEY SAYS: This week, we covered a survey which indicated some people rank their mobile phones as more important to them than deodorant. This week, I’d like to know, from a list of items used in daily life, what one could you not give up? You may respond to this week’s survey by 6 p.m. Pacific time today.

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