Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
July 18th, 2014
Benefit Briefs
Plan Sponsors Called on to Offer In-Plan Annuities
The Defined Contribution Institutional Investment Association (DCIIA) encourages plan sponsors to take steps to provide lifetime income solutions to their retirement plan participants based on new regulatory guidance. Earlier this month Treasury and the Internal Revenue Service (IRS) issued final rules to make longevity annuities more accessible to the defined contribution (DC) and individual retirement account (IRA) markets. In short, the final rules ease certain minimum distribution requirements that have made it difficult for retirees to purchase and hold longevity annuity products without potentially jeopardizing the qualified status of their accounts. Ken Nuss, founder of AnnuityAdvantage, sees this as an opportunity for near-retirees to hedge against the distinct possibility of outliving their retirement savings.
Auto Enrollment Can Help Account Balance Disparity
Research from the Vanguard Group finds there are differences in defined contribution (DC) retirement plan account balances across racial and ethnic groups. The authors of “Diversity and Defined Contribution Plans: Differences in 401(k) Retirement Wealth” say black DC plan participants, with a median balance of $6,529, and Hispanic participants, with a median balance of $9,920, lag far behind white participants ($28,572). Asian participants lead all groups, with a median balance of $39,987. The authors note participant compensation is a prime factor is these account balance differences. The research shows that under voluntary enrollment, participant deferral rates are higher for whites and Asians than for blacks and Hispanics. Under automatic enrollment, however, participation rates improve for all groups and average around 96%.
Even Those in Retirement Not Financially Confident
Nearly half of Americans older than 70 polled for a recent survey say they are either unprepared financially for retirement or they do not know whether they are. According to the data from Consumers’ Research, 26% of respondents older than 70 say they are not on track to have enough savings for retirement, and 22% are unsure. Twenty-two percent of respondents older than 70 indicate they do not feel as if they have enough income for their monthly expenses.
DC Health Benefits Use Expected to Pick Up
U.S. companies surveyed ranked controlling benefit costs as their largest overall business challenge, and 42% identified reducing or containing health care spend as their top priority. Arthur J. Gallagher & Co. says in its 2nd annual Benefits Strategy & Benchmarking Survey report almost all employers are subsidizing the plans they offer to employees for the time being (98%), but rising costs present obstacles. An increase in employee contributions was the most popular strategy to contain health care costs in the 2014 plan year. The defined contribution model for health benefits has been adopted by a small portion of respondents (1%), but this number is expected to rise as more organizations try to contain their medical costs, according to the report.
Economic Events
In the week ending July 12, the advance figure for seasonally adjusted initial claims for unemployment insurance was 302,000, a decrease of 3,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 304,000 to 305,000. The four-week moving average was 309,000, a decrease of 3,000 from the previous week’s revised average. This is the lowest level for this average since June 2, 2007 when it was 307,500. The previous week’s average was revised up by 500 from 311,500 to 312,000. Privately-owned housing starts in June were at a seasonally adjusted annual rate of 893,000, the U.S. Census Bureau announced. This is 9.3% below the revised May estimate of 985,000, but is 7.5% above the June 2013 rate of 831,000. Single-family housing starts in June were at a rate of 575,000; this is 9.0% below the revised May figure of 632,000. The June rate for units in buildings with five units or more was 305,000. The average interest rate for a 30-year fixed-rate mortgage is 4.13%, down from 4.15% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.23%, down from 3.24%.
Market Mirror
Thursday, the Dow Jones Industrial Average stock index lost 161.39 points (0.94%) to finish at 16,976.81, the NASDAQ Composite index dropped 62.52 points (1.41%) to end at 4,363.45, and the S&P 500 index fell 23.45 points (1.18%) to 1,958.12. The Russell 2000 closed 17.95 points (1.56%) lower at 1,133.60, and the Wilshire 5000 decreased 246.51 points (1.18%) to 20,687.69. On the NYSE, 3.2 billion shares traded, and on the NASDAQ, 2.8 billion shares changed hands, with declining issues outnumbering advancing issues more than 4 to 1 on both exchanges. The yields for the 10-year Treasury note and 30-year Treasury bond were 2.450% and 3.269%, respectively.
Financial Sense
Automobile Parts Manufacturer Transfers Pension Liability
Visteon Corporation, a global automotive supplier, will purchase a group annuity contract covering approximately one-third of its U.S. pension liability. The company, based in Van Buren Township, Michigan, announced it has entered into an agreement to transfer certain U.S. pension assets to Prudential Insurance Company of America to settle approximately $350 million of its $1.1 billion in outstanding U.S. pension obligations. The transaction is designed to further Visteon’s objective of reducing risk in the pension plan and better managing the ongoing cost volatility of such plans, while continuing to meet its obligation to all current participants.
Small Talk
The Pension Benefit Guaranty Corporation (PBGC) takes a look back at what was going on in America during its first year in business—get ready for some nostalgia.
ON THIS DATE:  In 1927, Ty Cobb set a major league baseball record by getting his 4,000th career hit. He hit 4,191 before he retired in 1928. In 1940, Franklin Delano Roosevelt, who first took office in 1933 as America’s 32nd president, was nominated for an unprecedented third term. In 1947, President Harry S. Truman signed the Presidential Succession Act, revising an older succession act that was passed in 1792 during George Washington’s first term, and establishing that the speaker of the House of Representatives would become president if both the president and vice president become incapacitated or die. In 1960, 15-year-old Brenda Lee earned a No. 1 hit with “I’m Sorry.” In 1985, Jack Nicklaus II, at age 23 years old, made his playing debut on the pro golf tour at the Quad Cities Open in Coal Valley, Illinois. In 1986, new close-up videotapes of the sunken ocean liner Titanic, taken on the first manned expedition to the wreck, were released to the public.   And now it’s time for FRIDAY FILES!
No matter how you fall, it’s all about the landing.
In Great Yarmouth, England, two men were having a night out at a nightclub. One of the men playfully flicked a lighter towards his friend. Unfortunately, his friend was doused with aftershave and caught fire when the flame was near, suffering wounds to his hand and body. Police charged the lighter-flicking friend with as.sault, according to the BBC. He pled guilty and was ordered to pay a fine.
Elephants are so smart—and helpful!
In Orlando, Florida, a TV news reporter who lives in Washington, D.C. was flying out of Orlando International Airport when a Transportation Security Administration (TSA) agent told him his District of Columbia driver’s license wasn’t a valid form of identification. The reporter noted his license is legal and up-to-date, but the TSA agent demanded to see his passport. The reporter told the agent he wasn’t carrying his passport and asked why he needed it. The agent said he didn’t recognize the license. After some initial confusion, the reporter told the local Channel 9 news, he asked the agent if he knew what the District of Columbia is, and after a brief conversation the reporter realized the man did not know. The reporter was able to get through security and then stopped to complain to a TSA supervisor. A TSA spokesman said all of the TSA agents in Orlando are being shown copies of District of Columbia driver’s licenses. In San Francisco, California, in other TSA news, a man suspected of having one too many drinks is accused of posing as a TSA agent and gro.ping two unsuspecting women in a private booth for security pat downs. CBS San Francisco reports that authorities said the man was a ticketed passenger who went through the security checkpoint and was seen drinking at an airport lounge for a few hours Tuesday. He was wearing khaki pants and a blue polo, and may have swiped plastic blue gloves to look the part. The man returned to the passenger screening area and convinced a passenger who was already screened to go to a private booth. What happened inside isn’t exactly clear, because she disappeared to catch her flight. Real TSA agents became suspicious when they saw him ushering another woman into the private screening area, because men are only allowed to screen women in the booths if a female agent is present. The 53-year-old man was detained until police arrived. He faces a public drun.kenness charge, but could face additional charges. 
You can see faces everywhere.
In Seattle, Washington, a man saw a spider in his laundry room. News reports didn’t say what size the spider was, but the man decided a makeshift blow torch was the best way to kill it. Using a lighter and a can of spray paint, he attempted to kill it with fire, but his wall caught fire, and it soon spread. It’s estimated the fire caused $60,000 of damage to his house. It is not known if he killed the spider. In Farmington, Wisconsin, the Sheriff’s Office got a report of a car traveling in the wrong lane. They found a nine-year-old boy driving the car with a four-year-old in it. A deputy tried to intercept the car, but before he could stop it, the child drove the car into a ditch.  Deputies at the scene identified the boys as the same two who stole a car in June to go to their grandmother’s house. The car belongs to the nine-year-old’s stepfather. Police told WISN 12 News they are investigating the case as possible child neglect. In Blackfoot, Idaho, folks assembled at an event called Blackfoot Pride Days to grab ping pong balls dropped over them from an airplane that were worth prizes—some for gift certificates valued at $100. But, according to the Idaho Statesman, a new pilot did the drop this year and apparently didn’t understand that ping pong balls lose speed quickly and drop straight down. He missed his marked and dropped the 3,000 ping pong balls on a nearby highway. Organizers of the event still passed out the prizes. In Corbin, Kentucky, police arrested a 29-year-old man Tuesday afternoon for shoplifting and alc.ohol into.xication in public. While being booked at the police station, the man asked to make a phone call on his cell phone. According to WKYT, a little later, five pizzas from Domino’s were delivered to the station under the name of the officer that arrested the man. Police say they linked the call to the man by tracking his cell phone number. He now faces additional charges including theft of identity, theft by deception, and impersonating a police officer. Have a wonderful weekend, everyone!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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