Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
July 3rd, 2014
Benefit Briefs
Employee Stock Purchase Plans Increasing in Importance
Employee stock purchase plans (ESPPs) are increasing in importance when it comes to employee retention and recruiting, finds a study from Fidelity Investments. When asked about the importance of company stock plans as part of their compensation and benefits package, 86% of respondents younger than 40 say they would want their new employer to offer a company stock plan if they changed jobs. In addition, 40% of all respondents consider a company stock plan as a must-have when making a decision to change employers, and more than one-third of respondents (37%) say giving up their ESPP would make it harder for them to leave their current job.
Lockheed Martin will freeze its salaried defined benefit (DB) pension plan and transition employees to an enhanced defined contribution (DC) retirement plan. When the freeze is complete, the majority of Lockheed Martin salaried employees, including approximately 25,000 not in the pension plan, will have transitioned to a DC retirement plan that offers up to 10% of employees’ salary annually in company contributions.
Perceived Expense Stops Many from Seeking Advice
A recent survey report from American United Life Insurance Company (AUL), a OneAmerica company, tells a conflicted story about workplace retirement investors. Twenty-three percent of respondents were not sure why they do not work with a financial professional. Others said they prefer to make their own decisions (24%), or they feel financial professionals are too expensive to hire (23%). Investors younger than 50, as well as those with household incomes less than $75,000, are the most likely to go it alone.
Industry Voices
Insights: Are We Missing the TDF Point?
One of the issues raised most commonly when comparing target-date fund suites relates to the composition of a fund when it hits the “date” in the name—e.g., the asset allocation in the year 2020 for a 2020 fund. As an industry, we have taken to distinguishing these funds by whether they go “to” or “through” retirement. Does the fund manager stop changing allocations at that date—to—or continue the glide path after—through—and come to rest at some later point? Is one better than the other? Fund managers obviously think so. However, as to which is correct, I just can’t seem to agree that one approach is “better” than the other for all participants of every age group and risk preference.
Economic Events
New orders for manufactured goods in May, down following three consecutive monthly increases, decreased $2.6 billion or 0.5% to $497.7 billion, the U.S. Census Bureau reported. This followed a 0.8% April increase. Excluding transportation, new orders decreased 0.1%.
Market Mirror
Wednesday, the Dow ticked up 20.17 points (0.12%) to 16,976.24, the NASDAQ decreased by 0.92 (0.02%) to 4,457.73, and the S&P 500 increased by 1.30 (0.07%) to 1,974.62. The Russell 2000 fell 6.45 points (0.53%) to 1,199.50, and the Wilshire 5000 closed 11.75 points (0.06%) lower at 20.997.11. On the NYSE, 3.2 billion shares traded, with 1.7 declining issues for every advancing issue. On the NASDAQ, 2.7 billion shares changed hands, with a 1.2 to 1 ratio of decliners to advancers. The price of the 10-year Treasury note decreased 17/32, and the price of the 30-year Treasury bond fell 1 4/32, bringing their yields up to 2.627% and 3.461%, respectively.
Rules & Regulators
Same-Gender Partnerships Now Marriages in Washington State
Referendum 74, passed in November 2012, updated Washington State law so that any state registered same-gender domestic partnership in Washington State where neither party is 62 years of age or older, was automatically converted into a marriage as of June 30, 2014, unless dissolved or converted to marriage prior to that date. According to an alert from law firm Davis Wright Tremaine, this will impact retirement plans, beneficiary designations and health care plans.
Navigating the DOL Audit Process
Of the 3,677 Department of Labor (DOL) qualified retirement plan audit investigations closed in 2013, violations were found in nearly three-quarters of them. DOL investigators also closed some 320 criminal investigations in 2013, securing 88 indictments and 70 guilty pleas or convictions. For plan sponsors, the settlements for plan-related criminal cases and violations, taken together, cost a collective $1.7 billion in plan reimbursements and fines last year alone. Bruce Ashton, an attorney with Drinker Biddle & Reath LLP’s Employee Benefits and Executive Compensation Practice Group in Los Angeles, says those numbers contain a clear message for plan fiduciaries and financial advisers working with retirement plans: The best way to survive a plan audit unscathed is to avoid an audit in the first place. And once an audit is triggered, only the most carefully governed plans can expect a clean bill of health.
Financial Sense
The funded status of corporate defined benefit (DB) plans in the United States increased to 92% during June, with liabilities decreasing 0.2% during the month. The BNY Mellon Institutional Scorecard for June shows assets at the typical corporate plan rose 1.4%. Year-to-date, the funded status of corporate plans is down 3.2 percentage points, according to the scorecard.
The World at Large
“It is important to understand the needs of your employees, which benefits are most valuable, particularly for different groups, and integrate that into the reward strategy,” says Ben Marks, L’Oreal’s HR compensation and benefits director. “There are issues of fairness in scheme design and that informs the pension strategy and the reward strategy.” He argues significant contributions must go hand in hand with effective investment platforms, with the requirement for fairness extending to the design of investment options.
Small Talk
ON THIS DATE:  In 1775, George Washington rode out in front of the American troops gathered at Cambridge common in Massachusetts and drew his sword, formally taking command of the Continental Army. In 1863, on the third day of the Battle of Gettysburg, Confederate General Robert E. Lee’s last attempt at breaking the Union line ended in disastrous failure, bringing the most decisive battle of the American Civil War to an end. In 1890, Idaho was admitted to the union, becoming the 43rd state. In 1922, “Fruit Garden and Home” magazine was introduced. It was later renamed “Better Homes and Gardens.” In 1930, the U.S. Congress created the U.S. Veterans Administration. In 1934, the U.S. Federal Deposit Insurance Corporation (FDIC) made its first payment to Lydia Losiger. In 1940, Bud Abbott and Lou Costello debuted on NBC radio. In 1962, Jackie Robinson became the first African American to be inducted into the National Baseball Hall of Fame. In 1969, Rolling Stones guitarist Brian Jones was found dead of an apparent accidental drowning. In 1971, Jim Morrison died of heart failure in a bathtub in Paris. In 2012, Andy Griffith, famous for his role as the good-hearted, small-town sheriff of fictional Mayberry, North Carolina, on the iconic 1960s TV sitcom “The Andy Griffith Show,” died at age 86 at his North Carolina home.
SURVEY SAYS REWIND: Five years ago we asked NewsDash readers, “What famous American documents have you read?”
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Editorial: Alison Cooke Mintzer


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