Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 17th, 2014
Benefit Briefs
Plan Sponsors Moving to Retirement Income Mindset
More retirement plan sponsors are adopting a culture of retirement income, according to the 2014 MetLife Qualified Retirement Plan Barometer (QRPB). The Barometer was created by MetLife to assess whether and to what extent a retirement income culture is taking hold among plans sponsors at FORTUNE 1000 companies—the higher the value on the Barometer, the stronger the overall culture of retirement income. While the high score of 89 remains the same from the inaugural study in 2011, the range of scores has narrowed significantly, driven by improvement in the lowest scores, rising from 19 to 30. Cynthia Mallett, vice president of Industry Strategies and Public Policy in MetLife’s Corporate Funding Division in Boston, explains that a retirement income culture is a set of practices that connect savings to income. “Part of it is communications and the way employers talk about their retirement plans to employees, but it also shows up in plan design and employers’ benefits objectives,” she tells PLANSPONSOR. This year’s QRPB highlighted the differences in attitudes and practices among companies that offer only DC plans, and those that provide broad coverage defined benefit (DB) plans combined with DC plans.
DC Plans Focus on Streamlining Investments
Defined contribution plan sponsors tend to offer far more investment fund options than the number actually used by the average participant, according to new research from SEI. A vast majority of defined contribution (DC) plan participants face an investment menu with at least 16 fund options, an SEI report says, and many are forced to choose from 36 funds or more. At the same time, the average workplace retirement investor uses less than five funds while participating in a DC plan, setting the stage for participant confusion and inertia in the face of complicated core fund lineups.
Buyer's Market
Eduardo Jauregui has joined Mercer’s Chicago office as leader of its international consulting group (ICG) for the Midwest market. Jauregui will focus on leading an experienced team of consultants who work with multinational companies located in the Midwest.
Sage Advisory Services Launches Custom LDI Solution
Sage Advisory Services, an Austin, Texas-based asset manager, released a liability-driven investing (LDI) solution tailored for small pension plans. Providers of LDI strategies have historically focused their services on major pension plan sponsors, the firm says. But the increasing use of exchange-traded funds (ETFs) has expanded the opportunity for smaller pension funds to create asset mixes that closely resemble their liability streams. The strategy can minimize the volatility of plan funded status, an important risk measure for the plan sponsor.
Mutual of Omaha Retirement Services is now offering 401(k) Admin Advantage, an Employee Retirement Income Security Act (ERISA) 3(16) administration service. The service is designed to ease day-to-day demands of retirement plan administration, while minimizing risks for plan sponsors and supporting the independent services of plan advisers and third-party administrators (TPA). Plan sponsors can choose one or both of the available service levels.
Market Mirror
Yesterday, the Dow ticked up 5.27 points (0.03%) to 16,781.01, the NASDAQ was up 10.45 points (0.24%) at 4,321.11, and the S&P 500 increased by 1.62 (0.08%) to 1,937.78. The Russell 2000 added 4.14 points (0.36%) to finish at 1,166.82, and the Wilshire 5000 closed 22.83 points (0.11%) higher at 20,555.81. On the NYSE, 3.2 billion shares traded, with a nearly even split between advancing issues and declining issues. On the NASDAQ, 2.7 billion shares changed hands, with a slight lead for advancers. The price of the 10-year Treasury note was up 2/32, bringing its yield down to 2.599%. The price of the 30-year Treasury bond increased 11/32, decreasing its yield to 3.397%.
Rules & Regulators
Merrill Lynch Ordered to Restore Sales Charges to Plans
The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts. The agency also ordered Merrill Lynch to pay $24.4 million in restitution to affected customers, in addition to $64.8 million the firm has already repaid to harmed investors. Most mutual funds available on Merrill Lynch’s retail platform offered waivers to retirement plan accounts and disclosed those waivers in their prospectuses; however, FINRA found that at various times since at least January 2006, Merrill Lynch did not waive the sales charges for affected customers.
The Internal Revenue Service (IRS) announced an enforcement transition period for the Foreign Account Tax Compliance Act (FATCA). A Towers Watson update notes that recently, the IRS issued Notice 2014-33, announcing calendar years 2014 and 2015 will be regarded as a transition period for purposes of IRS enforcement and administration with respect to the implementation of FATCA by withholding agents, foreign financial institutions (FFIs), and other entities with withholding responsibilities that make a “good faith” effort to comply with the final FATCA regulations and the temporary regulations coordinating FATCA with certain preexisting reporting and withholding requirements.
Galvin Argues for Better Disclosures of Match Changes
In a report sent to Congress and the Department of Labor, the Massachusetts Securities Division (MSD) is asking for improved disclosures to retirement plan participants of company match contribution changes. In the report, the office of the Secretary of the Commonwealth of Massachusetts William F. Galvin argues that existing Employee Retirement Income Security Act (ERISA) rules do not mandate that employees receive meaningful and timely disclosure of such changes. The report notes that current disclosure obligations only require the employer to inform the employee that a change occurred, not information about how that change might detrimentally impact her overall retirement plans. Earlier this year, Galvin’s office sent a letter to the largest 401(k) plan providers seeking the number of plans they administer that have shifted to year-end lump-sum matches, the number of affected employees, and the date of the change, as well as the disclosure of information provided to plan participants about the potential risks associated with the change.
The Governmental Accounting Standards Board (GASB) has released exposure drafts on other post-employment benefits (OPEB). Approved on May 28, two of the exposure drafts cover proposals for improvements to accounting and financial reporting for non-pension benefits that U.S. state and local governments provide to their retired employees. A third exposure draft proposes requirements for pensions and pension plans that are outside the scope of the pension standards the GASB released in 2012.
Financial Sense
Global asset manager Russell Investments announced the annual realignment of its global equity indexes to reflect market change from the past year. Done each June, this year’s rebalance will impact approximately $5.2 trillion in assets benchmarked to and nearly $800 billion in assets invested in institutional and retail investment products based on the Russell Indexes. Russell has released the lists of companies set to join or leave the Russell Global Index, Russell 3000 Index and Russell Microcap Index when the annual reconstitution for its U.S. equity indexes concludes on June 27.
The Feeling’s Mutual
Long-term funds netted $39.2 billion in May, increasing the year-to-date intake to $215 billion, according to Strategic Insight (SI). SI, an Asset International company, also finds that for May, U.S. Equity funds (-$2 billion) experienced their first aggregate net outflows since January, while International Equity ($16 billion) saw another month of consistent net investment.
Small Talk
ON THIS DATE:  In 1885, the dismantled State of Liberty, a gift of friendship from the people of France to the people of America, arrived in New York Harbor after being shipped across the Atlantic Ocean in 350 individual pieces packed in more than 200 cases. In 1972, five men were arrested for breaking into the Democratic National Committee offices at the Watergate Hotel in Washington, D.C. Senate investigations eventually revealed that President Richard Nixon had been personally involved in the subsequent cover-up of the break-in; additional investigation uncovered a related group of illegal activities that included political espionage and falsification of official documents, all sanctioned by the White House. The Watergate scandal led to Nixon’s resignation. In 1989, “I’ll Be Loving You Forever” by New Kids on the Block reached No. 1 on the Billboard pop chart. In 1994, TV viewers watched as a fleet of black-and-white police cars pursued a white Ford Bronco along Interstate-405 in Los Angeles, California. Inside the Bronco was Orenthal James “O.J.” Simpson, a former professional football player, actor and sports commentator, whom police suspected of involvement in the recent murders of his former wife, Nicole Brown Simpson and her friend Ronald Goldman. In 2008, Cyd Charisse, who shot to Hollywood stardom as the graceful, long-legged dancing partner of Gene Kelly and Fred Astaire in classic Metro-Goldwyn-Mayer musicals such as “Singin’ in the Rain” (1952), “Brigadoon” (1954) and “Silk Stockings” (1957), died of a heart attack in Los Angeles at the age of 86.   TUESDAY TRIVIA: Prior to its being marketed as a breath freshener, Listerine was used to sterilize gauze bandages, clean floors, irrigate nasal passages, and touted as a cure for both baldness and gonor.rhea.
TRIVIAL PURSUITS: Where did the phrase, “Always a bridesmaid but never a bride,” originate?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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