Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 18th, 2014
Benefit Briefs
Re-Evaluating Target-Date Funds
If you have yet to do a thorough re-evaluation of the target-date funds (TDFs) you chose, you should—soon. Such is the opinion of Donald Stone, managing partner and chief investment officer (CIO) at Plan Sponsor Advisors in Chicago. “I would say, since most sponsors have probably never done a ‘deep dive,’ now would be a good time.” Many sponsors initially chose a target-date fund family largely because of its availability on their recordkeepers’ platforms, he says. Many failed to look thoroughly at issues such as the underlying assumptions used in constructing the glide path. “It makes a lot of sense for plan sponsors to go back and do a deeper due diligence [beyond regular investment reviews].”
Members of the health insurance industry, including insurers and brokers, expect more employers to adopt defined contribution (DC) strategies for health care benefits. A survey by exchange technology provider Array Health found 33% of respondents anticipate more employers will use a DC model than will use the traditional health benefits model within three years. Ninety-three percent of respondents believe more employers will be using a DC model over a traditional model after 2020.
Defined contribution (DC) plan participants continued recent trends with a light trading month in May, according to Aon Hewitt’s 401(k) Index. When trading occurred, DC participants favored fixed-income funds for 62% of trading days in May. Overall, net transfer activity moved away from diversified equities (equity assets excluding company stock) by $62 million (0.04%).
Buyer's Market
Prudential Retirement Refreshes Digital Tools
Prudential Retirement introduced a line of new technology tools designed to help participants, sponsors and advisers drive higher levels of plan success. The digital tools utilize the principles of data visualization, behavioral finance and “gamification” to enhance retirement plan outcomes, Prudential says.
Diane Improta has joined Rocaton Investment Advisors’ defined contribution (DC) leadership team as managing director, defined contribution consulting. Improta was most recently a partner at Hewitt EnnisKnupp, where she was the 403(b) client practice leader and a member of the defined contribution leadership team.
Morningstar Launches Manager Research Services
Investment research firm Morningstar, Inc. has launched a service to help institutional investors evaluate funds, investment strategies and asset management firms. Morningstar Manager Research Services combines the firm’s fund research reports, ratings, software, tools and proprietary data with access to Morningstar’s manager research analysts. The service complements internal due diligence functions for institutions such as pensions, endowments and foundations.
Industry Voices
Exploring DC Models in Health Care Benefits
The advent of the “private exchange” has accelerated the public dialogue about DC health benefits, touted as a new way to reduce the increasing cost of health insurance. Today’s private exchange serves as an online benefits marketplace where individuals purchase insurance products, including health, dental, vision, and life insurance, along with other ancillary coverage. Providers such as Aon Hewitt claim that consumers on its private exchange will benefit from competition between carriers, which will in turn reduce “top line cost” of health care. Yet, some have noted that the primary function of a private exchange is to shift rising premium costs to employees, without addressing the underlying cost drivers of health care.
Economic Events
Privately-owned housing completions in May were at a seasonally adjusted annual rate of 897,000, the Census Bureau reported. This is 6.8% above the revised April estimate of 840,000 and is 24.8% above the May 2013 rate of 719,000. Single-family housing completions in May were at a rate of 618,000—2.1% above the revised April rate of 605,000. The May rate for units in buildings with five units or more was 269,000. On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4% in May after rising 0.3% in April, according to the Bureau of Labor Statistics. The index for all items less food and energy rose 0.3% in May after increasing 0.2% in April. Real average hourly earnings fell 0.2% in May, seasonally adjusted. Average hourly earnings rose 0.2% and the CPI-U rose 0.4%. Real average weekly earnings fell 0.1% over the month.
Market Mirror
Tuesday, the Dow increased 27.48 points (0.16%) to 16,808.49, the NASDAQ gained 16.13 points (0.37%) to finish at 4,337.23, and the S&P 500 was up 4.21 points (0.22%) at 1,941.99. The Russell 2000 climbed 9.20 points (0.79%) to 1,176.02, and the Wilshire 5000 closed 65.66 points (0.32%) higher at 20,621.47. 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 near 2 to 1 lead for advancers. The price of the 10-year Treasury note decreased 16/32, increasing its yield to 2.656%. The price of the 30-year Treasury bond fell 28/32, bringing its yield up to 3.444%.
Rules & Regulators
Bill to Encourage ESOPs Introduced
House Ways and Means Committee members introduced legislation designed to spur more employee-ownership in private industry. The Promotion and Expansion of Private Employee Ownership Act of 2014 eliminates barriers that a business and its owners currently face in establishing a new S corporation employee stock ownership plan (ESOP) or expanding the employee-ownership stake in an S corporation. The bill will enable owners of S corporations to sell their stock to an ESOP and provide needed technical assistance for companies that may be interested in forming an S ESOP, among other provisions.
Two U.S. Senators have introduced the Retirement and Income Security (RAISE) Act. The bill would increase Social Security payments for divorced spouses, enhance benefits for widows and widowers, and extend eligibility for children of retired, disabled or deceased workers. The additional benefits included in the RAISE Act would be offset by the application of a 2% payroll tax rate on annual earnings over $400,000—an offset that means Social Security will continue to be fully funded, according to a news release by Senator Mark Begich (D-Arkansas), who introduced the bill along with Senator Patty Murray (D-Washington).
Financial Sense
New Role for EM Investments in Retirement Plans
Emerging market (EM) investors are becoming more discerning, changing the landscape of investing, Principal Global Investors says in a new report. “CREATE-Research Report 2014: Not All Emerging Markets Are Created Equal” examines whether emerging economies in the East and South, and developed economies in the West will converge or diverge over this decade. The demographics of aging populations with an eye toward retirement are also helping lead a fundamental change in the way investors make asset-allocation decisions. Defined benefit (DB) and defined contribution (DC) plans have different goals, the report contends, which will lead DB and DC plans to different strategies as well as different asset classes.
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Small Talk
Top Employee Time-Wasters
Personal use of technology is one of the leading time-wasters in the workplace, finds a survey from CareerBuilder. When asked what they consider to be the primary time-wasters in the workplace, employers cited cell phone/texting (50%) and gossip (42%) as the top two. Employers have witnessed employees doing some strange things when they should have been working, such as blowing bubbles in sub-zero weather to see if the bubbles would freeze and break, and looking at a dating website.
ON THIS DATE:  In 1812, the day after the Senate followed the House of Representatives in voting to declare war against Great Britain, President James Madison signed the declaration into law–and the War of 1812 began. The American war declaration, opposed by a sizable minority in Congress, had been called in response to the British economic blockade of France, the induction of American seaman into the British Royal Navy against their will, and the British support of hostile Indian tribes along the Great Lakes frontier. In 1873, Susan B. Anthony was fined $100 for attempting to vote for a U.S. President. In 1923, the first Checker Cab rolled off the line at the Checker Cab Manufacturing Company in Kalamazoo, Michigan. In 1960, Arnold Palmer shot a 65 to win the U.S. Open at Cherry Hills Country Club in Denver, Colorado. It was the best final round in U.S. Open history. In 1983, from Cape Canaveral, Florida, the space shuttle Challenger was launched into space on its second mission. Aboard the shuttle was Dr. Sally Ride, who as a mission specialist became the first American woman to travel into space. During the six-day mission, Ride, an astrophysicist from Stanford University, operated the shuttle’s robot arm, which she had helped design.   WEDNESDAY WISDOMS: “The fact that an opinion has been widely held is no evidence whatever that it is not utterly absurd.”—Bertrand Russell, British philosopher     Share the good news with a friend! Pass the Dash along – and tell your friends/associates they can sign up for their own copy.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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