Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 19th, 2014
Benefit Briefs
Plan Loans Commonly Taken, Commonly Regretted
Nearly one-third of workplace retirement plan participants polled have taken one or more loans against retirement savings—and 44% of them later regretted the decision. In the survey by TIAA-CREF, paying off debt was cited as the top reason for taking out a loan from retirement plan savings (46%), yet only 26% of respondents said paying off debt was a good reason to take out a loan.
Retirement Need Mostly Determined Via Online Tools
More than half (52%) of retirement plan participants have used online tools to calculate their retirement income need, according to a survey of 7,545 retirement plan participants, conducted by American United Life Insurance Company, a OneAmerica company. Respondents also used worksheets (25%), made calculations on their own (24%) or worked with a financial professional (9%) to estimate their retirement income need. The survey also found 56% of respondents prefer to receive financial education information online.
Gap Analysis Best Practices
As partner and national practice leader of PricewaterhouseCoopers’ Employee Financial Education practice, Kent Allison sees firsthand the impact poor levels of employee financial wellness and education can have on defined contribution (DC) retirement plan outcomes. He says plan sponsors have in recent years become much more aware of some painful truths about their defined contribution plans—especially the fact that even employees who make the choice to participate often fall short of generally accepted savings goals. This savings gap emerges for a variety of reasons, Allison says, some beyond the sponsor’s control. However, failure to coach participants about the amount of resources they will need in retirement or to give them actionable suggestions for improving their account performance only causes more damage.
Collective Trust Funds Used Most by Large DC Plans
The use of collective investment trusts (CITs) is highest among defined contribution plans with at least $250 million in assets, according to Cerulli Associates. A recent Cerulli report conducted among defined contribution investment-only (DCIO) asset managers indicates larger plans are leading the way on the introduction and ongoing use of CITs. Nearly half of asset managers polled for the research said plan sponsors with more than $250 million are amenable to collective trust arrangements, explains Cindy Zarker, a director at Cerulli.
Buyer's Market
Social Security Can Be Understood, and Maximized
Despite the 2,800 rules, benefits can be amped up with the right Social Security planning, says Financial Engines, which rolled out a planning service to help near-retirees maximize household income in retirement. The product aims to show people what the increased benefits can look like and help them get the most out of Social Security with the right strategy. “It’s definitely an area that is being talked about among plan sponsors and plan advisers,” says Christopher Jones, chief investment officer (CIO) of Financial Engines. “We’ve found it is an extremely attractive concept for plan sponsors. They recognize this is an important decision, and they’re very interested in teaching their employees more about this.”
DC Provider Moves Seen as Response to Industry Needs
Big mergers and acquisitions have altered the defined contribution (DC) retirement plan industry in recent years, leading some to ask what it all means for sponsors and advisers. Some industry watchers say the ball started rolling when MassMutual snapped up The Hartford’s retirement plans business in September 2012. While there has certainly been a flurry of activity recently, this is not uncommon in the industry, explains John Guido, a principal at Retirement Research Inc. in West Hartford, Connecticut. “There have been pockets of a similar level of flurries—consolidations, acquisitions, divestitures—over the years,” he tells PLANSPONSOR. “I wouldn’t necessarily draw the conclusion that it’s accelerating or vastly different than before.”
Market Mirror
Wednesday, the Dow was up 98.13 points (0.58%) at 16,906.62, the NASDAQ increased 25.60 points (0.59%) to 4,362.84, and the S&P 500 climbed 14.99 points (0.77%) to 1,956.98. The Russell 2000 closed 6.51 points (0.55%) higher at 1,183.13, and the Wilshire 5000 gained 146.37 points (0.71%) to finish at 20,767.84.   On the NYSE, 3.2 billion shares traded, with 2.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares changed hands, with a 1.7 to 1 ratio of advancers to decliners.   The price of the 10-year U.S. Treasury note increased 17/32, decreasing its yield to 2.592%. The price of the 30-year Treasury bond was up 23/32, bringing its yield down to 3.406%.
Rules & Regulators
Protect Fiduciaries with the Right Insurance
Just one type of fiduciary liability protection is required by the Employee Retirement Income Security Act (ERISA), but it’s not nearly enough, says Matthew Jackson of Segal Select Insurance. “ERISA only mandates that a plan maintain fidelity bond coverage,” at a minimum of 10% of a plan’s assets for any person or entity that has control over the plan assets, says Philip J. Koehler, CEO of ERISA Fiduciary Administrators LLC. This includes any party that has any control of either assets going in or distributions going out—both situations contain the potential for fraud or embezzlement. Koehler notes that ERISA creates exposure but does not actually require any insurance against this exposure for fiduciaries, but plan fiduciaries need fiduciary liability insurance.
Sponsored message from SEI
Can defined benefit (DB) investment practices help defined contribution (DC) participants reach their income needs? Join SEI’s Managing Director of Defined Contributions, Scott Brooks, for this 6-minute video presentation providing insight on implementing DB approaches to help improve DC participant results.  
Small Talk
ON THIS DATE:  In 1905, around 450 people attended the opening day of the world’s first nickelodeon, located in Pittsburgh and developed by the showman Harry Davis. The storefront theater boasted 96 seats and charged each patron five cents. Nickelodeons (named for a combination of the admission cost and the Greek word for “theater”) soon spread across the country. In 1910, the first Father’s Day was celebrated in Spokane, Washington. In 1912, the U.S. government established the eight-hour work day. In 1934, the U.S. Congress established the Federal Communications Commission (FCC). The commission was to regulate radio and, later, TV broadcasting. In 1964, the Civil Rights Act of 1964 was approved after surviving an 83-day filibuster in the U.S. Senate. In 1971, Carole King earned her first No. 1 single as a performer with the double-sided hit “It’s Too Late/I Feel The Earth Move.” In 2013, James Gandolfini, the actor best known for his role as New Jersey crime boss Tony Soprano on the TV series “The Sopranos,” died of a heart attack while vacationing in Rome, at the age of 51.
SURVEY SAYS: Throughout the year, those who work with retirement plans can find conferences to attend in an attempt to improve career knowledge. This week, I’d like to know, have you attended industry conferences during your career with workplace retirement plans, and what has been the biggest benefit of attending? You may respond to this week’s survey by 6 p.m. Pacific time today.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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