Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 26th, 2014
Benefit Briefs
Financial Education Wanted, and It’s In Short Supply
Nearly three-quarters of employees (71%) think financial wellness should be offered to them, according to a survey. One-third of employees receive no education from retirement plan advisers. Nearly half (47%) say their company offers a financial wellness program, and of this group, 27% say their company offers personal finance as part of the program, according to the Four Seasons Financial Education (FSFE) Financial Wellness Survey.
Workplace benefits focus on older employees’ needs, even though Millennials exhibit the greatest number of financial challenges, according to a survey of 419 human resource (HR) professionals. When asked about the financial benefits offered to their employees, the most common is retirement planning (cited by 81%), followed by financial literacy training (42%), education on basic budgeting (25%) and management of credit (8%).
Small Firm 401(k)s Favor Professionally Managed Investments
More than three-quarters of small-business employees who participate in their firms’ 401(k) plans have well-constructed, appropriately diversified investment portfolios, according to Vanguard. In many cases, says the investment management firm, this is because their employer has placed them in a professionally managed investment option. The “Vanguard Retirement Plan Access 2014” research shows 76% of participants in small business retirement plans held broadly diversified investments in 2013. More than half of those participants did so through a professionally managed investment option such as a target-date fund (TDF), another type of balanced fund or a model portfolio.
Buyer's Market
PLANSPONSOR Recordkeeping Survey Top 10s
Fidelity Investments was the No. 1 ranked recordkeeper by total recordkeeping assets in our 2014 Recordkeeping Survey, while Paychex Inc. was ranked No. 1 by total recordkeeping plans. Xerox HR Services LLC took the top spot when recordkeepers were measured by the increase in recordkeeping assets from 2012 to 2013, and Vanguard had the highest increase in recordkeeping plans.
OneAmerica will acquire City National Bank’s San Diego-based retirement services recordkeeping business. OneAmerica and City National Bank will also enter into a strategic alliance whereby City National will distribute OneAmerica retirement products and provide directed trustee services to select OneAmerica retirement customers.
Blackrock Enhances LifePath Strategies
BlackRock has added two new strategies to its series of LifePath target-date funds (TDFs) that apply principles from the firm’s latest research into glide path investing. The two new strategies are LifePath CoRI, which focuses on the need to meet participant goals for sustainable retirement income, and LifePath Dynamic, which takes active positions relative to the LifePath Index—described by the firm as “BlackRock’s hallmark TDF product.”
J.P. Morgan Asset Management has launched its first exchange-traded fund (ETF), JPMorgan Diversified Return Global Equity. The J.P. Morgan ETF is designed to provide market participation with lower volatility, and starts with the premise that traditional market-cap-weighted and single-factor indices expose investors to excessive risk concentrations and a systematic bias toward overvalued securities. Therefore, the fund seeks to reallocate risk by weighting stocks according to four factors: value, size, momentum and low volatility. Research has shown that these factors, when combined, may offer better risk-adjusted returns.
The National Association of Government Defined Contribution Administrators Inc. (NAGDCA) has launched its newly redesigned website. The site is easier to use, incorporates new technology, and offers a greater opportunity for member feedback and online networking, the association says.
Economic Events
New orders for manufactured durable goods in May decreased $2.4 billion or 1.0% to $238.0 billion, the U.S. Census Bureau announced. This decrease, down following three consecutive monthly increases, followed a 0.8% April increase. Excluding transportation, new orders decreased 0.1%. Excluding defense, new orders increased 0.6%. Transportation equipment, also down following three consecutive monthly increases, led the decrease, down $2.3 billion or 3.0% to $74.4 billion.
Market Mirror
The Dow closed 49.38 points (0.29%) higher Wednesday at 16,867.51, while the NASDAQ gained 29.40 points (0.68%) to finish at 4,379.76, and the S&P 500 was up 9.55 points (0.49%) at 1,959.53. The Russell 2000 climbed 9.08 points (0.77%) to 1,182.67, and the Wilshire 5000 increased 66.09 points (0.32%) to 20,810.02.   On the NYSE, 3.2 billion shares traded, with a more than 2 to 1 lead for advancers. On the NASDAQ, 2.7 billion shares changed hands, with 1.6 advancing issues for every declining issue.   The price of the 10-year Treasury note was up 5/32, bringing its yield down to 2.561%. The price of the 30-year Treasury bond increased 10/32, decreasing its yield to 3.385%.
Rules & Regulators
ESOP Fiduciaries Not Entitled to Presumption of Prudence
The U.S. Supreme Court has decided fiduciaries of employee stock ownership plans (ESOPs) are not entitled to any special presumption of prudence under the Employee Retirement Income Security Act (ERISA). In its unanimous opinion in Fifth Third Bancorp v. Dudenhoeffer, the high court says they are subject to the same duty of prudence that applies to ERISA fiduciaries in general, per Section 1104(a)(1)(B), except that they need not diversify the fund’s assets. The justices agreed that Section 1104(a)(2) makes no reference to a special “presumption” in favor of ESOP fiduciaries and does not require plaintiffs to allege that the employer was on the “brink of collapse,” as some circuit courts have established. “Thus, aside from the fact that ESOP fiduciaries are not liable for losses that result from a failure to diversify, they are subject to the duty of prudence like other ERISA fiduciaries,” Justice Stephen G. Breyer wrote in the opinion.
Financial Sense
The effectiveness of indexing as an investment strategy has clearly taken hold in the industry, as evidenced by the difference in cash flows between active and passive strategies over the past six years, contends Vanguard. “Despite the theory and publicized long-term success of indexed investment strategies, criticisms and misconceptions remain,” Vanguard says in the white paper “Debunking Some Myths and Misconceptions About Indexing,” which examines those misconceptions. According to the paper, one of the most persistent myths in the investment industry is that it makes sense to use an index strategy in efficient markets, for instance with large-capitalization stocks, but to use an active strategy in inefficient segments.
Growth Stocks Deserve a Place in a Diversified Portfolio
What “growth equity” truly means depends on who is giving the definition. To a manager following a growth equity style, the term connotes those stocks that show the fastest earnings gains. That often translates to the “shiny,” newer companies, with up-to-the-minute products that are disrupting old markets, as opposed to the value companies—those “rusty” old-line firms whose businesses are among those disrupted. The performance of growth and value stocks over the same periods can be quite different, as changing market fashions reward or punish one style over another.
The Illinois Teachers’ Retirement System (TRS) Board of Trustees lowered the fund’s assumed rate of investment return to 7.5% from 8%. The action was taken following a recent review of its asset liability model and revised capital market assumptions. “The assumed rate of return greatly influences the financial future of TRS. Reducing the rate from 8% to 7.5% is a prudent move that balances expected future reality with the needs of TRS members,” says Executive Director Dick Ingram.
Sponsored message from PNC
PLANSPONSOR interviews Jim Sandidge of PNC
PLANSPONSOR Editor-in-Chief Alison Cooke-Mintzer sits down with Jim Sandidge,
Product Director of Retirement Products at PNC Bank. Click here to watch the full interview.
Small Talk
ON THIS DATE:  In 1819, the bicycle was patented by W.K. Clarkson Jr. In 1945, in the Herbst Theater auditorium in San Francisco, delegates from 50 nations signed the United Nations Charter, establishing the world body as a means of saving “succeeding generations from the scourge of war.” In 1956, the U.S. Congress approved the Federal Highway Act, which allocated more than $30 billion for the construction of some 41,000 miles of interstate highways; it was the largest public construction project in U.S. history to that date. In 1979, Muhammad Ali, at age 37, announced he was retiring as world heavyweight boxing champion. In 1996, the U.S. Supreme Court ordered the Virginia Military Institute to admit women or forgo state support. In 1998, the U.S. Supreme Court ruled that employers are always potentially liable for supervisor’s se.xual misconduct toward an employee. In 2002, WorldCom Inc. filed for Chapter 11 bankruptcy protection. In 2003, Strom Thurmond, who served in the United States Senate for a record 46 years, died.
SURVEY SAYS: A survey we covered this week showed a correlation between positive ratings of bosses and open communication. This week, I’d like to know how and how much your boss communicates with you, and whether that is satisfactory to you. 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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