Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 30th, 2014
Benefit Briefs
Strategic Insight's Quarterly Target-Date Fund Analysis
As of this year’s first quarter, the average 40-year-old target-date-fund (TDF) investor experienced a one-year return of 16.1%—based on a retirement age of 65 and investment in a 2035 fund. Over the same period, the Standard & Poor’s (S&P) 500 returned 21.9%, while the Barclays Capital Aggregate Bond Index returned -0.1%, meaning a balanced 60/40 portfolio would have seen a one-year return of 13.1%. Using a balanced portfolio as a benchmark, this average 2035 investor benefited from 300 basis points (BPS) of alpha. Herein lies the quandary in the art of choosing benchmarks and the difficulty in benchmarking TDFs: the inherent differences in their fund construction. How can a plan’s investment committee determine whether its suite of target-date fund options is performing appropriately? At Strategic Insight, an Asset International company, we believe that weighted average performance is a reliable indicator of a typical investor experience, since the asset weighting produces an overall view of the marketplace, representing funds most frequently used by plan sponsors.
Making Sure Plan Fees Are Reasonable
Recent regulatory changes and litigation have highlighted the importance of retirement plan sponsors and fiduciaries ensuring plan fees are reasonable. Phil Fiore, senior vice president of UBS Institutional Consulting, and Christopher Thomas, director of Corporate Retirement Plans for Planning Solutions Group, recently discussed some best practices in this area.
Employer plan changes brought medical costs down, but medical costs continue to increase faster than inflation, says a new survey by PwC. The 2014 Health and Well-Being Touchstone Survey finds that the average reported increase in medical plan costs before plan changes was 7.8% for 2013, which was slightly more than the 7.5% predicted in the 2013 survey. The average reported annual increase after plan changes was 4.5% for 2013, says the survey, which is lower than the 5.4% predicted in the 2013 survey, and 5.3% expected for 2014. The average 2014 gross spend per active employee is $12,442.
Target-Date Fund Fees Decrease
In 2013, target-date fund (TDF) fees declined, assets rose and new TDF series were introduced to the market. A review from BrightScope, based on the lowest-cost institutional share class for all TDFs, which consists of 52 TDF series made up of 479 individual funds managed by 39 asset managers, shows fees fell to an average of 67 basis points (bps), down from 70 bps in 2012 and 72 bps in 2011. Assets rose 24%, to $625 billion in Investment Company Act of 1940 funds. If collective investment trust (CIT) and pooled separate account TDFs were included, BrightScope estimates total assets would be closer to $900 billion.
Buyer’s Market
TIAA-CREF is the top recordkeeper by 403(b) recordkeeping assets in PLANSPONSOR’s 2014 Recordkeeping Survey, while Great-West took the top spot by 457 plan recordkeeping assets.
Industry Voices
Industry Voice: Comparing Equity Awards and NQDC
With increased equity market volatility and recent changes in accounting rules, many companies are taking a second look at their approach to incentive compensation for key employees. When using traditional equity-based compensation programs, employers are becoming more concerned about accounting impacts, stock dilution and compensation control, while employees have to consider the issues of market volatility, diversification and tax timing.  By considering nonqualified deferred compensation (NQDC) plans, employers can provide solutions that address these concerns, while still providing meaningful incentives to key performers.
Economic Events
THE ECONOMIC WEEK AHEAD: Tomorrow, the Census Bureau will report about construction spending for May. Wednesday, the Census Bureau will report about factory orders for May. Thursday, we’ll see a report about nonfarm payrolls and learn the unemployment rate for June from the Bureau of Labor Statistics, and the Labor Department will issue its initial claims report.
Market Mirror
Friday, the Dow ticked up 5.71 points (0.03%) to 16,851.84, the NASDAQ increased 18.88 points (0.43%) to 4,397.93, and the S&P 500 gained 3.74 points (0.19%) to finish at 1,960.96. The Russell 2000 climbed 8.79 points (0.74%) to 1,189.50, and the Wilshire 5000 closed 56.62 points (0.27%) higher at 20,846.00. On the NYSE, 3.2 billion shares traded, with a 2 to 1 lead for advancers. On the NASDAQ, 2.6 billion shares changed hands, with 1.7 advancing issues for every declining issue. The yields for the 10-year Treasury note and 30-year Treasury bond were 2.536% and 3.367%, respectively. WEEK’S WORTH: For the week ending June 27, the Dow was down 0.56%, the NASDAQ gained 0.68%, and the S&P 500 slipped 0.10%. The Russell 2000 increased 0.09%, and the Wilshire 5000 was up 0.05%.
Financial Sense
The economic cost of maintaining liability for a defined benefit (DB) pension plan in May remained level at 108.7% of the same liability, according to the Mercer U.S. Pension Buyout Index. During May, the index also shows that the average cost of purchasing annuities from an insurer decreased from 108.9% to 108.7% of the accounting liability.
The World at Large
The UK Government put before parliament its Pensions Bill, creating collective defined contribution (CDC) pensions, as part of its bid to create defined ambition (DA) plans—the so-called “third way” between defined contribution and defined benefit.
Small Talk
ON THIS DATE:  In 1775, the Continental Congress drafted its rationale for taking up arms against Great Britain in the Articles of War. In 1859, Jean-Francois Gravelet, a Frenchman known professionally as Emile Blondin, became the first daredevil to walk across Niagara Falls on a tightrope. In 1936, Margaret Mitchell’s Gone with the Wind, one of the best-selling novels of all time and the basis for a blockbuster 1939 movie, was published. In 1950, President Harry S. Truman ordered U.S. armed forces to assist in defending South Korea from invading North Korean armies—marking the official entry of the United States into the Korean War. In 1952, CBS-TV debuted “The Guiding Light.” In 1953, the first production Corvette was built at the General Motors facility in Flint, Michigan. In 1958, the U.S. Congress passed a law authorizing the admission of Alaska as the 49th state in the Union. In 1971, the 26th Amendment to the U.S. Constitution was ratified when Ohio became the 38th state to approve it. The amendment lowered the minimum voting age to 18. In 1994, the U.S. Figure Skating Association stripped Tonya Harding of the 1994 national championship and banned her from the organization for life for an attack on rival Nancy Kerrigan. In 2000, U.S. President Bill Clinton signed the E-Signature bill to give the same legal validity to an electronic signature as a signature in pen and ink.
SURVEY SAYS: Communicating with the Boss
Last week, I asked NewsDash readers, “How and how much does your boss communicate with you, and is that satisfactory to you?” More than 38% of respondents said their bosses communicate with them more than once a day, and 11.5% said their bosses communicate with them once a day. Nearly 31% of respondents’ bosses communicate with them several times per week, while 9.6% of readers reported their bosses communicate with them once a week. When the boss communicates with them, for the majority of respondents (55.8%) it is mostly in person with them directly. More than 13% reported most of the boss’s communications with them are by email directly to them and 15.4% said communications are mostly via email directed to them and others. The majority of responding readers rate their bosses’ communications with them as either somewhat satisfactory (25.5%) or very satisfactory (29.4%). For 15.7%, their bosses’ communications with them are very unsatisfactory. In verbatim responses, readers shared satisfaction with their bosses, “She is great to work with! Constant flow of ideas back and forth and she takes the hit when the higher ups get cranky.” and well as dissatisfaction, “The only time I hear from my boss is when it is negative or it is directed to the team.” Some offered lessons for bosses, “Bosses have no idea how much influence they have on the temperament of the workforce (including me). Here’s the question I’d post for all bosses; when you’re out of the office, are people happy or disappointed?” But, Editor’s Choice goes to the reader who said: “As long as I think of her as my crazy aunt whom I need to be nice to for my mother’s sake, all is good.” A big thank you to everyone who participated in our survey!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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