Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
June 6th, 2014
Benefit Briefs
People Regret Taking Social Security Early
Why is Social Security hard for people to understand? Maybe it’s the 2,700 rules in the Social Security handbook, says David Giertz, president of Nationwide Financial Services sales and distribution. A former financial adviser, Giertz says advisers can be reluctant to bring up a topic unless they’re completely up to speed. But misconceptions about Social Security benefits abound, Giertz tells PLANSPONSOR, and retirement plan sponsors have an opportunity to help strengthen their employees’ retirement success by providing information about this critical benefit. A survey conducted by the Nationwide Financial Retirement Institute found that more than a third of respondents (38%) felt they had turned on their Social Security too soon and wish they had delayed the onset of benefits.
Employees More Focused on Overall Financial Wellness
Employees are showing more focus on their overall financial wellness, according to a Financial Finesse report. Seventy-eight percent of questions received by Financial Finesse’s team of Certified Financial Planner professionals during the first quarter of 2014 were proactive in nature, focusing on what employees could do to improve their financial wellness rather than what they needed to do in response to an immediate financial problem. According to the company’s Q1 2014 Research report, the increased focus and engagement has contributed to improvements in employees’ financial wellness in several key areas.
Total retirement outsourcing (TRO) can benefit employers that sponsor both a defined benefit (DB) and defined contribution (DC) plan, said Barbara Best, principal of Capital Strategies Investment Group, speaking at the PLANSONSOR National Conference. “Plans have traditionally had an in-house actuary doing administration, trustee and custody work,” Best said. “The marketplace has moved to TRO with one service provider doing all these functions. TRO has transitioned because of technology, which allows participants to see their DB and DC [statements] together.”
Participants Want Plans with a Stable Value Option
Demand for stable value investment options remains high among retirement plan participants, says a new report from Transamerica Retirement Solutions. According to “Participant Attitudes Toward Stable Value Offerings,” respondents surveyed for the report describe stable value products as a necessity for a retirement savings plan.
Buyer's Market
United Benefit Advisors released a white paper that aims to teach employers how to help employees better understand their benefits. Colonial Life, a UBA strategic partner, conducted a survey that found three out of four employees say they need more education to understand how changes in their benefits affect their financial safety net.
Firm Offers 401(k) Fee Comparison Service
Employee Fiduciary LLC is now offering a fee comparison service for 401(k) plan sponsors. The company will review and interpret a service provider’s Employee Retirement Income Security Act (ERISA) Section 408(b)(2) fee disclosure document and plainly summarize its fees in dollars, both direct fees and indirect fees paid by mutual fund companies.
Economic Events
In the week ending May 31, the advance figure for seasonally adjusted initial claims for unemployment insurance was 312,000, an increase of 8,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 4,000 from 300,000 to 304,000. The four-week moving average was 310,250, a decrease of 2,250 from the previous week’s revised average. This is the lowest level for this average since June 2, 2007 when it was 307,500. The previous week’s average was revised up by 1,000 from 311,500 to 312,500. The average interest rate for a 30-year fixed-rate mortgage is 4.14%, up from 4.12% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.23%, up from 3.21% one week ago.
Market Mirror
Yesterday, the Dow increased 98.58 points (0.59%) to 16,836.11, the NASDAQ climbed 44.58 points (1.05%) to 4,296.23, and the S&P 500 was up 12.58 points (0.65%) at 1,940.46. The Russell 2000 gained 22.72 points (2.01%) to finish at 1,153.94, and the Wilshire 5000 closed 157.83 points (0.77%) higher at 20,557.52. On the NYSE, 3.2 billion shares traded, with 3.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a near 4 to 1 lead for advancers. The prices of the 10-year Treasury note and 30-year Treasury bond decreased 1/32, increasing their yields to 2.581% and 3.434%, respectively.
Rules & Regulators
Fiduciary Status Not Triggered by Contribution in Company Stock
A federal appellate court ruled Morgan Stanley & Co. and its CEO were not acting in a fiduciary capacity when deciding to make company contributions to two retirement plans in the form of company stock. The 2nd U.S. Circuit Court of Appeals noted that the case was dismissed by the U.S. District Court for the Southern District of New York for failure to rebut the Moench presumption of prudence U.S. courts typically give to fiduciaries of employee stock owner ship plans. But, the 2nd Circuit did not rule on this issue, as it found the defendants of the case were not fiduciaries.
The Department of Labor (DOL) reached a $5.25 million settlement with GreatBanc Trust Co., resolving allegations the Lisle, Illinois-based company violated the Employee Retirement Income Security Act (ERISA). In 2006, GreatBanc, as trustee to the Sierra Aluminum Co. Employee Stock Ownership Plan (ESOP), allegedly allowed the plan to purchase stock from Sierra Aluminum’s co-founders and top executives for more than fair market value.
Financial Sense
PSNC 2014: DB Plan De-Risking
The effort to de-risk defined benefit (DB) pension plans is an immensely complex task that presents no shortage of challenges or opportunities to retirement plan sponsors and consultants. De-risking is part art and part science, said Matthew Gnabasik, managing director at Blue Prairie Group, leading a panel discussion at the 2014 PLANSPONSOR National Conference, in Chicago. The panelists, who represented a number of insurance and consulting firms active in the pension de-risking market, suggested that de-risking requires a significant amount of planning and a sensitive trigger finger. It’s a double matter of first putting the plan in the position to de-risk, and then monitoring conditions for the best moment to transact.
An analysis by consulting firm Mercer finds that funding for defined benefit (DB) pension plans sponsored by S&P 1500 companies remained relatively unchanged in May at 84%. According to Jonathan Barry, a partner in Mercer’s Retirement business, “A fairly modest decline in interest rates was enough to mostly wipe out a pretty positive month of equity returns, highlighting the volatility to which many U.S. plan sponsors are exposed. However, plan sponsors who have implemented risk management strategies have likely cushioned the blow significantly.”
The BNY Mellon Investment Strategy & Solutions Group (ISSG) finds that the funded status of the typical U.S. corporate pension plan fell 0.4 percentage points in May to 90.6%, a new low for 2014, as liabilities increased faster than assets for the third consecutive month.
Sponsored message from Vanguard
PLANSPONSOR Interviews Chris McIsaac
Click here to watch Stephen Moylan, SVP for PLANSPONSOR, interview Chris McIsaac, Managing Director for Vanguard.
Small Talk
ON THIS DATE:  In 1933, motorists parked their automobiles on the grounds of Park-In Theaters, the first-ever drive-in movie theater, located on Crescent Boulevard in Camden, New Jersey. In 1944, the Allied powers crossed the English Channel and landed on the beaches of Normandy, France, beginning the liberation of Western Europe from Nazi control during World War II—known as D-Day. In 1949, George Orwell’s novel of a dystopian future, Nineteen Eighty-four, was published. The novel’s all-seeing leader, known as “Big Brother,” became a universal symbol for intrusive government and oppressive bureaucracy. In 1971, 23 years after its 1948 premiere, The Ed Sullivan Show had its final broadcast.
FRIDAY FILES REWIND: This Friday Files from four years ago features a hamster on a piano, a car magnet prank, and mag.gots on a plane.
Have a happy weekend, everyone!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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