| | Industry Insights | | Are ESOPs Too Risky to Be Good Retirement Plans? | | Perhaps the most common criticism about employee
stock ownership plans (ESOPs) is that they are too risky to be good retirement programs.
ESOPs inherently increase the concentration of retirement assets in a single
security—company stock— and critics contend this reduced diversification makes
ESOPs too risky. Even worse, employees depend on the same company for both
their paychecks and their retirement accounts. While this critique seems to
make sense theoretically, the data about ESOPs indicate ESOP participants are
generally far better off in terms of retirement security than employees in
non-ESOP companies. | | | Benefit Briefs | | Time to Consider a Collective Trust? | | One retirement plan service provider says collective
investment trusts (CITs) can be a powerful answer to demand for customized
target-date vehicles and less expensive investment strategies. CITs have
historically been used in defined benefit (DB) plans and in the larger defined
contribution (DC) and profit sharing plans. DC plan sponsors moved away from
CITs as retirement plan administration moved to daily valuation. CITs weren’t
priced daily or traded daily, but that issue has disappeared. Today CITs trade
on the same platform as mutual funds. Internet connectivity allows plan
participants to track performance of their CITs on a daily basis. | | Starting in 2016, Boeing says it will transition
its 68,000 nonunion employees currently participating in the company’s defined
benefit (DB) plan to a defined contribution (DC) plan. Boeing will make cash
contributions each pay period to employees’ retirement savings through a new
defined contribution component of the 401(k) plan beginning January 1, 2016.
All benefits earned in the current traditional pension plan before the
transition will be paid to employees in retirement, and the company will
continue to match employee savings in an existing 401(k) plan. Notice of the
impending change is the latest in a series of steps the company has taken to
address the challenges created by DB pension plans. | | CEFEX-Designated Advisers Offer Sponsors Fiduciary Muscle | | CEFEX designations are gaining more widespread
adoption, and some say that working with an adviser with the designation could
benefit plan sponsors. “The organization emulates the International
Organization for Standardization (ISO), which outlines business, government and
society standards,” explains Carlos Panksep, managing director of the Centre
for Fiduciary Excellence (CEFEX), in Toronto. “In most industries, there are
published standards for quality,” he notes. The ISO provides a host of public
standards, and CEFEX operates the same way, issuing certifications that are
based on set standards. “We’re like a Good Housekeeping Seal of approval for
financial services,” Panksep tells PLANSPONSOR. With a growing number of
applicants, the designation functions as a sort of quality control for the
financial services industry. He says some plan sponsors include a question
regarding CEFEX certification in their requests for proposals (RFPs). | | | Economic Events | | Total nonfarm
payroll employment increased by 175,000 in February, and the unemployment rate
was little changed at 6.7%, according to the Bureau of Labor Statistics.
Employment increased in professional and business services and in wholesale
trade but declined in information.
THE
ECONOMIC WEEK AHEAD: Tomorrow,
the Census Bureau will report about wholesale inventories for January. Thursday, the Labor Department will
issue its initial claims report, and the Census Bureau will report about retail
sales for February and business inventories for January. Friday, we’ll learn the producer price index (PPI) for February
from the Bureau of Labor Statistics.
| | | Market Mirror | | Friday, the Dow was up 30.83 points
(0.19%) at 16,452.72, the NASDAQ fell 15.90 points (0.37%) to 4,336.22, and the
S&P 500 increased by 1.01 (0.05%) to 1,878.04. The Russell 2000 decreased
by 1.21 (0.10%) to 1,203.33, and the Wilshire 5000 closed 1.80 lower (0.01%) at
20,154.89.
On the NYSE, 3.2 billion shares changed
hands, with 1.3 declining issues for every advancing issue. On the NASDAQ, 2.7
billion shares traded, with a slight lead for decliners.
The price of the 10-year Treasury note
decreased 15/32, and the price of the 30-year Treasury bond fell 18/32,
increasing their yields to 2.792% and 3.724%, respectively.
WEEK’S
WORTH: For the week ending March 7, the Dow gained
0.80%, the NASDAQ was up 0.65%, and the S&P 500 increased 1.00%. The
Russell 2000 climbed 1.72%, and the Wilshire 5000 finished 1.04% higher.
| | | Financial Sense | | The latest release of the Milliman Pension
Funding Index, which tracks performance at the largest U.S. private pension
plans, shows February brought moderate funded status improvements despite
falling discount rates. The index is published monthly by Milliman and tracks
the 100 largest defined benefit (DB) pension plans sponsored by U.S. employers
(i.e., the Milliman 100). In February, these plans experienced a $32 billion
increase in asset values, but also saw a $21 billion increase in pension
liabilities resulting from falling interest rates—driving an $11 billion
overall improvement in pension funded status. | | | Rules & Regulators | | 404(c) in the Modern World | | Current regulations and the current plan
administration landscape make it more likely plan sponsors are complying with
Employee Retirement Income Security Act (ERISA) Section 404(c). Section 404(c)
follows the Section 404(a) “prudent man standard of care” requirements and
offers a type of “safe harbor” for plan sponsors who allow participants to
direct the investments of their accounts. However, plan sponsors must meet
requirements for investment selection, plan administration, and plan and
investment disclosures before they are exempt from any fiduciary liability for
losses participants incur as a result of their direction of investments. “We’ve
said for a long time that plan sponsors just blindly assume the requirements
are satisfied,” Scott A. Webster, and attorney with Goodwin Procter LLP in
Boston, tells PLANSPONSOR. He says it is still a valid question whether plan
sponsors are complying with 404(c), but due to changes to the plan
administrative landscape and more recent regulations, he believes most plan
sponsors are complying. | | A federal appellate court found a registered
investment adviser for two pension plans was not a fiduciary for those plans.
In the case of Tiblier v. Dlabal, the
5th U.S. Circuit Court of Appeals affirmed summary judgement in favor of Paul
Dlabal by the U.S. District Court for the Western District of Texas. The
district court concluded that Dlabal had not violated the Employee Retirement
Income Security Act (ERISA) because he provided plaintiffs with written
disclosures regarding the investment risks of a particular investment that went
sour. The appellate court said it need not address that issue because it
concludes Dlabal was not a fiduciary as defined by ERISA. | | Church Plan Lawsuits Could Reverse 30 Years of Precedent | | Recent court cases are not the first efforts to
try to protect retirement assets for employees in plans that have been
designated as “church” plans by the Internal Revenue Service (IRS). However, a
recent decision by a federal court deciding the case of Rollins v. Dignity Health dismissed the legal and regulatory
precedent. What could this mean for plan sponsors? | | | Sponsored message | PLANSPONSOR DC Survey Standouts
Companies such as MassMutual, T. Rowe Price and TIAA-CREF will be recognized at the Awards for Excellence dinner. View the top providers and reserve your table. | | | Small Talk | | ON THIS DATE: In
1864, President Abraham Lincoln signed
a brief document officially promoting then-Major General Ulysses S. Grant to
the rank of lieutenant general of the U.S. Army, tasking the future president
with the job of leading all Union troops against the Confederate Army. In 1876, the first discernible speech was
transmitted over a telephone system when inventor Alexander Graham Bell summoned
his assistant in another room by saying, “Mr. Watson, come here; I want
you.” Bell had received a comprehensive telephone patent just three days
before. In 1926, Lolly Willowes, or The Loving Huntsman,
the first Book-of-the-Month Club selection, was published by Viking Press. In 1969, James Earl Ray pleaded guilty to
the assassination of African American civil rights leader Martin Luther King
Jr. and was sentenced to 99 years in prison. In 1988, disco sensation Andy Gibb succumbed to an inflammatory heart
virus at only 30 years old. In 1997,
the fledgling Warner Brothers (WB) television network aired the inaugural
episode of what became its first bona-fide hit show, “Buffy the Vampire Slayer.” | | SURVEY SAYS: Thoughts About Tax Reform Proposals | | At the end of February, U.S. House Ways and
Means Committee Chairman Dave Camp introduced a sweeping tax reform bill that
has many in the retirement industry alarmed about its proposals concerning
retirement plans. Last week, I asked NewsDash readers if they think the
retirement-plan related proposals will hurt, help or not affect Americans
retirement savings. The proposal that maximum contribution limits be frozen for
10 years was the least favourite as 77.8% of responding readers indicated this
would hurt Americans’ retirement savings. It was followed by a cap of 25% on
the rate at which deferrals would reduce a participant’s income (75.6% said
this would hurt Americans’ retirement savings) and deferrals greater than 50%
of statutory limits would be taxed up front (73.3%). The proposal that employers
with more than 100 employees allow Roth deferrals into their retirement plans
had more responding readers saying it would help Americans’ retirement savings
than hurt (28.9% vs. 22.2%, respectively). I also asked responding readers how
they think the tax reform proposals will affect employer decisions to offer
retirement plans to employees. The majority of respondents selected “hurt” for
each of the proposals listed except the freezing of maximum contribution
limits. Readers making verbatim comments spoke of administrative burdens on
employers and mentioned other provisions in the tax reform proposal that could
hurt or help Americans. Editor’s Choice goes to the reader who said: “Once
again someone with no experience administering a retirement plan is trying to
create rules to change them. We need to elect Brian Graff as president!” Thanks
to everyone who participated in our survey! | | Share the good news with a friend! Pass the Dash along – and tell your
friends/associates they can sign up for their own copy. | | News from PLANSPONSOR.com
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