Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 12th, 2014
Benefit Briefs
Annuities Give Participants Head Start for Decumulation
At some point, retirement plan participants will need to start thinking about a draw down, or decumulation, strategy for their retirement plan savings. Annuities can give them a head start. A survey last July from State Street Global Advisors found a significant majority of participants (80%) believe a guaranteed monthly payout benefit is a “must have,” even if it means compromising some access to their retirement savings. “Annuities are financially engineered to maximize a monthly paycheck in retirement that one cannot outlive,” Tim Walsh, managing director of Institutional Products at TIAA-CREF in Boston, tells PLANSPONSOR. “Annuities can offer more monthly income than a straight draw down rate for participants because they pool risk across participants.”
More than half of participants with a 401(k) recordkept by Vanguard are invested in a target-date fund (TDF). According to the report “Target-Date Fund Adoption in 2013,” 55% of all participants held a position in TDFs, and TDFs accounted for one-third of total plan contributions. In addition, 86% of 401(k) and other defined contribution (DC) plans at Vanguard offer a TDF.
Employees Want Help with Social Security Strategies
Employees have a high interest in getting help with selecting the right household Social Security claiming strategy. According to a Financial Engines study of more than 1,000 retirees and near-retirees between the ages of 55 and 70, seven in 10 near-retirees (69%) who have not yet claimed Social Security said they would be at least somewhat interested in a service provided by their employer to help them develop a household claiming strategy. Of these, 39% said they would be extremely or very interested in this type of Social Security claiming help.
Buyer's Market
A new book provides an easy-to-understand overview of multiemployer plans and the important role trustees have in managing these plans. “Multiemployer Plans: A Guide for New Trustees, Third Edition,” written by the late Joseph A. Brislin, who served 35 years as general counsel with Timber Operators Council, Inc., a forest products manufacturing employer association in Tigard, Oregon, introduces the terms and concepts trustees must understand to fulfill their fiduciary responsibility. Each chapter is filled with practical tips that will help all trustees successfully perform their duties.
Tool Helps Reduce Risk for 401(k) Plans
OTB Strategic Consulting, Inc., a business advisory firm, has launched The FIRE System, an online 401(k) self-assessment tool for plan fiduciaries. The FIRE System provides boards of directors, as well as CEOs, internal auditors and human resource executives, an independent review of any size traditional or safe harbor 401(k) plan’s fiduciary risk and compliance.
Economic Events
The U.S. Census Bureau announced that January sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $432.6 billion, down 1.9% from the revised December level, but were up 3.9% from the January 2013 level.  The December preliminary estimate was revised downward $1.4 billion or 0.3%.  January sales of durable goods were down 0.4% from last month, but were up 3.9% from a year ago. Sales of nondurable goods were down 3.2% from December, but were up 3.9% from last January. Sales of petroleum and petroleum products were down 7.5% from last month and sales of paper and paper products were down 2.9%.
Market Mirror
Tuesday, the Dow was down 67.43 points (0.41%) at 16,351.25, the NASDAQ fell 27.26 points (0.63%) to 4,307.19, and the S&P 500 lost 9.54 points (0.51%) to finish at 1,867.63. The Russell 2000 closed 13.49 points (1.12%) lower at 1,187.05, and the Wilshire 5000 decreased 117.16 points (0.58%) to 20,015.91. On the NYSE, 3.2 billion shares traded, with a more than 2 to 1 lead for decliners. On the NASDAQ, 2.6 billion shares changed hands, with 2.7 declining issues for every advancing issue. The price of the 10-year Treasury note was up 3/32, bringing its yield down to 2.770%. The price of the 30-year Treasury bond increased 9/32, decreasing its yield to 3.710%.
Financial Sense
Pension Risk Transfer Window of Opportunity Is Open
Defined benefit plan sponsors have a window of opportunity to take action on pension risk. Pension plans experienced an incredible recovery in 2013 making pension risk transfer more feasible and less costly for plan sponsors. In addition, potential future developments could increase the cost to maintain pension plans as well as the cost to transfer pension liability, meaning plan sponsors would do well to make risk transfer moves now. There are steps plan sponsors can take to better prepare their plans for pension risk transfer, noted by Chip Conradi, treasurer and vice president of tax at Clorox, who spoke about risk management strategies executed by the company during a webcast sponsored by Mercer.
The World at Large
Around 60 UK Boeing employees will be affected by the aircraft manufacturer’s decision to shift 68,000 non-union employees currently participating in the company’s defined benefit (DB) plan to a defined contribution (DC) plan.
Rules & Regulators
A federal appeals court has dismissed claims of a participant in Suntrust Bank’s 401(k) plan that the company engaged in “corporate self-dealing” at the expense of plan participants. Barbara Fuller alleged the defendants in the case violated their Employee Retirement Income Security Act (ERISA) fiduciary duties of loyalty and prudence by selecting eight proprietary funds (referred to as the STI Classic Funds) that were more expensive and performed worse than other funds they could have included in the plan, and by repeatedly failing to remove or replace the funds. Although the 11th U.S. Circuit Court of Appeals disagreed with a district court’s dismissal of certain claims based on ERISA’s three-year statute of limitations, it found all the claims were time-barred by ERISA six-year statute of limitations.
DOL Proposes Service Provider Fee Guides
The U.S. Department of Labor is seeking public comments about a proposed revision to fee disclosure rules that would simplify the way fee data is presented to some plan sponsors and participants. Currently, fee disclosure rules allow service providers to use existing contracts and other operating documents to provide required disclosures to plan fiduciaries. During the call with reporters, Assistant Secretary of Labor for Employee Benefits Security Phyllis Borzi said this has proved to be somewhat problematic in practice, especially for fiduciaries at small businesses and mid-sized employers, which often lack the internal expertise and funding resources to field and digest fee disclosures made through overly lengthy and complex contractual documents. To address this challenge, the proposed 408(b)(2) rule change introduces the idea of requiring service providers that issue fee documentation that is overly long or complex to develop a “guide” or “road map” that will help less experienced fiduciaries sift through large amounts of documentation to find relevant fee data.
A new online pension implementation tool kit has been released by the Governmental Accounting Standards Board (GASB). The tool kit is designed to help preparers, auditors, and users of state and local government financial reports understand and apply the revised pension accounting and financial reporting standards that the GASB approved in June 2012.
Small Talk
Socializing a Big Work Time-Waster
Web surfing and socializing with coworkers are the top time thieves at work, according to a survey of chief financial officers from Robert Half Management Resources. Nearly one-third (32%) of executives interviewed said non-business related Internet use, including social media, is the greatest time-waster. Chatting with coworkers ranked a not-too-distant second, garnering 27% of the response.
ON THIS DATE:  In 1903, the New York Highlanders were given the go-ahead by team owners to join baseball’s American League. The Highlanders had recently moved from Baltimore, where they were called the Orioles and had a winning tradition dating back to the 1890s. Called the “Yankees” by fans, the team officially changed its name to the New York Yankees in 1913. In 1930, Indian independence leader Mohandas Gandhi began a defiant march to the sea in protest of the British monopoly on salt, his boldest act of civil disobedience yet against British rule in India. In 1933, eight days after his inauguration, President Franklin D. Roosevelt gave his first national radio address or “fireside chat,” broadcast directly from the White House. In 1947, in a dramatic speech to a joint session of Congress, President Harry S. Truman asked for U.S. assistance for Greece and Turkey to forestall communist domination of the two nations. Historians have often cited Truman’s address, which came to be known as the Truman Doctrine, as the official declaration of the Cold War. In 2003, 15-year-old Elizabeth Smart was finally found in Sandy, Utah, nine months after being abducted from her family’s home. Her alleged kidnappers, Brian David Mitchell, a drifter who the Smarts had briefly employed at their house, and his wife, Wanda Barzee, were charged with the kidnapping, as well as burglary and se.xual assault.   WEDNESDAY WISDOM: “I want my children to have all the things I couldn’t afford. Then I want to move in with them.”—Phyllis Diller, comedian
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Editorial: Alison Cooke Mintzer


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