Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 17th, 2014
Industry Insights
IRS Linking 403(b)s to Former Nonprofits
The Internal Revenue Service (IRS) has rolled out its next 403(b) Compliance Check questionnaire. The questionnaire focuses on whether employers that had their 501(c)(3) nonprofit status revoked still offer a 403(b) tax deferred annuity plan to employees. Linda Segal Blinn, J.D., vice president of Technical Services for ING U.S. Retirement Solutions’ Tax-Exempt Markets, shares details.
Benefit Briefs
Recordkeepers Have Strong Influence on Participant Outcomes
A new study focused on determining the influences, other than demographics, on participant deferral rates. Importantly, the study found the greatest independent impact on deferral rate is the employer match. However, the survey also found the actions and effectiveness of a plan’s recordkeeper can have a positive or negative composite effect on deferral rates almost as powerful as the effect of the match. “One of reasons we were interested in doing this study is that when plan sponsors do a recordkeeper search, there’s not really an effective way to measure how well a recordkeeper engages plan participants,” Laurie Rowley, co-founder and president of The National Association of Retirement Plan Participants (NARPP), tells PLANSPONSOR.
Defined contribution (DC) plans outperformed defined benefit plans significantly during the fourth quarter of 2013 and during the whole year, according to a recent analysis. The Callan DC Index, which tracks the cash flows and performance of over 80 DC plans, indicates that DC plans ended 2013 strongly, advancing 6.23% in the fourth quarter. This contributed to a very impressive calendar year return for the index of 20.15%, making 2013 the index’s best year since the 2009 rebound, when it was up 22.22%.
Considerations for Service Provider Agreements
There are prohibited transaction rules in the Employee Retirement Income Security Act (ERISA) that prohibit fiduciaries from entering into agreements with service providers unless the services and fees paid are reasonable. There has been much ado in the past year about ensuring reasonableness of fees, but how can plan sponsors ensure services are reasonable? It starts with documentation in a service provider agreement. “Although ERISA and the DOL [Department of Labor] offer no specifics, the DOL could find an agreement to be a prohibited transaction,” Philip J. Koehler, CEO of ERISA Fiduciary Administrators LLC in Newport Beach, California, tells PLANSPONSOR.
The Diocese of Rockville Centre on Long Island is eliminating its defined benefit pension plan. The diocese is adopting a 403(b) plan effective January 1. According to news reports, employees who have worked for 30 years or more will be able to continue with the defined benefit pension plan, but pension plan accruals will stop for those with less than 30 years of service.
Buyer's Market
New indices released by Thomson Reuters offer liquid access to and performance analysis of the U.S. private equity industry. Thomson Reuters released two related indexes in the private equity space, one designed for research purposes and the other as an investable product. These are called the Thomson Reuters Private Equity Buyout Research Index and the Thomson Reuters Private Equity Buyout Index, respectively. Both will utilize the firm’s proprietary data to keep market participants informed about trends in the private equity universe by tracking transaction-level returns of private equity fund investments.
Economic Events
The Producer Price Index for final demand fell 0.1% in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. This decline followed advances of 0.2% in January and 0.1% in December. On an unadjusted basis, the index for final demand moved up 0.9% for the 12 months ended in February, the smallest 12-month rise since a 0.9% increase in May 2013. THE ECONOMIC WEEK AHEAD: Tomorrow, the Census Bureau will report about housing starts for February, and the Bureau of Labor Statistics will reveal the consumer price index (CPI) for February. Thursday, the Labor Department will issue its initial claims report, and the National Association of Realtors will report about existing home sales for February.
Market Mirror
Friday the Dow finished 43.22 points (0.27%) lower at 16,065.67, the NASDAQ declined 15.02 points (0.35%) to 4,245.40, and the S&P 500 slid 5.21 points (0.28%) to 1,841.13. The Russell 2000 increased 4.68 points (0.40%) to 1,181.42, and the Wilshire 5000 was down 26.24 points (0.13%) at 19,770.78. On the NYSE, 3.2 billion shares changed hands, with 1.3 advancing issues for every declining issue. On the NASDAQ, 2.6 billion shares traded, with a slight lead for advancers. The prices of the 10-year Treasury note and 30-year Treasury bond slipped 1/32, increasing their yields to 2.651% and 3.595%, respectively. WEEK’S WORTH: For the week ending March 14, the Dow fell 2.35%, the NASDAQ lost 2.09%, and the S&P 500 decreased 1.97%. The Russell 2000 was down 1.82%, and the Wilshire 5000 finished 1.91% lower.
Financial Sense
Planning for Mortality Tables Effect on DB Liability
New mortality tables for defined benefit (DB) pension plans will increase pension liabilities, according to a new research paper. The paper, “How Will the New RP-2014 Mortality Tables Affect My DB Plan Strategy?,” was authored by Justin Owens, an asset allocation strategist with Russell Investments in Seattle. These new tables, which were produced by the Society of Actuaries, reflect the longer lifetime of plan participants. Longer lives for participants means total expected benefit payments will increase, as will the plan’s time horizon, says Owens.
Sponsored message from PLANSPONSOR
PLANSPONSOR speaks with Elaine Sarsynksi from MassMutual Retirement Services about  what the industry took away from 2013, and what plan sponsors can look forward to in 2014.
Small Talk
ON THIS DATE:  In 461, Saint Patrick, Christian missionary, bishop and apostle of Ireland, dies at Saul, Downpatrick, Ireland. In 1762, in New York City, the first parade honoring the Catholic feast day of St. Patrick, the patron saint of Ireland, was held by Irish soldiers serving in the British army. In 1776, British forces were forced to evacuate Boston following General George Washington’s successful placement of fortifications and cannons on Dorchester Heights, which overlooks the city from the south. In 1958, The Champs’ “Tequila” was the No. 1 song on the U.S. pop charts.
SURVEY SAYS: Work Time-Wasters
Last week, I asked NewsDash readers what wastes their time at work. The number one time-waster, selected by 37.9% of responding readers, is interruptions by coworkers. This was followed by meetings (34.8%), Internet down time or slow work applications (31.8%) and interruptions by other employees (30.3%). “Waiting for others to do their work so I can do mine” and “my own ability to get distracted” were each selected by 27.3% of respondents. In verbatim comments, there were lots of complaints about excessive emails, meetings and distractions by others, and some folks confessed their own part played in wasting time. Some things considered time-wasters by some are considered welcome breaks by others. Editor’s Choice goes to the reader who said: “We need to have a meeting on why we accomplish nothing at meetings.” 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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