Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 18th, 2014
Industry Insights
Help with Reducing Plan Costs
There are many factors plan sponsors must consider in selecting the most appropriate and cost efficient retirement plan platform. Fortunately, plan sponsors have resources to call on for assessing their options and determining which of the myriad platforms are best suited for the company/plan participants.
Benefit Briefs
Retirement Plan Offering Strongly Linked to Confidence
Americans’ confidence in their ability to afford a comfortable retirement has recovered somewhat from the record lows of the past five years, according to the 24th annual Retirement Confidence Survey (RCS), but it does not appear to be founded on improved retirement preparations—and it may be limited to those with retirement plans. “Having a retirement account matters—both in terms of retirement confidence and in terms of preparation, Nevin Adams, director of Education and External Relations at EBRI, and co-author of the RCS report, tells PLANSPONSOR. “The 2014 RCS found that respondents with a retirement account were about twice as likely to have done a retirement needs calculation and to have received professional investment advice—activities traditionally associated with higher levels of preparation and confidence.  Those who had a retirement account were also more likely to have set higher savings goals, and to have found retirement to be about the same or better than expected.”
From farm to market, how does that qualified default investment alternative (QDIA) earn a place on the plan sponsor’s investment lineup? Established by the Department of Labor (DOL) in the 2006 Pension Protection Act, the investment has a few important points. One is protection for employers from any liability, in case plan participants suffer investment losses. “What a QDIA does is offer a plan sponsor a safe harbor under the law,” Leslie Beale, general counsel and chief compliance officer at BPV Capital Management, tells PLANSPONSOR.
Calculators, Advisers Can Improve Retirement Confidence
The Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute (EBRI) has consistently found a relationship between the level of participants’ debt and retirement confidence. According to the 24th annual RCS, just 3% of workers who describe their debt as a major problem say they are very confident about having enough money to live comfortably throughout retirement, compared with 29% of workers who indicate debt is not a problem. On the other hand, 49% of workers with a major debt problem are not at all confident about having enough money for a financially secure retirement, compared with 16% of workers without a debt problem. “It is very difficult to create a savings plan for retirement without an equal focus on spending,” Greg Burrows, senior vice president of retirement and investor services at The Principal Financial Group, an underwriter of the study, tells PLANSPONSOR.
While most Americans understand the importance of saving for retirement, they have trouble making it a priority. According to Capital One ShareBuilder’s Financial Freedom Survey, 93% of working Americans know they should be contributing to their retirement, but only 72% are doing so. Despite Americans estimating they should be contributing 12.1% of their income on average, only an estimated 6.4% is currently being saved. Half believe they should be saving more than 10% of their income for retirement, but only one-fifth are currently saving 10% or higher.
Heeding Benefits Education Preferences Pays Off
Only about one-third of employees in a study from Unum rate their benefits education as excellent or very good. Eighty-two percent of employees who rated their benefits education as excellent or very good said they feel their employer values their work, compared to only 41% of employees who rate their benefits education as fair or poor. Results show providing employees with a minimum of three formats for benefits communications and at least three weeks to review them before enrollment is key to a successful benefits education.
Buyer's Market
Prudential Retirement named Srinivas Reddy to a newly created role overseeing investments for its full service business. Reddy will be responsible for all aspects of the investment and retirement income businesses within Prudential Retirement.
Market Mirror
The Dow rallied Monday to finish at 16,247.22, up 181.55 points, or 1.13%. The NASDAQ closed 34.55 points (0.81%) higher at 4,279.95, and the S&P 500 17.70 points (0.96%) to 1,858.83. The Russell 2000 gained 6.82 points (0.58%) to close at 1,188.23, and the Wilshire 5000 increased 171.10 points (0.87%) to 19,941.88. On the NYSE, 3.2 billion shares changed hands, with 2.6 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a 1.8 to 1 ratio of advancers to decliners. The yields for the 10-year Treasury note and 30-year Treasury bond were 2.694% and 3.628%, respectively.
Financial Sense
Results from the “Greenwich Associates 2013 U.S. Institutional Investor Study” show the value of U.S. institutional investment portfolios increased about 11% last year, led by a combination of strong investment returns and rising interest rates that reduced the dollar amount corporations and governments must commit today to cover future pension liabilities. Despite that appreciation, institutional investors continue to implement significant changes to their portfolio management strategies and asset-allocation profiles in an effort to achieve a series of increasingly diverging objectives, says Andrew McCollum, a Greenwich Associates consultant.
Rules & Regulators
MEPs Could Help Small Plans Mimic Big Plans
Small plans must be given more latitude to mimic their larger counterparts if the nation is to adequately fund its retirement needs, says Kristi Mitchem, of State Street Global Advisors. Mitchem, an executive vice president at State Street Global Advisors (SSgA), made that argument recently before the U.S. Senate Subcommittee on Economic Policy, which falls under the wider Senate Committee on Banking, Housing and Urban Affairs. One potential solution Mitchem floated would be to expand the multiple-employer plan (MEP) system through a new, federally supported industry group or other association.
The Department of Labor is presenting the “Getting It Right – Know Your Fiduciary Responsibilities” webcast series. The webcast series will help employers and service providers understand how the fiduciary responsibility provisions of the Employee Retirement Income Security Act (ERISA) apply to employer-sponsored retirement and health plans, and provide information about how to avoid common problems in managing a plan.
Small Talk
ON THIS DATE:  In 1766, after four months of widespread protest in America, the British Parliament repealed the Stamp Act, a taxation measure enacted to raise revenues for a standing British army in America. In 1837, Grover Cleveland, the only president to serve two non-consecutive terms in the office, was born. In 1852, in New York City, Henry Wells and William G. Fargo joined with several other investors to launch their namesake business. In 1911, Irving Berlin copyrighted the biggest pop song of the early 20th century, “Alexander’s Ragtime Band.” In 1933, American automaker Studebaker, then heavily in debt, went into receivership.   TUESDAY TRIVIA: With a degree in music composition, Fred McFeeley Rogers, hosted of the beloved children’s show, “Mr. Rogers’ Neighborhood,” wrote 200 songs for the show, including the theme, “It’s a Beautiful Day in the Neighborhood.”
TRIVIAL PURSUITS: Mr. Rogers had another degree, do you know what it was?
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