Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 19th, 2014
Industry Insights
What Do Participants Really Want from Their Bond Fund?
Why do retirement plan participants choose bond funds? Some may understand how bonds can function in a diversified portfolio, while others may turn to them believing that bonds are somehow supposed to be “safer” for retirement. Whatever their reason, it’s almost certain most individuals don’t think about their core bond fund the way investment professionals do. We need to put the participants’ perspective—specifically, their goals in making a selection—at the heart of building defined contribution (DC) plan menus.
Benefit Briefs
Fidelity Investments’ recent “Retirement Savings Assessment” survey finds Americans are increasingly concerned about health care costs in retirement, with 84% of respondents saying they are unsure whether they will be able to cover medical expenses through retirement. Fidelity warns the problem may be even greater than such figures suggest, as almost three-fourths (71%) of respondents expect to have better-than-average health in retirement—an overly optimistic assumption for many. Nearly half of pre-retirees ages 55 to 64 believe they will need about $50,000 to pay for their individual health care costs in retirement, while Fidelity’s annual Retiree Health Care Cost Estimate suggests the average couple can expect to spend more than $220,000 in health care expenses over the course of their retirement.
Retiring with $1M—Even Relatively Low-Earners Can Do It
“Saving for retirement is like running a marathon; you have to be in it for the long haul,” says Jeanne Thompson, vice president of market insights at Fidelity in Boston. “Much like marathon runners have to do a lot of preparing before the race, individuals must take steps to prepare for retirement. Those who start early will not regret it when they get there.” One of the biggest issues debated by plan sponsors and industry experts is how much participants need to save to have a financially secure retirement—and how to get them there.
Buyer's Market
Ross Brown joined retirement plan services and consulting firm Verisight Inc. as a senior vice president of institutional sales. In the role, Brown is tasked with managing and expanding relationships with banks, broker/dealers and asset management companies involved in the firm’s retirement services.
Your Health Plan Needs a Document, SPD Too
Many companies are not maintaining a plan document for their health plans or providing employees with summary plan descriptions (SPDs), according to a survey. HR360 found 71% of brokers reported business clients were not providing SPDs or maintaining plan documents—two major requirements under ERISA (Employee Retirement Income Security Act). Many companies mistakenly assume insurance contracts, certificates of insurance and benefits summaries fulfill the ERISA requirements for an SPD and plan document—but they do not include the required or recommended provisions that protect the plan and the employer, HR 360 says.
Economic Events
Privately-owned housing units authorized by building permits in February were at a seasonally adjusted annual rate of 1,018,000, the Census Bureau reported. This is 7.7% above the revised January rate of 945,000 and is 6.9% above the February 2013 estimate of 952,000. Single-family authorizations in February were at a rate of 588,000; this is 1.8% below the revised January figure of 599,000. Authorizations of units in buildings with five units or more were at a rate of 407,000 in February. On a seasonally adjusted basis, the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1% in February after rising 0.1% in January, according to the Bureau of Labor Statistics. The index for all items less food and energy rose 0.1% in February, the same increase as in January. Real average hourly earnings rose 0.3% in February, seasonally adjusted. Average hourly earnings rose 0.4% and the CPI-U rose 0.1%. Real average weekly earnings was unchanged over the month.
Market Mirror
Tuesday, the Dow was up 88.97 points (0.55%) at 16,336.19, the NASDAQ climbed 53.36 points (1.25%) to 4,333.31, and the S&P 500 gained 13.42 points (0.72%) to finish at 1,872.25. The Russell 2000 closed 16.81 points (1.41%) higher at 1,205.04, and the Wilshire 5000 increased 159.50 points (0.80%) to 20,101.38. On the NYSE, 3.2 billion shares traded, and on the NASDAQ, 2.7 billion shares changed hands, with advancing issues outnumbering declining issues 3 to 1 on both exchanges. The price of the 10-year Treasury note was up 6/32, bringing its yield down to 2.674%. The price of the 30-year Treasury bond increased 10/32, decreasing its yield to 3.615%.
Rules & Regulators
DOL Report Helps with Evaluation of Health Plans
A new report from the Department of Labor (DOL) describes a conceptual framework of health plan features meant to help employers assess holistic plan quality. “Final Report: Evaluation of Tools and Metrics to Support Employer Selection of Health Plans” is part of a study to help employers understand the structural differences between health plans and the performance dimensions along which plans can differ, as well as to educate them about tools and resources that can be used to compare plan options.
“We sponsor both a 403(b) plan and a 457(b) ‘top-hat’ deferred compensation plan for select management/highly compensated employees. The 403(b) plan allows for hardship distributions and the 457(b) plan permits in-service distributions for an unforeseeable emergency. As the plan sponsor, we approve such distributions, which is the source of my question. Unfortunately, since so few in-service distributions are requested for the 457(b) we incorrectly approved such a 457(b) distribution under the 403(b) hardship safe-harbor standard rather than the unforeseeable emergency standard. How do we correct this error?”
Fiduciary Liability and Form 5500 Reporting
Retirement plan sponsors can outsource much of the work involved in filling out and filing annual Form 5500s, but they’re still responsible for the results. Linda Fisher, who owns and operates Linda T. Fisher 5500 Consulting LLC, tells PLANSPONSOR there are a number of steps plan fiduciaries can take to ensure they are working effectively with consultants hired to run annual financial audits and mandated filing processes. It’s an important effort, she says, as sponsors and other fiduciaries are ultimately liable for such reporting and any mistakes contained therein, even in cases when the process is handed off to a specialized consultant or financial adviser.
Small Talk
Same Old Résumé Catch Phrases Turn Employers Off
If you are a “go-getter” who always “thinks outside the box” and a “detail-oriented” “team player,” you may not want to tell a prospective employer. A CareerBuilder survey found one in six hiring managers (17%) spend 30 seconds or less, on average, reviewing résumés, according to a new CareerBuilder survey. A majority (68 percent) spend less than two minutes. With so little time to capture interest, a candidate’s word choice can make a difference. Managers shared terms they like to see on résumés, as well as those that are a turn-off.
ON THIS DATE:  In 1916, eight Curtiss “Jenny” planes of the First Aero Squadron took off from Columbus, New Mexico, in the first combat air mission in U.S. history. The First Aero Squadron, organized in 1914 after the outbreak of World War I, was on a support mission for the 7,000 U.S. troops who invaded Mexico to capture Mexican revolutionary Pancho Villa. In 1931, in an attempt to lift the state out of the hard times of the Great Depression, the Nevada state legislature voted to legalize gambling. In 1949, in a precursor to the establishment of a separate, Soviet-dominated East Germany, the People’s Council of the Soviet Zone of Occupation approved a new constitution. This action, together with the U.S. policy of pursuing an independent pathway in regards to West Germany, contributed to the permanent division of Germany. In 1953, for the first time, audiences were able to sit in their living rooms and watch as the movie world’s most prestigious honors, the Academy Awards, were given out at the RKO Pantages Theatre in Hollywood, California. In 1953, legendary filmmaker Cecil B. DeMille won the only Academy Award of his career when “The Greatest Show on Earth” took home an Oscar for Best Picture. The film, a big-budget extravaganza about circus life, starred Charlton Heston, Betty Hutton, and Cornel Wilde. In 2003, the United States, along with coalition forces primarily from the United Kingdom, initiated war on Iraq.   WEDNESDAY WISDOM: “Education is what remains after one has forgotten what one has learned in school.”—Albert Einstein
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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