Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 20th, 2014
Industry Insights
Paying Active Fees for Passive Management?
Active share helps plan fiduciaries see how active their managers really are. Identifying truly active managers is a constant challenge for plan sponsors. The market downturn of 2007-2008 sent most managers running for the cover of their benchmarks. Many never left—they still tout an active approach, but never stray too far from the index. So how can plan sponsors, charged with a duty to ensure plan assets are diversified and investment fees are justified, ferret out these closet indexers? Enter a very handy tool called “active share.”
Benefit Briefs
Same-gender couples need to become aware of the many workplace benefits and financial planning strategies that are now available, says James Mahaney of Prudential. “Financial Planning Considerations for Same-Sex Couples after Windsor,” a white paper by Mahaney, vice president of strategic initiatives at Prudential, examines key financial planning considerations for same-gender couples in the wake of the U.S. Supreme Court’s decision in United States v. Windsor that a section in the Defense of Marriage Act (DOMA)—stating the federal government will not recognize same-gender marriages performed in states where it is legal—is unconstitutional.
Not Surprised Doesn’t Mean Prepared
Since the Department of Labor (DOL) proposed including lifetime income illustrations on retirement plan participant statements, no doubt most in the industry have assumed the information would come as a shock to participants. However, as part of the Employee Benefit Research Institute’s (EBRI) 2014 Retirement Confidence Survey (RCS), using data given by respondents, the monthly income available at their stated retirement age was estimated based on the methodology described in the DOL’s Advanced Notice of Proposed Rulemaking (ANPRM) about lifetime illustrations. More than half (58%) thought the amount calculated was about what they had expected. So, does the lack of surprise by participants mean the retirement “crisis” is not as bad as we think? Are participants more prepared than media reports and other surveys suggest? “The fact that it’s what was expected doesn’t mean it’s enough,” says Nevin Adams, director of Education and External Relations at EBRI, noting that the survey only gauged participant reaction to the projection, not that the projection calculated is enough to live on in retirement.
Buyer's Market
America’s Best 401k, a retirement services provider specializing in the small and mid-sized market segments, engaged investment advice provider Jemstep to bring online advice solutions to plan clients. The partnership will allow America’s Best 401k plan participants to use Jemstep’s online investing guidance and asset-allocation analysis to identify funds and investment strategies that fit their personal financial situation.
Shane E. Conlon has joined Sibson Consulting as a vice president and senior retirement consultant. Conlon has nearly two decades of experience as a human resources and retirement consultant, and has worked with major law firms, professional sports organizations and higher education institutions designing and implementing benefits, rewards and retention and retirement incentive programs that align financial and people strategies.
Market Mirror
The Dow took a dive Wednesday and lost 114.02 points (0.70%) to finish at 16,222.17. The NASDAQ was down 25.71 points (0.59%) at 4,307.60, and the S&P 500 closed 11.48 points (0.61%) lower at 1,860.77. The Russell 2000 fell 9.38 points (0.78%) to 1,195.66, and the Wilshire 5000 decreased 130.37 points (0.65%) to 19,971.01. On the NYSE, 3.2 billion shares changed hands, with declining issues outnumbering advancing issues nearly 3 to 1. On the NASDAQ, 2.7 billion shares traded, with a near 2 to 1 lead for decliners. The price of the 10-year Treasury note fell 27/32, increasing its yield to 2.771%. The price of the 30-year Treasury bond decreased 25/32, bringing its yield up to 3.657%.
Financial Sense
Overlay Strategy Keeps DB Investments on Target
Even the best laid plans can go off track, and this is true for defined benefit plan portfolios. Plan sponsors and their consultants may spend considerable time designing strategic asset-allocation strategies, but “through the course of time, due to market movements and cash flows in or out due to contributions and distributions, target allocations may get out of balance,” explains Brian Roberts, senior consultant at NEPC, LLC in Boston. An NEPC paper written by Roberts says derivative overlay strategies offer an array of benefits, which can include securitizing idle cash, maintaining policy target exposures and managing transitions within the portfolio. An overlay solution can also help manage risk related to currency exposure, equity beta or, particularly for corporate pension plans, interest rates.
Looking Ahead Responsibly
Ask Adam Strauss, a portfolio manager at the Chicago-based Appleseed Fund, to describe the way he evaluates and selects investments, and he will give an answer similar to that of many active managers. “We’re stock pickers, so what we’re looking for is to invest in high-quality companies with stocks that are significantly undervalued,” Strauss says. “And we look very closely at balance sheets. If a company experiences a temporary problem in the business but the balance sheet is strong, you’ve got lots of time on your side to turn things around. If it’s weak, then that’s working against you.” It is only after discussing pricing power and competitive advantage that he brings up the term “sustainability” or “ESG,” short for environmental, social and governance.
The World at Large
The UK government made defined contribution (DC) plans the keynote of its budget, with a bid to push more savers into taking cash, rather than annuities at retirement. From next April all DC plan members will be able to take their pension from age 55, as an annuity or the whole pot as cash, taxed at the marginal rate after the first 25%. Chancellor of the Exchequer George Osborne said the end of the annuity requirement was designed to show “trust” in savers. He also announced DC savers would all receive “free impartial advice” on their options, when they reach retirement.
Rules & Regulators
Could You Supply an Outdated Plan Document?
To what extent are a company and its qualified retirement plan liable, under the Employee Retirement Income Security Act (ERISA), for failing to promptly supply outdated plan documents requested by a pension plan participant’s surviving spouse? Also, does delay amount to neglect of fiduciary duties, and if so, what is sufficient redress?
Small Talk
ON THIS DATE:  In 1852, Harriet Beecher Stowe’s anti-slavery novel, “Uncle Tom’s Cabin,” was published. In 1854, in Ripon, Wisconsin, former members of the Whig Party met to establish a new party to oppose the spread of slavery into the western territories—the Republican Party. In 1934, Mildrid “Babe” Didrikson pitched one inning of exhibition baseball for the Philadelphia Athletics in a game against the Brooklyn Dodgers. She started the first inning, and allowed just one walk and no hits. Though Didrickson was not the first woman to play baseball with major league ballplayers, she had attained national-hero status with an unprecedented performance at the 1932 Olympics. In 1948, the 20th annual Academy Awards ceremony took place at the Shrine Civic Auditorium in Los Angeles, California. In 1965, President Lyndon B. Johnson notified Alabama’s Governor George Wallace that he would use federal authority to call up the Alabama National Guard in order to supervise a planned civil rights march from Selma to Montgomery. In 1982, Joan Jett topped the pop charts with “I Love Rock ‘n’ Roll.”
SURVEY SAYS: Does your company make available saving and investing advice to retirement plan participants? Have you used the offering(s) yourself?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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