Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 3rd, 2014
Benefit Briefs
National Ideas: Will They Be Enacted?
Last month, two new ideas came forward about creating a national policy for retirement plans. President Barack Obama in his State of the Union address announced the “myRA” savings account, and Senator Tom Harkin, chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced the USA Retirement Funds Act. These proposals may remain just that. Over the last 10 years at PLANSPONSOR, we have written about many ideas that claim to end the “coverage gap”—the gap that exists for employees without a workplace retirement plan—including automatic individual retirement accounts (IRAs), proposed multiple times in Congress and included in multiple presidential budgets; a previous version of Senator Harkin’s plan; and numerous ideas from public policy thought leaders. Yet, none of those have been enacted, and we still lack a national program to encourage—or even force—saving.
Yale Law Professor Again Targets Industry Fees
A Yale Law School professor known for making waves in the retirement industry released a study arguing plan sponsors tend to establish investment menus that encourage underperformance. The study by Ian Ayres, a lawyer and economist serving as the William K. Townsend Professor at Yale Law School, and co-author Quinn Curtis, of the University of Virginia School of Law, suggests retirement plan administration and investment-related fees lead to an average participant loss of 86 basis points compared with low-cost index funds that could be used as retirement savings vehicles. Curtis tells PLANSPONSOR the paper does not seek to blame either plan sponsors or industry providers for charging excessive fees and damaging the retirement readiness of participants. “I wouldn’t characterize this study as a blame game,” he says.
There is a connection between healthy employees and companies with a strong focus on health issues, according to the results of a new survey. The Consumer Health Mindset survey, conducted jointly by Aon Hewitt, the National Business Group on Health and The Futures Company, finds that employees who perceive their company as having a strong culture of health are happier, less stressed and more likely to take control of their well-being than their counterparts elsewhere.
Physicians Need a Financial Check-Up
Even with stronger earnings and savings rates than the general working population, an analysis from Fidelity Investments shows many physicians face the prospect of steeply reduced income in retirement. While physicians rank among the most highly compensated professionals, with an average annual salary of $299,000, many are not on track to support a financially secure lifestyle in retirement, according to a new report from Fidelity Investments. The report analyzes the retirement savings behaviors of some 5,100 physicians and 95,500 other health care professionals using proprietary Fidelity data, and finds the retirement outlook for doctors is surprisingly bleak in terms of traditional readiness measures, especially income replacement ratios.
Buyer's Market
Asset management firm State Street Global Advisors (SSgA) announced its SPDR Barclays 0-5 Year TIPS ETF began trading this week. This exchange-traded fund (ETF) is designed to give investors a potential opportunity to protect their portfolios from inflation and diversify their fixed income allocations to prepare for rising interest rates. Dave Mazza, SSgA’s Head of Research for SPDR ETFs, shares the benefits the fund offers defined benefit and defined contribution plans.
Economic Events
THE ECONOMIC WEEK AHEAD: Today, the Census Bureau will report about construction spending for January. Thursday, the Labor Department will issue its initial claims report, and the Census Bureau will report about factory orders for January. Friday, we’ll learn the unemployment rate for February.
Market Mirror
Friday, the Dow was up 49.06 points (0.30%) at 16,321.71, the NASDAQ was down 10.81 points (0.25%) at 4,308.12, and the S&P 500 increased 5.16 points (0.28%) to 1,859.45. The Russell 2000 decreased 4.91 points (0.41%) to 1,183.03, and the Wilshire 5000 closed 29.62 points (0.15%) higher at 19,946.84. On the NYSE, 3.2 billion shares traded, with 1.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares changed hands, with a slight lead for decliners. The price of the 10-year Treasury note was down 3/32, increasing its yield to 2.654%. The price of the 30-year Treasury bond was up 3/32, decreasing its yield to 3.588%. WEEK’S WORTH: For the week ending February 28, the Dow finished 1.36% higher, the NASDAQ was up 1.05%, and the S&P 500 increased 1.26%. The Russell 2000 climbed 1.58%, and the Wilshire 5000 closed 1.31% higher.
Financial Sense
Calif. Pension System Promotes the Use of P-Share Class
The Orange County Employees Retirement System (OCERS) investment committee unanimously adopted a resolution supporting widespread industry use of pension share classes (P-share classes) in funds that offer alternative investments. The resolution follows the form of a suggested model published by the Government Finance Officers Association of the U.S. and Canada in its February 2014 issue of Government Finance Review, written by OCERS’ chief investment officer (CIO) Girard Miller. The article explains that a P-share class is a special pricing structure established within an investment fund that gives pension funds access to lower fees than mainstream investors get.
A settlement was reached this week in a class action lawsuit brought against trustees of Detroit’s two pension funds. The suit filed in Wayne County Circuit Court on behalf of all pensioners for Detroit’s two pension funds—the General Retirement System and Police and Fire Retirement System—alleges negligence by trustees made between 2008 and 2009 involving several failed investments.
The World at Large
PLANSPONSOR UK has analyzed performance to find the best fund managers of 2013 in a range of asset classes who also provided good long term returns for UK savers.
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Small Talk
ON THIS DATE:  In 1845, Congress reined in President John Tyler’s zealous use of the presidential veto, overriding it with the necessary two-thirds vote. This marked Congress’ first use of the Constitutional provision allowing Congressional veto overrides. In 1863, during the Civil War, the U.S. Congress passed a conscription act that produced the first wartime draft of U.S. citizens in American history. In 1877, Rutherford B. Hayes was sworn in as the 19th president of the United States in the Red Room of the White House. Two days later, Hayes was again inaugurated in a public ceremony. Some historical accounts claim that Hayes’ first swearing-in ceremony had occurred in secret due to threats made on the new president’s life. In 1931, President Herbert Hoover signed a congressional act making “The Star-Spangled Banner” the official national anthem of the United States.
SURVEY SAYS: America Saves Week
Last week was “America Saves Week.” I asked NewsDash readers, does your company do any employee retirement savings education during the week, and what can your company do better to encourage employees to save for retirement? The vast majority (85.2%) of responding readers said their companies do not do anything coinciding with America Saves Week. The rest were split between those whose companies do a significant education campaign during the week and those whose companies only provide a few communications. When asked how they feel about the “America Saves Week” initiative, more than half (51.9%) said it is a non-event, for the most part. Nearly half (48.1%) said it could use more promotion to make people aware. Nearly 15% of responding readers feel it is a good initiative, every effort helps, and the same percentage said it would be better at a different time of year. Half of respondents reported their firms could do better at providing more employee education or more targeted education to encourage employees to save more for retirement. Thirty-five percent said adopting automatic enrollment would better encourage their employees, and 31% chose “increase salaries” as something their firms could do to better encourage retirement savings. The verbatim responses showed the initiative could use more promotion. A couple of readers said their firms used it for a big campaign. Editor’s Choice goes to the reader who said: “Every little bit helps, and as an HR director, I find it to be very helpful to have a new ‘angle’ to use in our plan communications.” Thanks to everyone who participated!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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