Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 13th, 2014
Benefit Briefs
Participants Sabotaging Help TDFs Give Them
Many defined contribution retirement plan participants are not using target-date funds (TDFs) as designed. A new study from Financial Engines and Aon Hewitt finds only 37.8% of participants invested in TDFs are using them as a “one-stop” investment. “This means the typical usage of target-date funds is as part of their portfolio; 62% are using them as part of the portfolio,” Wei-Yin Hu Financial Engines’ VP of Financial Research tells PLANSPONSOR. “This is an area of concern for us.” Wei explains this is the first time Financial Engines and Aon Hewitt have looked at the partial usage of TDFs in its “Help” study. “We’re trying to figure out why those not getting help are not getting the same investment returns [as those who do use help in their retirement plans]. It’s in part from having incorrect risk in their portfolios and not using TDFs correctly,” he says.
Affluent investors surveyed by Legg Mason identified the decisions they made that have had a positive impact on their investment success. The top five were: Changed their spending habits so they could save/invest more; developed a financial plan; began working with or increased the role of my financial adviser; invested in products other than just stocks and bonds; and took a more global approach to investing.
Buyer's Market
Russell Offers DC Plan Handbook
Plan sponsors can get practical advice about creating a best-in-class plan that improves retirement outcomes for participants and also meets fiduciary obligations in Russell’s new fiduciary guide, “A Defined Contribution Retirement Plan Handbook.”  Russell’s defined contribution (DC) team continues to push plan sponsors to aim for excellence, says Bob Collie, chief research strategist (Americas Institutional) for Russell Investments. The prevailing attitude at Russell is that plan sponsors who merely aim for “good enough” are in fact already falling short, he says. Collie describes the handbook as an overview of the current status of the key issues that affect DC plans.
Global asset management firm Schroders hired Marc Mayer to lead its institutional business initiatives in North America. “We are privileged to find someone of Marc’s caliber to lead the next leg of growth of our institutional business in North America. Our strategy is to expand our business in core asset classes such as global equities, multi-asset and multi-sector fixed income. Marc’s experience in offering both alpha and solutions capabilities underscores our commitment to becoming a strategic investment partner to North American institutions across all segments,” says Karl Dasher, Schroders CEO of North America, who is based in New York.
Accenture Launches Public Pension Administration Solution
Accenture has launched a new enterprise solution to help public pension plan administrators take advantage of the flexibility and cost savings of a commercial off-the-shelf technology system. The system, Accenture’s Enterprise Solution for Pensions (AESP), is based on Oracle’s PeopleSoft applications, Oracle Middleware, and Oracle technology. The company says AESP provides the business functionality required by modern public pension programs, including member and retiree management and administration, employer administration and contribution, payroll and payment management.
Industry Voices
Industry Voice: Moving DB Risk, and the Risks of De-Risking
The “Move It” strategy for defined benefit (DB) plan de-risking applies to plan sponsors with zero pension risk tolerance or the relatively few plans whose risk footprint is so large that the company is willing to pay almost any price to eliminate it. Moving risk is an alternative that makes sense only for the plans with the highest enterprise risk. The solutions consist of unloading liabilities and assets to another organization and can be very costly for the plan sponsor.
Market Mirror
Yesterday, the Dow closed 112.13 points (0.68%) higher at 16,695.47, the NASDAQ climbed 71.99 points (1.77%) to 4,143.86, and the S&P 500 increased 18.17 points (0.97%) to 1,896.65. The Russell 2000 gained 26.43 points (2.39%) to finish at 1,133.65, and the Wilshire 5000 was up 230.59 points (1.16%) at 20,097.80. On the NYSE, 3.2 billion shares changed hands, with 3.7 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a nearly 4 to 1 lead for advancers. The price of the 10-year Treasury note was up 1/32, bringing its yield down to 2.659%. The price of the 30-year Treasury bond increased 2/32, decreasing its yield to 3.495%.
Rules & Regulators
The Pension Benefit Guaranty Corporation (PBGC) has issued a final rule about the phase-in of guaranteed “unpredictable contingent event benefits” (UCEBs). The final rule keeps in place provisions of the proposed rule issued by the PBGC in March 2011. The agency explains that UCEBs are benefits or benefit increases that become payable solely by reason of the occurrence of a UCE such as a plant shutdown. UCEBs typically provide a full pension, without any reduction for age, starting well before an unreduced pension would otherwise be payable.
Council Sees Flaw in 408(b)(2) Impact Review
In an open letter to the Department of Labor, the Retirement Advisor Council contends the regulator’s proposed methodology for assessing the impact of 408(b)(2) fee regulations is flawed. While the RAC says it supports the DOL’s intelligence-gathering effort, it warns that only sampling small plan sponsors for focus group research will lead to flawed results that may under-represent the concerns of large plan sponsors—who are, the RAC says, far more influential than small plan sponsors when it comes to retirement readiness in the United States.
The Internal Revenue Service (IRS) is seeking comments about the definition of real property for real estate investment trust (REIT) investments. The agency proposed regulations intended to clarify the definition of real property for purposes of the real estate investment trust provisions of the Internal Revenue Code. The proposed regulations provide guidance to real estate investment trusts and their shareholders. A public hearing about the proposed regulations will also take place.
IRS Provides Relief for Late Form 5500 Filers
The Internal Revenue Service (IRS) is providing penalty relief for certain late filers of Form 5500. In Notice 2014-35, the IRS said it will not impose penalties with respect to a year for which filing of such a form is required on a person who (1) is eligible for and satisfies the requirements of the Department of Labor’s (DOL’s) Delinquent Filer Voluntary Compliance (DFVC) Program with respect to a delinquent Form 5500 series return for such year and (2) files separately with the IRS, in the form and within the time prescribed by this notice, a Form 8955-SSA. In other words, the notice provides relief from the penalties applicable under the Code to the late filing of Forms 5500 and 5500-SF only if any applicable Form 8955-SSA is also filed for the year at issue.
Financial Sense
The use of exchange-traded funds (ETFs) by institutional investors is increasing, a study finds. According to Greenwich Associates’ report, “ETFs: An Evolving Toolset for U.S. Institutions,” as recently as 2011, fewer than 15% of U.S. institutions were using ETFs in their portfolios. That share climbed to 18% in 2012 and reached 21% in 2013. The current study shows institutional investors adopt ETFs for routine portfolio functions, as well as a means of obtaining long-term strategic investment exposures.
Small Talk
ON THIS DATE:  In 1607, some 100 English colonists arrived along the west bank of the James River in Virginia to found Jamestown, the first permanent English settlement in North America. In 1846, the U.S. Congress overwhelmingly voted in favor of President James K. Polk’s request to declare war on Mexico in a dispute over Texas. In 1950, Steveland Hardaway Judkins, later known as Stevie Wonder, was born in Saginaw, Michigan. In 1961, Berry Gordy signed 11-year-old Steveland Hardaway Morris to a contract with Tamla Records. The artist became known as Stevie Wonder and the label as Motown. In 1981, Pope John Paul II was shot and wounded at St. Peter’s Square in Rome, Italy. Turkish terrorist Mehmet Ali Agca, an escaped fugitive already convicted of a previous murder, fired several shots at the religious leader, two of which wounded nearby tourists. Agca was immediately captured.   TUESDAY TRIVIA: Stevie Wonder was blind as a result of receiving too much oxygen in the incubator as a premature baby.
TRIVIAL PURSUITS: In what did the word “nerd” first appear?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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