Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 15th, 2014
Benefit Briefs
BlackRock Argues To-Retirement TDFs Are Best
The glide path of a target-date fund (TDF) should reach its landing point at the investor’s actual retirement date, according to a new BlackRock study. In other words, retirement investors should favor so called “to-retirement” TDFs over “through-retirement” funds, says Chip Castille, head of BlackRock’s U.S. Retirement Group. He tells PLANSPONSOR that a new paper from the investment management firm, “Reexamining To versus Through: What new research tells us about an old debate,” makes a compelling case for to-retirement TDFs, even for those investors who plan to remain invested in a TDF well into retirement. Castille says conclusions reached in the paper show through-retirement funds are almost never preferable for the typical investor.
Employees are recognizing that their financial vulnerabilities are most likely resulting from factors they can control rather than external factors such as the economy or stock market, a report says. According to the “2014 State of Employee Financial Stress” report by the Financial Finesse, a financial wellness services provider, the percentage of employees citing the economy and stock market as the main sources of financial stress decreased from 47% in 2012 to 43% in 2013. Instead, more employees are citing internal factors, such as not having control over their finances of thinking they will be unable to meet their future financial goals, as their main sources of financial stress.
TDFs Popular with Female and Younger Investors
Target-date funds are the most popular of asset allocation strategies, especially for women, according to data from MassMutual’s Retirement Services Division. In the first quarter of 2014, 28.4% of women’s assets were allocated to asset allocation accounts as opposed to 27.7% of men’s assets, MassMutual data shows. Those allocations have increased in the past five years by 42% for women and 38% for men. The data also indicates Generation Y or Millennials—those between the ages of 20 and 37—are gravitating to target-date funds (TDFs) and other asset allocation strategies in ever greater numbers.
Buyer's Market
Aflac has released a suite of health care benefits resources specifically designed for small business owners. Aflac developed resources and tools to help small-business owners better understand the complexities of the changing health care landscape and to more effectively communicate about benefits and health care reform with their employees. “We developed these new resources to help small-business owners understand their benefits delivery options, how to comply with health care reform regulations, and how to improve their employee benefits communications—all with straightforward language and easy-to-implement solutions,” says Michael Zuna, executive vice president and chief marketing officer of Aflac.
Straight Talk About Drawdown Boosts Retirement Readiness
Determining how to draw down assets in retirement can be a puzzle; having a clear strategy can boost retirement readiness. Big, future dollar amounts are hard to visualize realistically, says Troy Hirschi, vice president of financial planning for SunGard’s wealth and retirement administration business. “Most people grasp that you live on monthly income now,” he says. One problem with the focus on accumulated assets is that people get excited when they see a big number. But if they’ve saved $500,000, he points out, then the true question is, what is that amount going to do for them? Income projections using a sustainable drawdown give people a realistic view of what their assets can provide in retirement.
Industry Voices
The Employee Retirement Income Security Act (ERISA) is designed to protect the financial interests of retirement plan participants by governing the manner in which the plan is structured and administered. The burden of maintaining strict compliance with this legislation falls to anyone who meets ERISA’s definition of a “fiduciary.”
Economic Events
The Producer Price Index (PPI) for final demand advanced 0.6% in April. This increase followed a rise of 0.5% in March and a decline of 0.1% in February. In April, the indexes for both final demand services and final demand goods advanced 0.6%.
Market Mirror
The Dow closed 101.47 points (0.61%) lower Wednesday, at 16,613.97. The NASDAQ fell 29.54 points (0.72%) to 4,100.63, and the S&P 500 was down 8.92 points (0.47%) at 1,888.53. The Russell 2000 lost 18.02 points (1.61%) to finish at 1,103.14, and the Wilshire 5000 decreased 112.62 points (0.56%), finishing at 19,966.91. On the NYSE, 3.2 billion shares changed hands, with 1.6 declining issues for every advancing issue. On the NASDAQ, 2.7 billion shares traded, with a nearly 3 to 1 lead for decliners. The price of the 10-year Treasury note was up 19/32, bringing its yield down to 2.545%. The price of the 30-year Treasury bond increased 1 10/32, decreasing its yield to 3.377%.
Rules & Regulators
Chamber Offers PBGC Recommendations
The U.S. Chamber of Commerce has issued a position paper offering recommendations for the Pension Benefit Guaranty Corporation (PBGC). In the paper, the Chamber notes that in the last several years, the defined benefit retirement plan system has faced several significant challenges—industry bankruptcies, an overhaul of the funding rules, demographic changes, and a financial crisis affecting every type of industry and investment. “The Chamber believes that this is the appropriate time to review the governance, policies, and practices of the PBGC to ensure that the PBGC and the defined benefit plan system are able to withstand additional challenges in the future,” the paper says.
Employers Urge House to Halt PBGC Premium Increases
A group of employers and business groups are asking the U.S. House of Representatives to oppose further efforts by the Pension Benefit Guaranty Corporation (PBGC) to increase premiums. In the letter, employers such as General Motors and U.S. Steel, as well as industry groups such as the American Benefits Council and the American Society of Pension Professionals & Actuaries, say additional PBGC single-employer plan premium increases, when added to the multi-billion dollar increases enacted in 2006, 2012, and 2013, could divert additional resources from job creation and business investment. The letter cites a new study by Inforum, “Increasing Pension Premiums: the Impacton Jobs and Economic Growth,” which suggests adding the Obama Administration’s budget proposal to the recent premium hikes equates to a potential loss of 42,000 jobs per year on average, peaking at 67,000 jobs in 2017, which would equate to a $51.4 billion hit to the U.S. economy over 11 years.
The Feeling’s Mutual
Investors paid lower average expense ratios for equity mutual funds in 2013, says a report from the Investment Company Institute (ICI). “Trends in the Expenses and Fees of Mutual Funds, 2013” examines fund expense ratios or a fund’s total annual expenses expressed as a percentage of its net assets. The report shows the average expense ratio investors paid for equity funds saw a decrease of 74 basis points (0.74%), representing a drop of three basis points from 2012.
Small Talk
ON THIS DATE:  In 1756, the Seven Years War, a global conflict known in America as the French and Indian War, officially began when England declared war on France. However, fighting and skirmishes between England and France had been going on in North America for years. In 1800, President John Adams ordered the federal government to pack up and leave Philadelphia and set up shop in the nation’s new capital in Washington, D.C. In 1941, the jet-propelled Gloster-Whittle E 28/39 aircraft flew successfully over Cranwell, England, in the first test of an Allied aircraft using jet propulsion. The aircraft’s turbojet engine, which produced a powerful thrust of hot air, was devised by Frank Whittle, an English aviation engineer and pilot generally regarded as the father of the jet engine. In 1942, a bill establishing a women’s corps in the U.S. Army became law, creating the Women’s Auxiliary Army Corps (WAACs) and granting women official military status. In 1942, gasoline rationing began in 17 Eastern states as an attempt to help the American war effort during World War II. By the end of the year, President Franklin D. Roosevelt had ensured that mandatory gasoline rationing was in effect in all states. In 1963, Gordon Cooper was launched into space aboard Faith 7 on the longest American space mission to that date. In 1973, California Angel Nolan Ryan struck out 12 Kansas City Royals and walked three to pitch the first no-hitter of his career. In 1982, “Ebony And Ivory,” a duet by Paul McCartney and Stevie Wonder, began a seven-week run at No. 1 on the Billboard Hot 100.
SURVEY SAYS: Though your job may require you to think like a plan sponsor, you’re individuals who are also personally affected by your employer’s benefits decisions.  This week I’d like to know, have you been affected by changes to health benefits? You may respond to this week’s survey by 6 p.m. Pacific time today.
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