Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 19th, 2014
Benefit Briefs
2014 PLANSPONSOR Participant Survey
The PLANSPONSOR Participant Survey marks the first time PLANSPONSOR has directly examined American workers participating—or not—in an employer-sponsored retirement plan. The results of the survey found that plan participants are aware of the plan and their need to save, and many are eager for their employers to provide additional information about how to do that.
Insights: The Participant Perspective
Why do people do what they do? It is an eternal question asked at all ages (of parents about children, of children about parents, of peers by co-workers). Sometimes seemingly questionable behavior can be justified by reasons we wouldn’t have guessed. In fact, as many in the retirement plan industry are aware, there is an entire field of study dedicated to this area, behavioral finance, which seeks to explain why retirement plan participants act the way they do and to encourage automated plan designs.
Buck Consultants predicts cost increases for medical plans will be lower in 2014. The 28th National Health Care Trend Survey estimates cost increases for all types of medical plans will be down by between 0.1% and 0.5% this year, continuing a favorable trend of slow, steady declines generally experienced since 2010. The increases are lower than prior surveys done in recent years.
Best Practices for Handling Uncashed Checks
Some plan sponsors are unsure about best practices for handling uncashed retirement plan benefit checks, but a new paper aims to help. There is no clear guidance from the U.S. Department of Labor (DOL) or the Internal Revenue Service (IRS) on all aspects of the uncashed checks issue. Regulations allowing plan sponsors to roll participant accounts of less than $5,000 were passed in 2001 and put into effect in 2004, but Lowell M. Smith, Jr., president of Inspira, tells PLANSPONSOR at the time there were few providers available for plan sponsors to work with, and especially few that would take amounts less than $1,000.
Analyze This: Competence Equals Confidence
If participants want increased levels of confidence in their retirement security and plan sponsors want more confidence in their ability to deliver retirement security, both parties must contribute more.
Economic Events
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 1,072,000. This is 13.2% above the revised March estimate of 947,000 and is 26.4% above the April 2013 rate of 848,000. Single-family housing starts in April were at a rate of 649,000; this is 0.8% above the revised March figure of 644,000. The April rate for units in buildings with five units or more was 413,000. THE ECONOMIC WEEK AHEAD: Thursday, the Labor Department will issue its initial claims report, and the National Association of Realtors will announce existing home sales for April. Friday, the Census Bureau will report about new home sales for April.
Market Mirror
Friday, the Dow was up 44.50 points (0.27%) at 16,491.31, the NASDAQ increased 21.30 points (0.52%) to 4,090.59, and the S&P 500 closed 7.01 points (0.37%) lower at 1,877.86. The Russell 2000 climbed 6.92 points (0.63%) to 1,102.91, and the Wilshire 5000 finished at 19,863.96, up 74.58 points (0.38%). On the NYSE, 3.2 billion shares changed hands, with a 2 to 1 lead for advancers. On the NASDAQ, 2.7 billion shares changed hands, with 1.5 advancing issues for every declining issue. The price of the 10-year Treasury note was down 10/32, bringing its yield up to 2.525%. The price of the 30-year Treasury bond decreased 13/32, increasing its yield to 3.348%. WEEK’S WORTH: For the week ending May 16, the Dow fell 0.55%, the NASDAQ increased 0.46%, and the S&P 500 decreased 0.03%. The Russell 2000 closed 0.39% lower, and the Wilshire 5000 slipped 0.02%.
Rules & Regulators
The Governmental Accounting Standards Board (GASB) is slated to issue two proposals about other post-employment benefits (OPEBs). According to a recent GASB announcement, the proposals to be issued in June are aimed at improving the information reported about OPEBs for decisionmaking and accountability purposes, comparability across governments and transparency.
Financial Sense
Misconceptions About DB Lump-Sum Windows
While offering lump-sum distribution windows to terminated, vested participants could reduce the liabilities of a defined benefit (DB) plan, some plan sponsors are still hesitant to use this option, says Mercer. In many cases misconceptions about offering lump-sum cashout windows for DB plans are the main reason why plan sponsors decide not to move forward, the firm contends. In a Point of View paper, “Terminated Vested Cashouts: Overcoming Common Misconceptions,” Mercer examines the reasons DB plan sponsors give for not going ahead with such cashouts and addresses how these challenges might be overcome.
The Feeling’s Mutual
Long-term funds netted $45.2 billion in April, bringing year-to-date intake to $176 billion. U.S. Equity ($13.2 billion) and International Equity ($18.9 billion) saw another month of strong net inflows, according to Strategic Insight, an Asset International company. Inflow leading strategies among active U.S. equity managers in April were Natural Resources ($1.7 billion), Flexible U.S. ($1.1 billion), and Income – Mixed ($1.1 billion). International Growth ($2.6 billion) and Emerging Market Equity ($1.6 billion) drove inflows to the International Equity space.
The World at Large
Plan sponsors and consultants in the UK discussed how to promote retirement savings when employees don’t trust the industry.
Small Talk
ON THIS DATE:  In 1749, King George II of England granted the Ohio Company a charter of several hundred thousand acres of land around the forks of the Ohio River, thereby promoting westward settlement by American colonists from Virginia. In 1857, the electric fire alarm system was patented by William F. Channing and Moses G. Farmer. In 1921, the U.S. Congress passed the Emergency Quota Act, which established national quotas for immigrants. In 1935, the National Football League (NFL) adopted an annual college draft to begin in 1936. In 1958, Bobby Darin’s single, “Splish Splash,” was released as the first eight-track master recording pressed to a plastic 45-RPM disc. In 1962, Marilyn Monroe performed a sultry rendition of “Happy Birthday” for U.S. President John F. Kennedy. The event was a fund-raiser at New York’s Madison Square Garden. In 1989, the Dow Jones Industrial Average passed 2,500 for the first time. The close for the day was 2,501.1. In 1993, the Dow Jones Industrial Average closed above 3,500 (3,500.03) for the first time. In 1997, a three-year-old boy died of avian influenza in Hong Kong—the first victim of the outbreak. By the time the outbreak was controlled, six people were dead and 1.6 million domestic fowl were destroyed. In 2007, Smart USA launched a U.S. road show to introduce its microcar, released in the U.S. in 2008.
SURVEY SAYS: Health Benefits Changes
Last week, I asked NewsDash readers how they, as employees, have been affected by changes to health benefits. More than three-quarters (76.5%) of respondents indicated that in the last two years, their portion of health benefits premiums have increased, but 7.8% said their premiums are lower. Nearly one-quarter of responding readers indicated they’ve had to choose a new plan type (HMO, PPO, high deductible plan with an HSA, etc.) because their employers dropped the one they were in, while 13.7% said they were able to choose a new plan type because their employers added one to its health benefits offering. Nearly all effects listed were experienced by at least some respondents, but the following effects from benefit changes were not selected by any respondents: My copays are lower; My deductible is lower; My employer stopped providing health benefits; My employer began providing health benefits; and Was able to get coverage with my spouse’s/partner’s employer because it now covers spouses/partners. Asked what factors influenced the changes their employers made, 62% selected health care reform legislation, while 76% indicated it was just ordinary increases in health care costs. In verbatim comments, it is obvious many are feeling burned by changes to their health care benefits; readers shared the size of cost increases, and some other benefits changes, such as tiered premiums and loss of dental or vision benefits. But there are some who reported being “lucky” and having “generous” benefits. Editor’s Choice goes to the reader who said: “As a “Boomer” I can recall when medical insurance was for catastrophic circumstances only and you paid your physician/pharmacist out of your pocket – even with chickens and produce (and we walked 5 miles up hill to do so). Point being it’s beginning to look like deja vu all over again.” Thanks to everyone who participated in our survey!
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