Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 27th, 2014
Benefit Briefs
Reforming Social Security to Increase Worker’s Retirement Income
Witnesses at a Senate hearing discussed Social Security reforms that could boost potential retirement income for workers. During the hearing, “The Strengthening Social Security to Meet the Needs of Tomorrow’s Retirees,” before the U.S. Senate Committee on Finance’s Subcommittee on Social Security, Pensions and Family Policy, Teresa Ghilarducci, chair of the Economics Department at the New School for Social Research in New York, New York, noted low and middle-income individuals are particularly vulnerable to low levels of retirement readiness, pointing out that these individuals are “more likely to take loans from their 401(k) or withdraw monies from their 401(k) or individual retirement account (IRA).” Ghilarducci also noted workers in these income ranges also tend to have more conservative investment portfolios that produce lower returns.
Economic Events
Sales of new single-family houses in April 2014 were at a seasonally adjusted annual rate of 433,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 6.4% above the revised March rate of 407,000, but is 4.2% below the April 2013 estimate of 452,000. THE ECONOMIC WEEK AHEAD: Today, the Census Bureau will release a report about durable orders for April and The Conference Board will release its consumer confidence index for May. Thursday, the Labor Department will release its initial claims report and the Commerce Department will reveal the gross domestic product for the first quarter.
Market Mirror
Friday, the Dow was up 63.19 points (0.38%) at 16,606.27, the NASDAQ increased 31.47 points (0.76%) to 4,185.81, and the S&P 500 topped 1,900 (1,900.53) for the first time, with the addition of 8.04 points (0.42%). The Russell 2000 climbed 12.32 points (1.11%) to 1,126.19, and the Wilshire 5000 closed 98.73 points (0.49%) higher at 20,123.50. On the NYSE, 3.2 billion shares changed hands, with advancing issues outnumbering declining issues more than 2 to 1. On the NASDAQ, 2.7 billion shares traded, with a near 3 to 1 lead for advancers. The price of the 10-year Treasury note was up 5/32, bringing its yield down to 2.536%. The price of the 30-year Treasury bond increased 18/32, decreasing its yield to 3.398%. WEEK’S WORTH: For the week ending May 23, the Dow was up 0.70%, the NASDAQ climbed 2.33%, and the S&P 500 increased 1.21%. The Russell 2000 gained 2.11%, and the Wilshire 5000 finished 1.31% higher.
Rules & Regulators
State Law Considered for QDROs for Domestic Partners
The Alaska Supreme Court ruled unmarried domestic partners have a right to some retirement benefits via a qualified domestic relations order (QDRO). The top Alaska court agreed with an earlier ruling that insurance death benefits and 401(k) retirement accounts are not to be considered domestic partnership assets and therefore should not be subject to division through a qualified domestic relations order (QDRO). However, both the upper and lower courts agreed that accrued union pension benefits can be considered domestic partnership assets and are therefore subject to division between separating domestic partners. The court followed the reasoning of another case that because federal law does not define “marital property rights,” the court must apply state law to define the term.
Financial Sense
CalPERS Moves to Contain Contribution Increases
The California Public Employees’ Retirement System (CalPERS) Board of Administration approved new actuarial policies to contain rate increases for small public agency employers. A California law, the Public Employees’ Pension Reform Act (PEPRA), closed existing benefit formulas and created new benefit formulas for new state employees hired after January 1, 2013. As a result, PEPRA effectively closed the existing pension risk pools, which would have prompted a general contribution increase for employers in those pools. CalPERS acted in anticipation of these undesired increases by making changes to the structure of risk pooling.
Foundations and endowments appear to be transitioning portfolios away from their largest holdings, according to eVestment, a provider of investment data analytics. The firm’s recent “Investor Trends Report: Foundations and Endowments” finds that to mitigate the risks of a U.S. equity market decline, large allocations have gone to international markets via passive strategies. Additionally, recent large inflows into long/short and event-driven hedge funds likely include allocations from foundations and endowments.
The Feeling’s Mutual
What Drives Mutual Fund Managers to Perform?
A recent analysis from Gerstein Fisher challenges the notion that mutual fund managers don’t have as much incentive to outperform as peers running other fund types. A paper from the investment services provider shows a mutual fund that earns 10% more than the size-weighted average of its style group in one year will, on average, experience a 5% excess asset growth in the subsequent year—mainly by attracting new investors. The findings were consistent across nearly all fund styles and sizes, researchers explain, except for startup funds and very large fixed-income vehicles. Researchers say this result debunks the common notion that mutual fund managers aren’t driven to outperform because they are typically compensated solely based on asset levels in their fund—with no performance incentives per se.
Charles Schwab Founder Talks About Index Investing
Don’t call index investing passive. Charles Schwab, founder and chairman of Charles Schwab, says that does a real disservice to investors. Schwab is so passionate about the value of index investing that the Schwab Center for Financial Research released “The Wealth-Building Power of Equities and the Elegance of Indexing,” a report to help investors better understand index investing and its role in wealth accumulation. Index funds have a false reputation of being static, Schwab says.
Small Talk
ON THIS DATE:  In 1647, Achsah Young, a resident of Windsor, Connecticut, was executed for being a “witch.” It was the first recorded American execution of a “witch.” In 1907, the Bubonic Plague broke out in San Francisco. In 1937, the Golden Gate Bridge, connecting San Francisco with Marin County, California, officially opened amid citywide celebration. In 1941, President Franklin D. Roosevelt announced a state of unlimited national emergency in response to Nazi Germany’s threats of world domination. In 1969, construction of Walt Disney World began in Florida. In 1972, Soviet President Leonid Brezhnev and U.S. President Richard Nixon, meeting in Moscow, signed the Strategic Arms Limitation Talks (SALT) agreements. At the time, these agreements were the most far-reaching attempts to control nuclear weapons. In 1972, Mark Donohue won the Indianapolis 500 with an average speed of 163.645 miles an hour, six miles an hour faster than the previous speed record.   TUESDAY TRIVIA: Los Angeles’ full name is ‘El Pueblo de la Reyna de los Angeles,’ according to the name on the first handwritten map in 1785.
TRIVIAL PURSUITS: Which four state capitals are not served by the U.S. Interstate system?
SURVEY SAYS: Finances Affecting Vacation Plans
Last week, I asked NewsDash readers, is financial stress affecting your vacation plans, and what are you doing to reduce that expense? Responding readers were evenly split, with 50% saying financial stress is affecting their vacation plans, and the other half saying it is not. Asked which steps they are taking this year to reduce vacation costs, 23.1% of readers said they are cooking rather than eating out while on vacation. Nearly 18% each indicated they are driving rather than flying and/or taking a shorter vacation this year. Fifteen percent of responding readers are taking a “staycation,” staying at home instead of traveling somewhere, and 13% reported they are not taking a vacation at tall. Ten percent are staying with friends or family while on vacation rather than in a hotel, and 7.7% plan to do fewer activities while on vacation to save on cost. More than 20% said they are not taking any of these steps, and 15% listed other steps they are taking, including staying closer to home to reduce travel expenses, taking one longer vacation rather than two shorter trips, and cruising. I asked NewsDash readers to share any tips they have for reducing vacation expenses. Responses included: “For the last several years, I’ve put my flexible spending account reimbursements into a separate savings account, and that funds most of the summer vacation;” and “I research free activities in the areas that we travel to. Usually you can find a bunch of free activities even with a family.”
Thanks to everyone who participated in the survey!
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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