Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 29th, 2014
Benefit Briefs
New Model for Retirement Needs New Benefits Structure
People expect to work longer and flexibility will become the new model for retirement, finds Aegon’s third Retirement Readiness survey. A collaboration by the Transamerica Center for Retirement Studies and Aegon, the survey finds only 32% of employees now expect to stop work completely at retirement age. Despite the improving economy, confidence in retirement—meaning the ability to stop work and lead a lifestyle they consider comfortable—remains weak. Yet while people are worried, they are not doing much to save or plan for retirement.
Nearly half (49%) of employers polled say controlling costs, including health benefits costs, is a top business objective. The Aflac WorkForces Report Survey, found in 2013, businesses implemented the following cost-cutting measures for health benefits: 28% increased employees’ health care insurance copayments; 28% increased employees’ share of premium; 22% eliminated or reduced employee benefits; and 9% eliminated contributions for family coverage. The report shows 86% of employees believe the expenses they are responsible for will continue to rise, but many are not prepared to absorb the financial burden.
Distribution Decisions Hinge on Status After Leaving Employer
The average retirement plan participant’s decision to leave 401(k) assets in-plan or actuate a distribution when leaving an employer often hinges on whether they are retiring or taking a new job. New research from the Employee Benefit Research Institute (EBRI) focusing on the financial behavior of job changers older than age 50 finds that, among those still in the labor force, the most common decision when leaving an employer was to leave 401(k) assets in the previous employer’s plan. Conversely, those who retire from the work force and stop working tend to either take a cash distribution or roll the money into an individual retirement account (IRA).
Should Your DC Plan Include Absolute Return Strategies?
A paper from Towers Watson recommends, for defined contribution (DC) plans, up to 25% of traditional U.S. aggregate bond assets can be switched to absolute return assets. “Unconstrained Bond Investing: Examining the Case for Absolute Return Strategies for DC Participants” looks at how switching a portion of conventional bonds into some form of absolute return strategy may improve DC plan outcomes. The paper cautions, however, that investors need to be mindful of the risks introduced and ensure sufficient focus is placed on retaining a robust strategic asset allocation and achieving value for money.
Buyer's Market
Northern Trust Asset Management announced two leadership appointments designed to address key growth areas. Jason J. Tyler, the firm’s head of Corporate Strategy and Market Development, will join the Asset Management business as head of Client Solutions. He will have oversight of institutional sales, client relationship management and advisory services, including the Outsourced Chief Investment Officer practice. Shundrawn A. Thomas, executive vice president and managing director of FlexShares, the firm’s exchange-traded fund (ETF) business, will expand his responsibilities to oversee all fund activities.
Market Mirror
Wednesday, the Dow was down 42.32 points (0.25%) at 16,633.18, the NASDAQ decreased 11.99 points (0.28%) to 4,225.07, and the S&P 500 slipped 2.13 points (0.11%) to 1,909.78. The Russell 2000 lost 5.52 points (0.48%) to finish at 1,136.68, and the Wilshire 5000 closed 28.91 points (0.14%) lower at 20,229.91. On the NYSE, 3.2 billion shares traded, with a slight lead for advancers. On the NASDAQ, 2.7 billion shares changed hands, with 1.6 declining issues for every advancing issue. The price of the 10-year Treasury note increased 21/32, decreasing its yield to 2.440%. The price of the 30-year Treasury bond climbed 1 11/32, bringing its yield down to 3.292%.
Rules & Regulators
Fee Suit Litigator Discusses Best Practices
Plaintiffs’ lawyer and 401(k) fee litigation specialist Jerry Schlichter doesn’t seem to mind his position among the most polarizing figures in the employer-sponsored retirement plan industry. Schlichter is known for targeting large plan sponsors and service providers on a range of fee-related issues. Seven distinct 401(k) fee litigation cases in which he is currently involved seek substantial damages from sponsors and providers alike for charging or accepting excessive fees for recordkeeping and other administrative and investment-related services paid for by plan participants, he tells PLANSPONSOR. Schlichter says when plans pay too much for investment services and plan administration, participants often end up subsidizing other corporate services received from the recordkeeping provider, Schlichter claims, such as payroll processing or health plan administration.
Health Plan TPA to Pay for Undisclosed Fees
Blue Cross and Blue Shield of Michigan (BCBSM) must pay more than $6 million for assessing fees that were not disclosed to a health care plan sponsor. The 6th U.S. Circuit Court of Appeals affirmed a district court decision granting Hi-Lex Controls, Inc. summary judgment on its claim that BCBSM functioned as an ERISA fiduciary and violated the Employee Retirement Income Security Act (ERISA) by self-dealing. The appellate court also affirmed the district court’s ruling that BCBSM violated its general fiduciary duty under Section 1104(a) and that Hi-Lex’s claims were not time-barred. The court awarded Hi-Lex $5,111,431 in damages and prejudgment interest in the amount of $914,241.
Financial Sense
Institutional retirement plan sponsors benefited from continued gains in domestic equity and fixed income during the first quarter of 2014, says an analysis from Northern Trust Corporation. Institutional plan sponsors also saw modest gains in the international equity and fixed-income markets during the first quarter, with median returns led by the corporate Employee Retirement Income Security Act (ERISA) plans with a return of 2.8%.
The World at Large
The UK, alongside the U.S., has seen biggest improvement its “retirement readiness” since last year, according to an Aegon report.
Sponsored message from Vanguard
PLANSPONSOR Interviews Chris McIsaac
Click here to watch Stephen Moylan, SVP for PLANSPONSOR, interview Chris McIsaac, Managing Director for Vanguard.
Small Talk
ON THIS DATE:  In 1790, Rhode Island became the last of the original thirteen colonies to ratify the U.S. Constitution. In 1848, following approval of statehood by the territory’s citizens, Wisconsin entered the Union as the 30th state. In 1953, Edmund Hillary of New Zealand and Tenzing Norgay, a Sherpa of Nepal, became the first explorers to reach the summit of Mount Everest. In 1971, The Rolling Stones’ single “Brown Sugar” hit No. 1 in the U.S. In 2005, 23-year-old Danica Patrick became the first female driver to take the lead in the Indianapolis 500.
SURVEY SAYS: For some, summer offers more time for recreational reading, so each year we ask NewsDash readers to share what’s on their summer reading lists. In addition, summer may offer more places to read, so this year I’d like to know, where do you like to read? You may respond to this week’s survey by 6 p.m. Pacific time today.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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