Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 5th, 2014
Buyer's Market
Transamerica TDFs Consider More Than Age
Plan sponsors and advisers need a target-date funds solution that works equally well for participants who want a relatively or entirely passive role in retirement planning and those who want to take a more active role, Transamerica says in a new white paper. The paper says because participants left to their own devices generally make less than optimal decisions when choosing investments, or make no decisions at all, a solution is needed that refocuses the average participant’s attention to understandable choices they are equipped to make, and that automates investment decisions based on those choices. “At the participant level, the goal is to simplify the investment process—asking participants what year they want to retire in and what their comfort level is with investment risk,” Jeremy Hersch, vice president and head of asset allocation services for Transamerica Retirement Solutions, tells PLANSPONSOR.
Economic Events
Total nonfarm payroll employment rose by 288,000, and the unemployment rate fell by 0.4 percentage point to 6.3% in April. Employment gains were widespread among industries, according to the Bureau of Labor Statistics. New orders for manufactured goods in March, up two consecutive months, increased $5.3 billion or 1.1% to $493.9 billion, the U.S. Census Bureau reported. This followed a 1.5% February increase. Excluding transportation, new orders increased 0.6%. THE ECONOMIC WEEK AHEAD: Thursday, the Labor Department will issue its initial claims report. Friday, the U.S. Census Bureau will report about wholesale inventories for March.
Market Mirror
Friday, the Dow was down 45.98 points (0.28%) at 16,512.89, the NASDAQ slipped 3.55 points (0.09%) to 4,123.90, and the S&P 500 closed 2.54 points (0.13%) lower at 1,881.14. The Russell 2000 was up 2.83 points (0.25%) at 1,128.80, and the Wilshire 5000 closed at 19,965.98, down 10.56 points (0.05%). On the NYSE, 3.2 billion shares traded, with 1.3 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares changed hands, with a slight lead for decliners. The price of the 10-year Treasury note was up 9/32, bringing its yield down to 2.585%. The price of the 30-year Treasury bond increased 29/32, decreasing its yield to 3.366%. WEEK’S WORTH: For the week ending May 2, the Dow increased 0.93%, the NASDAQ climbed 1.19%, and the S&P 500 closed 0.95% higher. The Russell 2000 was up 0.51%, and the Wilshire 5000 gained 1.03%.
Rules & Regulators
DOL Sues Health Plan for Not Disclosing Fees
The Department of Labor (DOL) initiated a lawsuit against a group health plan for failing to disclose fees. The suit alleges that defendants Pro Systems Corp., Pro Resources Corp., MICROPRO Inc. violated the Employee Retirement Income Security Act (ERISA) by failing to disclose to clients that some fees collected for insurance costs for the Pro Systems Corporation Group Health Plan were used for non-health plan purposes.
The Department of Labor (DOL) proposed updates to model notices informing workers of their eligibility to continue health care coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). The updates clarify to workers that if they are eligible for COBRA continuation coverage when leaving a job, they may choose to instead purchase coverage through the federal Health Insurance Marketplace.
DOL Targets Imprudent Investment for Profit Sharing Plan
The Department of Labor’s Employee Benefits Security Administration (EBSA) filed a complaint in federal court against a Tennessee profit-sharing plan over allegedly imprudent margin investing that triggered plan losses. The text of the complaint alleges that in 2005, Aubrey Needham, former owner of Ditch Witch Equipment of Tennessee Inc. entered the company’s profit-sharing plan into a margin agreement account which allowed him to make plan investments on margin. Needham began purchasing stock warrants as plan investments, and as a result of purchases on margin, the plan’s margin account had a negative balance of more than $500,000 by the end of 2005.
Financial Sense
Public Pensions No Benefit for Short-Term Workers
Job mobility for state and local government workers could be a detriment to their retirement savings, an analysis indicates. The Urban Institute’s Program on Retirement Policy concludes that many workers, because they must contribute to their plans and do not usually spend their entire careers in government service, gain nothing from their state pension plans. They would have a richer retirement if they could simply invest on their own. According to its analysis, only 19% of plans enable state and local government employees hired at age 25 to accumulate any employer-financed pension benefits within the first 10 years of employment. For teachers, the figure is just 14%.
The aggregate funded ratio for U.S. corporate defined benefit (DB) pension plans decreased to 86% in April, according to Wilshire Consulting. This decrease was driven by a larger increase in the liability value due to the decline in corporate bond yields versus the increase in the asset value.
CalPERS Wants Finding for Detroit Bankruptcy Reversed
The California Public Employees’ Retirement System (CalPERS) filed an amicus (friend of the court) brief supporting appeals by the Committee of Retirees of the City of Detroit and others over the decision that Detroit is eligible for bankruptcy. In its filing with the 6th U.S. Circuit Court of Appeals, CalPERS takes issue with the bankruptcy court improperly creating a presumption in favor of eligibility for bankruptcy which is not appropriate in the context of a Chapter 9 bankruptcy. CalPERS also argues that the decision of the bankruptcy court saying once a state authorizes its subdivisions to file bankruptcy, the state’s laws and constitution no longer control the actions of the municipal debtor, is incorrect.
The World at Large
A smaller working age population will create difficulties for an independent Scotland in meeting its pension liabilities, according to the International Longevity Centre UK.
Small Talk
ON THIS DATE:  In 1862, the Battle of Puebla took place near the city of Puebla during the French intervention in Mexico. The battle ended in a victory for the Mexican Army over the occupying French forces. It is celebrated as Cinco de Mayo Day. In 1865, the Thirteenth Amendment was ratified, abolishing slavery in the U.S. In 1891, Music Hall was dedicated in New York City. It was later renamed Carnegie Hall. In 1904, Boston Red Sox pitcher Cy Young threw a perfect game against the Detroit Tigers, who had fellow future Hall of Fame pitcher Rube Waddell on the mound. This was the first perfect game of the modern era; the last had been thrown by John Montgomery Ward in 1880. It was the second of three no-hitters that Young would throw, and the only perfect game. In 1925, John T. Scopes, a biology teacher in Dayton, Tennessee, was arrested for teaching Darwin’s theory of evolution. In 1936, Edward Ravenscroft received a patent for the screw-on bottle cap with a pour lip. In 1961, from Cape Canaveral, Florida, Navy Commander Alan Bartlett Shepard Jr. was launched into space aboard the Freedom 7 space capsule, becoming the first American astronaut to travel into space. In 1979, Peaches and Herb topped the pop charts with “Reunited.” In 2002, “Spider-Man” was the first movie to top $100 million in its opening weekend.
SURVEY SAYS: Lessons from Elders
Last week, I asked NewsDash readers how old is/was the oldest person they know or have known and what lessons have they learned from them. Nearly 37% of responding readers indicated they know or have known personally someone age 100 or older. For more than 47% of respondents, the oldest person they know or have known is/was in his or her 90s. Fourteen percent selected ages 80 to 89, and 2% selected 70 to 79. Nearly 86% of responding readers said that person has taught them, either directly or indirectly, important lessons about aging and retirement, while 7% each either said that person hasn’t taught them lessons or they haven’t thought about it. A positive attitude and keeping active were common themes from lessons learned. One of my favorites was “Take life as it comes. The good times are never as good as you think they are and the bad times are never as bad as you think they are.” In verbatim comments, most readers shared more lessons learned from their elders and a few lamented about how the lessons we can learn are not sought or appreciated. One reader shared a very humorous response by a 103-year-old about celebrating the next birthday. Editor’s Choice goes to the reader who said: “I love talking to old people about events they’ve experienced in their lifetime. I just hope I’m as interesting when I’m old…of course the definition of ‘old’ keeps changing with the older I get!” A big thank you to everyone who participated in the survey! I very much enjoyed reading all responses, and I believe you will too.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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