Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
May 6th, 2014
Benefit Briefs
A Plan Sponsor Gets Participants Unstuck
“Two years ago, we noticed a lack of participants who were on track to replace adequate income in retirement,” says Ann Gormley, senior vice president of Human Resources at Pinnacle Health in Harrisburg, Pennsylvania. Gormley tells PLANSPONSOR the organization implemented automatic enrollment in 2007 with a default 2% employee deferral; however, a plan design optimization analysis to determine how many participants would retire with an acceptable income replacement rate performed by Pinnacle’s plan adviser at Strategic Retirement Group with its provider Prudential, led the organization to realize many participants were stuck at the 2% deferral and not increasing their savings. “They were not actively engaged in the plans, and not saving enough to retire,” she says. With the help of its adviser, Pinnacle Health decided a reenrollment was in order, and implemented an automatic deferral increase program.
While nurses spend their lives taking care of others, they fall behind in taking care of their own financial future, a Fidelity Investments study suggests. The study report, “Defining Excellence: Nurses’ Savings Behaviors and Retirement Readiness,” says nurses’ retirement savings is in need of urgent care, as they are on track to replace only 59% of their ending income in retirement, a 26 percentage point gap from Fidelity’s suggested income replacement goal of 85%. Findings for the report suggest many nurses are well aware they face a retirement shortfall, with 63% concerned they will never be able to fully retire and four out of five wanting help to better prepare for retirement.
Recession Decreased Expected Reliance on 401(k)s
Fewer Americans plan to rely on a 401(k) account as their main source of retirement income than planned to prior to the recession, according to a recent Gallup poll. The survey found 48% of nonretired (i.e., working) respondents in 2014 say 401(k) retirement plans will be their primary source of income during retirement, compared with 54% who said so in April 2008. In addition, since the recession began, more nonretirees expect Social Security to be a major source of retirement income than did before 2008.
Pulling Out All the Stops with Retirement Education
Simply measuring the average participant’s retirement savings shortfall will not help employers improve plan outcomes, says Kris Gates, vice president of customer experience marketing with MassMutual. If they’re serious about boosting the retirement readiness of their workforce, employers also need to help employees understand how a projected savings gap relates to their day-to-day financial picture, Gates tells PLANSPONSOR. Without a road map of attainable next steps and basic financial wellness support, few participants will know how to improve their long-term financial outlook, he warns, leaving even well-designed plans stuck in neutral. Gates suggest sponsors and advisers look at the advertising strategies of major consumer goods companies to “win” more of their participants’ dollars and start shaping their behavior in positive ways.
Buyer's Market
Seyfarth Shaw, a law firm specializing in employment and benefits law, unveiled a new Employee Benefits Administrative Service Center for retirement plan clients. The center provides Seyfarth Shaw clients with a suite of administrative services for use in a wide variety of retirement plans, including defined contribution and defined benefit arrangements, as well as both qualified and nonqualified plans.
Industry Voices
Industry Voice: Managing and Mitigating DB Plan Risk
Milliman refers to its framework for pension plan de-risking strategies as “The Three M’s,” because plan sponsors can handle risk by managing it, mitigating it, or moving it. In this article, Milliman focuses on the first two: managing risk by reviewing plan designs and considering liability-based solutions, and mitigating risk via asset-based solutions that target the funded status of the plan.
Market Mirror
Yesterday, the Dow was up 17.66 points (0.11%) at 16,530.55, the NASDAQ added 14.16 points (0.34%) to finish at 4,138.06, and the S&P 500 increased 3.52 points (0.19%) to 1,884.66. The Russell 2000 lost 2.50 points (0.22%) to finish at 1,126.30, and the Wilshire 5000 closed 30.68 points (0.15%) higher at 19,996.66. On the NYSE, 3.2 billion shares traded, with a slight lead for decliners. On the NASDAQ, 2.7 billion shares changed hands, with nearly 1.3 declining issues for every advancing issue. The yield for the 10-year Treasury note was 2.610%, and the yield for the 30-year Treasury bond was 3.409%.
Rules & Regulators
There Is an Exception to Attorney-Client Privilege
The common law of attorney-client privilege is intended to enable clients to speak with their attorneys in trusted confidence about work-related issues. But, there is an exception to the attorney-client privilege in the Employee Retirement Income Security Act (ERISA). “ERISA fiduciaries cannot assert attorney-client privilege against plan participants,” Jon T. Coffin, a partner with Johnston, Allison and Hord in Charlotte, North Carolina, told attendees of the Retirement & Benefits Management Seminar, hosted by the University of South Carolina Darla Moore School of Business, and co-sponsored by PLANSPONSOR. Citing a lawsuit decided in the 4th U.S. Circuit Court of Appeals, he said attorney-client privilege only applies to information discussed regarding fiduciaries’ own defense in a violation-of-duties case and information about certain non-fiduciary plan functions.
Financial Sense
Small plans underperformed large plans for the first quarter of 2014 which pulled the median return for all institutional assets tracked by the Wilshire Trust Universe Comparison Service (TUCS) to a lackluster 1.66%. “While this is the third positive quarter in a row, returns remain below the classic 1.82% or higher quarterly return target required for an annualized 7.5% return,” says Robert J. Waid, managing director, Wilshire Associates, based in Santa Monica, California.
The estimated funded level of defined benefit (DB) plans sponsored by S&P 1500 companies fell another 1% in April to 84%, according to Mercer. Equity market gains were not enough to offset the liability growth of pension plan sponsors in the S&P 1500, Mercer says. The collective deficit of $360 billion as of April 30 is up $28 billion from the estimated deficit of $332 billion as of March 31, and up $257 billion from the beginning of the year.
Small Talk
ON THIS DATE:  In 1933, President Franklin D. Roosevelt signed an executive order creating the Works Progress Administration (WPA)—one of many Great Depression relief programs created under the auspices of the Emergency Relief Appropriations Act, which Roosevelt had signed the month before. In 1937, the German airship Hindenburg, the largest dirigible ever built, exploded as it arrived in Lakehurst, New Jersey. Thirty-six people died in the fiery accident that has since become iconic, in part because of the live radio broadcast of the disaster. In 1940, John Steinbeck was awarded the Pulitzer Prize for his novel The Grapes of Wrath. In 1994, in a ceremony presided over by England’s Queen Elizabeth II and French President Francois Mitterand, a rail tunnel under the English Channel was officially opened, connecting Britain and the European mainland for the first time since the Ice Age.   TUESDAY TRIVIA: The Hindenburg disaster was iconic in part because of radio announcer Herb Morrison’s on-the-scene description in which he emotionally declared, “Oh, the humanity!” However, the recording of Morrison’s commentary was immediately flown to New York, and was also aired as part of America’s first coast-to-coast radio news broadcast.
TRIVIAL PURSUITS: What band used a picture of the Hindenburg disaster on its debut album?
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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