Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
October 27th, 2014
Buyer's Market
A new partnership between Western Union Business Solutions and CPAS helps make seamless pension fund payments for U.S. retirees living abroad. To meet the needs of retirees who move overseas, Western Union Business Solutions and CPAS have created a platform for efficient, international delivery of pension payments. CPAS clients can use the payment network of Western Union Business Solutions, which plans to offer an integrated solution through CPAS software.Read more >
Industry Voices
Industry Voice: Smarter About Smart Beta
Smart beta is fast becoming a popular approach for providing retirement plan investors with a different, yet systematic, equity exposure than that offered by traditional capitalization-weighted indices. But is smart beta really a new idea? The short answer is “no”—systematic alternatives to cap-weighted schemes have, in fact, been around for more than 30 years. Since that time, cap-weighted portfolios have attracted trillions of dollars from investors around the world, becoming the proxy for the market return, and “beta,” the accepted industry shorthand for exposure to the market. So why are investors now (finally) accepting the notion that alternative weighting schemes should be taken seriously?Read more >
Economic Events
Sales of new single-family houses in September were at a seasonally adjusted annual rate of 467,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2% above the revised August rate of 466,000 and 17.0% above the September 2013 estimate of 399,000. THE ECONOMIC WEEK AHEAD: Tomorrow, the Census Bureau will report about durable goods orders for September and the Conference Board will release its Consumer Confidence Index for October. Thursday, the Labor Department will issue its initial claims report.
Market Mirror
Friday, the Dow climbed 127.51 points (0.76%) to 16,805.41, the NASDAQ increased 30.92 points (0.69%) to 4,483.72, and the S&P 500 closed 13.75 points (0.70%) higher at 1,964.57. The Russell 2000 was up 2.34 points (0.21%) at 1,118.82, and the Wilshire 5000 gained 126.14 points (0.61%) to finish at 20,690.13. On the NYSE, 3.2 billion shares changed hands, with 1.7 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a 1.2 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note was up 2/32, with its yield down to 2.266%. The price of the 30-year Treasury bond increased 7/32, decreasing its yield to 3.035%. WEEK’S WORTH: For the week ending October 24, the Dow rose 2.59%, the NASDAQ climbed 5.29%, and the S&P 500 gained 4.12%. The Russell 2000 increased 3.37%, and the Wilshire 5000 finished 3.97% higher.
Rules & Regulators
Guidance Issued for Including Annuities in TDFs
The Department of the Treasury and the Internal Revenue Service have issued guidance designed to expand the use of income annuities in 401(k) plans. The guidance was published as Notice 2014-66 and provides that plan sponsors can include deferred income annuities in target-date funds (TDFs) used as a qualified default investment alternatives (QDIA) in a manner that complies with plan qualification rules. The guidance makes clear that plans have the option to offer TDFs that include such annuity contracts either as a default or as a participant-elected investment.Read more >
Senators Urge Government Action on Pension De-Risking
Two senior U.S. senators are petitioning the government agencies that oversee qualified retirement plans to more actively protect pension plan participants’ rights during pension risk transfers. In short Senators Ron Wyden (D-Oregon), chairman of the Senate Finance Committee, and Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor, and Pensions Committee, are pushing the federal government to establish “clear and specific rules” to ensure current employees and retirees participating in defined benefit pension plans have their interests protected during pension risk transfer moves. The senators say they are concerned that, while some types of de-risking strategies may be warranted to mitigate future pension funding risks, pension plans are increasingly engaging in new forms of de-risking activity, such as lump-sum payouts and the full or partial transfer of liabilities onto outside insurance companies.Read more >
Court Revives ADEA Case Related to Health Benefits Costs
A federal appellate court has revived a lawsuit in which a woman claims she was fired from her job due to her age and how that affected the company’s health care costs. The 8th U.S. Circuit Court of Appeals reversed a district court’s decision in Marjorie Tramp’s Age Discrimination in Employment Act (ADEA) claim. The district court granted summary judgment in favor of Tramp’s former employer, Associated Underwriters, saying Tramp’s evidence demonstrated that age and health care costs were analytically distinct in the case. However, the appellate court found that correspondence between Associated Underwriters and its insurance carrier before Tramp’s termination showed it was apparent to company management that its health care premiums were affected by the demographics of its employees.Read more >
Financial Sense
U.S. Pensions Less Enchanted with Alternatives
Confidence has returned among institutional investors worldwide, according to a survey by Pyramis Global Advisors. The 2014 Pyramis Global Institutional Investor Survey found nine in ten (91%) pension plans and other institutional investors believe they can achieve target returns in five years. Derek Young, vice chairman of Pyramis Global Advisors, in Boston, says in the U.S., 84% believe they can meet return assumptions. However, Young tells PLANSPONSOR an interesting finding of the survey is it shows a return to basics in U.S. plans. “There’s a lot of discussion around asset allocation and whether practices had become too complex or had outgrown plan sponsor knowledge,” he says. “U.S. pension plan sponsors seemed more uncomfortable with their portfolios.” The return to basics especially showed up in U.S. plans’ views of alternative investments, and specifically about hedge funds.Read more >
Small Talk
ON THIS DATE: In 1858, Theodore Roosevelt, the future 26th president of the United States, was born in New York City, and Roland Macy opened Macy’s Department Store in New York City. It was Macy’s eighth business venture, the other seven failed. In 1904, New York City Mayor George McClellan took the controls on the inaugural run of the city’s innovative new rapid transit system: the subway. In 1925, Fred Waller received a patent for water skis. In 1927, the first newsreel featuring sound was released in New York. In 1938, Du Pont announced “nylon” as the new name for its new synthetic yarn. In 1978, Egyptian President Anwar Sadat and Israeli Prime Minister Menachem Begin were named winners of the Nobel Peace Prize for their progress toward achieving a Middle East accord. In 2002, the Anaheim Angels won their first World Series, beating the San Francisco Giants in Game 7, and Emmitt Smith (Dallas Cowboys) became the all-time leading rusher in the NFL when he extended his career yardage to 16,743. He also scored his 150th career touchdown. In 2004, the Boston Red Sox won the World Series for the first time since 1918.
SURVEY SAYS: Minimum Wage Increase
Last week, I asked NewsDash readers, “Do you think the state in which you work should increase its minimum wage?” and “What do you think is a fair minimum wage?” Sixty-three percent of responding readers think the minimum wage in the state in which they work should be increased, and 36.8% do not. Nearly 31% of readers said a fair minimum wage for workers in their work-state is $10.00 per hour. Slightly more than 18% said a minimum wage in the range of $11.00 to $14.00 is fair. More than 16% said the current federal minimum of $7.25 per hour is fair for workers in their work-state, while the same percentage (16.4%) said there should be no set minimum wage. The majority (91.7%) of those who support a minimum wage increase, said they do because it will increase the standard of living for employees. The most common reason selected by respondents who do not support a minimum wage increase was that companies may increase prices of goods and services to offset labor costs, cited by 88.9% of those respondents. In verbatim comments, some said a free market should set the price for labor, and a few pointed out that employers that support a higher minimum wage could just choose to pay workers more than minimum wage on their own. Others noted there are both pluses and minuses to increasing the minimum wage, and doing so may even end up hurting the people it was trying to help. Editor’s Choice goes to the reader who said: “Wages should be fair for the work that the employee is required to do.” Thank you to everyone who participated in the survey!Read more >
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