NewsDash – October 6, 2014

October 6th, 2014

Benefit Briefs

The premise behind having required minimum distributions (RMDs) is that Congress wants the RMD’s primary purpose to be for retirement, not a vehicle to accumulate an estate. “The IRS requires qualified plans to ensure that distributions commence no later than April 1 of the year following the year in which a participant turns 70 ½ and is terminated or retired,” explains Tim Driscoll, director of defined contribution product management for Fidelity’s Workplace Marketing, Solutions & Experience business in Smithfield, Rhode Island. The Internal Revenue Service (IRS) requires RMDs from participants who own individual retirement accounts (IRAs) as well. Participants are prohibited from combining IRAs and qualified plans and taking the total amount from only one plan; this can be done with multiple IRAs, but not qualified plans, Driscoll says.Read more >

Health benefit plan cost trend rates for 2015 are forecast to drop slightly for some coverage, but to increase substantially for prescription drug coverage, according to The Segal Group. Data from the 2015 Segal Health Plan Cost Trend Survey shows increases in medical trends are projected to range from a low of 6.2% for health maintenance organizations (HMOs) to a high of 10.4% for fee-for-service coverage. There will be a marginal decline from 2014 in the projected trend rate for open-access preferred provider organizations (PPO) and point-of-service (POS) plans for 2015 (7.9% to 7.8%). The data projects higher trend rates for all prescription drug benefit plan types.Read more >

Employee Value of Plan Linked to Employer Offering

An Investment Company Institute (ICI) study finds a clear link between the savings goals of employees and the likelihood that they work for an employer that sponsors a retirement plan. When asked the primary reason why they save, younger and lower-income households typically said they save to fund education, purchase a house, fund other purchases, or have emergency cash on hand, and are less likely to cite retirement as the primary reason. In contrast, older and higher-earning households are more likely to save primarily for retirement. Consistent with these savings preferences, groups of workers who are more focused on saving for retirement are also much more likely to work for an employer that offers a plan. ICI contends workers wanting to save for retirement seek out employers that offer plans, and likewise, employers offer plans if their workers will value the benefit.Read more >

Buyer's Market

Nancy G. Ross has joined global law firm Mayer Brown in Chicago as a partner in the employment and ERISA litigation practice. Ross focuses her practice primarily on employee benefits class action litigation and counseling under the Employee Retirement Income Security Act (ERISA). She has extensive experience in counseling and representing employers, boards of directors, plan fiduciaries and trustees in matters concerning pension and welfare benefit plans.Read more >

Industry Voices

Industry Voice: Building on Success – What’s Next?

Today, the retirement industry is taking steps—and getting results—that we would have never dreamed of 10 years ago. In fact, improved defined contribution (DC) plan designs are now commonly embraced; participation is steadily improving and retirement plan balances are up. How can we as an industry—investment managers, plan providers, employers, policymakers and even participants—continue to challenge conventional thinking? In 10 years, what innovations will we point to that provided additional improvements in retirement security?Read more >

Economic Events

Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9%. Employment increased in professional and business services, retail trade, and health care. THE ECONOMIC WEEK AHEAD: Thursday, the Labor Department will release its initial claims report, and we’ll learn about wholesale inventories for August from the Census Bureau.

Market Mirror

Friday, the Dow climbed 208.64 points (1.24%) to 17,009.69, the NASDAQ increased 45.43 points (1.03%) to 4,475.62, and the S&P 500 gained 21.73 points (1.12%) to finish at 1,967.90. The Russell 2000 was up 8.36 points (0.76%) to 1,104.74, and the Wilshire 5000 closed 215.07 points (1.05%) higher at 20,715.53. On the NYSE, 3.2 billion shares traded, and on the NASDAQ, 2.7 billion shares changed hands, with advancing issues outnumbering declining issues 2 to 1 on each exchange. The price of the 10-year Treasury bond was down 3/32, increasing its yield to 2.436%. The price of the 30-year Treasury note was up 11/32, decreasing its yield to 3.125%. WEEK’S WORTH: For the week ending October 3, the Dow was down 0.60%, the NASDAQ lost 0.81%, and the S&P 500 decreased 0.75%. The Russell 2000 fell 1.30%, and the Wilshire 5000 closed 0.67% lower.

Rules & Regulators

IRS Puts Out Updated Compliance Aids

The Internal Revenue Service (IRS) has announced updated Web pages, checklists and fix-it guides to aid employers in operating their plans and correcting mistakes. “A retirement plan needs regular care to keep it operating properly. Your plan’s care should include a regular review of your plan’s basic operations,” the IRS says. The agency offers one-page checklists for SIMPLE IRAs, SEPs, SARSEPs, 401(k) plans and 403(b) plans. Each checklist links to a Fix-It Guide with tips on how to find, fix and avoid each potential error. The agency announced the Fix-It Guides for SIMPLE IRA and 401(k) plans have been updated.Read more >

Financial Sense

The aggregate funded ratio for U.S. corporate defined benefit (DB) pension plans slipped to 85% for the month of September, according to Wilshire Consulting. The decrease in funding was the result of a greater decline in asset values versus a smaller decline in liability value.Read more >

After posting the lowest quarterly inflows in four years in Q1, exchange-traded funds (ETFs) attracted substantial new cash in the second quarter. Inflows to U.S.-domiciled ETFs (including exchange-traded notes [ETNs]) totaled $58.2 billion in Q2 2014. This is the highest figure since the last half of 2008, when, during the financial crisis, investors piled into the funds.Read more >

The World at Large

McDonald’s is leading by example in automatic enrollment efforts in the UK, just as it did in the U.S.Read more >

Small Talk

ON THIS DATE: In 1683, encouraged by William Penn’s offer of 5,000 acres of land in the colony of Pennsylvania and the freedom to practice their religion, the first Mennonites arrived in America aboard the Concord. They were among the first Germans to settle in the American colonies. In 1866, the Reno gang carried out the first robbery of a moving train in the U.S., making off with more than $10,000 from an Ohio & Mississippi train in Jackson County, Indiana. In 1926, Yankee slugger Babe Ruth hit a record three homers against the St. Louis Cardinals in the fourth game of the World Series. In 1961, President John F. Kennedy, speaking on civil defense, advised American families to build bomb shelters to protect them from atomic fallout in the event of a nuclear exchange with the Soviet Union. Kennedy also assured the public that the U.S. civil defense program would soon begin providing such protection for every American. In 1979, Pope John Paul II became the first pontiff to visit the White House.

SURVEY SAYS: Too Late for Retirement Saving?

Last week, I asked NewsDash readers if they think there is an age at which it is too late for individuals to start saving for retirement, and whether they have any tips for strategies late savers can use to try to “catch up” on retirement savings. Asked when they started saving for retirement, 39.6% of responding readers indicated they started saving for retirement between ages 18 and 25. More than 35% were ages 26 to 30; 8.3% were ages 31 to 35; 6.3% were 36 to 40; 6.3% were 41 to 45; and 4.2% were 46 to 50. Assuming an individual earns a “middle-class” income and wants to retire between the ages of 65 and 70, a large majority of respondents (81.3%) said it is never too late for an individual to start saving for retirement, even a small amount of savings can help. More than 4% of readers think age 35 is too late to start saving for retirement, while 2% said age 40 is. More than 4% selected age 45 as being too late to start saving for retirement, and 2% selected age 50. No one chose age 55, but 6.3% chose age 60. Most of the readers who shared tips for late savers to “catch up” their retirement savings focused on spending less, saving as much as possible, and possibly retiring later. Some shared tips unrelated to retirement saving, such as the one who said: “Find a ‘sugar momma’ or ‘sugar daddy’!” One of the ideas that stuck out to me was, “If you think it is ‘too late’ to start saving, then determine what your retirement income might be based on what you have, and try to live on that for several years before retirement (and save every penny you make over that amount).” In verbatim comments about saving for retirement at any age, readers shared more admonitions and tips, as well as ideas for avoiding the “too late” issue altogether, such as “teach high schoolers to save the second they get their first job” and “I think it would help if contributing to your 401(k) plan was mandatory, just like taxes.” Editor’s Choice goes to the reader who said: “I would never say it’s ‘too late,’ you should just give up. After all, what’s the alternative?” A big thank you to everyone who participated in our survey!Read more >

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