Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
September 15th, 2014
Benefit Briefs
Health Care Costs the Greatest Retirement Unknown
Respondents to a survey identified health as the most important factor for a happy retirement, and health care costs as their biggest concern, highlighting the need to consider health in retirement planning. Eighty-one percent of retirees in a study by Merrill Lynch, published in partnership with Age Wave, cite health as an important ingredient to a happy retirement, followed by financial security (58%), loving family and friends (36%), and having a feeling of purpose (20%). Among respondents ages 50 and older, the cost of health care in retirement was cited as their greatest financial concern, regardless of their wealth level. “The unpredictability of one’s health makes health care costs a very difficult, perhaps the most difficult, factor to plan for,” said Andy Sieg, head of global wealth and retirement solutions (GWRS) and a member of the Bank of America Operating Committee, during a media call. “On one hand, bad health can make someone have to leave the workforce too early and affect the ability to save, as well as cause a person to use up assets. On the other hand, good health may mean living longer and needing more assets on which to live.”Read more >
Youngest Workers Ripe for Financial Education
Biggest financial worries: unemployment, student loans, and whether Social Security will be adequate. Here comes Generation Z. Whatever the future holds, most Gen Zers say they plan to start a job, buy a car, pay off student debt, get married, buy a home, then begin saving for retirement—in that order. On average, Gen Z believe the right age to start saving for retirement is 27. According to the survey, only one in five Generation Z respondents say they are currently saving for retirement.Read more >
Some Participants Using RMD as Draw Down Guide
Some retirement plan participants think the required minimum distribution (RMD) is a good guide for an appropriate withdrawal rate in retirement, research suggests. Researchers at TIAA-CREF set out to determine the effect on participants of the RMD waiver allowed in 2009, but as they probed the issue, it created more questions, according to David Richardson, a Charlotte, North Carolina-based senior economist for the TIAA-CREF Institute. A 2012 study found that using the RMD as a retirement savings withdrawal strategy does almost as well as traditional withdrawal options and outperforms the 4% rule. But, Richardson tells PLANSPONSOR “under a certain very restrictive set of assumptions about mortality and return, the RMD can provide a good guide for a draw down strategy, but we would think almost no one would meet that restrictive criteria.” He says there are a number of risks of using the RMD as a guide to spending in retirement.Read more >
Buyer's Market
BlackRock shuttered several funds in its exchange-traded fund (ETF) line, including 10 target-date ETFs. While he calls the news disappointing, the closings in general won’t have much impact, according to Rusty Vanneman, chief investment officer of CLS Investments in Omaha, Nebraska, because in the defined contribution (DC) world, ETFs have not had a lot of traction. “Over mutual funds, in aggregate, they have lower costs,” Vanneman tells PLANSPONSOR, and this notable cost advantage might persist, especially as new smart or strategic beta ETFs come to market.Read more >
Industry Voices
Industry Voice: A Better Option Than Target-Date Funds
Target-date funds (TDFs), or lifecycle funds, have become the default, do-it-yourself investment option in retirement plans for people who do not know what else to do. In the 20 years since they first hit the market, they’ve become the fastest-growing products in the defined contribution market. The total amount of assets parked in TDFs reached $690 billion as of June 30—6% higher than a year ago, according to Morningstar. Total investor inflows into TDFs neared $15 billion in the second quarter, marking a 25% increase over their historical quarterly-average inflow of $12 billion. Despite their massive success, TDFs are horrible options for most people for myriad reasons.Read more >
Economic Events
The U.S. Census Bureau announced that the combined value of distributive trade sales and manufacturers’ shipments for July, adjusted for seasonal and trading-day differences but not for price changes, was estimated at $1,360.3 billion, up 0.8% from June and up 5.3% from July 2013. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,750.1 billion, up 0.4% from June and up 5.9% from July 2013. Advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $444.4 billion, an increase of 0.6% from the previous month, and 5.0% above August 2013. Retail trade sales were up 0.6% from July, and 4.8% above last year. Auto and other motor vehicle dealers were up 9.5% from August 2013 and health and personal care stores were up 8.1% from last year. THE ECONOMIC WEEK AHEAD: Tomorrow we’ll learn the Producer Price Index (PPI) for August, and Wednesday, we’ll learn the Consumer Price Index (CPI) for August from the Bureau of Labor Statistics. Thursday, the Labor Department will issue its initial claims report, and the Census Bureau will report about housing starts for August.
Market Mirror
Friday, the Dow was down 61.49 points (0.36%) at 16,987.51, the NASDAQ closed 24.21 points (0.53%) lower at 4,567.60, and the S&P 500 lost 11.91 points (0.60%) to finish at 1,985.54. The Russell 2000 fell 11.74 points (1.00%) to 1,160.61, and the Wilshire 5000 decreased 141.11 points (0.67%) to 21,041.43. On the NYSE, 3.2 billion shares changed hands, with declining issues outnumbering advancing issues nearly 4 to 1. On the NASDAQ, 2.8 billion shares traded, with a 2 to 1 lead for decliners. The price of the 10-year Treasury note decreased 16/32, increasing its yield to 2.611%. The price of the 30-year Treasury bond fell 1 9/32, bringing its yield up to 3.347%. WEEK’S WORTH: For the week ending September 12, the Dow finished 0.87% lower, the NASDAQ was down 0.33%, and the S&P 500 fell 1.10%. The Russell 2000 decreased 0.81%, and the Wilshire 5000 lost 1.08%.
Rules & Regulators
A number of states have moved to use their public retirement systems to offer retirement plans for private-sector workers. According to the Pension Rights Center, 17 states have initiated some action to do so.Read more >
IRS Releases Pension Funding Relief Guidance
The Internal Revenue Service (IRS) has released guidance relating to the defined benefit (DB) plan funding relief provided in legislation signed into law by President Obama on August 8. The Highway and Transportation Funding Act (HATFA) extends relief provided in the Moving Ahead for Progress in the 21st Century Act (MAP-21)—passed in 2012—which allowed defined benefit plans to discount future benefit payments to a present value using a 25-year average of bond rates rather than a two-year average.Read more >
Small Talk
ON THIS DATE: In 1857, William Howard Taft was born in Cincinnati, Ohio. In 1858, the new Overland Mail Company sent out its first two stages, inaugurating government mail service between the eastern and western regions of the nation. In 1928, Alexander Fleming discovered the antibiotic penicillin in the mold Penicillium notatum. In 1962, the Four Seasons earned their first No. 1 hit with “Sherry.” In 1963, a bomb exploded during Sunday morning services in the 16th Street Baptist Church in Birmingham, Alabama, killing four young girls. It was the third bombing in Birmingham in 11 days after a federal order came down to integrate Alabama’s school system. In 1978, boxer Muhammad Ali defeated Leon Spinks at the Louisiana Superdome in New Orleans to win the world heavyweight boxing title for the third time in his career, the first fighter ever to do so. In 1982, the first issue of “USA Today” was published.
SURVEY SAYS: When setting up last week’s SURVEY SAYS about information security and data breaches, I accidentally set up the wrong response permission to the question about which transactions respondents do online so that only one choice could be selected. I apologize to those who answered or wanted to answer last week’s survey. So, to get accurate responses, I am offering the survey again, and ask that you please respond again. Survey answers are anonymous. I’d like to know, what activities do you do online via your computer/laptop or mobile phone, and have you been the victim of a data breach? You may respond to this week’s survey by 6 p.m. Pacific time today. Responses will be revealed in Thursday’s NewsDash.Read more >
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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