Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
September 19th, 2014
Benefit Briefs
Evolving Practices in Investment Lineup Construction
To let them choose or not to let them choose; that is the plan sponsor’s dilemma. Linda Sandersen, investment consultant and partner at Bellwether Consulting, says plan sponsors fall anywhere on the continuum between “Should we protect participants from bad outcomes and ensure they have assets for retirement?” and “Should we give participants investment choice, let them make their own decisions, and let them live with the outcomes of what they choose?” Sandersen told attendees of the 2014 Plan Sponsor Council of America (PSCA) annual conference that what drives plan sponsors’ decisions about what to include in their defined contribution (DC) plan investment lineups includes factors such as how savvy participants are as investors, corporate culture, participant demographics, individual investment or plan committee member bias, regulations and fiduciary responsibility, product development, and new trends and innovations. “There is no one right answer; investment lineup is something that is specific to the plan sponsor and its circumstances,” she said.Read more >
When to Expect Contribution Limit Information
“Already attempting to plan for 2015. Do we know when the new retirement plan contribution limits will be announced?”Read more >
Buyer's Market
Morningstar Introduces Strategic Beta Classification System
Morningstar Inc. introduced the industry’s first strategic beta exchange-traded product (ETP) classification system, to help investors better identify, compare and analyze strategic beta investment products. The company also published “A Global Guide to Strategic Beta Exchange-Traded Products,” its first global landscape report about strategic beta ETPs. Morningstar defines strategic beta as a class of investment products that track indexes that seek to either improve performance or alter the level of risk relative to a standard benchmark, representing a fast-growing middle ground of the active-to-passive spectrum. More institutional investors are using strategic or smart beta ETFs, many in an effort to reduce portfolio volatility.Read more >
Industry Voice
Just out of Reish: 401(k) Freeloaders
I am concerned that plan sponsors are taking a risk in how they pay for their plans. Many 401(k) plans use revenue sharing to pay for their operations. For example, revenue sharing paid by a plan’s mutual funds often covers the cost of the recordkeeper/provider and sometimes the cost of the consultant/adviser. Since there is no such thing as a free lunch, the mutual funds that pay revenue sharing usually have higher expenses. In other words, the money that pays plan costs comes from somewhere, and that “somewhere” is the participants who invest in those mutual funds. If all of the mutual funds pay revenue sharing, and if they all pay approximately the same amounts, fiduciaries can take the view that participants are being treated relatively fairly. However, that conclusion gets dicey when some pay revenue sharing and others do not, or when the payments are materially different.Read more >
Economic Events
In the week ending September 13, the advance figure for seasonally adjusted initial claims for unemployment insurance was 280,000, a decrease of 36,000 from the previous week’s revised level, the Labor Department reported. The previous week’s level was revised up by 1,000 from 315,000 to 316,000. The four-week moving average was 299,500, a decrease of 4,750 from the previous week’s revised average. The previous week’s average was revised up by 250 from 304,000 to 304,250. Privately-owned housing starts in August were at a seasonally adjusted annual rate of 956,000, the Census Bureau announced. This is 14.4% below the revised July estimate of 1,117,000, but is 8.0% above the August 2013 rate of 885,000. Single-family housing starts in August were at a rate of 643,000; this is 2.4% below the revised July figure of 659,000. The August rate for units in buildings with five units or more was 304,000. The average interest rate for a 30-year fixed-rate mortgage is 4.23%, up from 4.12% one week ago, according to Freddie Mac. The average interest rate for a 15-year fixed-rate mortgage is 3.37%, up from 3.26%.
Market Mirror
Thursday, the Dow climbed 109.14 points (0.64%) to 17,265.99, the NASDAQ gained 31.24 points (0.68%) to finish at 4,593.43, and the S&P 500 increased 9.79 points (0.49%) to 2,011.36. The Russell 2000 closed 5.38 points (0.47%) higher at 1,159.27, and the Wilshire 5000 was up 93.29 points (0.44%) at 21,254.01. On the NYSE, 3.2 billion shares changed hands, with 1.6 advancing issues for every declining issue. On the NASDAQ, 2.8 billion shares traded, with a 1.5 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note decreased 6/32, bringing its yield up to 2.639%. The price of the 30-year Treasury bond was down 4/32, increasing its yield to 3.356%.
Rules & Regulators
Saxon Angle: Ruling on ESOP Prudence
The Supreme Court of the U.S. (SCOTUS) handed down its decision in Fifth Third Bancorp v. Dudenhoeffer, concluding that Employee Retirement Income Security Act (ERISA) fiduciaries are not entitled to a presumption of prudence when investing in employer stock. While it struck the presumption entirely, the court provided new and potentially useful guidance regarding the duties of plan fiduciaries, particularly fiduciaries of publicly traded companies.Read more >
Expect Some Tax Reform Effect on Retirement Plans
“If Congress enacts tax reform, pensions and savings laws will be modified,” contends Russell W. Sullivan, senior adviser, Federal Public Affairs, McGuireWoods Consulting. Sullivan explained to attendees of the 2014 Plan Sponsor Council of America (PSCA) Annual Conference that the main drivers of tax reform are in place. And, according to the Joint Committee on Taxation, benefits and retirement plans account for four of the top 10 exclusions. “So, it’s likely tax reform will affect employee benefits,” he said.Read more >
Small Talk
ON THIS DATE: In 1876, Melville R. Bissell patented the carpet sweeper. In 1881, 80 days after a failed office seeker shot him in Washington, D.C., President James A. Garfield died of complications from his wounds. In 1970, “The Mary Tyler Moore Show” premiered on CBS-TV. In 1995, a manifesto by the Unabomber, an anti-technology terrorist, was published by The New York Times and Washington Post in the hope that someone would recognize the person who, for 17 years, had been sending homemade bombs through the mail that had killed and maimed innocent people around the United States. After reading the manifesto, David Kaczynski linked the writing style to that of his older brother Ted, who was later convicted of the attacks and sentenced to life in prison without parole. All told, the Unabomber was responsible for murdering three people and injuring another 23.   And now it’s time for an abbreviated version of FRIDAY FILES!
You’re friends are holding it, man, go ahead and jump. They got it, go ahead and… ooops.Read more >
What a professional! A creature lands on this flautist’s head and she doesn’t miss a tune.Read more >
Ever wondered how deodorants and antiperspirants work?Read more >
In the second round of the 2014 TOUR Championship by Coca-Cola, Rory McIlroy’s tee shot went left into the trees and somehow landed in the pocket of a spectator.Read more >
Have a wonderful weekend!
Share the good news with a friend! Pass the Dash along – and tell your friends/associates they can sign up for their own copy.Read more >
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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