Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
September 25th, 2014
Benefit Briefs
Employers Need to Understand ACA Excise Tax
The time employers have to manage costs of their health programs to avoid an excise tax in 2018 is getting shorter, and Towers Watson warns many may be unaware of all the factors that go into determining the tax. Implemented as part of the Patient Protection and Affordable Care Act (ACA), the excise or “Cadillac” tax is a 40% tax assessed on the value of all affected health care programs a participant elects that exceed certain dollar cost thresholds in 2018 ($10,200 single / $27,500 family) and beyond. The tax is non-deductible, and the Congressional Budget Office (CBO) estimates the total liability for companies subject to the tax could be a cumulative $79 billion between 2018 and 2023. “Even with conservative projections, the impact of the excise tax on employers is substantial, yet it is often not fully understood,” says Trevis Parson, chief health actuary for Towers Watson. “Each company will need to look at the tax carefully based on its own programs, and we expect a great deal of variation by industry.”Read more >
Investors Say Caution with Stocks Is Wise
Investors deem caution towards the stock market as wise, and Social Security is key to retirement confidence, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. A new Wells Fargo/Gallup question this quarter asked investors whether they think caution toward investing in the stock market is “wise because it protects people from possible market losses,” or “unwise because it prevents people from realizing significant market gains.” Sixty percent of all investors say such caution is “wise” in this respect, while 37% call it “unwise.” In the poll, 68% of investors say they “actively choose stocks for their long-term investment accounts,” but almost one-third (29%), say they “consciously avoid stocks in long-term investment accounts.”Read more >
Panelists at the recent PLANADVISER National Conference suggested that many fee questions, especially those related to share classes and revenue sharing, come with considerable complexity and controversy. On the recordkeeping side, said Scott Liggett, director of Employee Retirement Income Security Act (ERISA) oversight at Lawing Financial Inc./Qualified Plan Advisors, it is easy for the lines to blur when using an ERISA account or ERISA bucket. He explains that recordkeepers can give revenue-sharing payments back to whoever generated the revenue, thereby helping to offset some of the subsidizing effect that occurs when some participants invest only in Vanguard funds (which typically have no fees beyond basic operating expenses), and others have some of their assets in different types of funds. Revenue equalization could be one answer, Liggett said.Read more >
HR Has Room to Improve on Answering Benefits Questions
Employees and human resources (HR) staff have different perceptions of the resources in benefits information their firms offer. Findings from several studies from ADP Research Institute show employees rank the value of their compensation and benefits less favorably than HR or management does. Forty-six percent of U.S. employees gave compensation and benefits four or five out of five stars on a rating scale, while 52% of HR and senior leadership did so. HR and senior leadership are also significantly more satisfied than their employees with the process of how employees get answers to HR and benefits questions.Read more >
Buyer's Market
Kenneth Powell has joined the human resources (HR) and benefits solutions firm Ascende as a compliance consultant. Powell’s role is to provide guidance on employee benefits, human resources, employment law and mergers and acquisitions issues to Ascende clients. The firm says it hopes to leverage his expertise in Employee Retirement Income Security Act (ERISA) compliance and other employee benefit plan governance issues.Read more >
Kris Krikorian joined Pentegra Retirement Services as a regional director for qualified plan sales. Krikorian says he was drawn to Pentegra’s “unique positioning with 3(16) fiduciary and multiple employer plan [MEP] solutions,” adding that fiduciary services continue to be a significant offering in the retirement planning marketplace today.Read more >
Economic Events
Sales of new single-family houses in August were at a seasonally adjusted annual rate of 504,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 18.0% above the revised July rate of 427,000 and is 33.0% above the August 2013 estimate of 379,000.
Market Mirror
The Dow bounced back 154.19 points (0.90%) Wednesday to 17,210.06. The NASDAQ climbed 46.53 points (1.03%) to 4,555.22, and the S&P 500 closed 15.53 points (0.78%) higher at 1,998.30. The Russell 2000 was up 9.68 points (0.86%) at 1,128.39, and the Wilshire 5000 gained 161.17 points (0.77%) to finish at 21,038.17.   On the NYSE, 3.2 billion shares changed hands, with 1.5 advancing issues for every declining issue. On the NASDAQ, 2.7 billion shares traded, with a near 2 to 1 lead for advancers.   The price of the 10-year Treasury note decreased 11/32, increasing its yield to 2.565%. The price of the 30-year Treasury bond fell 19/32, bringing its yield up to 3.278%.
Rules & Regulators
Hybrid Plan Rules Allow Sponsors to Choose Risk Levels
Sponsors of hybrid retirement plans for employees now have clarity about how to credit interest to these plans. “In my view, these rules allow employers to dial up or down the risk they want to take in offering employees a pension plan and avoid or reduce some of the risk they would have with traditional defined benefit [DB] plans without putting all the risk on employees,” Jim McHale, a principal in PwC’s retirement practice, tells PLANSPONSOR. “Plan sponsors can now design a plan where liabilities and assets move in tandem.”Read more >
The Pension Benefit Guaranty Corp. (PBGC) will pay retirement benefits for nearly 2,000 current and future retirees of James River Coal Company. PBGC is stepping in because the mining operation, based in Richmond, Virginia, sold the majority of its assets in bankruptcy and the buyer is not assuming the pension plan.Read more >
Finance
Real Assets Can Preserve Purchasing Power for Retirees
It has been a while since inflation in the U.S. was a front-of-mind issue. Monthly readings in the Consumer Price Index (CPI) have generally come in below 2% since the global financial crisis and consistently under 4% for over 20 years. But not that long ago, the purchasing power of U.S. retirement portfolios sustained severe damage from a long course of sharp inflation, and defined contribution (DC) plan sponsors should be aware of that history, and the available countermeasures, lest their participants have to repeat it.Read more >
Small Talk
ON THIS DATE:  In 1789, the first Congress of the United States approved 12 amendments to the U.S. Constitution and sent them to the states for ratification. Ten of the amendments became the Bill of Rights, designed to protect the basic rights of U.S. citizens, guaranteeing the freedom of speech, press, assembly, and exercise of religion; the rights to fair legal procedure and to bear arms; and that powers not delegated to the federal government were reserved for the states and the people. In 1890, the Sequoia National Park was established as a U.S. National Park in Central California. In 1957, under escort from the U.S. Army’s 101st Airborne Division, nine black students entered the previously all-white Central High School in Little Rock, Arkansas. In 1970, The Partridge Family premiered on ABC television. In 1981, Sandra Day O’Connor became the first female U.S. Supreme Court justice in history when she was sworn in by Chief Justice Warren Burger.
SURVEY SAYS: Fall is here, and the weather will only get cooler, which seems to bring with it more colds and cases of the flu. This week, I’d like to know if you feel there should be a workplace policy against employees coming to the office sick, and whether your employer offers flu shots at the workplace. You may respond to this survey by 6 p.m. Pacific time today.Read more >
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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