Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
September 4th, 2014
Benefit Briefs
Teamwork Between Finance and HR Creates a Win-Win
It has been said that the human resources (HR) department looks after the people, and the finance department looks after the money. However, in the world of retirement plans, those duties go hand in hard. So, how can the two departments sit on the same retirement committee and work for the same goals without butting heads?
Ask the Experts: Different Investment Policies for DB and DC Plans
“I serve as chair of the investment committee for a large health care entity, and we oversee the defined benefit (DB) pension and defined contribution (DC) 403(b) plans that we sponsor. The investment policies and due diligence monitoring processes for each plan are quite different. Since both are retirement plans to which the hospital contributes, shouldn’t the policies and procedures be uniform?”
Buyer's Market
Great-West Sees Opportunity to Cover Retirement in America
Great-West Financial has completed its acquisition of the J.P. Morgan Retirement Plan Services large-market recordkeeping business. The firm now has recordkeeping assets totaling $387 billion and a participant base of 6.8 million, making it second only to Fidelity Investments in both categories in the defined contribution (DC) recordkeeping business, according to the most recent PLANSPONSOR Recordkeeping Survey. Earlier in the year, Great-West Lifeco announced it was combining subsidiary Putnam Investments’ retirement plan business with Great-West Financial’s. Robert L. Reynolds, president and chief executive officer at Great-West Financial in Greenwood Village, Colorado, tells PLANSPONSOR, “This was a business opportunity to cover retirement in America.” He notes that the combined company will serve retirement plans of large and small corporate companies, 403(b)s of nonprofit organizations and 457 plans of government entities. “Our strategy is to segment the business because these segments have different needs, but maintain for all a very high level of service quality and have the same participant and plan sponsor interface tools across the business,” he says.
Thomson Reuters launched a suite of indices to measure the performance of European companies with superior ratings for environmental, social and corporate governance (ESG) practices. The Europe indices are one part of the global family of Thomson Reuters Corporate Responsibility Indices (CRI) that provide a comprehensive, objective and transparent rules-based benchmarking solution for measuring global ESG performance, the firm says.
Pentegra Promotes ‘Automatic’ Plan Design Features
Pentegra Retirement Services introduced the “Pentegra SmartPath,” a new brochure which details recommended progressive 401(k) plan design best practices. Pentegra says automatic plan features help sponsors better meet the needs of plan participants and drive more successful outcomes overall. The “Pentegra SmartPath” offers plan sponsors a guide to implementing these 401(k) plan design features, which can include automatic enrollment, automatic escalation of salary deferrals, automatic portfolio rebalancing and utilization of qualified default investment vehicles.
Industry Voices
Industry Voice: Considerations When Selecting Investment Managers
Today’s financial environment is often plagued by hidden, complicated fees and fine print, and investors should be keenly aware of the critical questions to ask throughout their pension investment management process. There are many factors to consider when selecting the right asset manager; however, two of the most important relate to its track record and benchmark selection.
Economic Events
New orders for manufactured goods in July, up five of the last six months, increased $53.1 billion or 10.5% to $558.3 billion, the U.S. Census Bureau reported. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 1.5% June increase. Excluding transportation, new orders decreased 0.8%. Shipments, up five of the last six months, increased $6.0 billion or 1.2% to $507.4 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 0.8% June increase. Inventories, up twenty of the last twenty-one months, increased $0.9 billion or 0.1% to $653.8 billion. This was also at the highest level since the series was first published on a NAICS basis and followed a 0.2% June increase.
Market Mirror
Wednesday, the Dow ticked up 10.72 points (0.06%) to 17,178.28, the NASDAQ fell 25.62 points (0.56%) to 4,572.57, and the S&P 500 decreased by 1.56 (0.08%) to 2,000.72. The Russell 2000 lost 7.27 points (0.62%) to finish at 1,172.20, and the Wilshire 5000 closed 31.25 points (0.15%) lower at 21,213.18. On the NYSE, 3.2 billion shares changed hands, with a slight lead for decliners. On the NASDAQ, 2.8 billion shares traded, with 1.8 declining issues for every advancing issue. The price of the 10-year Treasury note was up 8/32, bringing its yield down to 2.396%. The price of the 30-year Treasury bond increased 22/32, decreasing its yield to 3.140%.
Rules & Regulators
Complying with ESOP Diversification Requirements
The rule for who is eligible to diversify company stock holdings in a retirement plan is simple, but examining the criteria for eligibility can be complicated, says a white paper from the Principal Financial Group. Every year, an employee stock ownership plan (ESOP) must offer eligible participants a chance to diversify, or sell off some of the stock. A qualified participant is an employee age 55 who has completed at least 10 years of participation in the ESOP, or who has met other requirements. Overall, plans with an ESOP are in the minority (4%), but that percentage grows with the size of plan assets. According to PLANSPONSOR’s 2014 Plan Benchmarking Report, about 13% of plans with more than $1 billion in assets offer an ESOP. “ESOP Diversification Requirements,” a white paper from the Principal Financial Group, gives an overview of eligibility and what is required of plan sponsors.
Financial Sense
The aggregate funded ratio for U.S. corporate pension plans fell to 85.5% for the month of August 2014, according to Wilshire Consulting. The decrease in funding was the result of lower corporate bond yields increasing the liability value versus a smaller increase in the asset value. “We estimate that overall, the asset value increased by 2.2% due to positive returns for most asset classes, while the liability value increased by 2.9% during the month,” says Jeff Leonard, managing director, Wilshire Associates, and head of the Actuarial Services Group of Wilshire Consulting.
The World at Large
A report from the Pensions Policy Institute (PPI) in the UK reveals even if people contribute 8% of their earnings under auto-enrollment, they would have only a 59% chance of achieving their target replacement income in retirement, even if they started saving at 22 and retired at 67. The percentage falls to 49% if they retire at 65, 34% if they take a career break and just 5% if they start saving at age 40. In order to counter the problem, the PPI proposes employers be encouraged or even required to offer matching contributions.
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Small Talk
ON THIS DATE:  In 1882, Thomas Edison’s Pearl Street electric power station began operations in New York City. It was the first display of a practical electrical lighting system. In 1886, Apache chief Geronimo surrendered to U.S. government troops, making him the last Indian warrior to formally give in to U.S. forces and signaling the end of the Indian Wars in the Southwest. In 1888, George Eastman registered the name “Kodak” and patented his roll-film camera. The camera took 100 exposures per roll. In 1951, President Harry S. Truman’s opening speech before a conference in San Francisco was broadcast across the nation, marking the first time a television program was broadcast from coast to coast. In 1957, the Ford Motor Company unveiled the Edsel, the first new automobile brand produced by one of the Big Three car companies since 1938. (Although many people call it the “Ford Edsel,” in fact Edsel was a division all its own, like Lincoln or Mercury.) Thirteen hundred independent Edsel dealers offered four models for sale: the smaller Pacer and Ranger and the larger Citation and Corsair. In 1967, “Gilligan’s Island” aired for the last time on CBS-TV. It ran for 98 shows. In 1971, “The Lawrence Welk Show” was seen for the last time on ABC-TV. In 1972, U.S. swimmer Mark Spitz won his seventh gold medal at the 1972 Summer Olympics in Munich. At the time, no other athlete had won so many gold medals at a single Olympiad. In 1982, Frank Zappa earned his first and only top-40 hit with the satirical record “Valley Girl,” conceived by and featuring the voice of his 14-year-old daughter, Moon Unit.
SURVEY SAYS: We covered a survey this week in which 85% of respondents said being courteous to coworkers has an impact on a person’s career prospects. The survey included a ranking of breaches of workplace etiquette, but it was a slim list. This week, I’d like to know, from a much longer list, what breach of good manners irritates you the most at work? And, do you mind your manners at work? You may respond to this week’s survey by 6 p.m. Pacific time today.
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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