Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
September 8th, 2014
Benefit Briefs
Employees Need Help Planning for Health Care Costs
An individual departing the workforce today will see out-of-pocket health care costs grow 7% annually throughout retirement, an analysis from J.P. Morgan suggests. While the rate of cost increases for health care shows signs of slowing, J.P. Morgan analysts say individuals retiring without an effective plan in place to meet growing health care costs could face serious financial hardship late in life. Increasing health care expenses are a challenge for participants in both defined contribution (DC) and defined benefit (DB) retirement plans, the analysis shows. DC participants without adequate savings can easily deplete their retirement accounts paying for health care, while those lucky enough to have a lifetime pension can see their income stream outpaced by ballooning expenses.
Industry Voices
Industry Voice: Do Pre-Approved Plan Adopters Need Counsel?
With ever-increasing law firm billing rates, it may be tempting to forego retaining an employee benefits attorney to review pre-approved plan documents along with the myriad of other materials from third-party administrators (TPAs) and other plan vendors. Adopting a TPA’s pre-approved document is a cost-effective way to curb certain plan expenses; however, the Employee Retirement Income Security Act of 1974 (ERISA), as amended, requires fiduciaries to be cognizant of potential conflicts while exercising oversight of plan operations. At the onset of a recordkeeper’s engagement, for example, there is mutual interest in demystifying the maze of recordkeeping operations in an effort to simplify plan administration. Although the relationship may remain amicable throughout the term of the agreement, the distinct roles and responsibilities of the employer and vendor inevitably lead to divergent (and sometimes conflicting) interests.
Economic Events
Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1%, the Bureau of Labor Statistics reported. Job gains occurred in professional and business services and in health care. THE ECONOMIC WEEK AHEAD: Wednesday, the Census Bureau will report about wholesale inventories for July. Thursday, the Labor Department will issue its initial claims report. Friday, the Census Bureau will report about retail sales for August and business inventories for July.
Market Mirror
Friday, the Dow was up 67.78 points (0.40%) at 17,137.36, the NASDAQ increased 20.61 points (0.45%) to 4,582.90, and the S&P 500 climbed 10.06 points (0.50%) to a new record of 2,007.71. The Russell 2000 closed 2.92 points (0.25%) higher at 1,170.13, and the Wilshire 5000 also reached an all-time high of 21,270.32, after gaining 100.34 points (0.47%). 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 1.2 to 1 ratio of advancers to decliners. The price of the 10-year Treasury note slipped 2/32, bringing its yield up to 2.459%. The price of the 30-year Treasury bond decreased 12/32, increasing its yield to 3.229%. WEEK’S WORTH: For the week ending September 5, the Dow gained 0.23%, the NASDAQ ticked up 0.06%, and the S&P 500 increased 0.22%. The Russell 2000 fell 0.36%, and the Wilshire 5000 finished 0.17% higher.
Rules & Regulators
EEOC Challenges Employer’s Wellness Program
The U.S. Equal Employment Opportunity Commission (EEOC) has filed its first lawsuit challenging an employer’s wellness program under the Americans with Disabilities Act (ADA). The EEOC charges in a lawsuit that Orion Energy Systems, based in Manitowoc, Wisconsin, violated federal law by requiring an employee to submit to medical exams and inquiries that were not job-related and consistent with business necessity as part of a so-called “wellness program,” which was not voluntary, and then by firing the employee when she objected to the program. The agency contends that when employee Wendy Schobert declined to participate in the program, Orion shifted responsibility for payment of the entire premium for her employee health benefits from Orion to Schobert. Shortly thereafter, Orion fired Schobert.
Berkshire Hathaway Sued Over Plan Design Changes
Participants of retirement plans sponsored by Acme Building Brands Inc., a subsidiary of Berkshire Hathaway Inc., have sued their employer over changes to benefits. Two present employees and one former employee filed the suit in the U.S. District Court for the Northern District of Texas challenging the firms’ decision to freeze accruals to Acme’s defined benefit plan and reduce the company matching contribution rate in its 401(k) plan. The plaintiffs contend that the acquisition agreement by which Berkshire Hathaway acquired Acme approximately 14 years ago requires Acme to permit participants to accrue additional defined benefits indefinitely, at the same rate that benefits were being accrued at the time of the acquisition, and to make additional 401(k) matches forever, at the same rate as the matches at the time of the acquisition.
Financial Sense
The estimated aggregate funding level of pension plans sponsored by S&P 1500 companies dropped by 1% during August to 84% funded, according to data from Mercer. Decreases in interest rates used to calculate corporate pension plan liabilities more than offset rising equity markets and led to the decline in funded status. The collective estimated deficit of $369 billion as of August 31 is up $29 billion from the estimated deficit of $340 billion measured at the end of July, and up $133 billion from the beginning of the year, Mercer estimates.
Mortality Tables Impact Depends on Plan Demographics
Goldman Sachs Asset Management’s conversations with actuaries and clients indicate many defined benefit (DB) plans could expect an increase in liabilities of between 5% and 10% if proposed mortality tables are put into effect. In a research article, “Challenging First Half of the Year for Corporate DB Plans,” Michael Moran, senior pension strategist at Goldman Sachs Asset Management in New York City, says any actual increase to an employer’s pension plan obligations as a result of mortality table changes will be heavily dependent upon the specific demographics of its plan participants. “The increases in life spans are not evenly distributed,” Moran tells PLANSPONSOR. “That is, we’re not all living longer at the same rate.”
The World at Large
Employee retirement guidance must point people towards independent financial advice if they want it, according to Pensions Advisory Service (TPAS), a UK firm responsible for providing such information.
Beer maker Heineken has maintained an automatic enrollment opt-out rate of just 2% by reminding members about what they are giving up by opting out.
Small Talk
ON THIS DATE:  In 1664, Dutch Governor Peter Stuyvesant surrendered New Amsterdam, the capital of New Netherland, to an English naval squadron under Colonel Richard Nicolls. Following its capture, New Amsterdam’s name was changed to New York, in honor of the Duke of York, who organized the mission. In 1945, Bess Myerson of New York was crowned Miss America. She was the first Jewish contestant to win the title. In 1966, NBC-TV aired the first episode of “Star Trek” entitled “The Man Trap.” In 1974, in a controversial executive action, President Gerald Ford pardoned his disgraced predecessor Richard Nixon for any crimes he may have committed or participated in while in office.
SURVEY SAYS: Manners at Work Last week, I asked NewsDash readers, what breach of good manners irritates you the most at work? And, do you mind YOUR manners at work? The most irritating rude behavior, according to 11.86% of responding readers is texting during a meeting or emailing or texting during a call, followed by being late for a meeting or call and interrupting a coworker who is speaking, each chosen by 11.02% of respondents. Leaving a mess in the kitchen or break room was chosen as the most irritating breach of good manners by 6.78%, while missing a meeting or call without letting others know, using bad language or telling an offensive joke and leaving a paper jam in the copier or using all the paper without replacing were all three selected by 5.93%. Interestingly, when asked which rude things they do at work, most readers admitted to doing the very things that most irritated them. Nearly 30% admitted to being late for a meeting or call, and 27.18% each confessed they text during meetings or email or text during calls. They say confession is good for the soul, and several verbatim respondents said the survey showed them they could have better manners at work: “Hanging my head in shame. Thanks for the wake-up call, PLANSPONSOR Survey.” Many took the opportunity to expand on their irritation with certain behaviors (I didn’t realize cutting fingernails, and even toenails, at the workplace was common). One reader advised people “to think how their Mom would respond if she was in the room at the time.” Editor’s Choice goes to the reader who said: “Just saying a courtesy spray in the restroom is always appreciated”—and I would add, or a courtesy flush. Thanks to everyone who responded to our survey!
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