Headlines about "Ret plan investments - misc"
Gathered from the web by the editors at BenefitsLink.com.
Factsheet on Current U.S. Retirement Account Balances
Excerpt: "The retirement savings of American households took a big hit when the stock market crashed in 2008. Recently, however, a good portion of these losses has been reversed. This fact sheet follows trends in retirement account balances since the beginning of 2005." (Urban Institute)
Benefit Plan Protection: What Insurance Policies Are Needed?
Excerpt: "Experience has shown that benefit plans can face a wide range of potential legal claims and that comprehensive protection requires more than one type of insurance coverage. This publication discusses some common claims involving three insurance policies that can protect benefit plans, their trustees, fund office staff and, by endorsement, agreed-upon people or entities: fidelity bonds, fiduciary liability insurance and employment practice liability insurance." (Segal Company)
Pension Finance Update, November 2009
Excerpt: "In our monthly pension finance update, we review changes in market-driven assets and liabilities during the month of October. While both asset levels and discount rates generally fell during the month, funded ratios for many plans will be very similar to those that they experienced at December 31, 2008." (JPMorgan)
Target Date Retirement Funds: Lack of Clarity Among Structures and Fees Raises Concerns (PDF)
21 pages, dated October 2009; summary of the committee's research. (U.S. Senate Special Committee on Aging:)
House Financial Services Committee Approves Investor Protection Act
Excerpt: "[On November 4, 2009,] the House Financial Services Committee passed H.R. 3817, the Investor Protection Act, by a vote of 41-28. The legislation is part of a broader effort to modernize America's financial regulatory system and was introduced by Rep. Paul E. Kanjorski (D-PA), Chairman of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises." (U.S. House of Representatives, Financial Services Committee)
SEC to Firms: Cut the Mind-Numbing Disclosures
Excerpt: "The SEC expects to soon start reviewing disclosure requirements for quarterly and annual filings. The agency wants to figure out what information should be omitted and what needs to be added. . . . " (Business Insurance)
[Guidance Overview] Defined Benefit Plan Funding Relief Bill Introduced; Implications for Plan Sponsors
Excerpt: "Congressmen Pomeroy (D-ND) and Tiberi (R-OH) have introduced the Preserve Benefit and Jobs Act of 2009, a bill implementing many of the defined benefit plan funding relief proposals being advocated by sponsor and participant groups. In this article we review the bill and its implications for plan sponsors." (J.P. Morgan)
[Guidance Overview] Broker-Dealers and Other Non-Fiduciaries as Fiduciaries? (Part 2)
Excerpt: "The ultimate outcome of the great wrestling match among the executive and legislative branches of the federal government, and various powerful financial services interest groups as to whether broker-dealers will be turned into fiduciaries and, if so, what kind of fiduciary standard they will have to live up to is not yet known, of course. Given that, many of the registered representatives who believe that they already are fiduciaries to their clients cannot be blamed for perhaps feeling as though they're in a state of suspended animation." (Morningstar Advisor)
[Guidance Overview] Court Says Participant in Overfunded DB Plan Has No Standing to Sue for Fiduciary Breach
Excerpt: "According to the opinion, all parties agreed that at the time [the plaintiff] filed his complaint, and at all times from 2001 to 2006, the plan was 'substantially overfunded,' according to actuarial valuation reports of the plan's assets and liabilities. The parties also agreed that plan never failed to pay benefits owed to participants or beneficiaries, and that AEGON had no intention to terminate the plan." (PLANSPONSOR)
House Committee Passes Investor Protection Act
Excerpt: "Among the bill's provisions is what the news release called a 'harmonized standard' for fiduciary responsibilities of broker-dealers and investment advisers. The bill also doubles the SEC's funding over five years and provides new enforcement power and regulatory authority." (PLANSPONSOR)
[Opinion] Testimony of Morningstar Director of Research: Five Concerns About Target-Date Mutual Funds
Excerpt: "[T]here are certain concerns, given the extraordinary position that target-date funds now occupy as the default investment of choice for America's New Retirement Model. These concerns include:* Variation in fees; * The use of proprietary (in-house) funds; * Lack of manager ownership; * Variation in glide paths among the shorter-dated funds; * Lack of transparency" (Morningstar)
Will The Supreme Court Protect Your Money from Excessie Mutual Fund Fees?
Excerpt: "Jones v. Harris Associates concerns the management fees mutual fund advisers charge the funds. If you have any mutual fund investments, whether in investment accounts or your 401(k), a percentage of your money is siphoned off every year by the company managing those funds." (Washington Post; free registration required)
[Guidance Overview] Senate Hearing Considers 401(k) Target-Date Fund Concerns, More Regulation
Excerpt: "Concerns about 401(k) target-date funds aired in a Senate Special Committee on Aging hearing and report raise the prospect of greater regulation. Hearing witnesses praised the funds as an important savings option but reiterated some issues noted in the report, such as wide differences in asset allocations among funds with the same target date, provider fees and potential conflicts of interest. The Department of Labor is working with the SEC to assess the need for more guidance and may revisit rules for qualified default investment alternatives to ensure 'meaningful disclosure.'" (Mercer)
Supreme Court Considers Mutual Fund Fees
Excerpt: "In an era of rebellion against Wall Street pay, the Supreme Court on Monday hears arguments in a case testing whether some mutual funds are charging excessive fees. Ninety million Americans invest in retail mutual funds. The fees charged by these funds, while they may sound small percentage-wise, add up to big money." (National Public Radio)
In Quarterly 401(k) Statements, Time Heals Everything
Excerpt: "Investors may think that the market has improved tremendously over just the last few weeks. It hasn't. It's just that by the end of October, the market was more than a year beyond the stock market swoon that followed the collapse of Lehman Brothers. During the worst of the 2008 panic, from the start of last September through Oct. 10, the market lost nearly a third of its value." (New York Times; free registration required)
TIPS and the Nature of Inflation Protection
Excerpt: "This research note serves as a reminder that the total return on a TIPS fund is a function of both actual trailing inflation and the bond market's expectation regarding future inflation. To help investors assess the role of TIPS in a broader portfolio, we briefly review the nature of the inflation protection provided by a TIPS fund. We also frame a discussion about an appropriate allocation to TIPS in a broader taxable bond portfolio by summarizing the relative market capitalization of the TIPS market." (Vanguard)
Ways and Means Committee Holds Hearing on DB Plan Funding and Investment Advice
Excerpt: "On Oct. 1, 2009, two panels testified before the House Committee on Ways and Means on retirement-related matters. The first focused on, and lobbied for, defined benefit (DB) pension funding relief. The six panelists, including Watson Wyatts director of Retirement Research, Mark Warshawsky, Ph.D., provided a wide range of experience and expertise. While it was universally accepted that pension relief is necessary, panelists disagreed about its form and who should receive it. Some advocated temporary relief from certain provisions of the Pension Protection Act of 2006 (PPA), while others argued for permanent changes to the law. The second panel focused on investment advice provided to defined contribution (DC) participants, specifically who can give investment advice to employees and how it should be provided." (Watson Wyatt Worldwide)
SEC Will Begin to Scrutinize Risks Related to Retirement Investment Products
Excerpt: "The Securities and Exchange Commission will begin scrutinizing products related to retirement investing. 'Issues related to disclosure, product development and marketing for retirement products will be areas of focus in the coming year at the SEC,' Securities and Exchange Commission Chairman Mary Schapiro said at the Securities Industry and Financial Markets Association's annual meeting in New York on Tuesday, October 27. Responsibility for identifying potential risks related to investing in those products will fall primarily on the SEC's newly formed division of risk, strategy and financial innovation. That unit, which was formed last month, combined the agency's office of economic analysis and its risk assessment division." (Workforce Management; free registration required)
Hearing: Default Nation: Are 401(k) Target Date Funds Missing The Mark?
Held October 28, 2009. Excerpt: "The Aging Committee has also continued with our own investigation of target date funds and it seems the more we learn, the more concerns we have. This afternoon we will discuss three key problems. First, there is a lack of transparency and consistency in the design of target date funds. Second, many funds charge excessive fees,eroding the value of a worker's assets over time. And third, fund managers have a conflict of interest in constructing target date funds and must resist the temptation to put their bottom line above the interests of the participants. Today the Committee is releasing a report detailing each of these issues and their impact on retirement savings." (U.S. Senate Special Committee on Aging)
[Guidance Overview] Foreign Bank Account Reporting for Employee Benefit Plan Investments (PDF)
5 pages. Excerpt: "[I]t is difficult to say what the FBAR filing requirement will look like in the future. However, the retirement plan community is working with the IRS to lessen the burden on plans, and we have already begun to see signs of progress. Specifically, the IRS recently requested comments on the current FBAR form and instructions and indicated that the Treasury is considering issuing FBAR-related regulations. This is an extremely positive development that will, we hope, result in much-needed clarification regarding the filing obligation of U.S. persons with a financial interest in or signature or other authority over a plan's foreign financial account. In particular, it provides theTreasury the opportunity to exempt retirement plans from the FBAR filing requirement or, at the very least, to limit the substantial burden the requirement places on plans and plan fiduciaries." (ABA Trust & Investments via Groom Law Group)
Senate Panel Assesses Risks of Lifecycle Mutual Funds
Excerpt: "The Senate Special Committee on Aging, in a hearing on Wednesday, highlighted some of the risks and potential conflicts of interest in target-date mutual funds. . . . For the big fund companies that also run 401(k) plans, these funds are the gift that keeps on giving. Firms such as Fidelity, Vanguard and T. Rowe Price typically offer employers target-date funds that are made up exclusively of their own proprietary mutual funds. While they might not charge extra to manage the target-date fund, they do collect fees on all the underlying funds, ensuring themselves a stream of income for decades. For a fund company, 'it's the easiest money to get and the hardest money to lose,' says John Rekenthaler, vice president of research with Morningstar." (San Francisco Chronicle)
Investment Regulations and Defined Contribution Pensions
Excerpt: "This paper assesses the impact of different quantitative approaches to regulate investment risk on the retirement income stemming from defined contribution (DC) pension plans. It looks at how such regulations affect the spectrum of investment policies available and, through this channel, how they affect the retirement income that an individual may expect from a DC pension plan. The analysis shows that there is a trade-off between potential retirement income and protection from bad outcomes. Reducing the downside risk on retirement income from DC pension plans requires moving into relatively conservative investment policies where the share of assets allocated to bonds may be quite large. However, this comes at the cost of renouncing potentially higher replacement rates that are attainable but at a higher risk of unfavourable retirement income outcomes. Less risk adverse regulators and supervisors would aim at lower probability requirements as regard the downside risk, which will increase the range of investment policies available and thus the share of riskier assets." (Social Science Research Network)
Automatic Annuitization: New Behavioral Strategies for Expanding Lifetime Income in 401(k)s (PDF)
24 pages. Published July 2009. Excerpt: "Each of the 'automatic' or default strategies outlined here -- including acquiring lifetime income incrementally through the use of employer contributions or embedding adeferred annuity in a QDIA, as well as the Gale-Iwry-John-Walker (2008)automatic trial income proposal -- is designed to draw on experience andinsights from behavioral economics to help replicate, within the 401(k), one of the valued features of the traditional defined benefit pension. That feature is guaranteed lifetime income at group rates (combined, in most cases, with professional investment management)." (The Retirement Security Project)
Target-Date Fund Practices Targeted in Senate Hearing
Excerpt: "Congress once again turned its attention to target-date funds this afternoon. In opening the hearing of the U.S. Senate Special Committee on Aging, titled 'Default Nation: Are Target-Date Funds Missing the Mark?', Chairman Herb Kohl (D-Wisconsin) noted that this was the third hearing in a series the committee had held on the subject of strengthening the 401k system . . . . He also noted that target-date funds were 'developed for the average worker who may understand the importance of saving, but may not appreciate the complexities of investing.' However, regarding target-date funds, Senator Kohl said 'the more we learn, the more concerns we have.'" (PLANSPONSOR.com; free registration required)
Senate Hearing Will Ask: Are Target-Date Funds Missing the Mark?
Excerpt: "On October 28 Senator Kohl plans to hold an Aging Committee hearing on strengthening the 401(k) system, 'with a particular focus on the proliferation, composition, and regulation of target date funds.'' (PLANSPONSOR.com; free registration required)
CALPERS Trustees Increasing Proportion of Risky Investments
Excerpt: "As the entire pension industry questions what level of risk it should be taking in the aftermath of last year's financial meltdown, Calpers in June increased its target for venture capital and private equity -- what the fund's advisor itself called the highest risk, highest reward bet -- to 14 percent of overall investments, up from 10 percent." (Reuters)
Asset Allocation Guidance for Defined Contribution Plans, 1999 and 2009 (PDF)
2 pages. Excerpt: "Recommendation. The Government Finance Officers Association (GFOA) recommends that public employers as plan sponsors work actively with the plan administrators to provide investment options and education to help employees who participate in defined contribution plans attain their income replacement goals in retirement. . . . To accomplishthese objectives, the following practices are suggested: 1. To provide adequate diversification, plan administrators should ensure participants are offered a broad spectrum of investment choices that include all the major asset classes (e.g., equities, fixed income, and cash equivalents). The investment choices should include several passively managed investment options such as low-fee index funds. Another option is a family of asset allocation funds. In addition to mutual funds, plan administrators should consider lower-cost commingled funds and separate account funds asinvestment options." (Government Finance Officers Association of the United States and Canada)
Affluent Investors Do Better Over the Long Term When They Are Engaged with Advisers
Excerpt: "Households that regularly receive advice are better prepared financially for retirement than households that do not receive advice as often. That's the essence of the findings of a recent report, 'Financial Advisors and Boomers,' that I recently completed with Elvin Turner of Turner Consulting LLC for the Retirement Income Industry Association. We sought to explain this differential in preparedness, and found four equally important reasons . . . ." (Investment News; free registration required)
Senate to Address Conflicts in Proprietary Target Funds
Excerpt: "Insiders say that the Senate Special Committee on Aging hearings Wednesday will focus on the potential for conflict of interest within proprietary target date funds. As of Sept. 30, 98% of target date fund assets were in proprietary funds, according to Strategic Insight/ Simfund. Ninety-one percent of target date funds are proprietary. Specifically, the committee wants to get a better understanding of the fiduciary role of investment managers who oversee these funds, said an aide to Sen. Herb Kohl, D-Wis., chairman of the committee." (Investment News; free registration required)
Market Decline Could Affect Public Pensions for Several Years, According to Report
Excerpt: "The Public Fund Survey sponsored by the National Association of State Retirement Administrators and the National Council on Teacher Retirement indicates that the market decline in 2008 resulted in a median investment return for public pension funds of -25.3% for the year. According to the report, the fall in asset values has caused aggregate funding levels to move downward from 86.7% in FY07 to 85.3% in FY 08. However, the report notes that because public pension actuarial methods are designed to temper the effect of market volatility, public pensions will recognize the investment losses incurred in 2008 over several years. During this recognition period, funding levels are expected to decline, although losses may be partially offset with investment gains." (PLANSPONSOR.com; free registration required)
New York Attorney General Unveils Plan to Overhaul State Pension System
Excerpt: "New York Attorney General Andrew Cuomo unveiled his plan to overhaul the state pension system, even as the state comptroller expressed concern that there could be constitutional problems with it. . . . The proposed legislation would impose stringent limits on political contributions, require extensive disclosures from investment fund personnel, create a code of conduct, compel any licensed professional to report conflicts of interest, and would bar investment firms from using placement agents or lobbyists to get business from the state pension fund.One of the more significant proposals is to change oversight of New York's $120-billion pension fund - the state's single largest asset, Cuomo said - from the current system of sole trustee to a 13-member, bipartisan board of trustees. Currently, only three states - New York, Connecticut and North Carolina - have pension funds with a sole trustee." (Newsday)
Adviser Group Urges Congress to Keep 'Authentic' Fiduciary Standard
Excerpt: "A group of financial planners warned congressional leaders . . . against enacting proposed standards for advisers that are being endorsed by the brokerage industry. The Committee for the Fiduciary Standard, a group of 600 investment professionals, sent a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., and others, voicing concern about proposals to adopt a new fiduciary code of conduct for brokers and advisers. 'The committee is concerned that misunderstandings of the authentic fiduciary standard could inadvertently be reflected in legislation and weaken the standard at the exact time that investors are looking to Congress and regulators to strengthen oversight of the financial system and Wall Street,' the letter said." (Investment News; free registration required)
ERISA Advisory Council to Meet November 3-4
Excerpt: "The Advisory Council on Employee Welfare and Pension Benefit Plans (the ERISA Advisory Council) has announced an open meeting on November 3?4, 2009. The purpose of the open meeting is for the Advisory Council members to finalize their recommendations to be presented by the Advisory Council to the Secretary. At the November 4 afternoon session, the Council members will receive an update from the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA) and present their recommendations. The Council recommendations will be on the following issues: (1) Promoting Retirement Literacy and Security by Streamlining Disclosures to Participants and Beneficiaries, (2) Stable Value Funds and Retirement Security in the Current Economic Conditions, and (3) Approaches for Retirement Security in the United States. Descriptions of these topics are available on the Advisory Council page of the EBSA Web site. Organizations or members of the public wishing to submit a written statement may do so by mail or e-mail on or before October 27, 2009. Individuals or representatives of organizations wishing to address the Council may request to do so. Oral presentations will be limited to ten minutes, but an extended statement may be submitted for the record." (International Foundation of Employee Benefit Plans)
Law Firms Circle Another Potential Stock Drop Case
Excerpt: "On October 14, the law firm of Coughlin Stoia Geller Rudman & Robbins LLP announced that a class action had been commenced on behalf of 'an institutional investor' in the United States District Court for the Eastern District of Pennsylvania on behalf of purchasers of Advanta Corp. Class A and/or Class B common stock during the period between October 31, 2006 and November 27, 2007." (PLANSPONSOR.com; free registration required)
Withdrawal Rate Strategies for Retirement Portfolios: Preventive Reductions and Risk Management
Excerpt: "This paper builds on the work of Stout and Mitchell (2006), Stout (2008), and Blanchett and Frank (2009) by creating a preventive approach to withdrawal management. Proactive strategies, which reduce the withdrawal rate before there are insufficient funds, are shown to significantly reduce the probability of ruin (shortfall) while maintaining the average withdrawal rate. The paper also explores the micro effects of strategy changes by dividing the simulation iterations into groups which have been positively or negatively affected by any particular change, and demonstrates that conventional reporting of the effectiveness of withdrawal rate management techniques can be improved by examining additional moments of the distribution. Data covers 1926-2008 and the mortality table is extended to 108 years." (Social Science Research Network)
Employers Begin Driving the 401(k)
Excerpt: "Businesses are taking more control of workers' 401(k)s, retreating from the 30-year experiment with employees running their own accounts. Barclays PLC's Barclays Global Investors now urges employers to automatically direct 8% of workers' pay into 401(k) savings and build from there. T. Rowe Price Group Inc. in the past year has seen a sharp increase in plans moving all participants into target-date retirement funds -- even if those participants previously selected their own investments. Prudential Financial Inc. on Monday plans to announce a sweeping 401(k) package that, among other things, encourages employers to prohibit workers from borrowing against their retirement savings." (The Wall Street Journal)
Investor Attitudes in the Wake of the 2008?2009 Market Decline
Excerpt: "A survey conducted by Vanguard Center for Retirement Research in May-June 2009 examines investor attitudes toward equity investing following the market turmoil of 2008-2009. Although the study found that expectations for investment returns were relatively modest and worry about market risks remained high, it also found an ongoing commitment to holding equities for retirement and other long-term goals." (Vanguard Institutional)
401(k) Asset Allocation, Account Balances, and Loan Activity During 2008 (PDF)
63 pages. Excerpt: "After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 24.3 percent in 2008. The average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008. The median 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003?2008 period to $43,700 at year-end 2008." (Investment Company Institute)
[Guidance Overview] Should You Become an Investment Manager within the Meaning of ERISA?
Excerpt: "[I]ncreasing numbers of sophisticated plan sponsors are asking their advisors to serve as an ERISA 3(38) investment manager and/or conducting searches for those who do. Significant opportunities are emerging for advisors that are equipped to serve in this capacity, but it is a decision that must be carefully evaluated and prudently implemented." (Reish & Reicher)
[Guidance Overview] Benchmarking of 401(k) Investments and Service-Providers by Employers: Part of a Prudent Process
Excerpt: "When evaluating the relevant data, the fiduciaries should compare it to comparable information from the marketplace. In other words, fiduciaries have to 'benchmark' the investments and services in order to evaluate their quality, cost, effectiveness and other attributes. This requirement applies to all fiduciary decisions . . . ." (Reish & Reicher)
Comparing Spending Approaches in Retirement
Excerpt: "This chapter describes and evaluates alternative approaches to spending in retirement, including income annuities, common rules of thumb for spending used by financial planners and advisors, and the spending rules that have been incorporated into payout funds, a relatively new type of investment product designed to be used by investors in the spending stage of life." (Pension Research Council; registration required to download fulltext of paper)
[Opinion] Joint Comment Letter to IRS on Bank Secrecy Act for Public Pensions
Excerpt: "On October 5, NCPERS, along with NASRA and NCTR, filed comments with the IRS on the Bank Secrecy Act, in response to the IRS' solicitation of comments on the Foreign Bank and Financial Accounts (FBAR) filing obligations. The Bank Secrecy Act (BSA) requires reports 'where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism.' NCPERS takes the view that a requirement of FBAR reporting and recordkeeping by public pension plans will not further the aims of the statute and will instead create an unproductive and unnecessary administrative burden for plans. As a result, we requested that the Department of Treasury issue specific guidance indicating that public pension plans are not covered by the FBAR reporting requirements or exempting public pension plans." (National Conference on Public Employee Retirement Systems)
ERISA Litigation
Excerpt: "As the spate of recent cases show, the risk of ERISA litigation has increased for companies. Heavy stock losses and the severity of punishments for scandals being handed out by courts have encouraged plaintiffs to test the boundaries of ERISA fiduciary law. Defendants may be exposed to a costly battle. 'With any litigation, there is the risk of prolonged litigation and its attendant costs. That risk can be greater in ERISA litigation, where the complex benefit issues often require retention of experts and claims are brought on behalf of all participants in the plan,' explains Howard Shapiro, a partner at Proskauer Rose LLP. 'While only equitable relief is available under ERISA, such relief can be costly if reformation of the plan, reversal of a plan amendment, or the removal of plan trustees is a possibility.'" (Financier Worldwide Limited)
[Guidance Overview] PBGC Rules for Standard Terminations Leave Questions for Future Guidance, Speaker Says
Excerpt: "The Pension Benefit Guaranty Corporation takes a dim view of employers that purchase annuities at a favorable price before initiating a standard termination process to end their pension plan, an employee benefits attorney said Oct. 10 at an American Law Institute-American Bar Association Conference. 'PBGC tends not to like the idea of purchasing irrevocable commitments and then doing a standard termination as an afterthought,' said attorney Harold Ashner, [a partner at Keightley &Ashner]. [Click on the title link under 'Items of Interest' on the target page.]" (Keightley & Ashner LLP)
CalPERS Offered Incentives to Inflate Pension Funds' Value/Plans' Benefits
Excerpt: ".A labor-friendly CalPERS board offered local governments an incentive eight years ago to boost public employee pension benefits, now called 'unsustainable' by some. CalPERS said it would reward higher benefits by inflating the value of the local government's pension investment fund, making it easier to pay for more generous pensions. Booming pension fund earnings in previous years were cited in a self-congratulatory board resolution approving the incentive in 2001. But the stock market boom had already cooled by then." (Capitol Weekly)
Asset-Allocation Funds As Retirement Plan Investments: Questions to Ask
Excerpt: "Asset-allocation fund solutions have, to put it mildly, exploded on the retirement plan scene -- aided in no small measure by the sanction of the Department of Labor (DoL) final regulations regarding qualified default investment alternatives (QDIAs). However, the recent market turmoil has drawn a fresh, heightened scrutiny to the philosophy and structure of these popular defined contribution choices and, certainly for plan sponsors, reminded us all that there are differences -- significant differences, in fact -- in how these vehicles are constructed, how they are managed, and even the philosophies underpinning those designs. Now, the 'right' answer for your program will, in many respects, be unique to your program. On the other hand, there are certain basic questions that plan sponsors should know the answers to in choosing an asset-allocation solution." (PLANSPONSOR.com; free registration required)
Is There a 401(k) Fix?
Excerpt: "[Roger Ferguson Jr., chief executive of the investment firm TIAA-CREF, has a solution.] Unsurprisingly, his solution is the one his company already sells -- a 401(k)-like plan that Ferguson says has done a better job of boosting retirement savings than the original. The three-and-a-half-million retirement accounts in the TIAA-CREF system have an account that is on average 50% higher than the average 401(k). Ferguson pitched his company's solution to the retirement savings problem to TIME's Stephen Gandel." (Time Inc.)
[Guidance Overview] Court Finds No ERISA Violation for Cash Balance Plan with Interest Credits Tied to Asset Performance
Excerpt: "Where a cash balance plan's interest credits are based on the plan's actual investment returns, investment policy changes that result in lower returns do not violate ERISA's anti-cutback rules, a federal court in Wisconsin has ruled (Thompson v. Ret. Plan for Employees of S.C. Johnson). The plan credited participants' accounts with interest equal to 75 percent of actual returns (with a 4 percent floor). The court concluded participants have no protected right 'to any particular investment policy decision or particular mix of investments,' so no reduction in accrued benefits occurred." (Mercer LLC)
[Opinion] Investing in an Era of Irrelevant Regulation
Speech by Edward Siedle at Sage Advisory Services 'Perspectives on the Future' conference, Austin, Texas, September 2009. Excerpt: "For decades, the advice investors got from Wall Street was hardly independent and the products marketed were generally high cost, as well as poor performing. This massive transfer of assets to brokers and money managers was good for them; not so good for investors. The investigations my firm has undertaken on behalf of institutional investors over the years reveal that when you scrutinize financial products and services and identify conflicts of interest and hidden financial dealings, you can predict poor performance. We've investigated investment consultants; 401k, 403b and 457 defined contribution plans; variable annuities; hedge funds and funds of funds and funds of funds of funds." (Benchmark Financial Services, Inc.)
[Guidance Overview] Court Dismisses Company Stock Suit against Harley-Davidson
Excerpt: "The U.S. District Court for the Eastern District of Wisconsin has dismissed a lawsuit accusing Harley-Davidson and certain of its executives of breaching their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by continuing to offer company stock as an investment option in the company's retirement plans. After first determining that former employee Lisa Bosman had standing to sue even though she had cashed out her retirement plan account, Chief U.S. District Judge C. N. Clevert, Jr. said that 'Stating a valid claim of imprudence under these circumstances requires more than allegations that there were gaps between supply and demand and a corresponding bad quarter.'" (PLANSPONSOR.com; free registration required)
[Opinion] Five Major Public Pension Problems: One Simple Solution
Excerpt: "Unsolvable Problems: Expecting 8% returns in a 4% world. When 30 year treasury bonds are yielding 4%, the dividend yield of the S&P 500 is 2%, and the S&P 500 PE is 140 (26 if you use operating earnings), 8% returns are from Fantasyland. Pension benefits start too early. People are living longer. Private employees do not receive these kind of benefits. Public employees should not either, especially at taxpayer expense. Indeed, continuing to chase high-yield in a low-yield world is a guarantee those plans will blow up again down the road. Pension plans are so underfunded that it is virtually impossible to catch up, no matter what risks the plan managers undertake. When asked how long it would now take for its investments to put the fund back on track, Ohio officials simply said: 'Infinity.'" (Mike Shedlock)
[Opinion] When SunAmerica Opinion Was Published December 2001, It Was Clear That Something Big Had Just Happened
Excerpt: "Not only did the Labor Department sanction an arrangement that, for the first time, allowed an investment management firm to offer advice on its own funds and be paid for that advice -- even if that advice impacted the compensation received -- it made the effort to make that decision public; IMHO, signaling to the industry that the model sanctioned in the Advisory Opinion could serve as a blueprint for other investment firms (and advisers) to follow in those footsteps. Indeed, it was issued not as a prohibited transaction exemption in a specific situation (though that was what had been requested), but as an advisory opinion on the program's structure." (PLANSPONSOR.com; free registration required)
Steep Losses Pose Crisis for Pension Funds: Cut Benefits or Take Greater Risks to Rebuild Assets
Excerpt: "The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees. The upheaval on Wall Street has deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both. Within 15 years, public systems on average will have less half the money they need to pay pension benefits, according to an analysis by Pricewaterhouse Coopers. Other analysts say funding levels could hit that low within a decade." (The Washington Post; free registration required)
Outsourcing Pension Longevity Protection
Excerpt: "Steadily improving mortality rates are boosting pension liabilities, and plan managers are starting to evaluate ways to handle this exposure. We explore the impact of increasing longevity on pension plans and what can be done about it. Responses include plan design changes, transferring this risk to an insurance company, and development of strategies to hedge this risk without completely eliminating it." (Pension Research Council; registration required to download fulltext of paper)
[Guidance Overview] Fiduciaries Again Defeat ERISA Stock Claims at Trial in Brieger et al. v. Tellabs, Inc. (PDF)
3 pages. Excerpt: "In Tellabs, the corporate and fiduciary defendantssecured another complete victory, proving, once again, that stock drop cases are eminently winnable if the defendants, and their carriers, are willing to stay the course and allow the trier of fact to hear the evidence." (Professional Liability Underwriting Society via Morgan, Lewis & Bockius LLP)
[Opinion] Groom Law Group Comments on FBAR Filing Requirement for Pension Plans (PDF)
20 pages. Excerpt: "We write to respond to the Treasury's request for comments regarding FBAR and the accompanying instructions. As noted in our July 29, 2009 letter and discussed in more detail below, the policy goals of FBAR ? to detect and prevent taxpayers from hiding assets offshore toavoid income taxes or launder money ? are not advanced by requiring U.S persons to file an FBAR with respect to 'foreign financial accounts' held by or for the benefit of Plans. Nevertheless, Treasury may expect at least a 40 percent increase in annual FBAR filings (nearly 75,000 additional filings) from Plans qualified under Code section 401(a), which would test IRS's already limited resources to indentify violators. Thus, we respectfully make the following recommendations . . . ." (Groom Law Group)
Seven Qualitative Due Diligence Factors in Investment Selection
Excerpt: "A good due diligence process begins by measuring investments using quantitative factors against set benchmarks and in relation to peers. The fi360 Fiduciary Score, for example, is calculated using eleven quantitative factors that we consider to be the minimum due diligence criteria that you should use when evaluating an investment. But in addition to quantitative analysis, fiduciaries should consider applying qualitative factors, which can help detect organizational instability. Organizational instability, over time, usually leads to underperformance.' (Investment News; free registration required)
The Continuing Debate Over Adding a Mutual Fund Option to Federal Retirement Investment Plan
Excerpt: "[The passage in June of a tobacco regulation bill (H.R. 1256) included several measures affecting federal employees.] The House bill included sweeping changes to the Thrift Savings Plan, including a new Roth IRA feature, spousal accounts to ensure that survivors of TSP enrollees can maintain their funds, and an automatic enrollment provision that is expected to swell the ranks of plan participants. But the bill's most controversial reform was a measure allowing - but not requiring - the TSP's governing body to create a means for participants to put part of their investments in mutual funds." (GovernmentExecutive.com)
[Guidance Overview] District Court Concludes That Defendants Had No Discretion to Eliminate or Liquidate Citigroup Stock Fund (PDF)
Pages 1-2 of 5 pages. Excerpt: "The Citigroup decision is noteworthy because the court focused on the plan terms to determine the appropriate scope of any fiduciary duties regarding investments in employer stock. The decision suggests that, if the terms are sufficiently explicit, they could eliminate the prospects of a viable fiduciary breach claim for failure to discontinue stock fund investments." (Proskauer Rose LLP)
Guidance for Sustaining Retirement Income Before and After Market Downturns
16 pages. Excerpt: "The objective of this paper is to provide financial professionals with insight as to when and how to deal with market volatility for clients just entering, or already in, retirement. The paper presents guidelines as to when action is needed, and offers some alternative strategies to help sustain retirement income." (Principal Financial Services, Inc.)
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