Hartford Offers Buyout of Variable Annuity Contracts
"Holders of some variable annuities, which guarantee payouts, would be offered cash to give up the contracts ... The offer will be made to holders representing 45 percent of the Hartford, Connecticut-based company's net amount at risk on the contracts ... Insurers are scaling back from variable annuities as low interest rates and stock market declines weigh on their profits."
(On Wall Street)
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Low Rates of Return May Be 'Devastating' to Annuities
"[I]nsurers that sell the retirement products that can guarantee an income stream ... rely on bonds to invest funds that they may pay out in the future. The 10-year U.S. Treasury yields 1.72 percent, down from as high as 2.38 percent in March, and the Federal Reserve has pledged to keep rates low through at least the middle of 2015 to boost U.S. growth. Sellers may adjust offerings if yields remain low ... Firms are already raising prices for some products[.]"
(Bloomberg)
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The Case for Liability-Driven Investing in Any Interest Rate Environment (PDF)
"Because the duration of liabilities for most pension plans is long, sponsors who have adopted an LDI framework often extend the duration of their assets by purchasing long duration cash bonds or incorporating derivatives such as interest rate futures or swaps.... [E]stablishing an analytical framework is the critical first step in considering any LDI approach."
(Standish)
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Liability-Driven Investing Strategies: A Statistical and Qualitative Review of Q3 2012 and the Outlook for Q4 (PDF)
"During Q3 ... MAP-21 increased PBGC premiums on unfunded pension benefits.... [T]his, together with the ability of plan sponsors to take a corporate tax deduction for contributions and historically low interest rates for corporate borrowing, will encourage plan sponsors to consider debt issuance initiatives to fund and de-risk their pensions. Second, plan sponsors now have the ability to offer their retirees the option to elect a lump sum payment in lieu of further monthly pension payments. This can reduce the cost of settling pension obligations."
(Standish)
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Corporate Pension Plans Outperform Public Plans in Third Quarter
"In the third quarter, Corporate Pension Plans, for private-sector employees, were the best-performing segment, gaining approximately 5 percent at the median for the three months ending September 30, 2012. Public Funds -- pension plans for public employees -- gained 4.7 percent[.]"
(Northern Trust)
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Pension Finance Update: Status at October 31, 2012 (PDF)
"October was a down month for stocks and a mixed month for interest rates, with Treasury yields edging higher while corporate yields moved down. The combination produced a bout of pain for pension sponsors, who saw funded status decline 1%-3% during the month and are now down 2%-4% so far in 2012."
(October Three)
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What's a Plan Sponsor to Do After Getting Covered Service Provider Fee Disclosures? (PDF)
"After confirming that the required disclosures have been received, plan fiduciaries must evaluate fees and services to ensure that the fees are 'reasonable'.... [K]eep in mind that ERISA is often referred to as a process statute and you should document your efforts. Reasonableness is based on the facts and circumstances of each plan."
(ERISAdiagnostics, Inc.)
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Greek Court Says Proposed Pension Reforms Could be Unconstitutional
"The Court of Auditors, which vets Greek laws before they are submitted to parliament, said planned measures such as increasing the retirement age by two years to 67 and cutting pensions by 5 to 10 percent could be against the constitution.... Greek pensions have already been cut by more than a quarter since the country was first rescued by the EU and the IMF.... The government expects pension cuts to deliver about half of the 9.37 billion euro savings it is targeting for 2013[.]"
(Reuters)
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Employee Ownership Update for November 1, 2012
NCEO Executive Director Loren Rodgers discusses the UK government's endorsement of action to increase employee ownership, the market's reaction to the unlocking of employee-held Facebook shares, and running for the NCEO's board of directors.
(National Center for Employee Ownership)
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Middle-Income Americans Saving Less than 5% for Retirement
"Two-thirds of middle-income Americans are saving less than 5% of their annual income for retirement with nearly a quarter saving nothing at all, according to research from LIMRA ... [which] looked at American workers earning $40,000 - $99,999. More than eight in 10 (85%) are saving less than 10% of their income for retirement[.]"
(Financial Planning)
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U.K. Pension Valuations to Plunge Under New Investment Return Assumptions
"The [U.K.] Financial Services Authority said that from 2014 the predicted growth rates used to give investors an idea of what their pension pot will be worth when they retire must be significantly lower than they are today.... Experts said that the lower rate will provide a 'dose of cold economic reality' to savers and will give them a more accurate idea of the money they can expect to receive on retirement."
(The Telegraph)
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How Vanguard Designs Its Target-Date Funds
"This paper provides an overview of Vanguard's methodology in designing its TDFs.... [including] appropriate glide-path construction, asset class diversification, and the benefits of a passively managed implementation strategy.... TDFs can help investors construct well-diversified portfolios -- critical to achieving retirement readiness -- while simplifying the investment process. TDFs can also provide a sensible default investment option that plan sponsors can use in conjunction with plan design strategies to improve participant portfolio diversification, enrollment, and savings rates."
(The Vanguard Group, Inc.)
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Report of 2012 Investment Performance of the TIAA General Account
"The average annual return for TIAA Traditional Retirement Annuity contracts for the 10-year period ended September 30, 2012 was 4.77%, which is significantly higher than the average 10-year U.S. Treasury yield of 1.65% during that period and well above the general rate of inflation, which has averaged 2.49% for the past decade."
(TIAA-CREF)
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[Opinion]
Reality Check for the Private Pension System?
"[P]rivate companies shouldn't be in the pension business. They can help employees with contributions but the money should be managed by large public pension funds supervised by independent investment boards that operate at arms-length from the government. Pooling resources will lower costs significantly, as will having well paid, competent pension fund managers that can manage a portion of the assets internally."
(Pension Pulse)
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[Opinion]
Fix for Government Pension Plans May Take Time, But Time Has Run Out
"One huge problem is the change only fixes future costs while leaving taxpayers on the hook for pension debt -- estimated at about $1 trillion three years ago to $5 trillion now ... When the 'contributions' governments force from workers and taxpayers cease, the existing debt just gets bigger because many pension funds imprudently use them to pay current benefits instead of investing to pay future benefits as universally required by annuity standards."
(State Budget Solutions)
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[Opinion]
Comments to CFTC/SEC on Study of Stable Value Contracts under Dodd-Frank (PDF)
"[The Council writes] to reemphasize the continued importance stable value contracts have with respect to our country's retirement security and reiterate that these contracts are not swaps.... [T]his is the best approach because the use of exemptive authority to relieve stable value contracts of the burdens of swap regulation, while a reasonable second-best solution, could have unintended consequences.... The Commissions' final regulations defining swaps reiterate Congress' intent to exclude insurance products from the definition of swap.... The same analysis is applicable to all stable value contracts."
(Nationwide Financial Services, Inc.)
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Benefits in General; Executive Compensation
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Insurer is Proper Party in ERISA Benefits Claim Lawsuit, Seventh Circuit Rules
"The court noted that while lawsuits of this nature generally must be filed against the plan, there is an exception to this rule.... [A] participant seeking to recover ERISA-covered benefits may file a lawsuit against a party other than the ERISA plan where: (i) that party is 'closely intertwined' with the plan; and (ii) the party determines eligibility for benefits and makes benefit payments." [Ayotte v. Prudential Insurance Co. of America, 7th Cir.]
(HighRoads)
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Agenda of Upcoming Meeting of ERISA Advisory Council (PDF)
"[T]he Council members will receive an update from the Assistant Secretary of Labor for [EBSA] and present their recommendations ... on the following issues: (1) Current Challenges and Best Practices Concerning Beneficiary Designations in Retirement and Life Insurance Plans; (2) Examining Income Replacement During Retirement Years in a Defined Contribution Plan System; and (3) Managing Disability Risks in an Environment of Individual Responsibility.... Organizations or members of the public wishing to submit a written statement may do so by submitting 30 copies on or before November 19, 2012[.]"
(Employee Benefits Security Administration)
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Press Releases
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