Search the News Archive

A Look at Trends That Were on Our Mind This Past Year and Those Just Over the Horizon

"What's ahead: More and better disclosures, a growing interest in offerings that take more into account than mere retirement date (including managed accounts), and more discussion around the importance of open architecture solutions and concerns about the (lack of) ERISA fiduciary status for the providers who bundle their own offerings together. But as for real change -- failing another sharp stumble in the markets -- most seem to be content with the way things are."

Designers of Retirement Calculators Strive for Better Fidelity to Real Life

"To improve the accuracy of their forecasts, developers of calculators are using more complex formulas for model's assumption on the rate of return on investment assets.... To address volatility, some calculators perform a Monte Carlo simulation of a range of outcomes randomly chosen.... Some models base their rate of return on historic market data on the performance of asset classes over the past century. If the future is not like the past, then the accuracy of this approach will suffer."

Why Retirement Calculators Disagree on How Much You Need to Retire

"If you plan to use a retirement calculator you should keep in mind that retirement calculators rely on assumptions about the future that may turn out to be wrong ... Retired software developer Darren Kirkpatrick tested several calculators in 2012 and found the forecasts less than convincing.... Some calculators err by relying on inflation rates that are too low for the long term and err again by assuming a rate of return on investments that may be too high. '[That] gives you a bit of insight into where you stand financially today, but it tells you virtually nothing about what will happen in the future,' he has stated."

Abolish Retirement Schemes, or Not: A Debate published in The Economist

Excerpt: The Economist online today called for abolishing current retirement schemes and starting over. In support, George Magnus argued that current schemes are unsustainable. Opposing, Christian Weller contended that the current system can be put right if we have the will to do it.

In 2014 America's Corporate Pension Plans Gave Up Most of Their Funding Level Gains from 2013

"In the past, plans were able to fully recover, according to [Alan Glickstein, a senior retirement consultant at Towers Watson]. For example, after funding fell sharply in 2002, from 101 percent to 82 percent, plans 'clawed their way back' to 99 percent [in] 2006 and 106 percent in 2007, he says. However, in the current ongoing cycle that began after a big drop in funding to 77 percent in 2008, 'we're not clawing our [way] back,' to full funding, Glickstein says. 'We're just circling the drain here at the 80 percent level.' "

Target Date Funds in the Spotlight: An Overview

Excerpt: Employers ... cannot rely entirely on the fact that under Department of Labor rules, target-date funds are qualified default investment alternatives (QDIA's) in a company's 401(k) plan. They are still liable as fiduciaries in choosing an appropriate set of target date funds for employees in the fund.

Mind the Fund Details, Not the Labels

"It was never a good idea to choose funds on the sole basis of their names. Today, however, the risk of that approach leading you to a fund that does not operate as you might expect may be greater than ever.... Indexing used to refer to low-cost, broadly diversified, market-capitalization-weighted portfolios. Actively managed portfolios could be defined as carrying higher costs, with less diversification and more risk. Today, it is overly simplistic to say that 'indexing outperforms active management,' or that index funds are 'low-cost' or 'broadly diversified.' "

ERIC Urges Mind-Set Change in Treasury's Proposed Hybrid Retirement Plan Regulations

Excerpt: RIC's comments address many specific concerns with the regulations, among them: The IRS's inappropriate use of the determination letter and audit programs to make major interpretations of the law governing hybrid plans; An extremely limited interpretation of the market rate of return requirement that would prohibit plan sponsors from offering generous interest crediting rates to participants; An overly broad definition of interest credits that could disallow many required and permissible credits for imputed service or for periods of disability and maternity leave; A inappropriate application of the special vesting rules to benefits determined under non-hybrid plan formulas resulting in faster vesting; and The exclusion limited applicability of the PPA's indexing rule that would disallow cash balance and pension equity plans from complying with the age discrimination test by meeting its requirements.

Practical Pointers for Plan Fiduciaries in Uncertain Economic Times

Excerpt: Under the Employee Retirement Income Security Act (ERISA), a plan fiduciary is not a guarantor of positive investment performance. However, ERISA does require a plan fiduciary to follow a prudent process in selecting and monitoring investment options. In light of recent market developments, plan fiduciaries should keep in mind that, while the recent market conditions may be rocky, plan investments generally are designed to be held over the long term. In the meantime, consider the following steps[.]

Fed Actions Bolster the Long-Term Case for Stable Value

"Given recent actions by the Federal Reserve and market expectations of additional interest rate cuts on the horizon ... here are a few key things to keep in mind.... [1] Long-term returns matter.... [2] Retirement investing is not a sprint.... [3] So why are stable value returns higher over time? ... [4] Yield curve inversions are anomalies.... [5] It's risky to make a choice based on short-term Fed actions."