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Prudential debuts interactive retirement income website

Prudential Annuities has launched www.IncomeCertainty.com, a website that gives consumers answers to common questions, helps them share information with their advisers, and alerts them to the risks of retirement. Along the way, it repurposes some of the themes, images and music of Prudential’s Day One and Blue Dot ad campaigns.

Investors can access the site via computer, mobile phone or tablet devices.

The domestic annuity arm of Prudential Financial, which rolled out the site this month, wants to make retirement income planning more accessible to investors. IncomeCertainty.com features quizzes, retirement income calculators and “educational snacks” or infographics related to retirement.

The “Know Your Challenges” tab on the website unveils different retirement risks and ways in which investors can mitigate them. Challenges that are illustrated include the risk of outliving one’s income, market risk and inflation risk.    

The website also enables users to create a virtual binder or folder. It allows investors to save the content they find most relevant and share it with their financial adviser during face-to-face meetings.

Brochures, videos and research are also available on the site. They offer tips on avoiding costly Social Security mistakes, on preparing for rising healthcare costs, and other practical advice.

Woodbine: Are you ready for the Volcker Rule?

A new report that outlines compliance and business requirements for banks under the Volcker Rule has been released by Woodbine Associates. The Volcker Rule requirements are set to go into effect April 1, 2014.

The report, Volcker Rule Readiness Assessment, was written by Sean Owens, director of fixed income research and consulting at Woodbine. It provides guidance in preparing for trading and covered fund investments.

Woodbine reminds clients that, under the rule, banks must meet several new requirements, from establishing comprehensive compliance programs to making improvements in corporate governance. Banks will also be required to implement new reporting metrics, describe compensation policies and enforce modified risk management measures.

Woodbine warns that:

• Banks that engage in underwriting, market making and hedging must develop and implement a comprehensive business and compliance framework that includes detailed policies and procedures for trading, risk management, internal control and oversight.
• The complexity of the new regulation will require banks to create multi-functional teams to develop and implement necessary measures. 
• Qualified external and independent analysis of business practices, policies, procedures, and internal controls is essential to ensure compliance without business disruption.

The full report can be purchased at www.woodbineassociates.com.

NIRS to host retirement conference in D.C. March 4

The National Institute on Retirement Security will host its fifth annual retirement policy conference, “On the Money? A Close Up Look at Americans’ Retirement Prospects,” on Tuesday, March 4, 2014, from 8:00 AM – 2:30 PM at the Washington Court Hotel, 525 New Jersey Avenue, N.W., Washington, D.C.

The event will feature the release of a new report, The Financial Security Scorecard: A State-by-State Analysis of Economic Pressures on Future Retirees. This report ranks the 50 states and the District of Columbia relative to three areas: potential retirement income; major retiree costs such as housing and health care; and labor market conditions.

Conference speakers include:

• Ray Boshara, Assistant Vice President, St. Louis Federal Reserve Bank
• Jack Ehnes, CEO, CalSTRS
• Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary, U.S. Treasury Department
• Mark Miller, Author and Journalist
• Earl Pomeroy, Former U.S. Congressman and Senior Counsel, Alston and Bird
• David M. Rubenstein, Co-Founder and Co-CEO, The Carlyle Group
• Dallas Salisbury, President and CEO, Employee Benefits Research Institute
• Damon Silvers, Director of Policy and Special Counsel, AFL-CIO
• Christian Weller, Professor, University of Massachusetts Boston and Fellow, Center for American Progress

USAA CEO to retire next year

USAA CEO and President, Major General Josue “Joe” Robles Jr., U.S. Army (Ret.), announced today that he will retire from USAA in the first quarter of 2015.

Robles has been instrumental in expanding USAA membership eligibility to all who have ever honorably served in the U.S. military and their eligible family members. Under Robles’ leadership, USAA has grown 53 percent in members, 45 percent in revenue, 68 percent in net worth, and 59 percent in assets owned and managed – all during one of the worst U.S. economic downturns in recent history.

During that same period, which included some of the costliest catastrophe years in USAA history, USAA returned $7.3 billion to members and customers through dividends, distributions, bank rebates and rewards, and remained among just a handful of companies to earn the highest possible ratings for financial strength from Moody’s, A.M. Best and Standard & Poor’s.

After serving on the USAA Board of Directors from 1990 to 1994 while on active duty, Robles joined the company in 1994 as CFO and Controller. He also served as Corporate Treasurer and Chief Administrative Officer before assuming the role of CEO and President in 2007.

Consumer debt reached $11.52 trillion at end of 2013

Aggregate consumer debt increased in the fourth quarter by $241 billion, the largest quarter-to-quarter increase seen since the third quarter of 2007, according to the Federal Reserve Bank of New York.

As of December 31, 2013, total consumer indebtedness was $11.52 trillion, up by 2.1% from its level in the third quarter of 2013.

The four quarters ending on December 31, 2013 were the first since late 2008 to register an increase ($180 billion or 1.6%) in total debt outstanding. Nonetheless, overall consumer debt remains 9.1% below its 2008Q3 peak of $12.68 trillion.

Mortgages, the largest component of household debt, increased 1.9% during the fourth quarter of 2013. Mortgage balances shown on consumer credit reports stand at $8.05 trillion, up by $152 billion from their level in the third quarter. Furthermore, calendar year 2013 saw a net increase of $16 billion in mortgage balances, ending the four-year streak of year over year declines.

Balances on home equity lines of credit (HELOC) dropped by $6 billion (1.1%) and now stand at $529 billion. Non-housing debt balances increased by 3.3%, with gains of $18 billion in auto loan balances, $53 billion in student loan balances, and $11 billion in credit card balances.

Delinquency rates improved for most loan types in 2013Q4. As of December 31, 7.1% of outstanding debt was in some stage of delinquency, compared with 7.4% in 2013Q3. About $820 billion of debt is delinquent, with $580 billion seriously delinquent (at least 90 days late or “severely derogatory”).

Delinquency transition rates for current mortgage accounts are near pre-crisis levels, with 1.48% of current mortgage balances transitioning into delinquency. The rate of transition from early (30-60 days) into serious (90 days or more) delinquency dropped, to 20.9%, while the cure rate—the share of balances that transitioned from 30- 60 days delinquent to current—improved slightly, rising to 26.9%.

About 332,000 consumers had a bankruptcy notation added to their credit reports in 2013Q4, roughly flat compared to the same quarter last year.

Housing Debt

• Originations, which we measure as appearances of new mortgage balances on consumer credit reports, dropped again, to $452 billion.
• About 157,000 individuals had a new foreclosure notation added to their credit reports between October 1 and December 31.
• Foreclosures have been on a declining trend since the second quarter of 2009 and are now at the lowest levels seen since the end of 2005.
• Mortgage delinquency rates have seen consistent improvements; 3.9% of mortgage balances were 90+ days delinquent during 2013Q4, compared to 4.3% in the previous quarter.
• Serious delinquency rates on Home Equity Lines of Credit decreased to 3.2%, down from 3.5% in 2013Q3.

Student Loans and Credit Cards

• Outstanding student loan balances reported on credit reports increased to $1.08 trillion (+$53 billion) as of December 31, 2013, representing a $114 billion increase for 2013.
• About 11.5% of student loan balances are 90+ days delinquent or in default.
• Balances on credit cards accounts increased by $11 billion.
• The 90+ day delinquency rate on credit card balances increased slightly to 9.5%.

Auto Loans and Inquiries

• Auto loan originations decreased in the fourth quarter of 2013 to $88 billion.
• The percentage of auto loan debt that is 90+ days delinquent remains unchanged at 3.4%.
• The number of credit inquiries within six months – an indicator of consumer credit demand – remained virtually unchanged from the previous quarter at 169 million.

© 2014 RIJ Publishing LLC. All rights reserved.

The United States narrowly holds its spot among the top 20 nations globally in its capacity to meet retirement security needs and expectations, according to the 2014 Global Retirement Index, published today by Natixis Global Asset Management. The U.S. scored 19th among 150 nations analyzed, as the benefits of increasing U.S. economic stability are moderated by the potential for rising interest rates and inflation, as well as persistent income inequality.

The 2014 Global Retirement Index is based on an analysis by Natixis Global Asset Management of 20 key trends across four broad categories: Health and healthcare quality, personal income and finances, quality of life and socio-economic factors. Together, these trends provide a dynamic measure of the life conditions and wellbeing expected by retirees and near-retirees.

The U.S. scored higher year over year in all four broad categories, yet was surpassed by other nations trending higher in areas such as healthcare and government debt. For overall retirement security, the U.S. remains behind the majority of countries in Western Europe and Canada, and ahead only of Israel on the list of the top 20 nations. Despite ranking sixth highest in per capita income, the U.S. ranks first in per capita healthcare expenditures, yet 33rd for life expectancy and relatively low (81st) for income inequality.

The 2014 Global Leaders
Retirees in European countries enjoy the greatest financial security in retirement, with eight of the top 10 places among the 150 nations. Countries heading the global list include top-ranked Switzerland, second-ranked Norway (last year’s no. 1), Austria, Sweden, Denmark, Germany, Finland and Luxembourg. Australia and New Zealand are the only non-European countries to break into the top 10 globally.

New Zealand, Iceland and the Republic of Korea are the most improved performers in the top tier of the rankings, with each climbing at least 10 places from last year to enter the top 20. In contrast, Japan dropped from the top 20, as did export-dependent European nations Slovenia and Slovakia. The following table highlights the top 20 countries for 2014 and shows their ranking from last year.

Top 20 Nations for 2014
1. Switzerland (ranked 2nd in 2013)
2. Norway (1)
3. Austria (5)
4. Sweden (4)
5. Australia (11)
6. Denmark (8)
7. Germany (9)
8. Finland (6)
9. New Zealand (22)
10. Luxembourg (3)
11. Iceland (23)
12. Belgium (14)
13. Netherlands (7)
14. Canada (13)
15. France (10)
16. Czech Republic (17)
17. Republic of Korea (27)
18. United Kingdom (20)
19. United States (19)
20. Israel (12)
For a more detailed overview of the Natixis Global Retirement Index, including the rankings of all 150 nations evaluated, go to www.durableportfolios.com.

Following California, the Maryland legislature is considering legislation that would require nearly all private businesses in the state to provide a workplace retirement savings plan for their employees, according a report in NAPA.net.

The bill would also establish the Maryland Secure Choice Savings Trust, a state-run auto-IRA program for private employers that do not wish to use a private provider to satisfy the requirement.

Private employers who currently offer a private retirement savings plan of any type for employees would not have to do anything new.

In a release, ASPPA and NAPA, trade groups of retirement plan administrators and advisers, said:

“Proposals mandating retirement plan coverage for private employers remain attractive to state legislators who recognize that a failure to address the retirement plan coverage gap means future retirees could be more dependent on social services, straining state resources. As a result, there has been a flurry of legislative activity in multiple states addressing this issue.

“ASPPA and NAPA have been actively engaged in these state legislative efforts. Our goal: to ensure that these bills include four key criteria:

• Any legislation must require private employers above a certain size to offer some type of retirement savings program to employees.
• Any type of private retirement savings product must be allowed to meet the requirement.
• If state legislators believe that a state-run retirement program is necessary, then that program must be an IRA-based program exempt from ERISA.
• Any legislation must include the creation of an online private vendor clearinghouse — a convenient place for private employers to learn about private retirement products that satisfy the requirement.

As a result of offering constructive solutions that make sense to address the coverage problem, ASPPA and NAPA have been given a seat at the table. In the case of the Maryland legislation, for example, Brian Graff, executive director/CEO of ASPPA and NAPA, was invited to participate in a Feb. 20 legislative hearing on the proposal.

“ASPPA and NAPA will continue to work closely and collaboratively with the sponsors of the Maryland bill to ensure that this legislative effort will squarely address the problem of workplace-based retirement plan coverage and access.

“In Maryland and other states, we will not allow the process to be derailed by other agendas; if a proposal does not meet our criteria, we will do everything we can to oppose and defeat it.”

© 2014 RIJ Publishing LLC. All rights reserved.

Public pension experts issued recommendations this week outlining how plans could achieve fully funded status. The “Report of the Blue Ribbon Panel on Public Pension Plan Funding” recommended that public plans should:

• Improve their financial management, risk analysis and information by disclosing plan maturity, investment risks, stress tests, plan costs, and the ratio of contributions paid to the recommended contribution.
• Create a standardized contribution benchmark that would allow sponsors to measure the aggregate level of funding risk. This information should be disclosed in actuarial reports, said the panel in a press release. The standardized plan contribution would use a stipulated rate of investment return.
• Direct their actuaries to disclose the information mentioned above and be required to provide an opinion on the reasonableness of the assumptions and analysis in the funding plan.
• Implement strong governance practices. That includes the establishment of governance structures to support payment of recommended contributions. Additionally, plans should create a strong risk oversight function at the board level that would consider the cost and risks of proposed plan changes.

Members of the SoA panel were:

Bob Stein, FSA, MAAA, CPA, retired, former global managing partner of actuarial services of Ernst & Young; panel chair

Andrew G. Biggs, Resident Scholar, American Enterprise Institute; panel co-vice chair Douglas J. Elliott, Fellow, The Brookings Institution; panel co-vice chair

Bradley Belt, vice chairman, Orchard Global Capital Group and chairman of Palisades Capital Management; former CEO of the Pension Benefit Guaranty Corporation

Dana K. Bilyeu, former executive officer of the Public Employees’ Retirement System of Nevada

David Crane, Stanford University, former special advisor to California Governor Arnold Schwarzenegger

Malcolm Hamilton, FSA, FCIA, retired, former partner with Mercer; Senior Fellow, C. D. Howe Institute

Laurence Msall, president, The Civic Federation, Chicago, Ill.

Mike Musuraca, managing director, Blue Wolf Capital Partners LLC; former designated trustee to the New York City Employees Retirement System

Bob North, FSA, FSPA, FCA, MAAA, EA, chief actuary, New York City Retirement Systems
Richard Ravitch, co-chair, State Budget Crisis Task Force; former lieutenant governor of the State of New York

Larry D. Zimpleman, FSA, MAAA, chairman, president and CEO, Principal Financial Group

© 2014 RIJ Publishing LLC. All rights reserved.

Annuity sales soared 17% in the fourth quarter, reaching $61.9 billion. It was the largest quarterly percentage increase in 11 years, according to LIMRA Secure Retirement Institute.

Overall for 2013, annuity sales were $230.1 billion, a 5% increase over 2012.

Indexed annuity sales set a new quarterly record of $11.9 billion, an increase of $1.7 billion from the third quarter. For 2013, indexed annuity sales totaled $39.3 billion, up 16% over 2012.

Other significant increases:

• Overall fixed annuity sales reached $25.6 billion in the fourth quarter of 2013. It was the highest sales total since the second quarter of 2009, up 45% over the fourth quarter of 2012. Total fixed annuities sales grew 17% in 2013, to $84.8 billion.
• Fixed-rate annuity sales earned $8.5 billion in the fourth quarter. For the year, fixed-rate annuities grew 19% to $29.3 billion.
• Variable annuity sales grew 4% in the fourth quarter, to $36.3 billion. 
• Deferred income annuity sales reached $710 million in the fourth quarter, up 82% from the fourth quarter of 2012. In 2013, DIA sales reached $2.2 billion, more than double (113%) 2012 results.

LIMRA attributed the overall growth to improved interest rates, product innovation and organic growth in the banking and broker-dealer channels.

© 2014 RIJ Publishing LLC. All rights reserved.

MetLife Assurance, a U.K. subsidiary of the U.S. insurance giant, has sold its bulk annuity book to Rothesay Life Ltd., a British-based pensions insurance provider, IPE.com reported. The sale marks MetLife Assurance’s exit from the U.K. and Irish markets.

Rothesay Life was founded by Goldman Sachs in 2007. Last fall, Goldman Sachs sold 64% of the firm to Blackstone (28.5%), GIC (28.5%) and MassMutual (7%), according to Artemis.bm.

The MetLife-Rothesay deal, still subject to regulatory approval, will move around £3bn (€3.7bn and $5.1 billion) in assets between the insurers. In the U.K. bulk annuity market, insurers buy the annuity contracts of members in defined benefit (DB) plans in return for assets and premiums.

That market opened up in the middle of the 2000s. MetLife entered the market around 2007 and soon gathered vast assets. But conditions changed, and hedging replaced risk-transfer as a de-risking measure. Other insurers, such as Aviva and Lucida, downsized or abandoned their involvement in the bulk annuity business.

The purchase by Rothesay Life boosts its position in the market, as it steps up competition with market leader Pension Insurance Corporation (PIC). Addy Loudiadis, chief executive at Rothesay Life, said the acquisition of MetLife Assurance would turn Rothesay into the largest dedicated provider of bulk annuity assets, in terms of assets under management. With the transfer of MetLife’s 20,000 policies from the U.K. and Ireland, and £3bn in assets, Rothesay now has more than £10bn in AUM.

© 2014 RIJ Publishing LLC. All rights reserved.

U.K. employers who find the costs of their defined benefit (DB) plans unmanageable should move toward collective defined contribution (CDC) instead of pure defined contribution plans, according to Aon Hewitt, IPE.com has reported.

A shift to DC plans would only drive up DB sponsor costs because the DC plan sponsors can’t “contract out” of participation in the so-called S2P—the supplemental state pension. They would have to start contributing to S2P, which would raise costs by about 3% a year, according Aon Hewitt.

“We urge them to start considering CDC now,” said Matthew Arends, a partner at Aon Hewitt. “It can be a desirable alternative to implementing a DC arrangement in 2016.” Aon Hewitt also called on the government to provide more certainty on the timetable for legislative changes required before CDC can be implemented.

In any event, the S2P will be gone entirely by 2016, when the U.K. moves to a simpler, single-tier pension like our Social Security program. And CDC—a hybrid of DB and DC with centrally managed assets and a variable income stream—may be the next big thing in the U.K. anyway. 

The U.K. pensions minister, Steve Webb, has been a promoter of U.K.-style CDC, which he calls “Defined Ambition.” He was inspired by the Dutch and Danish retirement systems, where collective defined contribution, in which participants and employers share risks, is often the model. In a speech last October, Webb said it was one of the core options he envisaged for the future of U.K. pensions.

CDC has received support from several sections of the U.K. pensions industry and across the political spectrum. Even the opposition Labor Party’s representative for pensions, Gregg McClymont, has backed the exploration of CDC, reversing the sentiments of a 2009 Labor government white paper. 

One big question is whether the government will be able to pass legislation supporting Defined Ambition/CDC by 2016, when the single-tier pension will be instituted. If a CDC option isn’t available, DB plan sponsors may choose pure DC instead.

Aon Hewitt said it also expected CDC to be enshrined into legislation by 2015, taking effect as contracting-out comes to an end. Arends called on the government to provide certainty on the timetable for implementing CDC, in a bid to avoid employers having no alternative to pure DC.

© 2014 RIJ Publishing LLC. All rights reserved.

“Responsiveness,” “certifications or credentials,” and being “proactive” are all attributes that consumers who are on a “Retirement Learning Curve” look for in advisers, according to a report on new research by Boston-area consulting firm, Hearts & Wallets, LLC.

The Retirement Learning Curve, as defined by H&W principals Chris Brown and Laura Varas, is much bigger than the so-called retirement “red zone.” It starts seven to 10 years before full-time work ends and lasts for 11 or more years after retirement, they said.

“Some [adviser] attributes, or service dimensions, like being ‘proactive,’ peak in importance before work stops and remain somewhat high after retirement. Others, like being ‘easily reachable by telephone,’ also peak but increase even more after retirement,” Brown said in a recent press release.

The latest announcement from Hearts & Wallets highlights two of its proprietary studies, “Insight Module 9: Approaching Retirement & the Retirement Learning Curve”and “Insight Module 8: State of Retirement Funding & Household Finances in 2013.” Module 9 is a guide for providers and advisors to understand changes in consumer income, attitudes, and the desired products, services and provider attributes during the pre- to post-retirement transition.

Module 8 includes these topics: Income Sources, Savings, Spending, Debt, Real Estate & Retirement, and Explore: Surprises of Modern Retirement: How Pension Status and Timing is Key to Approaching the Biggest Segment of U.S. Investors as well as the bonus: Retirement Market Income Marketing-Sizing Data, including 2020 Projection.

Module 8 is part of Hearts & Wallets’ annual Quant Panel of more than 5,000 U.S. households, a representative cross-section of the American population, which tracks specific segments and product trends and forms a flexible and inquisitive proprietary database of insights into investor needs and wants as the source for a series of syndicated reports and customized client analyses.

H&W’s research adds some documentation to what advisers may already know from experience. “Advice source consolidation begins three to four years ahead of retirement, heats up during the retirement event and continues the first three to four years of retirement,” according to the firm’s release. “Well before stopping full-time work, most Americans also shift to more conservative portfolios and have a growing risk aversion.”

They’ve identified a window in which they think consumers will be receptive to a pitch from an adviser. “Acquisition opportunity is greatest three to seven years before the retirement event. That’s when households are most likely to try a new provider,” the release said.  

Income generation capacity seems to fall two years before people leave the last full-time job, H&W found. Gross household income drops 16% on average ($93,000 to $78,000) during the last two to four years before retirement. To offset the decline, some near-retirees tap into their nest egg prematurely. 

Anxiety about finance, especially inflation, mirrors this two-year pre-retirement pattern. Anxiety peaks at 29% within two years of stopping full-time work and declines sharply after retirement. As people become accustomed to their new retirement lifestyle, the share of households with little or no anxiety rises.

Only about half of those within 10 years of stopping full-time work are ages 55 to 64. Many are younger. Seventeen million households believe they are within 10 years of the breadwinner stopping full-time work, although only six million households self-identify as pre-retirees.

American households that are transitioning out of full-time work have about $350,000 of investable assets, on average. Median savings is less than $100,000, however, and 12% of households retire with no savings at all. The study also found, oddly, that 58% of households are still “saving something” even 10 years after retirement.

The Hearts & Wallets study also found that near-retirees start to shift money away from self-service investment firms and toward shift banks and full-service providers during the years directly before and after retirement.  

© 2014 RIJ Publishing LLC. All rights reserved.

Analysts at Conning Research are bullish on the U.S. and global insurance industry. Their new study, “2014: U.S. and Global Insurance Industry Outlook,” suggests that insurers worldwide should benefit from “improved operating conditions and the initiatives they have been pursuing in response to the challenges of the past few years.”

“Our outlook for the U.S. insurance industry in 2014 is for stable results and some gradual improvement across most segments, but with increasing uncertainty brought on by economic, political or regulatory developments unfolding in the period,” said Stephan Christiansen, a managing director and head of Insurance Research at Conning in a release.

“In 2013, we discussed continuing struggles in the U.S. and global economies, along with capital markets volatility and rising regulatory challenges, and cautioned that insurers needed to take action to improve performance, rather than waiting for a better time.
It was prescient. Market performance does appear to be improving, though the economic and market environments do not appear to be the primary cause,” said the introduction to the report.

Steve Webersen, director of research at Conning, said in a statement that “three key factors: economic climate, interest rate environment and regulation” will shape the global insurance industry.

“Fragmented economic growth is creating new pockets of opportunity, while challenging established markets. As in the U.S., growing regulatory convergence and complexity are increasingly commanding insurer attention and resources,” he added.

Conning is an investment management company for the global insurance industry, with more than $83 billion in assets under management as of Dec. 31, 2013 through Conning, Inc.

The new report has three parts:

• The first part includes Conning’s views on likely events and conditions in 2014, in terms of the economy, segment performance, regulatory changes, etc.
• The second level considers what the insurance industry is investing in and committing resources to in 2014, with an analysis of the potential impact of those efforts in subsequent years.   
• The third level covers competitive reshaping of the industry, longer-term implications of regulatory trends, and possibilities opening up with technology and marketplace changes.


According to the introduction:

“Our outlook for the U.S. insurance industry in 2014 is for stable results and some gradual improvement across most segments… This broad view is accompanied by increasing uncertainty; improvements may be interrupted or reversed through economic, political, or regulatory developments unfolding in 2014.


“Our outlook for the global insurance industry is focused primarily on Europe (including the U.K.) and Asia. Regulatory and economic changes dominate in both regions. Growing regulatory convergence and complexity are commanding insurer attention and resources. Fragmented economic growth is creating new pockets of growth, while challenging established markets.

“We also discuss some emerging drivers of opportunity, and emerging challenges, in the rest of the world: in Latin America, the Middle East, and Africa.

© 2014 RIJ Publishing LLC. All rights reserved.

A new paper from a Northwestern University economist posits that the growth rate in the U.S. over the next several decades, at least for most people, will be lower than the 2.0% average per capita GDP growth that the country experienced between 1891 and 2007.   

“Future growth will be 1.3% per annum for labor productivity in the total economy, 0.9% for output per capita, 0.4 % for real income per capita of the bottom 99% of the income distribution, and 0.2 % for the real disposable income of that group,” wrote Robert J. Gordon in NBER Working Paper 19895.

• Gordon identified four “widely recognized and uncontroversial” headwinds:  Demographic shifts will reduce hours worked per capita, due to the retirement of the Baby Boom generation and an exit from the labor force both of youth and prime-age adults.
• Educational attainment will stagnate at a plateau as the U.S. sinks lower in the world league tables of high school and college completion rates.
• Inequality continues to increase; the bottom 99% of earners will see a rate of real income growth that is fully half a point per year below the average growth of all incomes.
• A projected long-term increase in the ratio of debt to GDP at all levels of government will eventually lead either to higher tax revenues and/or slower growth in transfer payments.

Gordon disagrees with the “techno-optimists” who believe that the U.S. is on the cusp of a surge in technological change. He thinks we’re already well into an innovation slowdown. “In the eight decades before 1972 labor productivity grew at an average rate 0.8% per year faster than in the four decades since 1972,” his paper said.  

Historical examples cited in the paper suggest that “the future of technology can be forecast 50 or even 100 years in advance.” The paper assesses innovations anticipated to occur over the next few decades, including medical research, small robots, 3-D printing, big data, driverless vehicles and oil-gas fracking.

© 2014 RIJ Publishing LLC. All rights reserved.

ING U.S. announces fourth quarter and full year 2013 results

ING U.S., Inc., which will rebrand as Voya Financial, Inc. in 2014, reported fourth quarter 2013 after-tax operating earningsof $198 million, up from $136 million in 4Q’12, and net income available to common shareholders of $548 million, up from a loss of $23 million in 4Q’12.

Full year 2013 after-tax operating earnings were $825 million, compared with $597 million in 2012. Net income available to common shareholders was $601 million, compared with $473 million in 2012.

Fourth quarter 2013 net income available to common shareholders included:

• Actuarial gains on pension and postretirement benefits, after-tax, of $263 million primarily due to rising interest rates and strong performance of assets in the pension plan.

The Closed Block Variable Annuity (CBVA) segment’s after-tax loss of $147 million, which was driven by an after-tax loss of $177 million related to nonperformance risk. The CBVA segment includes the effect of its hedge program, which focuses on protecting regulatory and rating agency capital from market movements, rather than minimizing GAAP earnings volatility.

Annuities adjusted operating earnings were $56 million, compared with $51 million. The following items primarily accounted for this increase:

• Lower DAC/VOBA and other intangibles amortization ($5 million positive variance) due to a decrease in the amortization rate;
• Higher fee based margin ($3 million positive variance) on increased levels of mutual fund custodial assets; and
• Higher trail commissions ($2 million negative variance) due to increased mutual fund sales and AUM.

Net outflows were $172 million, as lapses on fixed rate annuity policies, especially older products with higher fixed rate crediting levels such as Multi-Year Guarantee Annuities, exceeded new sales.

Retirement business

Retirement adjusted operating earnings were $134 million, compared with $117 million. The following items primarily accounted for this increase:

• Higher fee based margin ($17 million positive variance) on higher variable assets partially offset by reduced recordkeeping revenue;
• Higher investment spread and other investment income ($12 million positive variance) stemming largely from higher limited partnership income and prepayment fee income, as well as reduced crediting rates;
• Higher administrative expenses ($11 million negative variance) partially due to volume-related expenses and ongoing investment in systems infrastructure;
• An increase in other revenue ($8 million positive variance) related to changes in market value adjustments related to surrendered retirement plans;
• Higher DAC/VOBA and other intangibles amortization ($5 million negative variance) as a result of higher gross profits, partially offset by a reduced amortization rate; and
• Higher trail commissions ($4 million negative variance) due to higher AUM.

Retirement net flows were $363 million, compared with $1.8 billion in the fourth quarter of 2012 and $234 million in the third quarter of 2013. (Net flows vary in size and timing, sometimes substantially, from one quarter to the next.) Retirement AUM totaled $105 billion as of December 31, 2013, up from $90 billion as of December 31, 2012 and up from $100 billion as of September 30, 2013.

Annuities segment

AUM for the Annuities segment totaled $27 billion as of December 31, 2013, up slightly from $26 billion as of September 30, 2013 and $26 billion as of December 31, 2012. Included in AUM is the company’s mutual fund custodial product (Select Advantage), which increased to $3.4 billion as of December 31, 2013, up from $3.1 billion as of September 30, 2013 and $2.4 billion as of December 31, 2012.

Closed block variable annuity

Closed Block Variable Annuity had a net loss before income taxes of $226 million, including a loss before income taxes of $272 million due to changes in the fair value of guaranteed benefit derivatives related to nonperformance risk, which the company considers a non-economic factor.

This compares with a fourth quarter 2012 net loss before income taxes of $167 million, which included a loss before income taxes of $401 million related to nonperformance risk.

ING U.S.’s CBVA hedge program is designed primarily to protect regulatory and rating agency capital from equity market movements, rather than minimize GAAP earnings volatility. During the quarter, the hedge program resulted in a net gain to regulatory surplus as a result of the difference between the decline in reserves and the decline in hedge assets related to equity market movements. GAAP earnings were favorably impacted by lower volatility, which offset market appreciation related net hedge program losses.

The retained net amount at risk for CBVA living benefit guarantees improved to $2.2 billion as of December 31, 2013 from $3.0 billion as of September 30, 2013, primarily due to favorable equity and interest market movements.

MassMutual announces new seminar series for plan participants  

MassMutual’s Retirement Services Division announced that its RetireSmart interactive participant education series will have a new “lineup” in 2014, its fifth year. The series will include six seminars, each led by an industry expert.

The series opens Feb. 26 with returning guest speaker Dr. Jerry Webman, Ph.D, CFA and Chief Economist for OppenheimerFunds Inc. He will review 2013’s market performance, discuss factors driving the global economy and identify key economic indicators to watch for retirement investors.

The RetireSmart seminar series will continue bi-monthly throughout 2014 as follows:

• April 9: Retirement Planning for the Ages. Presented by Farnoosh Torabi, independent Generation Y money coach, best-selling author and personal finance journalist.
• June 11: Strategies for Pre-Retirees. Presented by Black Rock Investments.
• Aug. 6: The Art of Negotiating a Deal. Presented by Farnoosh Torabi.
• Oct. (exact date to be announced on www.retiresmartseminars.com): Calculating your Social Security Retirement Benefit. Presented by a representative from the U.S Social Security Administration.
• Dec. 3: Maximizing your Workplace Benefits. Presented by Farnoosh Torabi.

Securian individual variable annuity sales up 57% over 2012

According to a release this week from Securian:

“In 2013, many variable annuity providers adjusted their product portfolios to reduce risk.

“Some even exited the market as low interest rates continued to pose significant risk exposure for lifetime withdrawal benefit guarantees which are included in some variable annuity products.

“Meantime, Securian Financial Group’s diligent risk management positioned the company’s retirement unit to step up with new annuity products as demand rose and competitors stepped back. Additionally, Securian responded to distributors’ requests for less complex annuities that meet the financial needs of many clients.  

“The result? A 57% surge in individual variable annuity sales, to $900 million.

“‘Our goal has never been to dominate the individual annuity market,’ said Dan Kruse, second vice president, Individual Annuity Actuary, Securian Financial Group. ‘Our goal is to create products that meet the needs of our strategic distribution partners and their clients without exceeding Securian’s risk appetite.’

“Bolstering sales growth is a high customer retention rate of 93% among Securian’s individual annuity owners. Customer satisfaction was 98%. Assets under management rose from $6 billion in 2012 to $7 billion in 2013.”

New York Life reports record sales growth in 4Q 2013

New York Life has announced “very strong” fourth quarter gains in sales of life insurance, annuities and mutual funds. According to a release, sales of recurring premium life insurance through agents were up 5% and total annuity sales were up 14% over 2012, both representing a new record for 12-month growth rates in those products. 

The fourth quarter growth of recurring premium life insurance products came from the company’s whole life, universal life and variable universal life products. Of the company’s new life insurance sales, 46% was produced by agents serving the African-American, Chinese, Hispanic, Korean, South Asian, and Vietnamese markets in the U.S.

Agents sold $5.4 billion of annuities of all types in 2013, a 14% increase from 2012.  Sales of single premium immediate annuities and the company’s deferred income annuity, Guaranteed Future Income Annuity, increased 6% through the fourth quarter compared with the same period in 2012.

Sales of New York Life’s MainStay family of mutual funds through agents rose 16% over the prior year, to $938 million. 

In 2013, New York Life hired 3,460 full-time agents.  It seeks to hire 3,600 financial professionals in 2014, with more than half to be women or individuals who represent the cultural markets. New York Life’s operations in Mexico, Seguros Monterrey New York Life, saw 14% sales growth compared with 2012.

MetLife hits 2013 target of $10 – $11 billion in VA sales

MetLife reported operating earnings of $1.6 billion for the fourth quarter of 2013, up 14% over the fourth quarter of 2012. On a per share basis, operating earnings were $1.37, up 10% over the prior year quarter. Operating earnings in the Americas grew 13%. Operating earnings in Asia increased 64% on a reported basis and 74% on a constant currency basis. Operating earnings in Europe, the Middle East and Africa (EMEA) increased 51% on a reported basis and 48% on a constant currency basis. Partially offsetting these gains were larger losses in Corporate & Other.

Fourth quarter 2013 operating earnings included the following items:

• Variable investment income above the company’s 2013 quarterly plan range by $101 million, or $0.09 per share, after tax and the impact of deferred acquisition costs (DAC).
• As previously announced, strengthening of asbestos claim reserves, which reduced operating earnings by $101 million or $0.09 per share, after tax
• An increase in litigation-related reserves, which reduced operating earnings by $46 million or $0.04 per share, after tax.
• Favorable catastrophe experience and prior year loss reserve development of $15 million and an $11 million benefit from tax-related items in EMEA, which increased operating earnings by $26 million or $0.02 per share, after tax.

MetLife reported fourth quarter 2013 net income of $877 million, or $0.77 per share, including $242 million, after tax, in net derivative losses. Increases in interest rates, changes in foreign currencies and the impact of MetLife’s own credit during the quarter contributed to the net derivative losses.  

Premiums, fees & other revenues were $13.1 billion, down one percent (up two percent on a constant currency basis) from the fourth quarter of 2012.

Book value, excluding accumulated other comprehensive income (AOCI), was $48.49 per share, up from $46.73 per share in the fourth quarter of 2012.

Full year results

For the full year 2013, MetLife reported operating earnings of $6.3 billion, up 11% over 2012. The increase reflects operating earnings growth of 13% in the Americas, 20% in Asia (27 percent on a constant currency basis) and 21 percent in EMEA (18 percent on a constant currency basis). Partially offsetting these gains were larger losses in Corporate & Other. On a per share basis, 2013 operating earnings were $5.63, up 7% over 2012. Growth on a per share basis was dampened by the increase in the number of outstanding common shares resulting from the conversion of $1.0 billion of the equity units issued in 2010 to fund the Alico acquisition.

MetLife reported full year 2013 net income of $3.2 billion, or $2.91 per share.

The Americas

Total operating earnings for the Americas were $1.4 billion, up 13%. Premiums, fees & other revenues for the Americas were $10.0 billion, up one percent, and excluding pension closeouts, up five percent.

Retail

Operating earnings for Retail were $658 million, up 4%. Premiums, fees & other revenues for Retail were $3.3 billion, up 4% primarily due to an increase in separate account fee income as well as higher income annuity sales. Fourth quarter 2013 variable annuity sales were $1.7 billion, down 49%. For the full year 2013, variable annuity sales were $10.6 billion – in line with the company’s plan of $10 to $11 billion.

© 2014 RIJ Publishing LLC. All rights reserved.

U.S. mutual funds showed positive flows of $282 billion in 2013, Cerulli Associates said in its January issue of The Cerulli-Edge–U.S. Monthly Product Trends. Equity funds led the mutual fund field last year, capturing $232 billion in flows.   

Last year, 10 investment managers garnered total inflows of $10 billion or more. With $74.7 billion, Vanguard added the most of net inflows of any mutual fund manager. Dimensional Fund Advisors followed with $22.5 billion, J.P. Morgan with $21 billion, MFS with $18 billion and and Oppenheimer Funds with $16.1 billion.

Among international funds, Vanguard’s Total International Stock Index Fund took in $17.9 billion, followed by Oakmark International Fund with $12.5 billion and Oppenheimer Developing Markets Fund with $6.7 billion.

Among index funds, the top three were Vanguard funds. Vanguard’s Total International Bond Index Fund took in $18.6 billion, the Total International Stock Index Fund, 17.9 billion and the Total Stock Market Index Fund, $17.5 billion.

Of the ten largest asset managers, PIMCO was the only one to show net outflows in 2013. PIMCO’s Total Return Fund saw outflows of $40.4 billion. Cerulli cited regulatory pressures on the fixed-income industry as the cause. Vanguard’s Inflation-Protected Securities and GNMA Fund experienced net outflows of $14.6 and $11.9 billion last year, respectively.

Among municipal bond funds, Vanguard’s Short Term Tax Exempt Fund had the highest inflows, with $1.2 billion, while its Intermediate-Term Tax-Exempt Fund had the highest outflows, at $3.9 billion.

© 2014 RIJ Publishing LLC. All rights reserved.

Annuity options lost considerable ground in the race for retirement income assets in defined contribution plans, as plan sponsors looked elsewhere, according to a new study by Callan Investments Institute.

Indeed, annuity options fell out of favor last year as a form of distribution payment in DC plans, while managed accounts and income drawdown solutions gained territory, Callan said in its new 2014 Defined Contribution Trends report.

The percentage of plan sponsors offering annuities as a distribution option dropped to 9% in 2013 from 22.1% in 2012. But the number of sponsors offering managed accounts and income drawdown services like Financial Engines rose to 6.4% in 2013 from 3.9% in 2012.

Additionally, annuity placement services (like Hueler Income Solutions) were offered by 5.1% of plans last year, a drop from 6.5% a year earlier. Prevalence of in-plan GLWB (guaranteed lifetime withdrawal products) fell to 2.6% of plans from 6.5%.

This trend is expected to persist. When asked if they would offer an annuity as a distribution payment option in 2014, 59.3% of surveyed sponsors said it was “very unlikely.” Currently, 74.4% of plan sponsors do not offer retirement income solutions at all. Nineteen percent of sponsors said they were “somewhat likely” to offer a GLWB option, but only 4.8% said they were “very likely” to do so. 

The most common reason among plan sponsors for not offering retirement income options was concern about fiduciary implications. Sponsors also cited the administrative complexity of income options, a lack of need or urgency for them, concerns about insurer solvency and lack of participant demand.

© 2014 RIJ Publishing LLC. All rights reserved.