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We regret and apologize for the recent disruption in our service. 

Some readers of Retirement Income Journal encountered a blank page and a stark sense of vacancy when they tried to access our stories over the weekend and on Monday, either by surfing to our home page or by clicking through the links in our e-mails.  

In plain language, we experienced a server glitch.

Jason, our web host in Salt Lake City, e-mailed us on Saturday to say that “during routine server maintenance early this morning, WiredTree ran into issues with the core server” where RIJ resides. As a result, he wrote, “we are currently offline. All data is safe and secure via backups as well as a fully redundant server set up in a completely different data center.”

The glitch occurred during an ongoing elevation to more advanced technology at WiredTree, a Chicago-based provider of “managed and vps hosting systems.” Out of curiosity, I visited its website. WiredTree specializes in “virtualization,” which claims to provide many of the same services as a giant piece of hardware without the giant expense.  

Bottom line: We were good before, but now we’re even better. 

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This spring, several people casually asked me how Retirement Income Journal is “doing.”  

Without betraying any competitive secrets, I can say that, thanks to the support of our readers and advertisers, we’re doing well.

Over a dozen of the major insurance companies and asset management companies, as well as several broker-dealers, have purchased company-wide site licenses or group subscriptions to RIJ. In addition, hundreds of individual advisors, academics, and financial services executives have purchased individual subscriptions.       

That’s significant. When we put up a “paywall” in November 2009 and began charging for access, we knew we were entering unknown territory. Even the biggest media companies have stumbled with the subscription model.

But in our case, the response started strong and, thanks to a strong renewal rate, it hasn’t quit. That’s gratifying, of course, from a revenue perspective. More importantly, it gives us the editorial freedom we need to pursue our goal: to provide an unbiased information forum for the decumulation industry.  

And, because of your support, we now have sufficient resources to expand our product offerings. Look for some surprises from RIJ this year, sooner rather than later. 

© 2012 RIJ Publishing LLC. All rights reserved.

Employees are not more likely to opt out of an employer-sponsored retirement plan if they are automatically enrolled and automatically set at a high contribution rate, according to a study of participants by New York Life Retirement Plan Services.    

Plans implementing auto-enrollment with an automatic contribution rate of more than 3% have consistently experienced lower opt out rates than plans with lower default rates, year-over-year, New York Life said.

Plans with less than 4% default rates experienced 14% opt-out rates, vs. 10% opt-out for plans with greater than 3% default deferrals for the 12-month period ending March 31, 2012, the New York Life study showed.

The study also showed that plans that auto-enroll participants using an initial contribution rate greater than 3% of salary have a 95% overall participation rate, compared with 88% for plans that auto-enrolled participants using an initial contribution rate of less than 3%.

The analysis involved 480 plans and 800,000 participants across New York Life’s retirement platform. The number of plans on the New York Life platform that have adopted auto enrollment was 61% as of March 31, 2012, compared with 21% in 2006.

© 2012 RIJ Publishing LLC. All rights reserved.

MetLife has added three new investment options to the lineup of Protected Growth Strategy portfolios in its variable annuity products. The Protected Growth Strategies are “risk-managed,” meaning that the portfolio managers reduce their risk exposure when market volatility rises.

Contract owners who choose certain lifetime income guarantees must allocate their purchase payments among the Protected Growth Strategy Portfolios and/or to an intermediate bond portfolio.

The three new portfolios are:

• Invesco Balanced-Risk Allocation Portfolio – a risk-balanced strategy, which diversifies the portfolio based on risk instead of asset class.
• JPMorgan Global Active Allocation Portfolio – a momentum strategy, which identifies persistent trends in returns and adjusts the portfolio accordingly.
• Schroders Global Multi-Asset Portfolio – a managed volatility strategy, which adjusts the asset allocation mix as market conditions change to minimize exposure to less favorable assets.

The original Protected Growth Strategies portfolios include:

• AllianceBerstein Global Dynamic Allocation Portfolio;
• AQR Global Risk Balanced Portfolio;
• BlackRock Global Tactical Strategies Portfolio; and
• MetLife Balanced Plus Portfolio (co-managed with PIMCO)

The new portfolios, along with the four original portfolios, are now available to all new and most existing variable annuity customers,  regardless of the election of certain optional benefits. From their introduction in May 2011 until now, the Protected Growth Strategy portfolios were accessible only to customers who elected certain optional variable annuity income riders and paid the rider fee.

© 2012 RIJ Publishing LLC. All rights reserved.

Moody’s Investor Service Inc. has said that the June 1 agreement between General Motors and Prudential Insurance Co. (Prudential) to provide income annuities for GM white-collar pensioners is a “credit negative” for the Newark, NJ-based financial services company, according to a report in LifeHealthPro.

Some industry experts, including Prudential CEO John Strangfeld, now expect other companies to make similar deals, though of lesser size. 

When asked during a June 7 event in Washington, D.C., if more deals like the GM one were anticipated, Strangfeld answered, “Yes. It is the shape of things to come” and that there would be “more of this to follow.”  

But in its Weekly Credit Outlook, Moody’s called the transaction a “credit negative” for Prudential because the contract, valued at almost $30 billion, will now comprise 5% of Prudential’s general account holdings.

Such a high percentage poses a significant risk concentration due to the challenges of managing a long-duration portfolio, the low-yield environment, and the difficulty in estimating longevity risk. 

On the other hand, Prudential’s investment and actuarial expertise, along with its experience in asset liability management, put it in a good position to handle the risks associated with the deal, Moody’s said.    

A.M. Best Co., meanwhile, has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of the domestic life/health insurance companies of Prudential Financial, Inc. (Concurrently, A.M. Best has affirmed the ICR of “a-” of PFI and all existing debt ratings of the group. All domestic life/health companies of PFI are collectively referred to as Prudential. The outlook for all ratings is stable.

Referring to the GM deal, “A.M. Best notes that with the recently announced pension risk transfer transaction with General Motors, fixed annuities (both group and individual) will represent an increasing component of total statutory general account reserves. A.M. Best believes that, in general, annuities are a less creditworthy line of business compared to ordinary life insurance products. It is noted, however, that Prudential has established a track record of successfully managing, and to some degree, mitigating many of the risks inherent in its various annuity product lines.”

© 2012 RIJ Publishing LLC. All rights reserved.

The Phoenix Companies has launched the Phoenix Personal Protection Choice Annuity, a single premium fixed indexed annuity that allows an annuity holder, for an additional fee, to purchase any combination of three different benefits: lifetime income, chronic care and/or an enhanced death benefit.

Designed for near-retirees and retirees, Personal Protection Choice annuity also features six indexed accounts in addition to a fixed account. 

“Standalone products focused solely on income guarantees, life insurance or chronic care can be expensive or go unused,” Phoenix said in a release. “With Personal Protection Choice, annuity holders [can address] the financial gaps that are of greatest concern to them.”

The contract is issued by PHL Variable Insurance Company, a Phoenix insurance subsidiary, and is available through independent distributors working with Saybrus Partners, a Phoenix distribution subsidiary.

Personal Protection Choice offers an Income Protection benefit, a Care Protection benefit and/or a Family Protection benefit.

The Income Protection benefit provides a guaranteed lifetime withdrawal benefit (GLWB) that offers a benefit base bonus of up to 45% of the initial contract value. The bonus is 30% after a one-year deferral, 37.5% after a two-year deferral, and 45% after three years. Alternately, clients can receive a 14% simple interest annual roll-up in the income base for up to 10 years after purchase. As for payout rates, Phoenix quotes a different rate for each age, rather than for age bands.

Dana Pedersen, vice president, Phoenix Life, offered the example of a 70-year-old who invested $100,000 in the product and waited three years to start withdrawals. At age 73, he could withdraw 4.74% of at least $145,000, or $6,873 for life. The payout rates range from 3.32% at age 50 to 6.6% at age 85 or older, she said.

The Care Protection benefit provides an enhanced withdrawal benefit for up to five years in the event that the annuity holder is unable to perform two of six Activities of Daily Living (ADLs) and is confined to a nursing home or receiving care at home. This benefit is available after the second contract anniversary and ranges from 125% to 250% of the guaranteed lifetime withdrawal amount, based on age and qualification level. After the five years of the Care Protection benefit are exhausted, the lifetime withdrawal benefit is still available as long as no withdrawals over the guaranteed amount have been taken.

The Family Protection benefit offers an enhanced lump-sum death benefit for beneficiaries. The enhancement includes a simple interest roll-up of 5% or 10% (depending on attained age) for the first 10 years of the contract, or until the rider exercise date or age 85, whichever comes first. All withdrawals, including the guaranteed withdrawals, reduce the contract value and the death benefit.

In conjunction with Personal Protection Choice, Phoenix also launched REALIZE personal retirement analysis, an online tool adapted for tablet computers. It combines sales, data collection, and annuity quote functions. 

© 2012 RIJ Publishing LLC. All rights reserved.

The Facebook initial public offering, with its combination of management arrogance, private equity greed and Nasdaq ineptitude, has certainly changed the atmosphere in the U.S. and global stock markets. The question is whether, like the ill-fated AOL-Time Warner merger of 2000, it has merely marked the peak of a temporary bubble or the final end of the equity investing cult among the ordinary public.

In the stable days before 1914, retail investors bought few stocks. Bonds represented the best means of saving for retirement or other purposes. Because Britain and the United States were on the Gold Standard, principal on bonds of first class governments and major railroads and corporations was secure against inflation and the interest suffered either no income tax (in the United States before 1913) or a low rate of income tax (as in Britain from 1842 to 1914). Thus investors in even corporate bonds enjoyed a safe and substantial real return, provided only that the corporation’s assets had not been “watered” by issuing more bonds and stock than the properties were worth. (In that case, whether for a railroad or a producer of a commodity such as steel, the costs of servicing the excess debt or equity made the company potentially uncompetitive against a rival railroad/producer whose bonds/stocks had not been “watered.”)

In Britain, the lack of equity investment was caused by the mass of government bonds available for investment after the Napoleonic Wars. The merchant banking system did not get around to carrying out share issues until the Guinness share issue by Barings in 1886. Instead it made its money by issuing bonds, diversifying into foreign government bonds initially and then reluctantly into railroad bonds. To get your shares listed, you had to run the gauntlet of a terrifying set of fly-by-night company promoters, of which Anthony Trollope’s villain Auguste Melmotte was ethically at the top rather than the bottom end. Middle class investors like John Galsworthy’s Forsytes, to the extent they invested in shares at all, invested primarily in the hope of a substantial and improving dividend rather than of capital gain. Mostly they stuck to bonds or, for the more adventurous, rental real estate and mortgages thereon (all those lawyers in the family gave them access to good deals).

In the United States, where the financial markets were even gamier than in Britain, the public invested in bonds, primarily of railroads and state governments, until right at the end of the 19th century, when equity issues sponsored by J.P. Morgan gave adventurous investors some assurance that the company in which they invested was not an outright swindle.

That changed in the twentieth century. First, with inflation, bonds were no longer a solid investment – Soames Forsyte’s Uncle Timothy, still in Consols at the age of 101 in 1920, was by then very eccentric and somewhat impoverished. Closed-end mutual funds had existed in the nineteenth century, but the invention of open-ended mutual funds, in the 1920s in the United States (Massachusetts Investors Trust, 1924) and in the more prosperous 1930s in Britain (Municipal and General Securities: First British Fixed Trust, 1931), allowed small investors access to the stock market for the first time. In the United States, the Great Depression knocked the markets back, as did World War II in Britain, but persistent inflation and increasing prosperity in the 1950s brought the cult of the equity to both countries. 

In Britain the building societies (which paid interest free of basic rate income tax and whose rates floated with interest rates generally) provided stiff competition to equities until the period of negative real interest rates in the 1970s. In the United States savings banks and from 1974 money market funds also remained in the game. However from 1980 the great bull markets in both countries made the equity markets supreme. In the 2000 presidential election, George W. Bush ran successfully on a program of investing Social Security payments in the stock market, since it was apparently bound to provide much higher returns.

This all changed after 2000, as equity markets worldwide failed to offer reasonable returns. They had been bid up to an inordinate extent in the late 1990s bubble caused by Alan Greenspan’s lax post-1995 monetary policies. They were not allowed to fall to a market clearing-level after 2000, as the Fed and other central banks continued to expand money supply excessively. It’s now clear that certainly the 2002 stock market bottom and probably the 2009 bottom were false; that is the decline was reversed by artificially pumping money into the system before a true market-clearing bottom had been reached. Calculations based on nominal GDP growth since the February 1995 change in U.S. monetary policy suggest that a middling level, not a bottom, for the Dow Jones index would currently be around 8,200, so that at today’s levels the market is still 50% overvalued.

It’s not surprising that investors today find equities unattractive; they have been subjected to twelve years of nominal returns close to zero and negative real returns. For a “value” investor it is very difficult to persuade oneself that equities are currently worth buying, other than in the commodities sector where their value rests on the inflated prices of the underlying commodities.

The Fed’s post-1995 policy has thus been extremely damaging. First it inflated equity values to a ludicrous extent, far above any possible rational calculation of value. Then, instead of allowing markets to correct to a level that could have represented “good value” and from which savers could have achieved a high return with only modest risk, the Fed kept prices artificially inflated, but subject to large unpredictable downdrafts such as that of 2007-09. For a thoughtful investor, equities in this environment represent a very poor investment, and will only represent a good one when monetary policy has been corrected and market excesses have finally been wrung out. Needless to say, since we only have a finite lifespan, a period of 15 years or more in which common stocks are a poor, overvalued investment has been a major deterrent to using them as the basis for our retirement and savings planning.

Only in emerging markets was the decade of the 2000s lucrative for equity investors, and there for most U.S. investors information was scarce and the barriers to investment high – many of them erected by the Securities and Exchange Commission and Sarbanes-Oxley legislation, making it hugely expensive for foreign companies to list in the United States, and more or less illegal for U.S. brokers to sell to retail investors the shares of foreign companies that were not so listed.

It’s thus not at all surprising that investors are disillusioned with equities. The problem is, the alternatives available to them all have major disadvantages.

Private equity may look logically like the alternative to stock market investment. However overvaluations here are even more extreme than in the public equity market. Interest rates are at record lows, artificially reducing the cost of leverage, while corporate earnings are at record highs in terms of GDP. Both factors can be expected to go into reverse in the near future. And private equity bears much of the blame for the Facebook bubble. The plethora of “insiders” investing at a $60 billion valuation in a company whose true value was no more than $10-15 billion (its competitor LinkedIn is valued currently at $10 billion) drove up valuations to an absurd extent, and their attempt to unload their holdings onto “greater fools” in the public market at a $100 billion valuation produced the fiasco we have just witnessed. Compared with public equity, private equity provides no diversification, just an opportunity for money managers to raise their fees to absurd levels without providing significant additional value. And, by definition, private equity investment is more or less unavailable to investors who are not multi-millionaire favorites of the major brokerage houses.

Hedge funds are now consistently underperforming other investments and should be avoided at all costs. They add no economic value and provide vastly excessive profits to their sponsors. Institutions that invest in them are throwing away their pensioners’ and policyholders’ money; we should avoid joining them.

Debt, whether top-quality or lower quality, is a huge bubble waiting to burst. The fact that Vanguard has closed its “junk bond” fund to new investors is sufficient indication that supply of money here hugely exceeds that of legitimate deals.

Gold, silver and other commodities are less of a bubble, in spite of the huge increases in their prices. The need for consumers in high-population emerging markets to buy products that “hurt when you drop them on your foot” is real, and so therefore is the surge in commodities demand. On the other hand, natural gas has recently shown that supply innovations can bring down commodity prices with a bump, and this is likely to happen elsewhere. The money-supply boost to commodity prices is real too, but will last as long as Ben Bernanke holds his job and not a day longer.

Real estate has cost investors their shirts in the last decade, but is actually now a good investment. Not commercial real estate, whose prices have been inflated by cheap financing, nor residential real estate in Britain, where prices are still far too high, but in the United States, outside the major coastal cities, home prices are now reasonable, in spite of subsidized financing. Rentals will continue to increase compared to sales in the lower/middle-price brackets, so a well-located apartment block in an area of low unemployment is probably one of the better investments available right now. The better-heeled Forsytes took advantage of these opportunities; so should we, provided leverage is kept moderate and holdings conservative.

Equities are never going to regain the place in investors’ affections they held in 1995-2000 and nor should they – that was a bubble, too. Nevertheless, with the exception of careful, moderately leveraged investments in residential real estate, there are no other good alternatives. Once Bernanke has gone, and we have suffered through another major bear market taking the Dow Jones Index down to 5,000 or so, we should once again make the public equity markets, with adequate global diversification, a substantial part of our investment strategy.

Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005). This column appeared on May 28, 2012 at his website, www.prudentbear.com. 

© 2012 Martin Hutchinson. Used by permission.

Securian has introduced the Ovation Lifetime Income II guaranteed living withdrawal benefit (GLWB) rider, an optional rider available with certain Securian MultiOption variable annuities for an additional cost.

The rider guarantees annual withdrawals from the variable annuity contract, up to an annual limit, for clients age 59 or older. The variable annuity is issued by Minnesota Life Insurance Company, Securian’s largest subsidiary.

The Ovation II GLWB rider offers:

• A 6% compound benefit base enhancement.
• A doubling of the benefit base after 10 contract years (or the client’s 70^th birthday) if no withdrawals have been taken.
• CustomChoice allocation allows to select up to a 70% equity/30% fixed income portfolio. Election of the rider requires use of an approved allocation strategy.
•  Increased withdrawal flexibility so clients can take withdrawals if needed without canceling the six percent benefit base enhancement feature.
•  Investment options now available include a Minnesota Life selected group of more than 75 underlying investment options from 17 fund families that span a variety of asset classes and, investment styles. This includes the TOPS Protected ETF Portfolios, which strive to provide more consistent returns through dynamic hedging.

© 2012 RIJ Publishing LLC. All rights reserved.

MetLife has released its Retirement Income Practices Study: Perspectives of Plan Sponsors and Recordkeepers for Qualified Plans report, which examines the dynamics of the plan sponsor-recordkeeper relationship with regard to the provision of lifetime income options in qualified plans.

The study assesses whether, and to what extent, plan sponsors of defined benefit (DB) and defined contribution (DC) plans, and recordkeepers are collaborating to educate participants about retirement income strategies and solutions for their participants. The study found that:

• Ten of the 12 recordkeepers and one in three plan sponsors predict an increasing focus on retirement income for the next three-to-five years.   
• Tools that will project the amount of monthly income a participant might receive during retirement are not automatically shown to participants when they view their account balances online, nor are they routinely provided to plan participants on statements. Instead, plan sponsors appear to favor a self-service approach.   
• The “do-it-yourself” model is not taking hold among participants. The majority of recordkeepers surveyed estimated that 25% of plan participants or fewer have made the effort to project their retirement income.
• 44% of plan sponsors said that most DC plan participants would prefer to “receive at least part of their retirement savings as monthly income for as long as they live rather than receiving all of it in a lump sum that they would invest themselves.”
•  68% of plan sponsors said they believe the majority of their DC plan participants favor “guarantees that offer stable but somewhat lower returns” over a “higher degree of risk because the returns could be greater.”
• Only 16% of plan sponsors surveyed offer any form of in-plan retirement systematic income option. Among those, the most widely offered option is an in-plan deferred annuity (27%).
• 56% of plan sponsors who offer an in-plan retirement income option don’t know specifically what type of product is being offered.
• Most recordkeepers do not make institutional income annuities and other retirement income products available at the point of retirement nor do they have the ability to administer in-plan accumulation annuity options on their platform.
• Four of the 12 recordkeepers surveyed currently offer in-plan retirement income options. Of the other eight, four said they are very likely to build the infrastructure required for in-plan retirement income options to be available on their platforms in the next 18 months. The remaining four cited low demand from sponsors and participants as a reason for not exploring this infrastructure.   
• Eight in 10 plan sponsors (79%) say that fiduciary liability concerns are discouraging them from more widespread offering of income annuities within their DC plan. More than half of plan sponsors (56%) also believe these concerns are dissuading their recordkeepers from more widely offering these products on their platforms. Most plan sponsors believe that their company (62%) is more concerned about annuity-related fiduciary liability issues than their recordkeeper.

The MetLife Retirement Income Practices Study was conducted in two phases between October 2011 and January 2012. In Phase I, the qualitative phase, MetLife commissioned RG Wuelfing & Associates, Inc. to conduct phone interviews with 12 defined contribution plan recordkeepers that service primarily FORTUNE 500^® Companies. The interviews were conducted from mid-October to mid-November 2011.

In Phase II, the quantitative phase, MetLife commissioned the research firm MMR to conduct an on-line survey with plan sponsors of retirement plans in cooperation with Asset International. A total of 215 plan sponsors participated in the survey, including 113 from FORTUNE 1000 companies. Phase II of the study was conducted between December 14, 2011 and January 30, 2012.

© 2012 RIJ Publishing LLC. All rights reserved.

What would Martin Luther say? What would Garrison Keillor say?

Thrivent Financial for Lutherans is considering expanding its flock beyond the nation’s 18 million Lutherans and allowing more non-Lutherans into the fold, according to a report in the Milwaukee Journal Sentinel.

The Appleton, Wis., provider of life insurance, annuities and mutual funds has catered almost entirely to Lutherans and affiliated institutions. But a vote of the 2.5 million-membership of the nation’s largest fraternal benefit society could change that. An internal poll showed that about two-thirds of Thrivent members favor expansion, which would require changes in Thrivent’s articles of incorporation.

CEO Brad Hewitt said Thrivent, whose current organization was formed by the 2002 merger of Aid Association for Lutherans in Appleton and Lutheran Brotherhood of Minneapolis, must be careful not to tamper with its faith-based brand. The most likely targets for expansion would be other churches, schools and perhaps certain nonprofit groups that provide social services, he said.

At the end of 2011, Thrivent had $170.2 billion of life insurance protection in force, and paid out $310 million in dividends. Its adjusted surplus stood at $5.4 billion. The organization has reported three consecutive years of growth in sales, revenue, assets under management and total adjusted surplus, which is a measure of an insurer’s financial strength.

Thrivent distributes exclusively through a career force and selects agents who believe in the faith-and-finances theme of the organization. That makes it more difficult to find people and limits growth, Hewitt said.

Hewitt said the company hasn’t decided whether it would need to change its name if it changed its customer base. “We haven’t figured that out yet,” he said. “The reality is, the practical thing is, people call us ‘Thrivent,’ “ he said.

© 2012 RIJ Publishing LLC. All rights reserved.

Investors are faintly positive: Wells Fargo/Gallup Poll

U.S. investor optimism fell to +24 in early May from the +40 recorded in February, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. The decline was driven by increased investor pessimism about the future course of the overall economy.

The optimism of retired respondents fell to +17 in May, down from +38 recorded in February, a drop of 21 points and down from +61 a year ago. Non-retired Americans recorded an optimism level of +27 in May, versus +41 in February.

The Index had a baseline score of +124 when it was established in October 1996. It peaked at +178 in January 2000, at the height of the dot-com boom, and hit a low of –64 in February 2009.

On low interest rates. One in three investors (33%) say low interest rates will cause them to “delay” retirement. Forty-five percent of non-retired Americans and 34% of retirees fear that current low interest rates may cause them to “outlive” their money in retirement. A little more than a quarter (26%) of non-retired and 19% of the retired say low interest rates will cause them to put money in investments they “might have avoided.”

Thirty-two percent of investors think today’s low interest rates are likely to lead to a sharp increase in inflation in the years ahead. “Some people may feel like they’re pushing mud up hill,” said Karen Wimbish, director of Retail Retirement at Wells Fargo.

Non-retired investors say lower interest rates are good for consumers and businesses, and the “benefits outweigh the costs” by 73% to 22%. Retirees are more evenly split, with 47% saying “benefits outweigh the costs” versus 43% who do not.

On saving for retirement. Today’s retirees are more likely to depend on employer-sponsored pensions and Social Security, while future retirees expect to rely on their own savings:

• Only 20% of non-retirees say Social Security will be a major funding source for them in retirement (down from 30% in May 2011), compared with 47% of retirees.
• 64% of the non-retired say their 401(k) will be a major source of retirement funding for them (down from 70% in February), compared with 33% of the retired.
• 36% of the non-retired expect pensions to be a major funding source for retirement (up from 32% in February), compared with 50% of retirees.
• 31% of the non-retired call stock investments a “major source” for funding their retirement (down from 33% in February, compared with 27% of the retired.

On healthcare. Three in four investors are dissatisfied with the total cost of healthcare in the U.S., while 80% of all respondents say healthcare is in “a state of crisis” or has “major problems.” But nine in 10 investors consider their own healthcare “excellent” or “good,” while eight in 10 rate their insurance coverage as “excellent” or “good.”

• Two in three investors (67%) say their insurance costs increased a lot (23%) or a little (44%) over the past year. Twenty-nine percent of the non-retired say rising healthcare costs have hindered them from saving for retirement and forced some to delay retirement (12%).

On planning and control.  Forty-eight percent of investors say now is a good time to invest in the markets, versus 52% in February and 53% a year ago.

• More than half of investors (57%) say they feel they have “little” or “no control” in their ability to build and maintain their retirement savings in the current environment, but 82% of non-retired and 92% of retired who have a financial plan feel it gives them confidence they can achieve their future goals.
• Only 28% of the non-retired respondents and four in 10 (42%) of the retired say they have a “written” plan for retirement, however. The survey found that 51% of retired women say they have a written plan, compared with only 32% of retired men.

The Wells Fargo-Gallup Investor and Retirement Optimism Index, which was conducted May 4–12, 2012. The sampling for the Index included 1,018 investors randomly selected from across the country, including any head of household or a spouse in any household with total savings and investments of $10,000 or more. The sample size is comprised of 75% non-retired and 25% retirees. Of total respondents, 63% had reported annual income of less than $90,000 and 37% had income of $90,000 or more. About two in five American households have at least this amount in savings and investments.   

Doug Schubert advances at Securian Financial

Securian Financial Group has appointed Doug Schubert to director, Retirement Plan Technology. His responsibilities include oversight of the business technology unit for Securian’s retirement plan product line.

Schubert provides technological production support, project management, business analysis and quality assurance services associated with technology projects that support and enable key business initiatives. Prior to his promotion, Schubert was a manager in the same division.
Schubert earned a bachelor’s degree from Hamline University in St. Paul, MN. He joined Securian in 1984 as a programmer in the Information Technology department. He is a member of the Life Office Management Association (LOMA), Society of Professional Actuaries and Record Keepers (SPARK) and chairman for White Bear-Mahtomedi Young Life.

The Phoenix Companies to market LTCI/fixed annuity hybrid through AltiSure Group

The Phoenix Companies has introduced the Protected Solutions Annuity, a long-term care insurance and single-premium fixed deferred annuity hybrid, which will be issued by PHL Variable Insurance Co., a Phoenix unit, and distributed by The AltiSure Group.

The product offers two indexed accounts and a fixed account, principal protection from investment loss and, for an additional fee, a guaranteed chronic care and enhanced death benefit.

The benefits of the Protected Solutions Annuity can be applied to chronic (or confinement) care within the home, an assisted living facility or nursing home. If the chronic care benefits go unused, the beneficiary is entitled to an enhanced death benefit.

Protected Solutions offers the “SafetyGuard Benefit” which provides both the chronic care benefit, as well as an enhanced death benefit. The Guaranteed Chronic Care Benefit can be activated when the covered individual is unable to perform at least two of the six Activities of Daily Living (bathing, dressing, transferring, toileting, continence, and eating) and provides benefits up to 400% of premium paid out over five years.

If the covered individual never uses the chronic care benefit, upon death, the beneficiary can choose the Guaranteed Enhanced Death Benefit as an alternative to the standard lump-sum death benefit provided by the annuity account value.

The Guaranteed Enhanced Death Benefit provides a death benefit, payable monthly over five years, equal to a guaranteed multiple, ranging from 125% to 200%, of the original premium minus withdrawals. The guaranteed multiple varies by issue age and year of death.

Both the Guaranteed Chronic Care Benefit and the Guaranteed Death Benefit become available after the fifth contract year and, until activated, can continue to grow for another ten years. If no withdrawals have been made from the annuity contract, a return of premium death benefit is available in all contract years. This feature provides a return of the additional fees paid for the SafetyGuard Benefit.

Dave McLeod appointed SVP at Great-West

Great-West Life & Annuity Insurance Company (Great-West) announced today the promotion of Dave McLeod has been promoted to senior vice president, product management, at Great-West Life & Annuity Insurance Company.

McLeod will lead the company’s recently integrated product management efforts while remaining managing director for Great-West subsidiary Advised Assets Group, LLC (AAG), a registered investment adviser. He will also serve as managing director for Great-West subsidiaries Maxim Series Fund, Inc. (Maxim), a management investment company; and GW Capital Management, LLC, Maxim’s investment adviser.

McLeod had been managing director of AAG for five years. Since joining Great-West in 1985, he has held several leadership positions in the company, including vice president, investment operations, and controller/treasurer of Maxim. McLeod is a business graduate of the University of Manitoba. He holds a NASD Series 65 license and a Certified Management Accountant designation. 

Financial Engines hires SAS to help mine 401(k) data

Financial Engines, the provider of investment advisor to 401(k) plan participants, has engaged SAS, a specialist in business analytics software, to help it analyze its database of 401(k) participant demographic information.

SAS will help Financial Engines save time in data manipulation, processing and analysis of data on more than 8 million plan participants, the companies said in a release. In addition to increased efficiencies, the analysis will provide a more comprehensive user view.  

Dan Arnold named CFO of LPL Financial

Dan Arnold, the managing director and head of strategy for LPL Financial since October 2011, will succeed Robert Moore as chief financial officer, effective June 15. Moore was named president and chief operating officer May 1.

Following a three-month transition of CFO responsibilities with Moore, Arnold will report to Mark Casady, LPL Financial chairman and CEO.  Arnold will be based in San Diego.

Before becoming head of strategy, Arnold was president of Institution Services, the LPL Financial business unit that provides third-party investment and insurance services to more than 750 banks and credit unions nationwide.

In his new role as CFO, Mr. Arnold will have oversight of LPL Financial’s Finance organization, as well as its Internal Audit and Strategic Planning functions. 

“Disconnect” exists in political debate: Concord Coalition

Politicians are arguing over the wrong issues, says The Concord Coalition, citing a new report from the Congressional Budget Office (CBO) as evidence.

“Candidates and elected officials this year have been focusing on cuts to domestic and defense appropriations even though these programs are not the source of future budgetary pressures,” said Robert L. Bixby, The Concord Coalition’s executive director.

“Meanwhile, the tax debate has largely been about whether to extend all or part of the expiring tax cuts and less about the kind of base-broadening revenue-increasing reforms we need.”

Instead, public officials should focus on the aging U.S. population and rising health care costs, Bixby said.

The CBO’s 2012 Long-Term Budget Outlook shows that the percent of Gross Domestic Product spent on Social Security, Medicare and Medicaid, as well as interest on the public debt, will rise by 12.3 percentage points over the next 25 years, while all other spending will drop by 1.4 percentage points. Under current policies persist, revenues for those growing programs will not keep up with their growth. 

The Concord Coalition recommended enacting “a package of policies that have the same amount of deficit reduction as in current law, but with a different, more sensible mix of revenue increases and spending cuts. In addition, the timing should allow for continued short-term support for today’s struggling economy, with structural reforms for the long term phased in.”

Tom Idzorek succeeds Peng Chen at Morningstar 

Morningstar’s Global Investment Management Division has a new president. Thomas Idzorek, chief investment officer of Morningstar Investment Management, will assume the position at the end of June, replacing Peng Chen, who is returning to China for family reasons.

In his six years at Morningstar, Idzorek, 41, has specialized in quantitative research and strategic and tactical asset allocation, overseeing the Investment Management division’s Global Investment Policy Committee and serving on Morningstar’s retirement plan committee.

Idzorek’s other areas of expertise include lifetime asset allocation, target-date funds, retirement income solutions, fund-of-funds optimization, risk budgeting, returns-based style analysis, and performance analysis. 

Before joining Morningstar, Idzorek was senior quantitative researcher for Zephyr Associates, where he developed and researched financial models and techniques for inclusion in the company’s analytical software.  He co-developed the “style drift score” and implemented the Black-Litterman model in the firm’s software. 

Idzorek holds a bachelor’s degree in marketing from Arizona State University, an MBA from Thunderbird School of Global Management at ASU, and the Chartered Financial Analyst (CFA) designation.  

Jackson National acquires SRLC America Holding Corp. from Swiss Re

Jackson National Life has agreed to buy SRLC America Holding Corp. (SRLC) from Swiss Re for $621 million in cash. Swiss Re will retain a portion of the SRLC business through reinsurance arrangements to be undertaken prior to closing. The transaction is subject to regulatory approval and is expected to close in the third quarter of 2012.

SRLC is a life insurance business that sits within the US division of Swiss Re’s Admin Re.

The earnings of SRLC are derived from long-duration cash flows generated principally from term life, whole life and basic universal life products. Jackson will acquire assets related to the subject business of approximately $10 billion and approximately 1.5 million policies.

Jackson, an indirect wholly owned subsidiary of the United Kingdom’s Prudential plc, expects the transaction to add to the company’s IFRS pre-tax earnings while having a modest impact on its statutory capital position. The acquisition will diversify Jackson’s earnings base by increasing the percentage of income derived from underwriting activities relative to the company’s current spread- and fee-based businesses, the company said in a release.

J.P. Morgan launches new retirement plan advisor tool

J.P. Morgan Asset Management has launched a new tool designed for retirement plan advisors.

The Plan Design Guide aims to help retirement plan advisors evaluate and benchmark their clients’ plans based on the sponsor’s retirement benefits philosophy.  Using a brief assessment, the tool charts the sponsor’s standing relative to peers using two dimensions — their philosophy towards innovation and their level of plan investment.  The guide then offers steps towards executing new investment strategies.

Plan Design Guide is based on in-depth proprietary research into the primary factors that influence plan design decision-making.  

“It offers a more objective way to evaluate plan effectiveness relative to a precise group of peers with similar retirement plan preferences and characteristics, allowing sponsors to identify realistic, actionable opportunities that may improve participant outcomes via strategies that match their philosophy,” the company said in a release.

LPL’s Retirement Benefits Group to add consultants

LPL Financial LLC is expanding its Retirement Benefits Group with the addition of five new retirement plan consultants. 

Matthew Haerr, Christine Soscia, Amir Arbabi, Peter Littlejohn, and William Brown will provide retirement guidance to institutional clients in the areas of plan design assistance, compliance updates, and investment due diligence, as well as participant communication and education. 

These new advisor additions will be based out of the San Diego, CA, Akron, OH, Las Vegas, NV, and Idaho Falls, ID offices of Retirement Benefits Group.

Matthew Haerr has been a financial advisor for over 20 years, working with company-sponsored retirement plans, family and personal wealth management, and personal retirement planning throughout his career. Christine Soscia has been in the financial services industry for over 15 years, working on the design, audit and implement employee benefit programs.   

Amir Arbabi assists companies on plan design, fiduciary oversight and investment due diligence. He also has experience in investment management from his training at Merrill Lynch and Morgan Stanley Smith Barney.

Peter Littlejohn has over 27 years of retirement plan experience at several firms, including Highmark Capital Management, Ivy Funds, Wells Fargo, Strong Capital Management and Cigna Retirement and Investment Service.

© 2012 RIJ Publishing LLC. All rights reserved.

On June 1, MetLife filed a new variable annuity application for its GMIB Max IV, which supersedes its GMIB Max III in all but an unspecified number of unnamed states.

Under the new version, contract owners who take withdrawals before the fifth contract anniversary are locked into a maximum 4.5% per year withdrawal rate. If they defer withdrawals for five years, however, they can take out up to 5% for life. After 10 years, owners may annuitize the contract.

Last November, MetLife announced that it would reduce the deferral bonus on the benefit base of its recently-introduced GMIB Max product from 5.5% to 5%, the company said in a release.

“As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent,” MetLife CEO Steven Kandarian told analysts in a conference call in November.

In mid-February, MetLife announced that it was discontinuing its GMIB Plus products, which offered greater investment flexibility than the GMIB Max with slightly lower withdrawal rates.

The GMIB Max IV rider charge is 100 bps, unchanged from previous iterations of the rider, with a maximum of 150 basis points. The portfolio expenses range from 52 basis points to 134 basis points. The combined annual mortality & expense ratio and administrative fees are 130 basis points. There is an additional fee for an enhanced death benefit.

© 2012 RIJ Publishing LLC. All rights reserved.

On June 1, MetLife filed a new variable annuity application for its GMIB Max IV, which supersedes its GMIB Max III in all but an unspecific number of unnamed states.

Under the new version, contract owners who take withdrawals before the fifth contract anniversary are locked into a maximum 4.5% per year withdrawal rate. If they defer withdrawals for five years, they can take out up to 5% for life. After 10 years, owners may annuitize the contract.

Last November, MetLife announced that it would reduce the deferral bonus on the benefit base of its recently-introduced GMIB Max product from 5.5% to 5%, the company said in a release.

“As of January, the roll-up rate on our GMIB Max product will be reduced from 5.5 percent to 5 percent,” MetLife CEO Steven Kandarian told analysts in a conference call in November.

In mid-February, MetLife announced that it was discontinuing its GMIB Plus products, which offered greater investment flexibility than the GMIB Max with slightly lower withdrawal rates.

The GMIB Max IV charge is 100 bps, unchanged from previous iterations of the rider, with a maximum of 150 basis points. The portfolio expenses range from 52 basis points to 134 basis points. The combined annual mortality & expense ratio and administrative fee are 130 basis points. There is an additional fee for an enhanced death benefit.

© 2012 RIJ Publishing LLC. All rights reserved.

In the month of June, RIJ tackles the topic of government. Although not much is happening in the presidential campaign, there’s plenty of action at the regulatory level that’s pertinent to the field of retirement income.

There’s the looming deadline for compliance with 401(k) fee disclosure rules, the dispute over harmonized regulation of financial advisors and brokers, and the prospect of an exemption for deferred income annuities from RMD rules, among other things.   

But these questions are peripheral to three of country’s largest and most intractable political problems: Balkanization, conflicted corporate governance, and failed public-private hybrids.  

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“Balkanization” (Too many governments). Where I happen to live, in the densely populated East, you can drive 10 miles and pass through six or seven boroughs, townships, school districts and towns. Since 1980, they’ve bled together into one teeming sprawl, yet they’ve retained their own duplicative governments, services, and tax regimes.

As in many other places, our central city, once the busy capital of a regional empire, is in steep decline. Its former vitality—families and businesses—has bled to the surrounding suburbs, where the taxes are lower and there’s no ancient infrastructure in need of replacement.

Recently, the city fathers hatched a plan to revive downtown with a new hockey arena. But now that an entire city block has been cleared for the arena, the surrounding suburban communities are reconsidering their agreement to help pay for it. Meanwhile, the urban core has been reduced to rubble, waiting for construction that may never begin.   

Our region—where a capital city itself is in receivership—suffers from a lack of wise planning because interests are so fragmented. In the financial industry, we emphasize the necessity of a plan, and the wisdom of consolidating our assets with one advisor. In our communities, we have too many different plans, and no plan.   

 *                              *                               *

The “public” corporate structure (No governance to speak of). Although many great people do many great things at public companies, the public company model is increasingly a victim of destructive incentives, ineffective boards, impotent shareholders, and a self-defeating short-term focus.    

The managers of public companies serve at least three masters: their shareholders (number one); their customers; and their employees. The conflicts of interest that inevitably arise from this arrangement are unavoidable. But how can you put shareholders’ interests first and not shortchange the customers or the employees?

Several large publicly-held companies helped lead the country to its biggest financial crisis since the Great Depression. Yet, thanks to the corporate veil and limited liability, none of the executives has been held either financially or legally accountable.

In the life insurance industry, demutualization, which was so tempting during the 1990s, yielded bitter fruit in the 2000s. Public ownership is a misnomer, and the governance model for public companies is broken. Enron taught nothing. Sarbanes-Oxley was ineffective. As for the SEC and FINRA, the best that can be said is that they are hopelessly undermanned and outgunned.  

 *                              *                              *

Hybrid institutions (schizophrenic governance). Hybrid structures like Fannie Mae and Freddie Mac or Medicare sound appealing at first because they’re more politically acceptable to establish than all-private or all-public institutions. But they’re too vulnerable to moral hazard to succeed in the long run.

When the country wants to provide a needed public service (like subsidized health care for seniors) but the government doesn’t want to crowd out private enterprise, it sets up a hybrid service like Medicare, where the public sector pays private medical providers. But moral hazard quickly creates the temptation, among the providers of care, the users of care, and the insurers, to milk the system. The inevitable result: runaway costs.   

When the government wants to subsidize housing but doesn’t want a huge obligation on its own balance sheet (like millions of home mortgages), it insures the obligations of a private stock company, like Fannie Mae. What eventually follows, as we saw in the financial crisis, is moral hazard, leading to the privatization of profits and the socialization of costs. 

*                              *                              *

These self-interfering problems, which hide in plain sight, are so entrenched, so integrated with daily life, that we can barely recognize them, let alone begin to solve them. It requires a flight of utopian fantasy even to imagine what an alternative reality might look like, let alone agree on a plan for realizing it. The hope of reaching any public consensus on anything, these days, seems naïve.     

© 2012 RIJ Publishing LLC. All rights reserved.