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Hartford is first to adopt DST middleware for ‘in-plan’ annuity

DST Systems, Inc., a provider of information processing solutions to the asset management, insurance, retirement, brokerage, and healthcare industries, today officially announced a technology that can make it easier for DC plans to offer so-called “in plan” annuities.

The new solution, Retirement Income Clearing Calculator (“RICC”), is a “middleware” solution, said to be the first of its kind, designed specifically to support guaranteed retirement income products through traditional recordkeeping platforms.

The Hartford is DST’s charter client for RICC. Hartford recently launched Hartford Lifetime Income option; a patented income solution available through 401(k) plans to provide retirees with guaranteed income for Life.

“These new guaranteed income products are essentially the convergence of investment and insurance benefits into a single product,” said Larry Kiefer, Systems Officer for DST Systems. “Current recordkeeping solutions simply aren’t suited to handle the attributes of these new offerings. RICC is specifically designed to meet these new demands.”

Before RICC, an insurance carrier had no industry alternative to offer guaranteed income products in 401(k) plans except through its own policy administration system. DST’s new recordkeeping platform will enable insurers broader distribution of their income products, make it easier to bring new solutions to market and allow for greater portability of income products.

New tools for advisors from LPL Financial Retirement Partners  

LPL Financial Retirement Partners, the retirement plan-focused division of LPL Financial LLC, the nation’s largest independent broker/dealer, announces the additions of Plan Health Check and Fee Comparison & Analysis Evaluation tools to bolster the Retirement Partners tool suite for advisors.

The LPL Financial Retirement Partners tool suite offers a comprehensive collection of retirement plan tools designed to help advisors grow and maintain their book of business in an automated and scalable fashion.

LPL Financial Retirement Partners has partnered with Fiduciary Benchmarks, Inc. to provide peer level data for comparison purposes in both new offerings:

• The Plan Health Check tool allows retirement plan advisors to track and report on a plan’s value and success attributes such as plan participation, deferral rates and average account balance.
• The Fee Comparison & Analysis Evaluation tool quickly and legitimately compares plan fees and design against an appropriate peer group, producing an easy-to-read report for plan sponsors.

Pfau to direct curriculum for RIIA’s retirement designation program   

Wade D. Pfau, PhD, CFA, associate professor at the National Graduate Institute for Policy Studies in Tokyo, Japan, has been appointed curriculum director for the Retirement Management Analyst Designation Program, said Francois Gadenne, executive director and chairman of the Retirement Income Industry Association (RIIA).

The RMA designation is the only scientifically-based, rigorous retirement planning education and certification serving the financial services industry including defined contribution and retail distribution organizations, financial advisors, broker dealers, banks and insurance companies.

As curriculum director, Pfau will oversee and review the academic direction of the evolving RMA curriculum as well as edit and review submissions of annual updates to the RMA textbook and Retirement Income Body of Knowledge which are the foundation of the RMA program of study.

Pfau holds a doctorate in economics from Princeton University. He is a blogger on retirement research (wpfau.blogspot.com), a columnist for Advisor Perspectives, an online newsletter for financial advisors, and has published in a wide range of academic and professional journals.    

MassMutual Retirement Services promotes one, hires one

MassMutual’s Retirement Services Division announced the promotion of John Budd and the hiring Brian Mezey in its sales and client management organization, which is led by Hugh O’Toole, senior vice president.

Budd will be national practice leader, a newly created role that covers the division’s institutional retirement products. He will lead MassMutual’s distribution strategy for its stable value investment only and defined benefit businesses.

For the past 24 years, he was a managing director in MassMutual Retirement Services. Budd reports to Jonathan Shuman, vice president and head of business development for the Retirement Services Division.

Mezey will assume Budd’s previous duties. He will work with retirement plan advisors in the mid- and large-markets and partner with Andy Hanlon in the eastern New England region.

He joins MassMutual from E&M Consulting of Raymond James & Associates, Inc., where he was a top retirement plan advisor and a member of MassMutual’s Advisor Partners Council. Mezey reports to Scott Buffington, national sales manager for the Retirement Services Division.

U.S. consumer debt reaches $2.48 trillion, a 10-year high

Consumer borrowing surged in November 2011 almost 10% or $20.4 billion, raising the consumer debt total to $2.48 trillion, according to Federal Reserve figures cited by Consolidated Credit Counseling Services Inc.  

Revolving debt showed an 8.5% increase. Credit card debt accounts for almost all of revolving debt, which rose by $5.6 billion to $798.3 billion. This was the largest percentage jump since March 2008. 

Non-revolving debt, which includes auto loans and student loans as well as loans for mobile homes, boats and trailers, rose 10.7% to $1.68 trillion.   

Michael Hall joins Lincoln Financial Distributors

Michael Hall has joined Lincoln Financial Distributors as National Sales Manager for Institutional Retirement Solutions Distribution (IRSD).  IRSD focuses on Lincoln’s full service retirement plan services offerings for corporate and nonprofit/tax exempt plan sponsors.

Reporting to John Morabito, head of IRSD, Hall will be responsible for retirement plan services distribution strategy and tactical execution. He will be based in Chicago.

Prior to joining Lincoln, Hall served as vice president of Institutional Sales for Prudential. Throughout his career he held other sales leadership positions at Northern Trust Company, Kidder, Peabody & Co., and Hewitt Associates.

He earned a B.S. in finance from Northern Illinois University. Hall is licensed in life and health, and holds FINRA Series 7, 24, and 63.

Mutual of Omaha names John Corrieri as VP of 401(k)

Mutual of Omaha has appointed John Corrieri as vice president of the company’s 401(k) product and distribution.

In his new role, Corrieri will further differentiate Mutual of Omaha’s retirement product offerings as the preferred choice of 401(k) advisors and plan sponsors in the small to mid size markets.

Corrieri most recently served as the Institutional Retirement Group Marketing Leader for Genworth Financial in Richmond, Va. His diverse Financial Services career includes varied leadership positions in call center management, service strategy, education and enrollment, and defined contribution strategic marketing at both Fidelity Investments and Prudential Financial.

Corrieri earned his bachelor’s degree from the University of Massachusetts and his Master’s in Business Administration from Babson College – F.W. Olin Graduate School of Business. He holds Series 7, 24 and 63 designations.

New CMO at Lincoln Financial Distributors

Richard Aneser has been hired to the newly created position of chief marketing officer of Lincoln Financial Distributors (LFD), the wholesale distribution unit of Lincoln Financial Group. He will report to LFD President and CEO Will Fuller.

Aneser has more than 20 years of experience creating campaigns for the wealth management and retirement markets. He joins Lincoln from UBS, where he served as head of Advisory and Solutions Marketing for UBS Wealth Management, focusing on campaigns aimed at the individual advisor level.

Prior to UBS, Aneser held senior marketing positions with Merrill Lynch and Fidelity Investments. Earlier in his career, he served at Hill, Holliday Advertising, Seigel & Gale, Wells Rich Greene BDDP and AC&R Advertising. He earned a bachelor of arts in philosophy from St. Michael’s College in Vermont, and holds FINRA Series 7, 24 and 66 licenses.

Institutional fund managers responsible for some $8trn (€5.6trn) expect lower equity returns this year than last across all major markets, according to 114 respondents to a recent Towers Watson survey.

• The US was viewed as the best equity market to invest in, with predicted returns down two percentage points to 8%.
•  Chinese prospects declined from 10.5% to 7.8%.
• Australian stocks were expected to see the third-highest returns – despite also witnessing the sharpest fall in predicted returns, from 10% in 2011 to just 7% this year.
• Compared with 2011, equities within the European single currency were only expected to return one percentage point less, down from 7%.
• Expected Japanese returns saw a comparative drop to 5%.
• Equity volatility of 15% to 25% was expected in most markets, with the most stable year-on-year returns predicted for the euro-zone and Japan.

The Western world’s rising debt burden and lower growth prospects (thanks to structural reform and austerity measures) were cited as reasons for pessimism. The economic recovery remained “as elusive and fragile as ever,” said Towers Watson global investment committee chairman Robert Brown.

Fund managers identified the growing involvement of politics in the financial world as their biggest concern. They did not expect problems in Greece and Portugal, including possible defaults, to spread to other countries.

 Towers Watson warned investors not to let the recent rally give them a false sense of confidence. “The move into positive territory for many markets this year is helpful, but largely reflects central bank liquidity and may not prove sufficiently sustainable to justify a strategic move back into risk assets or indicate a cyclical recovery,” Brown said.

© 2012 RIJ Publishing LLC. All rights reserved.

Generation Investment Management, an Anglo-American company whose chairman is former U.S. vice president Al Gore and whose senior partner is David Blood, have published five recommendations that will expedite a transition to what they call “sustainable capitalism.”  

In a new white paper, GIM suggests these actions:   

• Identify and incorporate risks from stranded assets
• Mandate integrated reporting
• End the default practice of issuing quarterly earnings guidance
• Align compensation structures with long-term sustainable performance
• Encourage long-term investing with loyalty-driven securities

The paper calls for businesses and investors to incorporate the risks of “stranded assets” – those with a value that would change dramatically under certain scenarios, such as a reasonable price on carbon or water, or improved regulation of labor standards in emerging economies.

It argues that:

• Businesses should integrate both their financial and ESG (Environmental, Social and Governance) performance into one report, and move from issuing quarterly earnings guidance towards only issuing guidance as deemed appropriate by the company.
• Compensation structures in both financial and non-financial businesses should pay out over the period during which results are realized, and be linked to fundamental drivers of long-term value, employing rolling multi-year milestones for performance evaluation, the paper suggests.
• Long-term investing should be encouraged by the issuance of loyalty-driven securities, which offer investors financial rewards for holding a company’s shares for a certain number of years.

Addressing pension funds specifically, Gore said:

“Pension funds have a fiduciary obligation to maximize the long-term performance of their assets to the long-term maturation of their long-term liabilities.

“If pension funds turn to managers of their assets and compensate them with a structure that gives an incentive to maximize performance on an annual basis, they shouldn’t be surprised that that is, in fact, what their managers end up doing. We would like market participants to do what is in their own best interests to do in any case.”

“A large proportion of investors, including pension funds, were allocating capital in a way that was at odds with their real needs and with the needs of a healthy economy, and that the balance between the short term and long term had become skewed.”

Generation Investment Management, based in New York, was established in 2004 and is dedicated to long-term investing and integrated sustainability research.

© 2012 RIJ Publishing LLC. All rights reserved.

Recent public discussions surrounding a possible split of the Hartford Financial Services Group, Inc. into separate life and property/casualty (p/c) companies has raised questions regarding the potential rating implications of such a breakup, Fitch Ratings said in release.

“While we do not speculate on the likelihood of a split occurring, Fitch would review any announced transaction for its impact on the credit quality and financial strength of the resulting company structure,” the release said.

Fitch currently maintains separate insurer financial strength (IFS) ratings on HFSG’s stand-alone life and p/c companies. HFSG’s life insurance subsidiaries maintain ‘A-‘ IFS ratings, which are two notches below the p/c IFS ratings of ‘A+’. (This approach was implemented in February 2009 during the financial crisis to reflect the divergence in operating performance and balance sheet strength between the life and p/c operations.)

Some investors have reportedly voiced strong opinions regarding profitability and are pushing for a split.

“Our analysis would particularly focus on any new entities’ debt service capabilities and financial flexibility, as cash to service debt is dependent on dividends from the operating company subsidiaries. In recent years, dividend capacity has only been provided by the p/c operations, as the life companies’ earnings have been challenged by lower margins and increased hedging costs in its competitive annuity and life insurance businesses,” Fitch said.

Any analysis of a proposed split would consider the allocation of holding company debt between the life and p/c companies and the capitalization and leverage metrics of the individual stand-alone entities.

In addition, the p/c companies served as a source of capital to the life operations during the financial crisis. The p/c companies continue to have the ability to provide such support. This could serve as a particularly valuable source of financial flexibility should the life operations require an additional capital boost.

Earlier this month, President Obama proposed his federal budget plan for fiscal year 2013, which rescinds the Bush-era tax cuts. A newly-released report from CCH, a Wolters Kluwer business, analyzes the proposals. In this article, RIJ republishes the proposals (with CCH commentary) affecting the financial, insurance, and retirement industries.

The analysis pointed out that the proposals hinge on this year’s presidential election. “Most likely, the lame duck Congress that returns to work after the November elections will take up the fate of the Bush-era tax cuts,” the analysis said. “The outcome of the November elections will also most likely determine whether many of the other items in President Obama’s FY 2013 budget proposals will either fade into history or become strong contenders for tax legislation at the end of 2012 and into 2013.

“President Obama’s FY 2013 budget is proposed in an environment unlike others in the recent past. The Budget Control Act of 2011 reduces the federal deficit by at least $2.1 trillion over the FY 2012 – FY 2021 period. Absent Congressional amendment, an automatic spending reduction process is scheduled to begin in January 2013. The automatic reduction would be divided evenly between defense and non-defense spending.”

Below are some of the items in the summary that may interest RIJ readers:

RETIREMENT MEASURES

In February 2012, Treasury and the IRS issued a guidance package intended to encourage employers to offer more flexibility to workers in retirement savings vehicles. The administration launched a similar initiative in 2009. President Obama’s FY 2013 budget reflects these developments.

Saver’s Credit. The retirement savings contribution credit – also known as the saver’s credit – is available to lower and moderate income taxpayers and offsets a portion of the first $2,000 individuals contribute to IRAs, 401(k)s and other retirement savings vehicles. President Obama has proposed to make the saver’s credit refundable and make other modifications to encourage individuals to contribute to retirement funds.

COMMENT: For 2012, the AGI limit for the saver’s credit is $57,500 for married couples filing joint returns; $43,125 for heads of households; and $28,750 for married taxpayers filing separately and single taxpayers.

FINANCIAL AND INSURANCE INDUSTRIES

President Obama has proposed a number of tax-related proposals affecting the financial and insurance industries.

Financial Crisis Responsibility Fee. The President would impose a fee on covered liabilities of U.S. bank holding companies, thrift holding companies, certain broker-dealers and insured depository institutions with assets in excess of $50 billion. The rate of the fee would be 17 basis points, discounted by 50 percent for more stable sources of funding, such as long-term liabilities.

IMPACT: The fee would be effective beginning January 1, 2014 and is intended to re-coup the costs of the Troubled Asset Relief Program (TARP) and to discourage excessive risk-taking by major financial firms.

Sale of Corporate Stock. A corporation does not recognize gain on the issuance or forward sale of its own stock, but does recognize interest income on a current sale of its stock for a deferred payment. The President’s proposal would require the corporation to treat a portion of the payment from a forward sale of stock as a payment of interest, includible in income.

Dealers. Dealers of certain property (commodities, commodities derivatives, securities, and options) treat 60 percent of the income from day-to-day dealer activities as capital gains. President Obama would require these dealers to treat the income as ordinary, not capital. The proposal would apply to individuals and partnerships.

IMPACT: Dealers of other types of property treat income from their day-to-day dealer activities as ordinary income. There is no reason for different treatment, according to the administration.

Definition of “Control.” If a corporation purchases a debt instrument convertible into its stock or into stock of a controlled or controlling corporation, the tax code limits the deduction for any premium paid to repurchase the instrument. The President’s budget would expand the definition of “control” to encompass indirect relationships (a parent and a second-tier subsidiary) as well as direct relationships (a parent and its first-tier subsidiary). The proposal would be effective on the date of enactment.

Life Insurance. President Obama has proposed requiring a purchaser of a policy with a death benefit of at least $500,000 to report the purchase. The insurance company would have to report the payment of any policy benefits to the buyer. The proposal would also modify transfer-for-value rules to ensure that buyers are properly taxed when they collect on the policies.

IMPACT: Recent years have seen a significant increase in transactions where individuals sell their previously-issued life insurance contracts to investors. The administration is concerned that investors are not reporting payments they receive, and may be inappropriately escaping taxes on the profit when the insured person dies.

Proration Rules. Under current law, a life insurance company must prorate its investment income between the company’s share and the share allocated to policyholders. The proration is used to limit the company’s funding of (deductible) reserves with tax-advantaged income, such as dividends and tax-exempt interest. President Obama has proposed a simpler regime, a flat proration percentage of 15% that is applied to non-life insurance companies regarding the dividends-received deduction, tax-exempt interest, and certain policy cash values.

COLI. President Obama would expand the pro rata interest expense disallowance regime that applies to corporate-owned life insurance (COLI). The current disallowance regime is designed to prevent the deduction of interest expense that is allocable to a life-insurance policy’s inside buildup that is not taxed. The proposal would eliminate an exception to the regime for contracts that cover the lives of officers, directors, and employees. The proposal would not repeal the exception for 20-percent owners.

IMPACT: Retaining the exception for 20-percent owners would benefit small businesses and other taxpayers that depend heavily on the services of a 20-percent owner.

IRS BUDGET

The IRS’ budget was cut by $305 million for FY 2012. President Obama has proposed to increase the IRS’ FY 2013 budget by $944.5 million (an 8% increase from FY 2012 levels). More than $400 million would be devoted to new enforcement activities, which the IRS projected would raise $1.48 billion in revenue annually at full performance, once newly hired employees are fully trained and develop broader experience by FY 2015.

COMMENT: President Obama also proposed a multi-year program integrity cap adjustment for IRS tax enforcement to fund $350 million in new revenue-producing initiatives above current levels of enforcement and compliance activities.

INDIVIDUALS

President Obama’s FY 2013 budget proposals for individuals are a mix of old and new ideas.

Payroll Tax Cut. The Temporary Payroll Tax Cut Continuation Act of 2011 extended the employee-side payroll tax cut through the end of February 2012. President Obama’s budget proposed to extend the employee-side payroll tax cut for all of calendar year 2012. Congress approved that extension on February 17, as part of the Middle Class Tax Relief and Job Creation Act of 2012. No proposal to extend this OASDI rate reduction for a third year, into 2013, has yet been made.

Income Tax Rates. As expected, the President would reinstate the 36% and 39.6%  tax rate brackets for higher income taxpayers. When the tax rate brackets provided under Bush-era legislation and extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) expire after 2012, the President would extend the tax rate brackets of 10, 15, 25, and 28 percent, eliminate the 33% and 35% tax rate brackets, and reinstate the prior law tax rate brackets of 36% percent and 39.6%. The rate increases, the President explained, would apply to single individuals with incomes over $200,000 and to married taxpayers filing joint returns with incomes over $250,000 levels. These income levels are 2009 amounts, indexed to inflation in subsequent years.

IMPACT: After 2012, additional Medicare taxes impacting higher income taxpayers are scheduled to take effect. The Patient Protection and Affordable Care Act imposes both a 3.8% Medicare tax on the lesser of an individual’s net investment income for the tax year or modified AGI in excess of $200,000 ($250,000 in the case of joint filers) as well as an additional 0.9% increase in the Hospital Insurance (HI) portion of the FICA tax for individuals falling into that same income range.

Personal Exemption Phaseout/Limitation on Itemized Deductions. The Bush era tax cuts, as extended by the 2010 Tax Relief Act, gradually phased out and then removed–but only through 2012—two long-standing cutbacks in the amount of personal exemptions and certain itemized deductions otherwise taken by higher-income taxpayers.

Under these limitations, the deduction for personal exemptions of taxpayers and their dependents phased out for taxpayers with adjusted gross income in excess of certain thresholds. Additionally, the amount of otherwise allowable itemized deductions (other than medical expenses, investment interest, theft and casualty losses, and wagering losses) were reduced by three percent of adjusted gross income in excess of certain threshold amounts but not by more than 80 percent. Starting in 2013, these limitations are scheduled to return to pre-2001 levels unless Congress acts.

The President has proposed to reinstate the personal exemption phase-out and the limitation on itemized deductions for single individuals with incomes over $200,000 and married taxpayers filing joint returns with incomes over $250,000, effective for tax years beginning after December 31, 2012.

COMMENT: President Obama also has proposed to reduce the value to 28% of specified exclusions and deductions that would otherwise reduce taxable income in the 36% and 39.6% income tax rate brackets. A similar limitation would apply under the AMT.

AMT. The President’s budget envisions repeal of the AMT and its replacement with the so-called Buffett Rule (discussed below). Until (and if) repeal is accomplished, the President proposed to extend the AMT “patch.” The patch provides increased exemption amounts.

IMPACT: For 2011, the AMT exemption amounts were $48,450 for single individuals, $74,450 for married couples filing joint returns and surviving spouses, and $37,225 for married couples filing separate returns. Absent action by Congress, the AMT exemption amounts for 2012 are $33,750 for single individuals, $45,000 for married couples filing joint returns and surviving spouses, and $22,500 for married couples filing separate returns. Most everyone in Congress agrees that the AMT needs to be fixed, but a permanent solution has been avoided so far because of the significant offsetting revenues that would be needed. One possible scenario is for another one-year AMT “patch” to be enacted for 2012, followed by rolling a solution into an overall consideration of comprehensive tax reform for years after 2012.

Buffett Rule. The President’s FY 2013 budget does not include a specific Buffett Rule but keeps it alive as a future goal. President Obama has asked Congress to pass measures that ensure individuals making over $1 million a year pay a minimum effective tax rate of at least 30%.

COMMENT: President Obama first proposed the Buffett Rule in 2011 and repeated the proposal in his 2012 State of the Union address. Sen. Sheldon Whitehouse, D-RI, has introduced legislation based on the President’s proposals. Taxpayers earning over $2 million would be subject to a 30% minimum federal tax rate. The tax would be phased in for incomes between $1 million and $2 million, with those taxpayers paying a portion of the extra tax required to get them to a 30% effective tax rate.

Capital Gains/Dividends. Under the President’s proposal, reduced tax rates on qualified capital gains and dividends enacted during the Bush-era and extended by the 2010 Tax Relief Act would expire after 2012 for higher income taxpayers.

The President would increase the tax rate on qualified capital gains to 20% for single individuals with incomes over $200,000 and married taxpayers filing a joint return with incomes over $250,000, effective for tax years beginning after December 31, 2012.

In a controversial move, however, the President proposes that the current reduced capital gain tax rates on dividends would expire at the end of 2012 for those taxpayers above the $200,000/$250,000 level and would be replaced by taxing them as ordinary income.

IMPACT: Decoupling capital gains and dividends caught many administration observers by surprise. The tax rates on qualified capital gains and qualified dividends have been linked for nearly 10 years. A Treasury official told reporters that “long-term capital gains often have had a preferential rate for the entire history of the income tax from 1913 until now.” Utility companies and other industries that traditionally rely on rewarding investors through regular dividends rather than dramatic share appreciation are obviously expressing concern over this proposal. A decoupling of capital gains and dividends would also resurrect certain universal techniques and issues inherent in corporate tax planning for taxable distributions.

© 2012 RIJ Publishing LLC. All rights reserved.

Late last month, feeling flush after shaving $500 from the cost of a future business trip, I tempted myself by taking a long-cut on my way to the Port Authority Bus Terminal through the red light district of conservative men’s fashion in Manhattan.

I mean those sleek storefronts near Grand Central Station where Brooks Brothers, Paul Stuart, Charles Tyrwhitt, Allen Edmonds, and JoS A. Bank wait to prey on well-heeled males walking from the Harvard and Cornell Clubs (or from Citibank and Bank of America) to the Metro-North trains.

“SALE,” read the big red letters in JoS A. Bank’s window at the corner of 46^th St. and Madison Ave. Inside, a matter-of-fact salesman (a Wall Street trader until 9/11) made this offer: Buy a sports coat at the “regular” price and receive two casual shirts, two dress slacks, and two sweaters free.

*                                       *                                        *

JoS A. Bank isn’t Barney’s or Brooks Brothers. But then, neither am I. After estimating the average weighted price per garment in my head, and selecting my clothes, and finally standing on a carpeted platform while a tailor chalked my pant cuffs, I took the trade. 

Later I reflected on my own behavior. Or rather, my participation in an act of behavioral finance. And I began to remember similar moments, involving myself or others. Check out these anecdotes and decide whether they count as evidence of anything:

Buyers’ club beware. As new homeowners, my spouse and I were once seduced by an “exclusive” direct-mail invitation to join a “buyers’ club” whose members enjoy discounts of 10% or more on a “vast” selection of wholesale furniture, carpets, kitchen cabinets, etc. We drove to the address on the invitation–a warehouse in a desolate industrial park.

Once inside, we were more less committed to watching a time-share-style video and an equally vapid live presentation. Then we and other couples were led, one pair at a time like creatures boarding Noah’s Ark, to a desk in a cubicle where a carefully scripted but otherwise clueless salesperson finally made the pitch. 

We were offered the golden opportunity to pay $5,000 up-front to join the “club” and—for a single year—save 10% on purchases of big-ticket items from certain selected catalogues. We were not allowed to inspect the catalogs before joining.

Invoking my junior-high math, I calculated the minimum amount ($50,000) we would have to spend in a year simply to recoup our annual “membership fee.” Before I could start ridiculing the salesperson in a loud voice, my spouse hooked my arm and hustled me out.

Target-date mirage. A relation of mine, a very trusting single person of about 50, recently started a new job. Her 401(k) plan sponsor, an omnipresent Internet retailer whose name you can easily guess, defaulted her into a target-date fund whose target date indicated that she would retire in 15 years. When visiting us for dinner one Sunday, she marveled at her new employer’s confidence that she could afford to retire in 15 years. 

For some reason her naiveté reminded me of the time I and my young daughters saw a man in a cowboy hat buying lottery tickets from a cashier in a mini-market. Always ready to torment them with a teaching moment, I asked the girls, then ages 7 and 10, to guess that person’s chance of winning the lottery in the next day’s drawing. “Fifty-fifty,” said my oldest. How so? “Simple,” she said. “He wins or he doesn’t win.”

‘Unfair’ subsidies.  People don’t necessarily appreciate a subsidized price if someone else gets a free pass on the same item. I’ve observed this twice. 

In the first instance, a friend of mine complained that, while he paid full tuition for his child at the state university (about $16,000), one of his children’s single-parent friends was able to go tuition-free as a hardship case. Now, my friend could afford the $16,000 (plus $9,400 for room and board, $3,000 for fees and $1,400 for books). But the unfairness of it bothered him. 

For argument’s sake, I reminded him that he was the beneficiary of an in-state discount (non-resident tuition is $28,000) and an implicit discount for choosing a taxpayer-supported university over a private one, where the typical all-in sticker price is now $54,000. It was “all relative,” I told him. But he didn’t buy my argument.

In the second instance, a money manager for a family office firm in New York told me about indigent people living in her building on the Upper East Side who paid only $150 a month for spacious two-bedroom apartments, while she paid $4,000 a month for a similar apartment on the other side of the building. I was vaguely familiar with New York’s rent control laws, but this particular wrinkle was new to me.

The money manager herself also enjoyed a subsidy: She paid $1,000 below-market because her landlord participated in a city-sponsored housing program that allowed a few of her neighbors to live there for next to nothing. But that didn’t change the way she felt. What really annoyed her was that the City of New York apparently provided a car and a driver to chauffer any two people in the program anywhere in town on a day’s notice—for free. I wondered if Mayor Bloomberg knew about that.

Herding. One of the couples in my neighborhood recently held a garage sale to get rid of a lot of bric-a-brac before moving to Florida to retire. They called it an “estate sale” to try to attract a crowd with deeper pockets than the usual flea market mob. Curious, I wandered over to gawk. Strange cars were parked up and down the lane. 

Inside the house, an antique blanket chest caught my eye. A dozen other shoppers ahead of me had walked right by it. The tag said $125. I offered $100. The agent of the company that managed the sale swiped my credit card through an attachment to her smartphone and marked the chest “Sold.” I rationalized the purchase as a memento of my soon-to-be-former neighbors.

An hour later, when I came back with a van to collect my little white elephant, the agent said, “As soon as you took the chest, a half-dozen people asked me about it. That’s how it always works. Once one person gets interested in a piece, suddenly everyone wants it. I had lots of offers for it after you left. You could have tripled your money.”  

*                                   *                                  *

But let me finish explaining the significance of my visit to JoS A. Bank.

As I said, I didn’t agree to their deal immediately. First I had to see if any of their sportcoats appealed to me. Generally, the selection of jackets or suits in my size on any retail rack is meager at best. In fact, I order my suits from a reliable Tsim Sha Tsui tailor who has kept my vital statistics in a handwritten ledger since 1994.

As it turned out, I found a versatile tweed jacket that fit perfectly. At $500, it cost more than I generally pay, but the price included (as mentioned above) two slacks (tagged $165 each), two shirts (up to $90 each) and two sweaters (up to $100 each).  Several round-trips to the changing room later, I had chosen all seven items. 

Now, exactly what was I thinking, financially? Not for a moment did I pretend that I was getting $1,200 worth of clothes (which might have cost as little as $10 to manufacture in South Asia) for $500. But I was satisfied to think that I was paying about $250 for the jacket and getting the rest for $250. (And how much, really, was my $500 “worth”? These days I have a habit of dividing prices by 10 to see what they would have been before August 1971, when Nixon took the U.S. off gold to get re-elected.) So I bought the clothes.

Ultimately, money wasn’t the issue. What mattered was whether the clothes were stylish enough and durable enough to serve me long enough to make the cost basis irrelevant. Clothes are not like stocks or bonds. I didn’t need to sell them for a profit to realize their value. I just needed to wear them long enough. Indeed, given my age and their quality, the clothes and I might reach the ends of our lives simultaneously.

In that sense, the clothes were comparable to an income annuity. Will the income from the annuity meet your needs? Will it last? Will it make you feel more comfortable and secure? These are the most important considerations. When you are 91 years old and you continue to receive monthly checks from an insurance company, you’ll probably have forgotten what you paid for the contract back in 2000-something.

© 2012 RIJ Publishing LLC. All rights reserved.

Here are some of the important conference dates for the next two months, beginning with next week’s annual Morningstar Ibbotson gathering and continuing through the always informative LIMRA/LOMA/Society of Actuaries Retirement Industry Conference (which immediately follows the Life Insurance Conference at the same location).

2012 Morningstar Ibbotson Conference

February 23-24

Westin Diplomat Resort & Spa

Hollywood, Florida

National Institute on Retirement Security 

Third Annual Retirement Policy Conference

March 5-6

Sheraton Four Points Hotel

Washington, DC

Journal of Investment Management (JoIM) Spring Conference

March 11-13, 2012
The Ritz Carlton
San Francisco, CA 94108

LAMP 2012

GAMA International

March 18-21

Marriott World Center Resort

Orlando, Fla.

RIIA 2012 Spring Conference

Retail Distribution and Defined Contribution

March 19-20

Ibbotson/Morningstar Conference Center

Chicago, Ill.

The ASPPA 401(k) Summit

March 18-20

Morial Convention Center

New Orleans, La.

Society of Actuaries Investment Symposium

March 26-27
The Roosevelt Hotel
New York, NY

Insured Retirement Institute

2012 Marketing Summit
April 1-3

Hilton New York

New York, New York

21st Annual Hyman P. Minsky Conference: Debt, Deficits, and Financial Instability

Ford Foundation
New York, NY
April 11–12, 2012

Pensions & Investments

401(k) Investment Lineup Summit

San Francisco, April 17 

Dallas, April 19

Chicago, April 24 

New York, April 26  

Investment Management Consultants Association

Annual Conference

April 23-25

National Harbor, Md.

The Retirement Industry Conference

LIMRA, LOMA, Society of Actuaries   

April 25-27
Hilton in the Walt Disney World Resort
Orlando, FL

2012 FI360 Conference

April 25-27

Sheraton Chicago Hotel and Towers

Chicago, Ill.

MetLife’s fourth-quarter 2011 profit surged on earnings from derivatives. Net income for the quarter was $1.16 billion, up from just $82 million a year earlier.

In an earnings statement released Tuesday, MetLife reported derivative net gains of $351 million, after tax, which were largely due to declines in interest rates and gains in the company’s variable annuity hedging program. In the fourth quarter of 2010, MetLife reported $1.1 billion, after tax, in derivative net losses.

“Operating earnings for Retirement Products, which includes the company’s U.S. annuity products, were $216 million, down 5% due to the negative impact of deferred acquistion costs (DAC) and other adjustments as well as lower variable investment income, offset by growth from strong positive net flows and higher core spreads.

Compared with the fourth quarter of 2010 and the third quarter of 2011, total annuity sales increased 41% and declined 15%, respectively, primarily due to a change in the level of variable annuity sales. Premiums, fees & other revenues for Retirement Products were $1 billion, up 35% due to increased sales of immediate annuities and higher fee income.

MetLife, which had more than $270 billion of derivative contracts at the end of September, guards against interest rate declines because the company depends on bond coupons to help finance customer obligations and earn profits. MetLife held more than $350 billion of fixed-maturity securities as of Sept. 30, Bloomberg News reported.

Net income advanced to $1.16 billion from $82 million a year earlier, the company said Tuesday. Excluding some investment results, profit was $1.31 a share, beating the $1.24 average estimate of 19 analysts surveyed by Bloomberg.

MetLife is leaving banking to reduce federal oversight and scaling back variable-annuity sales to ease liabilities on the equity-based products. MetLife agreed in December to sell about $7.5 billion of bank deposits to the General Electric Company after the insurer’s plan for a dividend increase was rejected by the Federal Reserve. MetLife is shutting a mortgage origination business and eliminating most of that unit’s 4,300 jobs.

MetLife expanded in Asia, Europe and South America with the $16 billion acquisition of the American Life Insurance Company in November 2010. The company’s derivatives, used to generate income and guard against interest-rate declines, produce losses when bond yields rise, as they did in the last quarter of 2010.

MetLife is integrating Alico and spending on advertising. The company put the name MetLife Stadium on the home of the National Football League’s New York Jets and Giants last year. The company’s blimps, with depictions of the cartoon dog Snoopy, fly over sporting events in the United States and Japan.

The company posted its results after the close of trading.

© 2012 RIJ Publishing LLC. All rights reserved.

Higher capital requirement measures could ruin all remaining UK defined benefit plans and push plan sponsors into insolvency, a recent letter from UK employee and employer representatives to the European Commission warns. (This report comes via IPE.com.)

The National Association of Pension Funds (NAPF), the Confederation of British Industry (CBI) and the union umbrella organization TUC, told EC president José Manuel Barroso that the EC’s recent revised directive on occupational pensions would undermine the retirement prospects of millions of Europeans.  

According to the three organizations, plan sponsors would see the cost of pensions increase significantly due to the capital requirements imposed, forcing them “to divert money away from investment in growth, job creation and research and development.”

In addition, the NAPF, CBI and TUC contended that pension investment managers will shift from equities to risk‐free bonds and gilts if they have to calculate liabilities using a risk‐free discount rate.

“Less equity investment would restrict capital flows to businesses, at a time when they are being asked to put even more cash into [plans],” the letter said. “With European pension funds holding over €3trn (($3.97 trillion) in assets, a major switch in asset allocation would have an immediate catastrophic impact on the stability of European financial markets.”

The letter was sent as the EC prepares to receive draft advice on the IORP directive from the European Insurance and Occupational Pensions Authority (EIOPA) this week.

© 2012 RIJ Publishing LLC. All rights reserved.

There are approximately $11.5 trillion of investable asset dollars in “retirement income” households and this number is expected to reach $13.7 trillion by 2015, according to Cerulli Associates. Of the $11.5 trillion, 41% ($4.715 trillion) is in retirement accounts, which defines the addressable opportunity for asset managers.

Cerulli defines retirement income households as those that are on the cusp of retirement or newly retired, with occupants between ages 55 and 69. Cerulli estimates that there were 26 million households in this group in 2010. (That works out to an average of $181,346 per household.)

These findings are from The State of the Rollover and Retirement Income Markets: Sizing, Segmentation, and Addressability 2011, currently available for purchase from Cerulli.

Why ages 55 to 69? A window of opportunity opens at 55 and closes at 70. Before age 55, savings isn’t an acute focus, according to Cerulli. Once consumers reach their 70s, they have generally established a retirement income plan and will stick with it. Those assets are relatively locked up and are not entirely addressable by financial services firms.

“However, the ages between 55 and less than 70 appear particularly ripe for the advice, guidance, and products that support retirement income strategies,” said Tom Modestino, head of Cerulli’s retirement practice.

Also, 55 to 59-year-olds are the “most populated” in terms of households and maintain the highest percentage of retirement accounts at 46% of investable assets. Just over a third of this group’s investable assets are in direct-held mutual funds, stocks, and bonds, Cerulli has found.

“Knowing the size and location of investor assets does not necessarily translate into money in motion toward retirement income solutions, but it’s a strong gauge,” said Alessandra Hobler, analyst in Cerulli’s retirement practice.

© 2012 RIJ Publishing LLC.

Some of the funds for The Highway Investment, Job Creation and Economic Growth Act of 2012 (now in the Senate Finance Committee) may come from requiring certain beneficiaries of IRA distributions to pay their taxes sooner, according to a recent blogpost by the Employee Benefit Research Institute’s Nevil Adams.

“The Senate provision demonstrates how the current budgetary and economic pressures in Congress—particularly in an election year—make the tax treatment of retirement savings a major target for any number of legislative initiatives, including those that have little or nothing to do with retirement,” Adams wrote.

The blogpost references a press release last week from Senate Finance Committee Chairman Max Baucus (D-Mont.). The release describes several proposed sources of the revenue for the job-stimulating Highway bill, including $4.648 billion over 10 years from a change in the rules for IRA distributions after the death of the IRA account holder.

Under the proposal, any beneficiary of an IRA account who is not the account holder’s spouse, isn’t chronically ill or disabled, isn’t a minor or someone within 10 years of the account holder’s age, would be required pay taxes on the inheritance within five years of the account holder’s death.

Currently, stretching the taxable distributions over many years, such as the lifetime of a very young person, is a possible strategy for softening the tax on inherited tax-deferred retirement funds. According to a Wall Street Journal article cited by the EBRI, a House version of the highway bill did not draw funds from changing the taxation of IRA distributions.

Other proposed funding sources for the highway bill were:

Additional Transfer to the Highway Trust Fund of Proceeds on Certain Imported Tariffs.  The Chairman’s Modification would transfer additional tariff revenue to the Highway Trust Fund for such a period as necessary to fully fund the Highway Trust Fund.  This provision would transfer $2.618 billion to the Highway Trust Fund.

Reverse Morris Trust Transactions.  Under current law, taxes are generally imposed on parent corporations where they extract value in excess of basis from their subsidiaries prior to engaging in a tax-free spin-off transaction.  The Chairman’s Modification would treat distributions of debt securities in a tax-free spin-off transaction in the same manner as distributions of cash or other property. Subject to a transition rule, the provision would apply to exchanges after the date of enactment. This provision is estimated to raise $244 million over ten years.

Modification to Provision to Close Black Liquor Loophole (portion of Crapo #1).  The Chairman’s Modification would allow taxpayers to claim and carry forward the Section 6426 50-cent per gallon credit but not the Section 40 $1.01 per gallon cellulosic tax credit for black liquor produced prior to January 1, 2010.  This provision is estimated to raise approximately $1.588 billion over ten years.

Clarify IRS Levy Authority for Funds in a Thrift Savings Plan Account (Hatch #2).  The Chairman’s Modification would provide that funds in Thrift Savings Plan accounts of federal employees would be subject to legal process by the Internal Revenue Service for payments of delinquent taxes.   This provision is estimated to raise $25 million over ten years.

Parity for Exclusion from Income for Employer-Provided Mass Transit and Parking Benefits (Schumer, Menendez, Carper, Cardin #1).  The Chairman’s Modification would extend through 2012 the increase in the monthly exclusion for employer-provided transit and vanpool benefits to that of the exclusion for employer-provided parking benefits.   This provision is estimated to cost $139 million over ten years.

Bank Qualified Bonds (portion of Bingaman #2).  The Chairman’s Modification includes a modified version of an amendment that would expand the ability of small issuers to sell bank-qualified bonds from $10 million to $30 million for bonds issued after the date of enactment and before January 1, 2013.  This provision is estimated to cost $356 million over ten years. 

AMT Relief on Private Activity Bonds (Kerry, Menendez #2).  The Chairman’s Modification would provide alternative minimum tax (AMT) relief to investors in private activity bonds that are issued after the date of enactment and before January 1, 2013.  This provision is estimated to cost $215 million over ten years.

Transportation and Regional Infrastructure Bonds (TRIPs) (Wyden #1).  The Chairman’s Modification would create placeholder language that would amend Title 23 of the United States Code to allow state infrastructure banks to issue TRIP bonds, 100 percent of the proceeds of which must be spent on qualifying transportation projects and the term of the bond cannot exceed thirty years.  The provision would also allow state infrastructure banks to create TRIP bond accounts, which is where proceeds from TRIPs would be deposited.  The provision does not have a revenue effect.

© 2012 RIJ Publishing LLC. All rights reserved.

The issues I’ve been discussing over the last year or two, while now crystallizing, remain highly problematic.

The idea of Greek default transformed from being a Greek punishment to a gift, with the pending question, ‘If Greece doesn’t have to pay, why do I?’ threatening a far more disruptive outcome that is yet to be fully discounted.

That is, should Greek bonds be formally discounted, the consequences of merely the political discussion of that question will be all it takes to trigger a financial crisis rivaling anything yet seen.

And note, also as previously discussed, that there has yet to be an actual Greek default, and that all Greek bonds have continued to mature at par, as there has yet to be an acceptable alternative.

So what are the alternatives?

1. Continue to fund Greece with terms and conditions.
2. Don’t fund Greece, which forces:
  a. Greece to limit spending to actual tax revenues, or
  b. Greece to move back to the drachma.

And what are the ‘terms and conditions’?

Austerity is always the lead demand, which slows both the Greek economy and to some extent the euro zone in general.

Additional demands currently include discounting Greek bonds to bring down their debt to GDP ratio to ‘sustainable’ levels. However, after eight months of negotiations, this has proven highly problematic, probably for reasons yet to be fully disclosed.

And, as just discussed, there may be a growing awareness that discounting opens Pandora’s box with the politically attractive question ‘if Greece doesn’t have to pay, why do we?’

So what actually happens?

My best guess, and not with a lot of conviction, is that nothing is concluded before the coming maturity dates, and the ECB winds up writing the check to support short term Greek funding to buy more time for more inconclusive discussion. So, again as previously discussed, seems like this is the solution- death by 1,000 cuts and reluctant ECB bond buying when push comes to shove to keep it all going.

And, currently, the catastrophic risk I’d highly recommend immediately hedging is the risk that Greek bonds are formally discounted, rapidly followed by a global discussion of ‘So why should we have to pay?’

Possible immediate consequences of that discussion include a sharp spike in gold, silver, and other commodities in a flight from currency, falling equity and debt valuations, a banking crisis, and a tightening of ‘financial conditions’ in general from portfolio shifting, even as it’s fundamentally highly deflationary. And while it probably won’t last all that long, it will be long enough to seriously shake things up.

What’s in Capital One’s Wallet? ING Direct

After eight months of hearings and debate, regulators on Tuesday approved Capital One’s $9 billion acquisition of ING Direct USA was approved this week by regulators who discounted criticism that the deal would create another too-big-too-fail bank.

In June, Capital One agreed to pay $6.2 billion in cash for ING Direct USA. Under the terms of the deal, Capital One would also issue $2.8 billion worth of new shares to ING, giving the Dutch firm a 9.9 percent stake.

The Federal Reserve’s consent, which held public hearings on the matter and twice postponed plans to announce a decision on the deal, came with the condition that Capital One revamp its internal controls, specifically around its lending and debt-collection practices.

The bank, according to a Capital One spokesperson, plans to close the deal in the next few days. It will have 90 days to outline its plan to strengthen its compliance and other risk-management controls.

The deal presented the first major test case for the post-financial crisis regulatory regime. As part of the Dodd-Frank financial regulatory overhaul, the Fed must now weigh the potential hazards of big bank mergers and kill any deal in which the systemic risks outweigh the rewards.

The addition of ING’s online banking unit in the United States will make Capital One—previously not among the top ten—the fifth largest U.S. bank by deposits. With more than $200 billion in deposits, it will be larger than PNC and TD Bank.

Community bankers and consumer advocates, such as the National Community Reinvestment Coalition, had characterized the deal as a risk to taxpayers and Capital One as an aggressive subprime lender. Capital One argued that the deal would bring a broader range of loan products to ING Direct customers.

It is the latest move by Capital One to build a national banking franchise, in an effort to expand beyond credit cards.

In the wake of the financial crisis, Capital One has also bought Chevy Chase Bank in Maryland and the mortgage business of North Fork Bank in California. Last August, Capital One announced plans to buy HSBC’s American credit card business for $2.6 billion. Capital One expects the HSBC acquisition will gain regulatory approval in the second quarter of 2012.

New York Life to keep hiring in 2012 

New York Life aims to hire 3,700 financial professionals in 2012, recruiting 3,600 new agents in 2011, the company said in a release.

Women and individuals who serve ethnic markets will be actively sought, the release said. In 2011, 57% of those hired were women or individuals who represent the cultural markets. An additional recruitment focus for 2012 is men and women transitioning to the workforce from the military.

Also, Eagle Strategies LLC, the registered investment advisory and subsidiary of New York Life, plans a 50% increase in the number of advisors in the network by 2015, or 500 new advisors, to a total of 1,500.

Guardian amps up its small-plan sales campaign   

The Guardian Insurance & Annuity Company, a unit of Guardian Life, has added three new hires to its 401(k) sales force. The new hires follow a year of expansion by Guardian in the small plan market (under $5 million).

Jason Frain was appointed vice president, 401(k) Product Management and Development, Guardian Retirement Solutions. Frain joined Guardian with more than 13 years experience in the retirement industry.

Guardian announced that the services of SWBC Investment Advisory Services LLC, an independent registered investment adviser, would be available to plan sponsors who utilize The Guardian Advantage or The Guardian Choice as the funding vehicle for their participant directed qualified retirement plan. The services of SWBC can help mitigate a plan sponsors’ risk for selecting, monitoring and diversifying the investment options that are available under the plan.

Guardian also introduced a new presentation, “Are You F² Prepared: Navigating the Fiduciary and Fee Disclosure Regulatory Landscape” that can help financial professionals understand the differences between advice and education and the implications these two different approaches may have on fiduciary liability under ERISA.

In addition, the Guardian Advantage fund line-up was expanded by 23 new investment options for a total of 79 and The Guardian Choice fund line-up added 28 options for a total of 84.

LPL Financial and AXA Advisors extend clearing agreement

LPL Investment Holdings Inc., parent of independent broker-dealer LPL Financial LLC, and AXA Advisors, LLC announced the extension of their custody and clearing agreement, effective immediately.

LPL Financial will continue providing advisory, brokerage, clearing and custody services to AXA Advisors and its financial professionals.

“AXA Advisors’ broker-dealer platform is a critical component of our retail distribution business,” said Christine Nigro, president of AXA Advisors. “This renewal is a natural extension of our ongoing efforts to provide clients with an innovative and robust investment platform.” 

Envestnet to acquire Prima Capital for $13.75 million

Envestnet, Inc., a provider of integrated wealth management solutions for financial advisors, has agreed to acquire Prima Capital Holding, Inc., a provider of investment manager due diligence, research applications, asset allocation modeling and multi-manager portfolios to the wealth management and retirement industries.

The $13.75 million cash acquisition is subject to post-closing adjustments and to customary closing conditions, including third-party consents. It is expected to be completed by April 15, 2012.

Prima’s clientele includes regional broker-dealers, trust companies, independent RIAs, family offices and seven of the top 20 banks in the U.S. by total assets.

The acquisition of Prima extends Envestnet’s range of offerings to financial advisors. Envestnet plans to enhance its wealth management solutions with Prima’s web-based advice, analytics and data on managed account strategies (UMA and SMA), mutual funds, ETFs and alternative investments.

As part of Envestnet, Prima can leverage its innovative wealth management technology platform and investment product solutions. The Envestnet due diligence process will also be enhanced by Prima’s research process and tools, the companies said in a release.

J. Gibson Watson III will become group president of Envestnet • Prima, a unit within Envestment. Watson founded Prima in 1999. Broadridge Financial Solutions, Inc. acquired majority ownership of Prima as part of Broadridge’s acquisition of Matrix Financial Solutions, Inc. in January 2011.  

Sterne, Agee & Leach, Inc. acted as the exclusive financial advisor to Broadridge and the shareholders of Prima in connection with the sale of Prima to Envestnet. Mayer Brown LLP acted as counsel to Envestnet. Squire Sanders (US) LLP acted as legal counsel to Broadridge and Fairfield & Woods P.C. acted as counsel to the management shareholders of Prima.

Younger investors add little to IRAs: T. Rowe Price  

Less than half (45%) of younger investors plan to contribute to an Individual Retirement Account (IRA) for the 2011 tax year, according to a survey by T. Rowe Price, the no-load mutual fund and retirement company.

Most of those surveyed (55%) said they do not plan to fund an IRA or are unsure whether they will do so this during tax filing season, which ends April 17.  For 2010, 71% of these investors made an IRA contribution.

The decline in commitment to IRAs among Generations X and Y (defined as ages 35-50 and 21-34, respectively) appears to be being driven by several factors:

• A belief that current participation in a 401(k) plan is adequate for now (42%).
• A feeling that they can’t afford it (32%).
• Economic uncertainty (23%).
• Market volatility (14%).
• Job uncertainty (12%).

When asked what they would do with an extra $5,000, most investors (56%) said they would pay off existing debt or add to a “rainy day” fund; only 16% said they would contribute to an IRA.

Many younger investors, having experienced the subpar returns of equity markets over the past decade, may have lost some faith in stocks.  T. Rowe Price’s new study found that only 22% of Generation X and Generation Y investors feel confident about the financial markets heading into 2012.  Among investors who plan to fund an IRA this tax season, 28% said they will direct their contributions to relatively stable investments such as money market funds, despite the historically low current yields offered by these vehicles.

T. Rowe Price’s research into IRAs and the investing practices of Generation X and Generation Y investors was conducted online from December 1 to 12, 2011, by Harris Interactive among a national sample of 860 adults aged 21-50 who currently have one or more investment accounts.  

Pension funding down in all major global markets in 2011: Towers Watson   

Despite some improvements in the fourth quarter, pension funding levels in major global markets dropped in 2011 due to declining discount rates and weak asset returns, according to Towers Watson’s latest Pension Index.

Generally positive asset returns in the fourth quarter of 2011 were largely offset by declines in discount rates. As a result, overall movements in the Pension Index for the quarter were relatively small and mixed, ranging from a fall of 2.7% in the U.K. to a 4.4% increase in the U.S.

The Towers Watson Pension Index is a measure of funded ratio based on the projected benefit obligation (PBO) for a benchmark pension plan. The Pension Index is tracked across seven markets: Brazil, Canada, the Euro-zone, Japan, Switzerland, the United Kingdom and the United States.

Of the seven markets, the Canadian Index had the largest decrease (16%), followed by the U.S. (12%). The U.K. Index also dropped significantly, by almost 9%.

Asset returns were positive over the year; however, discount rates, which had been close to flat for the first three quarters, declined significantly in the fourth quarter.

© 2012 RIJ Publishing LLC. All rights reserved.

RIIA and DCIIA create joint initiative to foster in-plan income options

The Retirement Income Industry Association (RIIA) and the Defined Contribution Institutional Investment Association (DCIIA) have agreed to jointly manage a new working group of financial services and retirement industry firms seeking to spread the inclusion of life income options in defined contribution plans.

“Qualified retirement plans contain the largest pool of financial assets that many retirees will be able to accumulate in their lifetimes,” said Francois Gadenne, executive director of RIIA.  

“Few income programs have been offered inside of defined contribution plans, [largely] because of the uncertainty surrounding the tax and fiduciary considerations,” said Lew Minsky, executive director of DCIIA. “We now have a clear indication of executive branch support that will help plan sponsors that would like to offer these programs to their employee participants.”

The Defined Contribution Lifetime Income Working Group hopes to “create a framework that helps participants to effectively use the assets they’ve accumulated inside their qualified plans to pay themselves during their retirements,” the two organizations said in a release. RIIA is also sponsoring advanced training and education through its Retirement Management Analyst (RMA) certification which better prepares financial advisors to help plan participants properly construct their retirement income programs.

RIIA and DCIIA are urging interested firms and organizations to join the working group and become members of RIIA and/or DCIIA. Elvin Turner at RIIA [email protected] and Brenda O’Connor at DCIIA [email protected] have additional information.

Lincoln Financial reports 2011 results  

Lincoln Financial Group reported $1.3 billion in income from operations for 2011, up 27% from 2010, but net income fell to $290 million for the year from $812 million in 2010, the company said in a release. Share repurchases totaled $575 million in 2011.

Due mainly to non-cash goodwill impairment, Lincoln reported a fourth quarter 2011 net loss of $514 million, or $1.73 per share. For the same period in 2010, Lincoln reported net income of $196 million, or $0.60 per diluted share available to common stockholders.

But the company also reported fourth quarter 2011 income from operations of $303 million, or $1.00 per diluted share, compared to $266 million, or $0.82 per diluted share available to common stockholders in the fourth quarter of 2010.

The primary difference between net income and income from operations resulted from a $747 million non-cash goodwill impairment charge related to the life insurance and media businesses, the company said in a release.

“Lincoln’s 2011 operating results reflect continued strength in flows and deposits across our businesses, ongoing product re-pricing to achieve targeted returns, and significant capital management activities,” said President & CEO Dennis R. Glass.  “We continue to give priority to relative returns in our capital allocation and business decisions, balancing reinvestment in our core businesses with the opportunity to create value through increased share repurchases.”

Prudential Retirement awarded $28 million from State Street

Prudential Retirement Insurance and Annuity is entitled to $28 million under a ruling by a federal court judge who found that State Street Bank and Trust breached its fiduciary duty in managing two fixed-income funds in which Prudential’s 401(k) clients had invested. State Street intends to appeal, its attorney said.

Prudential filed the lawsuit in October 2007 after nearly 200 retirement plan clients with investments in two bond funds managed by State Street Global Advisors — the Government Credit Bond Fund and the Intermediate Bond Fund — suffered losses over July and August 2007 of 23.9% and 16.9%, respectively, even as the funds’ benchmark indexes were gaining 2.1% and 2.2%.

Much of the 78-page judgment focused on whether Prudential was justified in believing those funds were “enhanced” bond funds taking incremental risks or fully active funds taking greater risks, with the judge concluding in Prudential’s favor.

U.S. District Court Judge Richard J. Holwell in New York, in his written ruling, said State Street had not managed those bond funds prudently and did not diversify them “so as to minimize the risk of large losses.”

However, Mr. Holwell said Prudential failed to prove that State Street had “breached its duty of loyalty to the plans.”

The judgment noted that State Street employees were aware of the deteriorating situation in the subprime market for asset-backed securities in 2007 but that the company “largely ignored the results of its own investigation,” allowing the bond funds to continue increasing their exposure to that segment of the market.

Women investors expect more from financial services providers than men, according to the results of a new survey of some 4,500 U.S. households by Hearts & Wallets, the Boston-area retirement and savings trends research firm.

The study revealed that women investors, who are now the sole heads of one in three U.S. households, are “much pickier” than men regarding financial firms and advisors.  

“Women find several key financial tasks more difficult than men, notably retirement planning, and are getting less help with this task. More women than men also describe themselves as very inexperienced about investing and anxious about their financial future,” said Chris Brown, Hearts & Wallets principal. 

Key findings of Hearts & Wallets Quantitative Panel 2011 Insight Module “Understanding Women Investors” include:

• 45% of women (versus 31% of men) are concerned about “making assets last throughout retirement/outliving my money.”  
• 56% of women find retirement planning difficult (versus 51% of men).
• 12% of women seek help for retirement planning (versus 56% of men).
• 35% of women (versus 26% of men) feel moderate to high anxiety about their financial future.
• 41% of women (versus 27% of men) say they are very inexperienced with investing.
• 15% of women understand how their primary financial services provider makes money—a key trust driver—versus 25% of men.  

“Low fees,” “clear and understandable fees,” and “explains things in understandable terms” are what women value most in a financial services firm. Women ranked these attributes at least 10 percentage points higher than men.

“Women want to know what they’re paying for, and how to evaluate providers,” said Laura Varas, Hearts & Wallets principal. “Our study points to the importance of educating women on fees.”

From advisors, “Does not pressure me to buy products,” “is open/honest about fees and compensation,” and “is responsive” were the attributes women expected most, by at least nine percentage points more than men.

The study found women tend to own fewer types of investment products than men, and have higher allocations to bank products, because of lower risk tolerance and lack of financial experience.

 “Asset managers, broker-dealers, employer-sponsored plans and others can help women become more comfortable with asset categories that can lead to long-term wealth creation,” said Brown.

© 2012 RIJ Publishing LLC. All rights reserved.