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The Department of Labor issued the following release offering guidance on electronic disclosure of plan and investment information to retirement plan participants:

A year after publishing disclosure requirements for participant-directed retirement plans, the U.S. Department of Labor (DOL) has issued interim guidance regarding electronic delivery of the disclosures.

The participant-directed plan disclosure rule establishes new requirements for the disclosure of general plan-related information, and investment-related information, to plan participants and beneficiaries who are permitted to direct investments for their retirement plan accounts.

The rule applies to plan years beginning on or after November 1, 2011, although the earliest date on which disclosures will have to be made under a transition rule is May 31, 2012 (which is the applicable date for calendar-year plans).

Two approaches

In view of the upcoming applicability date of the new disclosure rule, DOL recognized that some form of interim relief would be necessary since it is unlikely to provide final regulatory guidance until after the applicability date. The interim relief, contained in Technical Release 2011-03 (released on September 13, 2011, in conjunction with a webinar on the disclosure rule), provides two approaches.

The first approach is available for disclosures that are included in a pension benefit statement, which can only be the case for “plan-related” information (“investment-related” information cannot be provided as part of a benefit statement). These may be furnished in the same manner that the other information in the same pension benefit statement is furnished. This permits the use of a secure continuous access website, in accordance with DOL’s prior good-faith compliance standard for the provision of benefit statements. No affirmative approval is required.

The second approach is available for disclosures that are not included in a pension benefit statement. There are two options. The first is to use DOL’s existing safe harbor rule, which, as described above, requires affirmative consent from participants who do not have workplace computer access. The second is an interim procedure using a modified affirmative consent approach, which is available pending further guidance.

The interim procedure requires the following:

1. The participant is provided with an “initial notice” that describes the voluntary nature of providing an email address for electronic delivery purposes (see next paragraph), the consequence of disclosure being made electronically, the information that will be furnished electronically and how it can be accessed, the availability of a paper copy, the ability to opt out of electronic delivery at any time, and the procedure for updating the email address.

2. In response to the “initial notice” described above, the participant voluntarily provides an email address for purposes of receiving these disclosures.

• DOL emphasized that “voluntary” means “voluntary.” For example, the email address cannot be required as a condition of employment, nor can the employer’s assignment to the participant of an email address be considered “voluntary” for this purpose. However, if the participant is required to provide an email address to obtain secure continuous website access to pension benefit statements, that would be considered sufficiently voluntary for this purpose.

• DOL has provided a limited exception to the “voluntary” requirement through a “special transition provision,” available at the time the first initial disclosures are required under the participant disclosure rule. Under this provision, if the employer, plan sponsor, or administrator has an email address on file for a participant (subject to certain limitations), it can treat the initial notice and voluntary requirements as satisfied if an initial notice, containing most of the information described in section 1 above, is furnished to the participant in paper form (or by email if there is evidence of electronic interaction between the plan and the participant within the last 12 months (DOL gave examples of what would meet this requirement)), no earlier than 90 days or later than 30 days prior to the date of the first initial disclosures required under the new disclosure rule (e.g.,May 31, 2012 for calendar-year plans).

3. The participant is provided with an “annual notice” containing most of the same information as the initial notice, including the ability to opt out. The annual notice must be furnished in paper form unless there is evidence that the participant has interacted electronically with the plan since the last annual (or initial) notice was provided.

4. The plan administrator takes “appropriate and necessary measures reasonably calculated to ensure that the electronic delivery system results in actual receipt of transmitted information.” For example, the plan administrator could use a “return receipt” or “notice of undelivered electronic mail” feature or conduct periodic reviews or surveys to confirm receipt.

5. The plan administrator takes appropriate and necessary measures reasonably calculated to ensure that the electronic system protects the confidentiality of personal information.

6. Notices are written in a manner calculated to be understood by the average participant.

DOL cautioned that this guidance has the effect of a “no enforcement” policy, and does not necessarily affect the rights or obligations of other parties. This appears to mean that there is no assurance these standards would apply in the event of a participant lawsuit claiming a failure to provide the required disclosures.

Striking a balance

The DOL guidance attempts to strike a balance between the opposing concerns raised by the comments. The plan sponsor community generally asked for a “negative consent” approach, whereby a plan administrator could deliver disclosures electronically unless the participant opts out; the other side asked for stronger affirmative consent requirements before permitting electronic delivery.

The interim approach does not go as far as a negative consent approach, still requiring some form of affirmative consent, but provides limited special rules that describe circumstances where affirmative consent can be inferred. The issue for plan sponsors and administrators is to determine the extent to which these limited special rules are available to their plan participant populations.

There will likely be further discussion of electronic delivery issues as DOL progresses toward its goal of modifying its existing safe harbor rule. The experience of plans using the approaches described in the current guidance is likely to influence the direction of those further changes.

Vanguard and Ascensus to provide 401(k) plans to small companies

Vanguard, the low-cost investment provider, said that it will partner with Ascensus, a recordkeeper and administrator of small retirement plans, to offer bundled services for 401(k) and profit-sharing plans with assets of $20 million or less.

The service is expected to launch in the fourth quarter with “all-in” plan costs—total investment and recordkeeping costs—anticipated to be among the lowest in the industry, Vanguard said in a release.

“The new service will include funds, recordkeeping, call center services, compliance testing, participant education, and optional services such as participant advice, self-directed brokerage, and trustee services,” the release said.

Vanguard received the top ranking for overall satisfaction as well as satisfaction with investment performance and value for cost from plan sponsors in Boston Research Group’s 2010 Plan Sponsor Satisfaction and Loyalty Study.

Ascensus was ranked No. 1 in favorable impression of micro-plan providers in a Cogent survey published in June 2011.

Investors with guaranteed income stick with equities: Prudential   

Almost nine out of ten (84% of respondents in a new Prudential survey (“2006 to 2011: Changing Attitudes About Retirement Income”) indicated that if they had a retirement investment product with guaranteed income they would likely stay in the stock market through short-term losses, and 76% said that they would stay invested for the longer-term.

The two measures are higher than comparable survey results in 2006, by 10 and four percentage points respectively.

The new survey showed that Americans are more worried about retirement investment strategies now than five years ago.  Almost 60% are concerned about how much income they will need in retirement; 56% wonder if their investment strategy is right for their retirement needs (up 11% from 2006), and 68% are more cautious than ever.  About 73% worry about a significant decline in the stock market immediately before or after their retirement. 

Almost half (47%) hesitate to invest more in the market despite future growth opportunities.  Sixty percent feel that investing too aggressively is riskier than investing too conservatively, up nine percent from 2006.  More than 80% are concerned about inflation.  

Awareness of guaranteed retirement income products and strong interest in them seems to be up.  Three quarters of investors “find these products appealing” and 82% see them as “a valuable addition to their portfolio.”  More than half (52%) say that having stable income in retirement is a leading concern.  

The survey showed that investors value good advice; it also highlights a five-year trend toward self-reliance. While 48% “want guidance on the financial issues” the 32% now call themselves do-it-yourself investors, up from 23% in 2009, and 78% “hold themselves more accountable for investment decisions.”

For the study, Prudential polled 1,001 Americans in an online survey from May 4 – 12, 2011. The study compared data on investors’ retirement planning attitudes and concerns, to similar studies conducted in 2009 and 2006.

The study’s participants are a national random sample of heads of mass affluent households selected from panelists in the Research Now U.S. Consumer Panel. Prudential targeted respondents considered to be “Retirement Red Zone Investors.”

The participants were primary or joint decision-maker for household financial decisions, between the ages of 45-75 with household income and investable assets of at least $100,000 ($50,000 income if retired) and retirement savings of at least $100,000. The study has a margin of error of ±3.1% at the 95% confidence level.

“We are the Tomorrow Makers,” says AEGON/Transamerica 

AEGON’s operations in North America are consolidating under the organization’s strongest retail brand: Transamerica, the company said. In conjunction with this realignment, Transamerica will highlight the realignment and “reintroduce” the brand with a new ad campaign.

The campaign, developed with the brand communications agency JWT, carries the slogan, “We Are the Tomorrow Makers.” The ads will run on TV, in consumer and trade publications, as well as in online media.

The first of a series of television spots depicts the interior of the Transamerica Pyramid in San Francisco as a “factory” where, together with sales representatives, Transamerica employees “work to make tomorrows for their customers.”

Other advertising spots focus on Transamerica’s core insurance, investments and retirement businesses.

UMAs will reach the mass market investor: Celent

In a new report, “The Future of Advice: The State of the UMA and the Mass Market,” Celent provides a status update on the UMA sector and points the microscope on developments in the mass affluent market segment.
UMA structures are not generally marketed to the mass affluent, since minimums are generally over US$250,000 in investable assets, out of the reach of much of the market. In addition, adopting a UMA is a big mental leap for most mass affluent investors and their advisors.
In 2011 UMA asset growth has not matched the most optimistic projections. However, despite these shortcomings, discount brokerages are increasingly supplying platforms to support UMA delivery to a wider audience of investors, including the mass affluent segment.
“Mass affluent investors will find the UMA account structure increasingly useful and appropriate,” said David Easthope, research director with Celent’s Capital Markets Group and author of the report. “Industry momentum, advisor education, marketing, and technology will all advance the UMA structure to a broader audience over time.”

GuidedChoice offers ‘reality check’ for DC participants

GuidedChoice, a provider of investment advice, managed account services, and strategic solutions for retirement plans and individuals, has launched Retirement Readiness, a personalized report that lets retirement plan participants gauge and improve their savings progress.

 “The new offering meets a need in the marketplace for a participant ‘reality check’ that is both extremely clear and immediately actionable,” the company said in a release.

The Retirement Readiness report reflects each participant’s own data, such as projected retirement income (in today’s dollars), savings rate, and portfolio diversification. It also suggests next-steps and provides access to professional advice and asset management through GuidedSavings.

The new offering is based on a pre-launch version already in use by employees at select Fortune 500 companies, and extends the service to third-party administrators whose plan sponsor clients in the past lacked the connectivity required to deliver live, personalized retirement plan information.

“It’s an extension of what we routinely do for record keepers,” said Dave Bernard, GuidedChoice executive vice president of Strategic Relationships. “Only plans served by large record keepers have had access to this kind of product, and that left a lot of plans and participants out in the cold.”

Milliman and EagleEye Analytics extend partnership

Milliman, Inc., the actuarial consulting firm, premier global consulting and actuarial firm, announced the next phase in an alliance with EagleEye Analytics, which provides “predictive analytics” to the insurance industry. The co-venture will provide data intended to enhance the profits of life insurers and property & casualty insurers.

Milliman’s consulting services and analytic software from EagleEye’s analytic software can be used by companies “to improve strategies for growth, identify underperforming segments, and develop priorities for re-underwriting or rate actions,” the companies said in a release.  

Barron’s includes five LPL Financial advisors in its “Top 100” list

Five advisors associated with independent broker-dealer LPL Financial were among the “Top 100 Independent Financial Advisors” recently chosen by Barron’s, the financial magazine. 

The magazine rates retail financial advisors in U.S. on the basis of assets under management, revenues generated and “the quality and strength of the advisor’s overall practice,” said LPL in a release.

The LPL Financial advisors were:

• Ron Carson (ranked eighth) is founder and CEO of Carson Wealth Management Group ($3.1 billion in AUM) of Omaha, Nebraska.   

• John Waldron (ranked 21^st) is founder and CEO of Waldron Wealth Management ($2.4 billion in AUM) of Pittsburgh, Pennsylvania. 

• Charles Zhang (ranked 37^th) is managing partner of Zhang Financial ($1.3 billion in AUM) of Portage, Michigan.

• Susan Kaplan (ranked 41^st) is president of Kaplan Financial Services ($1.3 billion in AUM) of Newton, Massachusetts.

• Robert Fragasso (ranked 97^th) is chairman and CEO of Fragasso Financial Advisors ($750 million in AUM) of Pittsburgh, Pennsylvania. 

California age-in-place “villages” to get $1.3 million in grants  

The Archstone Foundation, a Long Beach, Calif.-based charity that helps older Americans, has granted $1.3 million for the expansion of “Villages” in California where older adults “can age in place with maximum independence and dignity.”

Villages are self-governing, membership driven, non-profit organizations run by small staffs and volunteers working together to build welcoming communities, provide social supports, and coordinate affordable services, including transportation, in-home medical care, home repairs and other day-to-day needs for elderly people wishing to remain in their home and communities.

The first Village was the Beacon Hill Village in Boston, set up in 2001. Currently, eight Villages have opened in California and 21 more are in development. Nationally, 55 Villages are operating and 120 more are in various stages of development, the Foundation said in a release.

Villages supported by these grants will receive training in business planning, marketing, sustaining growth and viability, creating and managing strategic partnerships, and designing member programs, services, and benefits.

The grants “represent an investment in Creating Aging Friendly Communities through the Expansion of Villages, which seeks to further understand and document the varying village models being developed,” Archstone Foundation said in a release. 

Fidelity collects $17 billion in first half of 2011

Fidelity Investments reported it has received defined contribution (DC) commitments representing 315,000 participants, 269 plans and $17 billion in assets under administration in the first half of 2011, strengthening its lead position in the industry.

More than $15 billion were a result of new clients to Fidelity, with the remaining $2 billion from merger and acquisition activity with existing clients. Fidelity also announced that it is seeing robust sales commitments for 2012, which have already exceeded more than $6 billion.

Fidelity reported significant increases in sales in the emerging, mid, large and tax- exempt markets. Tax-exempt sales, in particular, rose significantly over last year as Fidelity continued to make investments in this sector to support health care and higher education markets as they looked to consolidate providers.

In addition, corporate market sales were up from the prior year as Fidelity honed in on several industries including professional services.

Fidelity Investments had $3.4 assets under administration, including managed assets of more than $1.5 trillion, as of August 31, 2011.  

The director of a trade association for public sector pension funds has proposed a new type of retirement plan to give private sector workers who aren’t in a pension plan a guaranteed lifetime income.

“We are proposing a new alternative, a modification of the cash balance pension model, to address the retirement security crisis that faces the private sector,” said Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems, or NCPERS.

The proposed Secure Choice Pension (SCP) would “provide the flexibility and portability that the increasingly mobile private work force needs, while spreading investment risks and costs over large pools of plan participants and employers,” said NCPERS in a release.

As the proposal, each state would establish its own SCP, to be administered by a board of trustees made up of public and private representatives. Private sector employers would join an SCP, allowing their employees to participate in that SCP.

Participating employers and employees would both make regular contributions to the SCP.  SCPs would give participants the lower costs, efficiencies, economies of scale and professional money management of a large pension plan.   

At retirement, the SCP would provide participants with a guaranteed minimum retirement income, but the SCP’s trustees could declare a “dividend” during a strong economy that would increase that benefit.

“At best, most private sector employees have only two of the three legs of the retirement stool. They have Social Security and some have personal savings, which includes 401(k)s. SCPs are a way to bring back the third leg of the stool for those workers who currently don’t have a pension,” Kim said.  

NCPERS’ full proposal for the Secure Choice Plan is available at www.retirementsecurityforall.org.

©  2011 RIJ Publishing LLC. All rights reserved.

Government regulation and more transparent fee reporting are driving both innovation and consolidation in the 403(b) retirement plan market, according to Retirement Research Inc., a Connecticut-based consulting firm.

“Consolidation has allowed the major players to fully leverage their brand,” the firm said in a release. “Fidelity, ING, TIAA-CREF and VALIC continued to solidify their positions in the marketplace—the big became bigger. We expect bundled providers to continue promoting the benefits of a single vendor as a means of streamlining recordkeeping and administration and reducing administrative fees.”

According to the release, “the new rules are making 403(b) plan sponsors increasingly aware of their heightened fiduciary exposure.  They may also help reduce plan fees. Since the new rules went into effect, more employers have also joined consortia to boost buying power and lower costs.”

RRI managing principal Ron Bush said, “Because of the dramatic and rapid necessity for regulatory compliance regulations, in an unprecedented spirit of cooperation, 403(b) providers, advisors and TPAs began to work cooperatively to avoid what could have become a nightmare.”    

RRI expects bundled providers to create triage teams that will become expert at corrections that arise. “Eventually, non-ERISA plans will cease to exist. For most plan sponsors, making sure that they are not acting in any administrative capacity will end up being more work than to simply comply,” said Aleida Herzog, RRI Director of Tax-Exempt Markets.

Retirement Research Inc. offers profiles of leading providers and products in the defined contribution market, interactive web-based competitive analysis tools covering both product and investment platforms, topical research reports and research-based consulting services.

RRI’s 403(b) Market Overview  is available for sale from the company.

Denmark’s new left-leaning Social Democrat-led government is expected to let the retirement reform measures of its more conservative predecessor pass through parliament, including an increase in the retirement age.

But the new coalition is expected to make its own changes to the pension laws, notably by limiting tax-favored contributions to plans, IPE.com reported.

One retirement reform proposal already in the works would shorten the period during which people could take their early-retirement pension to three years from five, said a statement from Danica Pension, a unit of Danske Bank and Denmark’s leading life and pension company. 

Both the Social Democrats and the Socialist People’s Party have pledged to limit tax-free pension contributions to DKK100,000 (€13,000) a year, while the Social-Liberal Party favored a higher limit of DKK150,000. No ceiling currently exists.

Danica Pension told its customers that 2011 could therefore be the final year before their contribution allowance was reduced.

The Social Democrats and Socialist People’s Party may also introduce a 0.25% tax on stock transactions. Members of the Social Democrat-led coalition have also discussed allowing Danish pensions institutions to become commercial lenders.

Meanwhile, the Danish Insurance Association (Forsikring & Pension) objected to the projected changes.

“A new pension ceiling will create insecurity and a lack of transparency. It will dent the incentive to save, without seriously ensuring more money for the state,” managing director Per Bremer Rasmussen said.

The incoming coalition government, the so-called ‘red bloc’, includes the Social Democrats, the Socialist People’s Party, the centrist Social-Liberal Party and the left-wing Red-Green Alliance.

The outgoing ‘blue bloc’ in the Danish parliament includes the Liberal Party of former prime minister Lars Løkke Rasmussen and the Danish People’s Party.   

© 2011 RIJ Publishing LLC. All rights reserved.

While exploring the dozens of booths at the Financial Planning Association’s Experience 2011 conference and trade show at the San Diego Convention Center last week, I didn’t see a single exhibit sponsored by an annuity issuer.

To be more precise: companies that issue or market annuities had booths, but not for their annuity businesses. MetLife sponsored a booth for its reverse mortgage business. Allianz had one for its Global Investors asset management business. Ameriprise, Lincoln Financial, Nationwide Financial and New York Life all had booths—but for their investment businesses, not their annuity businesses.

That was mildly surprising. Annuity issuers have long stressed the importance of proselytizing to advisors. Independent advisors bring in about one in three variable annuity contract dollars, according to Morningstar. Advisors control access to the end-client. So why weren’t the life insurers here in balmy San Diego, courting their top constituency?

Conference attendees were clearly curious about retirement distribution. This year the FPA classified its breakout sessions according to seven themes, called Community Education Tracks. The sessions in the “Longevity and Retirement Planning” track were among the most heavily attended and were often held in the biggest halls.

Hundreds if not over a thousand advisors listened to David Blanchett’s annuity-rich talk about “Making Retirement Income Work,” and to Ron Kessler’s presentation on “Retirement Drawdown Strategies to Optimize Your After-Tax Cashflow” and to Rod Greenshield’s session on “Retirement Investing Insights.” 

Because I (and probably many other attendees) had to catch a departing plane before three last-day presentations, John L. Olsen’s “Intelligent and Suitable Uses of Annuities in Retirement Income Planning” and Kevin Seibert’s double-feature on “Retirement Income Planning for the Middle-Mass and Mass-Affluent Markets, Parts 1 and 2,” I can’t say exactly how popular they were.

The inclusion of so many retirement income-related presentations in the program was evidence that the FPA itself believes that the topic deserves attention and presumably reflected advisors’ appetite for decumulation strategies.

So, with so much support from the FPA and its presenters, why weren’t the annuity issuers there in force?

Clearly, advisors need more information about annuities and about the nuances of incorporating annuities into retirement plans. Judging by the fairly elementary content of David Blanchett’s presentation, and by the content of John Olsen’s slides, advisors are still learning the basics about annuities.

Sadly, they’re also still learning some of the wrong basics. It was disappointing to hear Mr. Blanchett use a single life-only contract as the only example in his discussion of the internal rates of return of single-premium immediate income annuities in general. You could hear a collective groan from the audience at a slide showing the potential negative return of a SPIA if the owner/annuitant died shortly after purchase.

This perpetuation of the “hit by a bus” myth must frustrate SPIA issuers. Sure, you lose all your money if you buy a single life-only contract and die shortly after. But how many people make the mistake of buying a single-life only contract? At TIAA-CREF, for instance, participants who annuitize generally buy life-with-period-certain that return most or all principal. According to New York Life, many or most of its contracts are sold with a cash-refund, which means the beneficiaries receive the unpaid principal.

It would have been refreshing to hear a speaker transcend annuity basics, and to hear about the way annuities can relieve hoarding by retirees, or allow retirees to spend or invest their other assets more freely, or about the “alpha” that mortality pooling can provide, or about the new risk-reducing strategies behind variable annuity investment options.

Someone should tell advisors that instead of spending endless hours trying to calculate (or guess) how much their clients can afford to spend in retirement, given this or that asset allocation, they can pay an insurance company to take some or all of the longevity risk off the table. Maybe next year.  

© 2011 RIJ Publishing LLC. All rights reserved.

Sweet deal: MassMutual to manage Godiva 401(k)

Godiva Chocolatier, Inc. has chosen MassMutual as the new retirement plan services provider for the company’s 401(k) and new nonqualified retirement plans. Godiva is headquartered in New York, N.Y., with production facilities in Belgium and the U.S.   

The Centurion Group, based in Plymouth Meeting, Pa., assisted Godiva with the search for a new retirement plan services provider.

Genworth names Amy Corbin CFO of Retirement and Protection  

Genworth Financial, Inc. has named Amy R. Corbin senior vice president and chief financial officer of its Retirement and Protection segment.  

Corbin, 44, joined Genworth in 2003 and has held a number of roles of increasing responsibility in financial management, most recently as Genworth’s controller and Principal Accounting Officer.

In her new role, she will provide overall financial leadership for the Retirement and Protection segment as well as financial and analytic expertise to drive consistent, profitable growth through Genworth’s commercial and capital allocation strategies.

Corbin received her Master’s of Science in Taxation and Bachelor’s Degree in Accounting at the University of Central Florida and is a Certified Public Accountant.  

While an internal and external search for Corbin’s replacement is conducted, she will also maintain her current responsibilities as Genworth’s Controller and Principal Accounting Officer.  

Morningstar reports U.S. mutual fund and ETF asset flows through August 2011

Morningstar, Inc. reported estimated U.S. mutual fund and exchange-traded fund asset flows through August 2011.

Redemptions from long-term mutual funds nearly doubled to approximately $32.5 billion in August after outflows of about $17.1 billion in July. August marked the most severe mutual fund outflows since November 2008. U.S. ETFs collected assets of just $947 million in August following July’s inflows of $17.2 billion. Although August’s inflows were meager, U.S. ETFs have realized only a single month of outflows in the trailing 12.

Additional highlights from Morningstar’s report on mutual fund flows:

• Despite August market volatility, U.S.-stock outflows fell to $15.5 billion during the month after redemptions of $22.9 billion in July.
• As an indication that risk aversion has spread to fixed income, investors pulled $12.0 billion from taxable-bond funds in August. Bank-loan and high-yield bond funds were hardest hit, with outflows of $7.3 billion and $5.1 billion, respectively.
• With assets fleeing all of the major asset classes during August, investors found refuge of a sort in money market funds, which saw inflows of $74.8 billion. This total was the biggest monthly inflow for such funds since January 2009, and partially reversed June and July’s combined $150.0 billion in outflows.
• Modest outflows continued for international-stock and balanced funds in August. The asset classes experienced respective outflows of $2.9 billion and $2.3 billion.

Additional highlights from Morningstar’s report on ETF flows:

• U.S. stock ETFs, which typically drive overall ETF flows, saw inflows of just $394 million in August.
• International-stock ETFs lost $5.5 billion during the month, the greatest outflow for any ETF asset class. This outflow also marks the largest monthly net redemption for international-stock ETFs in the past three years.
• Taxable-bond offerings, which added another $4.3 billion in August, saw greater inflows than any of the other ETF asset classes during the month.
• Commodities ETFs experienced outflows of nearly $2.0 billion in August.

In Europe, longevity index ETFs are discussed

Exchange-traded funds (ETFs) could be used for trading longevity once the market becomes sufficiently liquid, Deutsche Börse has suggested, according to a report from IPE.com.

Asked when the market would be liquid, Hendrik Rogge, who is responsible for the Deutsche Börse’s Xpect longevity indices, conceded it was a question Deutsche Börse would also like answered.

If liquidity develops, Rogge also told delegates at the Longevity Seven conference in longevity trading would be limited to ETF funds and future contracts, as regular trading would be impractical due to the monthly release of new data.

Introducing ETFs was a “possible solution” toward making longevity risk more tradable, he added, but that other stumbling blocks remained. For instance, it has been “hard to find a first mover” to commit to a first trade.

“I don’t think we will see day traders on longevity indices because changes occur on a monthly basis,” he said when asked about such a possibility. “It will be hard to find a day trader willing to trade within the days we publish these indices.”  

Nationwide Financial unveils Flexible Advantage

Nationwide Financial Services, Inc. has expanded its retirement plan offerings to include a new product, Nationwide Retirement Flexible Advantage, for use by retirement plan specialist advisors, most of whom receive fee-based compensation and who account for 70% of industry sales, up from 55% in 2005.   

The new package offers a range of investment options, no proprietary fund requirements, fee transparency, fee-based compensation and comprehensive support.  

The product’s features include:

• More than 900 mutual funds from 90 fund families, along with fixed investment choices, including the Nationwide Bank FDIC Insured Deposit Account.
• Several target date fund options, a self-directed brokerage account and managed accounts from multiple providers.
• Several fee-based pricing options, including per participant, percent of assets or flat dollar fee-based pricing options, or commission compensation.
• Upfront pricing so advisors can share expense information with their plan sponsor clients and participants. Flexible Advantage also offers Nationwide ClearCredit which enables Nationwide to lower overall plan costs.
• Fiduciary tools and support designed to help give advisors and plan sponsors meet fiduciary responsibilities.
• End-to-end sales support, plan reporting, participant education and an ERISA and regulatory online resource.   

AXA Equitable Life has tweaked the terms of the income benefit rider of its Retirement Cornerstone variable annuity to adapt to today’s perplexing interest rate environment.  

The insurer announced today a special two-year rate hold on the deferral bonus roll-up and annual withdrawal rates on the benefit bases of its Retirement Cornerstone variable annuity’s optional guaranteed income benefit rider.

The rates now in effect and valid through Dec. 31, 2011, are a 6% deferral and a 5.5% withdrawal. New business contracts issued Sept. 1, 2011 and later receive the deferral bonus roll-up and withdrawal rates that are in effect at contract issue for two contract years.

The product’s roll-up benefit base is used to calculate Retirement Cornerstone’s guaranteed minimum benefit or annual withdrawal amount. During the special two-year rate hold period, the 6% deferral bonus roll-up rate compounds on the roll-up benefit base, until clients begin to take withdrawals. A 5.5% annual roll-up rate on benefit bases compounds after the first withdrawal, within the two-year period.

Beginning with the third contract year, the roll-up benefit bases will have roll-up rates tied to the current 10-year Treasury rate plus 1.5% and will renew annually. Once a contract holder begins taking withdrawals (known as the “income phase”), the annual roll-up rate is equal to the 10-year U.S. Treasury rate plus 1%. Both rates can be as high as 8% and will never be less than 4%.

© 2011 RIJ Publishing LLC. All rights reserved.

Even though government data shows that 70% of older Americans will require help in bathing, dressing, or eating, fear and wishful thinking prevent many from planning for long-term care, according to a new report from Sun Life Financial.  

The second in a series of retirement pulse polls by Sun Life Financial, “Shut Your Eyes and Hope for The Best: American Attitudes Toward Long Term Care Planning,” surveyed both mainstream and affluent Americans age 50 and older.

The results include:

• Over half of Americans aged 50 and older worry about long-term care costs, and only 16% feel prepared to finance their long-term care.
• Median respondents don’t realize that based on conservative historical inflation rates, the cost of nursing home care could more than double by 2030. Conservative projections put long-term facility costs (currently averaging $85,000) at $190,000 in 2030.
• Most people dread nursing homes. 83% of Americans age 50 and older (83%) would rather survive five years at home than 10 years in a nursing home.
• 32% of respondents with a partner said they would have to be physically forced to enter a facility if their partner were living in a different facility.
• Many respondents who have decided where they want to receive long-term care have not consulted key family members or advisors.

© 2011 RIJ Publishing LLC. All rights reserved.

Only four defined contribution investment managers are well known and well-liked by plan sponsors, according to the results of a survey cited in Cogent Research’s new report, Retirement Planscape 2011.

Those four investment managers are:

• Vanguard
• Fidelity Investments
• American Funds
• T. Rowe Price

Vanguard pulled ahead of the group of 36 leading DC investment managers to score the highest in overall favorability. Fidelity was rated first in overall awareness.

These and other findings are addressed in Retirement Planscape 2011, a new study by Cogent Research based on a representative survey of 1,600 DC plan sponsors across all plan sizes and industries.

“It’s not enough for a DC investment manager to have high brand awareness,” says Christy White, Cogent Principal. “The essential ingredients are for a brand to be both well-known and well-liked.”

BlackRock, PIMCO, Wells Fargo, ING, and Oppenheimer, are respected by plan sponsors but fewer plan sponsors know about them, Cogent said. That represents an opportunity for growth.

“These firms have already succeeded in creating a favorable impression of their brand,” said Linda York, Research Director at Cogent Research. “What they need to do is move beyond being well-liked by a few to become more well-known among a broader audience of DC plan sponsors.”

“None of the major players find themselves in the position of being well-known and disliked…  The vast majority are struggling just to be known to plan sponsors, let alone to have effectively differentiated themselves,” White said.   

© 2011 RIJ Publishing LLC. All rights reserved.

Russell Investments has proposed a new rule of thumb, which it calls Target Replacement Income 30 (TRI 30), to help defined contribution (DC) plan sponsors better answer the question “Are my participants saving enough?” and to re-design plans to improve participant behavior.

 “Describing one’s retirement savings rate in terms of target replacement income (TRI) can greatly simplify the retirement savings puzzle,” said Josh Cohen, defined contribution practice leader.

The savings rate suggested by Russell turns out to be higher than the 7% average participant deferral rate (for Vanguard plans) or the 10-11% that a survey by the Defined Contribution Institutional Investment Association recently showed that most plan sponsors recommend.

According to one example in a recent Russell report, “What’s the Right Savings Rate?” a person with a final pre-retirement income of $90,000 would need to replace 78% of that in retirement. If 36% of that came from Social Security, the remaining TRI would be 42% of $90,000. According to TRI 30, a participant would need to save 12.6% a year (combined deferral and match) each year for an entire career in order to have a 90% chance of achieving the replacement rate. 

How does Russell define “achieving the replacement rate?” According to its report, “We define success in meeting that goal as purchasing a nominal fixed annuity that provides the desired income replacement. We choose this method because it mitigates longevity risk, simplifying the ‘how much is enough?’ question.”

Russell also outlines additional considerations for determining an individual’s TRI in the paper, including the volatility of health care expenses and the challenges faced by lower-income participants.

 “Once a plan sponsor has decided on a reasonable TRI for their participants, the next step is to imbed that knowledge into the plan’s design through the company match and auto-features,” Cohen said.

Russell Investments has about $163 billion in assets under management (as of 6/30/11) and works with 2,300 institutional clients, and 530 independent distribution partners globally. As a consultant, Russell has $2 trillion in assets under advisement (as of 12/31/2010) and traded $1.5 trillion last year through its implementation services business. The Russell Global Indexes calculate over 50,000 benchmarks daily covering 85 countries and more than 10,000 securities. 

South Africa’s National Treasury has proposed the urgent introduction of mandatory preservation when it comes to retirement savings in “an alarming and near-catastrophic context,” said Deputy Minister of Finance Nhlanhla Nene, according to the Independent Online Business Report.

At the Retirement Funds Annual Conference this week, Nene said that the government was trying to help people who currently could work and earn an income to save and preserve their retirement savings, and in turn, not be a future burden on the state.

The National Treasury is doing a feasibility study on developing a Retail Bond-backed Retirement Annuity, he said.  “We envisage that such an annuity will provide some competition to the industry, and thereby provide individuals with a simple, transparent, and cost effective post-retirement annuity product.

“We, as the Ministry of Finance, continue to receive many complaint letters from pensioners and about-to-be pensioners complaining about the costs of retirement annuities. We are actively engaging with the industry to find a mutual solution to these high costs.”

 “I appeal to the industry to start simplifying their products, and making them transparent and cost-effective, since the survival of the industry depends largely on its customers, and also potential customers.” 

“It is estimated that only 6% of South Africans can afford to retire; i.e., that they can achieve a 100% replacement ratio,” he said.  “Why such a disturbingly low number? The answer is simple—because most individuals cash-in on their retirement savings when they change jobs and upon divorce settlement orders.”

The latest Sanlam Benchmark Survey showed that when workers cashed in their retirement savings prematurely, 36% used the money to pay short-term debt.

“The keywords are ‘short-term debt.’ This is probably debt we could do without if we exercised some prudence in our spending and desires,” Nene noted. Another 24% of the cashed-in retirement savings was spent on living expenses.  “This adds up to 60% of retirement money intended to provide a comfortable retirement being used to satisfy short term spending.”

Increased retirement savings would ultimately enable financial intermediaries to undertake long-term investments in the South African economy and spur economic growth.   

“However, given the difficult structural challenges in our economy, we do acknowledge that individuals need some of their retirement savings to keep them floating until they can be re-employed. But this restricted access should be for a limited amount and only triggered by certain life or death events like [unemployment],” Nene said.

 “The Sanlam Survey tells us that 76% of the individuals who prematurely cashed their retirement savings knew very well the tax consequences of their actions, and that 85% understood that their action could mean that they might not easily reach their retirement goals.”

Falling equities prices and tumbling bond yields continue to hurt the viability of pension funds in major industrialized economies, with potentially dire impact on the ability of members of the world’s Baby Boom generation  to retire on time and with adequate incomes, Reuters reported. 

As pension plans in the U.S., the euro zone, Japan and the UK “de-risk,” they implicitly reduce their long-term rate of returns and raise their need for fresh funds—funds that might otherwise be invested in business expansion. Overall, the shift from equities to bonds by pension fund managers has driven down stock prices and fixed income yields.

The global pension industry controls about $35 trillion, or about one-third of global financial assets. But funding deficits have been growing. 

“We had a credit crisis and government bond crisis, and [now we have] the pension crisis. Everything is going wrong and there’s no obvious way out,” said Kevin Wesbroom, UK head of global risk services at consultancy Aon Hewitt. “Liabilities are going up because, in the flight to quality, everyone gets out of equities and runs for cover in safe assets like government bonds. And yields are falling.”  

In the United States, funding deficits of the 100 largest DB plans rose by $68 billion to $254 billion in July, according to the Milliman Pension Fund Index. 

Even if DB sponsors in developed countries were to achieve an 8% return and keep the current benchmark yield of 5.12%, their funding status would improve only to 93% by end-2013, from the current 83%.

Aon Hewitt estimates deficits of DB pension plans for FTSE 350 companies rose £20 billion in the month of August to a 2011 high of £58 billion. Their funding ratio stands at 89.8%, down from 94.1% three years ago.

In Europe, the benchmark double-A rated corporate bond yield fell to 3.55% from more than 6% in the past three years, according to Barclays Capital. A 50-basis point drop in the discount rate roughly results in a 10% increase in pension liabilities.

“Trustees do want to de-risk but financial directors have an irrational desire to have equities. They are too wedded to equity markets,” said Pat Race, senior partner at investment consultancy Mercer. “You still have massive uncertainties with a potential for another dip into recession. I don’t see any reversion to days when equities are a dominant part of DB plans.”

Pension funds and insurance companies in the U.S., the euro zone, Japan and UK bought $173 billion of bonds in the first quarter, boosting their bond buying for the third quarter in a row, according to JP Morgan. At the same time, they cut equity buying for a fifth quarter in a row, selling $22 billion of stocks in Q1.

In Europe, pension funds reduced equity allocations to an average of 31% in 2011 from 43.8% in 2006, while fixed income holdings rose to 54% from 47.8% in the same period, according to Mercer.

Several industrialized countries have added automatic adjustment mechanisms to their national pension programs in response to rising longevity and increasing “dependency” ratios. 

 In Canada, for instance, taxes rise automatically if the Canada Pension Plan chief actuary determines that the system is not sustainable over the long run at the scheduled tax rate and if government ministers cannot agree on other actions to sustain the system.

In Sweden, automatic adjustments to the retirement age are based on changes in life expectancy, benefits that are in pay status depend in part on measures of worker productivity, and starting benefits are sensitive to the long-range solvency of the system. Indexing benefits and/or retirement age to changes in life expectancy has become common among European countries.

Now the American Academy of Actuaries is suggesting that the U.S. try similar measures to ensure the long-run solvency of the Social Security system. In an August 2011 Issue Brief, the AAA’s Social Security committee said:

• An across-the-board reduction to current and future benefits of about 14% would be required to bring the program into actuarial balance over the 75-year valuation period.
• At this time, an increase in the combined employer-employee tax rate of approximately 2.15 percentage points (split evenly between employer and employee) would bring the program into actuarial balance.
• Immediately increasing the normal retirement age from age 66 to age 67, followed by a continued increase by one month every two years until the normal retirement age reaches age 70, would reduce the long-range actuarial deficit by about a third.

“Automatic adjustments to benefits, taxes, or the normal retirement age could solve Social Security’s long-range financing problem permanently and automatically—and restore public confidence in the system. Without automatic adjustments, any legislation to restore the system to long-term financial stability might fall short of this goal if experience is less favorable than assumed, or if assumptions are changed, as happened after the 1983 legislation,” the actuaries wrote.

“Proponents of automatic adjustment approaches point out that, without such adjustments, Congress usually allows Social Security’s problems to mount until a crisis is reached, at which time the need for immediate, large-scale changes to the system inevitably causes some beneficiaries unnecessary financial harm.”

© 2011 RIJ Publishing LLC. All rights reserved.

Acknowledging that many defined contribution participants are not on-track to save enough for a secure retirement, TIAA-CREF Institute, the research arm of the non-profit retirement plan for educators, hosted a forum last December to ponder best practices or potential improvements in the design of 401(k) and similar plans.

In the August issue of its Trends and Issues publication, the TIAA-CREF published the results of its surveys of the participants in that forum and of subsequent surveys conducted among retirement experts.

The surveys revealed a rough consensus in such areas as plan participation, plan contributions, investment offerings, payout options, and education and advice. In the area of payout options, the TIAA-CREF Institute found that:

• Most survey respondents considered it appropriate for participants to have the opportunity to annuitize through a primary DC plan.
• Most did not feel that participants should be required to annuitize any of their assets.
• It is appropriate for a primary DC plan to offer a payout annuity distribution option, most experts agreed.
• An immediate fixed annuity was viewed as appropriate by 63% of respondents.
• An immediate graded annuity was viewed as appropriate by 75%.
• An annuity with payments beginning at a later age was viewed as appropriate by 75%. Lump-sum distributions were considered appropriate by 59%.
• Only 21% thought it appropriate to require annuitization of employer contributions.
• 31% considered it appropriate to require a minimum level of annuitization in a primary DC plan.
• 48% thought that such a requirement would be effective in promoting retirement income security.

In the area of investment offerings, “87% thought that an appropriately diversified investment portfolio for the typical participant could be constructed from five options or less,” not including a target date fund or balanced fund.  Those five were: a diversified global equity fund, an inflation-linked bond fund, a money market fund, a diversified domestic equity fund, and a deferred annuity.

If allowed to offer 10 investment options, the experts said, they would add a diversified international equity fund, a global bond fund, a domestic corporate bond fund, a real estate fund and an emerging markets fund to the five core funds listed above.

© 2011 RIJ Publishing LLC. All rights reserved.