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New web strategy for DST Retirement Solutions

DST Retirement Solutions, a provider of ASP (Application Service Provider) and BPO (Business Process Outsourcing) defined contribution solutions, is deploying a new strategy to help clients improve participant and plan websites.

Enhancements aimed at improving the “relevance, visual value and directness” of plan sponsor and participant websites include “video capabilities and increased levels of customization, including user preferences to drive tailored content to individuals,” DST said in a release.

The new strategy is built around a framework that includes:

• Enriched user experiences
• Content management
• Customization based on user preferences
• Security administration
• Collaborative processing
• Monitoring and measuring
• Information targeted to specific audiences

DST Retirement Solutions has engaged Makibie, a web consulting firm, to participate in the project. Makibie will focus on retooling sites to provide “a simplified model to clients that will help them differentiate, improve speed to market and provide consistency across all audiences.”

New York Life Retirement Plan Services reorganizes 

New York Life Retirement Plan Services has announced a new service model that “aligns service teams into core industry practices,” the company said in a release.

Joan Driscoll, a 24-year industry veteran with 18 years of experience at New York Life, has been promoted to lead the new effort as managing director of client strategy and is a member of the firm’s 11-member senior leadership team, reporting to David Castellani, CEO of New York Life Retirement Plan Services.

The new structure organizes service team practice groups into four industry segments with the following directors and retirement practice leads, all reporting to Driscoll:

• Taft-Hartley, led by James Byrne.
• Technology, led by Michelle Morey.
• Finance and professional services, led by Joseph DeStefano.
• Manufacturing, materials and retail, led by Scott Francolini.

Each practice will have its own team of relationship managers, communications consultants, investment specialists, and ERISA consultants. The practice model maintains New York Life’s dedicated service team approach with plan sponsors while creating a core industry knowledge and expertise base within the practice models.

With offices in Westwood, Mass., Parsippany, N.J., and San Francisco, New York Life Retirement Plan Services offers bundled retirement plan solutions and defined contribution investment only products throughout the United States. A division of New York Life Investments, it administers $39.2 billion in bundled retirement plans as of June 30, 2011.

New executive director named at $1.3 trillion pension group 

The Committee on Investment of Employee Benefit Assets (CIEBA), which represents more than 100 of the largest corporate pension plans with more than $1.3 trillion in plan assets and 16 million, has appointed Deborah Forbes as its executive director.

Forbes will represent CIEBA to government agencies, Congressional committees, and private organizations involved in issues affecting CIEBA members. She was previously Legislative & Policy Counsel for the Pension Benefit Guaranty Corporation, Pension Counsel for the U.S. Senate Committee on Health, Education, Labor and Pensions, and an associate at Covington & Burlington. She replaces the late Judy Schub.  

Forbes also will represent CIEBA in public forums, develop conference programs for members, lead the group’s research activities, and handle membership recruitment.

 CIEBA’s chairman is Ralph J. Egizi, who is also Director, Benefits Finance & Investments, Eastman Chemical Company.  The organization serves as a forum for corporate pension plan sponsors on fiduciary and investment matters. It is the voice of the Association for Financial Professionals (AFP) on employee benefit plan asset management and investment issues.  

Putnam’s new advisor website allows “open architecture portfolio modeling”

Putnam Investments has launched a new web site, www.putnam.com/advisor, that offers “advanced, open-architecture portfolio modeling” designed to help advisors create investment plans for their clients using either Putnam or non-Putnam products. 

The new site builds upon Putnam’s proprietary analytical tool, FundVisualizer, which can model entire investment portfolios from a universe of over 11,000 mutual funds and ETFs, as well as continue to provide product comparisons. 

 The site will also offer access to the next version of Putnam FundVisualizer, “allowing them to choose and package a virtually unlimited number of potential fund holdings, assign specific weightings and adjust time periods as desired, to gain insight into the performance behavior and importance of risk-return trade-offs of uniquely constructed portfolios and their underlying components. Additionally, advisors can compare separately created portfolios of their own design,” the company said in a release.

Advisors can use the new site to join conversations on Putnam’s existing social media sites, including those on Twitter (http://twitter.com/#!/putnamtoday) and Facebook, (http://www.facebook.com/PutnamInvestments).

A feedback component will also be available: advisors visiting the site will be able to rate much of its content, such as portfolio manager commentary. Also, the new web site will provide advisors with a sense of what their peers are viewing most on the site, including what investment issues and client-related topics are of most interest – displayed through a visual “tag cloud.”

The Putnam site will also provide advisors with an array of practice management and thought leadership resources to help in their day-to-day and long-term planning work with clients. Advisors will be able to: 

• Explore an extensive Client Planning section, with detailed guidance for advisors working with clients who are saving for retirement, college and other life goals—including presentations and seminars that advisors can download and use with their own clients. 
• Access a content-rich “Our Perspectives” section, featuring articles and videos by Putnam strategists and portfolio managers discussing their investment outlook, providing timely insights on events that are shaping the global markets and discussing investment and savings strategies. 
• Receive access to a wealth of fund data that allows them to gain a deeper product understanding, in a format that can be communicated directly to their clients; 
• Review a Fund Playbook to see how any given fund can help clients pursue their goals, such as reducing the volatility in their portfolios or addressing the impact of rising interest rates on various mixes of funds; 
• Use the new “My Putnam” feature to store their favorite content and set alerts for automatically e-mailed updates. 
• Chat live with a personal support team at Putnam dedicated to their practice, to identify customized solutions and explore business-building resources, practice management tools and continuing education courses.

FundVisualizer is part of an ongoing series of Putnam initiatives designed to provide advisors with transparent content delivered through leading technology. The dynamic tool provides portfolio modeling and side-by-side comparisons of multiple products, including Putnam funds, as well as choices from over 11,000 funds across all categories, including ETFs.  

Shifts are occurring among advisors in their level of commitment to the fund companies they use, according to the 2011 Advisor Brandscape, an annual report on adviser trends and product usage by Cogent Research.

Among two dozen leading firms, Dimensional Fund Advisors (DFA) placed first for the second year in a row, while J.P. Morgan Funds, not on last year’s list, placed second. T. Rowe Price and Legg Mason experienced the biggest gains in overall advisor commitment since 2010. The results are based on a nationally representative sample of 1,643 retail investment advisors across all major distribution channels.

The mutual fund provider commitment scores and rankings compiled by Cogent Research are based on a combination of two separate measures: advisor Loyalty to current providers and their anticipated future investment with those providers.

Individual results across all 24 providers included in the ranking are indexed, and then separated into four groups; “Stars,” “Leaders,” “Players,” and “Drifters.” According to John Meunier, Cogent Research principal and co-author of the report, these results not only reflect where providers stand today among the advisors they serve, but point to how momentum is shifting across the provider landscape.

“Last year, DFA and BlackRock were the only Stars in our mutual fund company commitment ranking,” said Meunier. “This year, a total of four firms made it into the top tier, and the gap between DFA and the rest of the pack has narrowed substantially.”

The study also shows that, after several years of declining interest, use of and dependence on mutual funds has grown over the past year. The percentage of users is up from 95% to 97%, and the overall average advisor allocation to mutual funds (as a percentage of total book) rose from 35% to 39%.

However, while these results may appear encouraging, half (50%) of all the advisors currently using mutual funds report that they expect their dependence on these products to decline over the next two years. “It’s obvious, the competition for market share and advisors’ attention will only intensify over time,” said Meunier. “So, building loyalty and momentum today is a simple matter of survival.”

There’s been a significant year-over-year increase in the numbers of investors who use technology to access investment information, according to a survey of more than 4,400 U.S. investor households by Hearts & Wallets, a Boston-area consulting firm.

“The biggest gains were in investors watching videos, a 350% increase, and attending webcasts, a 300% increase,” said Chris Brown, Hearts & Wallets principal. “Other big gainers were assessing potential new providers by their websites, reading blogs and traditional media online, subscribing to investment services (such as Morningstar or paid newsletters), and using tools and calculators.”

Investors are using technology to supplement other traditional go-to resources, the firm said in a release. They are using technology for pre-work before contacting a financial professional, to check up on their advisor and to monitor their advisor’s account management.

“We found fewer people are consulting financial advisors for any advice,” said Laura Varas, Hearts & Wallets principal. “Also, the number of investors dropped who rely upon themselves for financial advice. Technology is supplementing, and in some cases, possibly replacing human advice.”

Yet for all the blogs, websites and other financial resources at their fingertips, many American savers – one-third of all survey participants – say they are “very inexperienced” with investing, an 20% increase in just one year.

A common belief among American savers – including Gen Y-ers – is that it is not possible to improve one’s financial situation or that financial resources are scarce.

The survey shows younger investors are almost as risk adverse as pre-retirees, which does not bode well for willingness to invest in 401(k) plans.”

The study revealed a shift in market share to banks from other financial services channels. Since 2008, banks have steadily gained from 16% to 25% among affluent/high-net worth “Accumulators,” which Hearts & Wallets defines as investors ages 21 to 64 who are not planning to retire within five years. Banking products grew across all age groups, in part because investors are seeking more security in financial products. Convenience may also play a part with the broad offerings of banking institutions.

Insight Modules “Investor Mind-set in Mid-2001: Concerns, Attitudes & Beliefs “ and “Focus on Advice: Sources, Preferences, Use of Technology” are the first in a series of reports this fall from the comprehensive 2011 Hearts & Wallets Quant Panel. This annual, qualitative analysis of U.S. savings and retirement trends incorporates Hearts & Wallets ongoing qualitative consumer and benchmark industry research for insight on investor needs and competitive trends and is part of Hearts & Wallets multi-year study of U.S. investor attitudes and beliefs about savings, retirement and the financial services industry.

The “Investor Mindset in Mid- 2011: Concerns, Attitudes and Beliefs,” Module includes:

• How different investor segments feel about their financial situation as they get ready for, or live in, retirement. How they describe their investing experience and appetite for risk.

• The top concerns of investor segments today as compared to prior years

•Investor beliefs today as compared to prior years (such as employer responsibility for retirement, insurance company ratings, ability to rely on children for support in old age, etc.)

The “Focus on Advice: Preferences, Sources and Use of Technology,” Module includes:

• How preferences for investment decision-making processes are changing

•The sources of advice different investors segments are using

•  How investors use technology. How they blend technology and live channels.

New York Life Retirement Plan Services has announced a new service model that “aligns service teams into core industry practices,” the company said in a release.

Joan Driscoll, a 24-year industry veteran with 18 years of experience at New York Life, has been promoted to lead the new effort as managing director of client strategy and is a member of the firm’s 11-member senior leadership team, reporting to David Castellani, CEO of New York Life Retirement Plan Services.

The new structure organizes service team practice groups into four industry segments with the following directors and retirement practice leads, all reporting to Driscoll:

• Taft-Hartley, led by James Byrne.
• Technology, led by Michelle Morey.
• Finance and professional services, led by Joseph DeStefano.
• Manufacturing, materials and retail, led by Scott Francolini.

Each practice will have its own team of relationship managers, communications consultants, investment specialists, and ERISA consultants. The practice model maintains New York Life’s dedicated service team approach with plan sponsors while creating a core industry knowledge and expertise base within the practice models.

With offices in Westwood, Mass., Parsippany, N.J., and San Francisco, New York Life Retirement Plan Services offers bundled retirement plan solutions and defined contribution investment only products throughout the United States. A division of New York Life Investments, it administers $39.2 billion in bundled retirement plans as of June 30, 2011.

Less than two months after Standard & Poor’s downgraded U.S. debt, the staff of the Securities and Exchange Commission says it considering recommending civil legal action against the Standard & Poor’s debt ratings agency over its rating of a 2007 collateralized debt offering.

Collateralized debt obligations, or CDOs, are securities tied to multiple underlying mortgage loans. The CDO generally gains value if borrowers repay. But if borrowers default, CDO investors lose money. Soured CDOs have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating CDOs.

The SEC staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.

S&P has been under fire for its recent downgrade of United States debt, as well as several bad calls it made leading up to the financial crisis and economic meltdown that began in 2008. The unit’s president stepped down last month.

McGraw-Hill Cos., which owns S&P, said Monday that it received a Wells notice from the SEC’s staff on Thursday.

In issuing Wells notices, the SEC enforcement staff gives companies the chance to make the case why charges are unwarranted. That means a formal decision by SEC commissioners to file charges may not occur.

S&P said it has been cooperating with the commission and plans to continue cooperating on the matter.

The news comes two weeks after McGraw-Hill announced that it plans to split up into two public companies with one focused on education and the other centered on markets, featuring the Standard & Poor’s unit. The decision had been expected, as investors have pushed the New York company to boost the company’s stock price, which has dropped by more than 40% since 2006.

McGraw-Hill Education will be the new company focused on education services and digital learning, while McGraw-Hill Markets will retain S&P and J.D. Power and Associates, a market research company. It also includes S&P, Capital IQ, a provider of data, research, benchmarks and analytics and Platts, a provider of information and indices in energy, petrochemicals and metals.

James H. McGraw founded McGraw-Hill in 1888 when he purchased the company’s first publication, The American Journal of Railway Appliances. Since then, the company has provided technical and trade publications, as well as information and analysis on global markets.

Russell Investments’ latest research for institutional investors, entitled “Volatility-Responsive Asset Allocation,” explores the possibility of a dynamic asset allocation policy that varies as market volatility changes.

The underlying principle of volatility-responsive asset allocation is to reduce exposure to risky assets when volatility is high, and to increase that exposure when volatility is low. According to the paper, a volatility-responsive asset allocation policy—which needs to be as systematic and disciplined as any other strategic policy—can lead to a more consistent outcome and a better trade-off between risk and return for institutional investors.

“Market volatility is itself volatile. Markets can be relatively stable at some points in time and explosively volatile at others,” said Michael Thomas, head of consulting and chief investment officer, Americas Institutional and one of the paper’s authors.

“Given this fact, a strategic asset allocation policy is no longer necessarily a set of fixed weights that are held constant until the next review, because the associated risk can be highly variable over time. Rather, a strategic asset allocation policy can be designed to respond to changes in the investor’s experience or to changes in market valuations.”

According to the research authors (Thomas, Bob Collie, chief research strategist, and Mike Sylvanus, senior investment strategist), the foundation of a strategic asset allocation decision is a trade-off between risk and reward. Volatility is an appealing foundation for a dynamic strategy because, unlike the outlook for returns – which are notoriously difficult to forecast – investors can be relatively confident in their assessment of the volatility environment. One reason for this confidence is that changes in volatility are more persistent than changes in returns.

“The most impactful events in a portfolio occur at the extremes – 10 years of well-behaved markets can have less impact on the ultimate success or failure of a portfolio than a couple of outlier months of extreme returns. These extremes tend to be marked by high volatility, in which a 60/40 portfolio can easily behave like an 80/20 portfolio,” explained Thomas.

As part of the analysis, the authors looked at U.S. equity and U.S. fixed income, as represented by the Russell 3000® Index and the Barclays Capital U.S. Aggregate Bond Index. The simulation covered the period January 1979 – June 2011, the timeframe for which data on the Russell 3000 is available. (The strategy starts once 60 days’ return data is available from which to calculate trailing volatility.) The volatility-responsive strategy produced lower volatility than the fixed mix of 50 percent equity and 50 percent fixed income, and its volatility was more stable and predictable. There was also no return penalty over the period analyzed; the volatility-responsive strategy delivered an average 40 basis points higher return after accounting for trading costs.¹

“The idea of a dynamic adjustment to a strategic asset allocation is not new; there have always been some investors who vary their allocations because of changing return expectations. There’s also been a growing trend for pension plans to vary their allocations in line with funded status, an approach Russell first wrote about in April 2009 called “liability-responsive asset allocation,” said Collie. “These dynamic programs can easily integrate with one another. What’s new here is the idea of adding volatility to the list of factors driving the variation.”

The defined contribution system is full of flaws. Many participants, particularly in small plans, pay too much in fees. They get meager average returns. The system isn’t universal. And, worst of all, it offers no mechanism for turning savings into retirement income. 

But it’s clear from the testimony presented to the Senate Committee on Finance on September 15 that attempts to cure the system of its ills would probably irritate plan sponsors and perhaps discourage them from offering plans at all. 

Well-intended government efforts to reform the pension industry have backfired before, as the history of defined benefit pensions illustrates. 

Take, for instance, the proposal put forward by William G. Gale of the Brookings Institution. Instead of letting 401(k) plan participants exclude contributions (up to $49,000) from their taxable income, the government would credit a certain percentage of the contribution to the participants’ tax-deferred savings accounts. 

The size of the credit would determine its cost. If the credit—i.e., the tax subsidy—were equal to a flat 18% of the contribution, it would reduce the federal tax expenditure on 401(k) plans by $450 billion over the next 10 years. If the credit were set at 30%, it would maintain the current tax expenditure, which is estimated at about $70 billion a year ($123 billion for all retirement savings programs). 

Gale’s proposal would help reduce the federal deficit. It would also ensure that participants save rather than spend the federal subsidy of their contribution and sweeten the subsidy for the participants in the lowest tax brackets.

In short, he offers something for liberals, who claim that tax expenditures that encourage retirement saving accrue disproportionately to those in the highest tax brackets, and something for conservatives, who want to reduce the federal deficit. 

But the proposal, by flattening the subsidy, would effectively raise the taxes of a company’s owners and highest-paid employees—the people on whose favor the decision to sponsor a plan or not usually (unless the employees are unionized) depends. According to Gale’s data, the 18% subsidy would mean a tax hike for the top 40% of earners; the 30% subsidy would raise taxes for the top six percent of earners.

Karen Friedman of the Pension Rights Center proposed four additional reforms. The freshest and most intriguing of those ideas seemed to be the “reverse match.” Employers would make the initial contributions to their employees’ defined contribution accounts, and employees would be encouraged to match those. Under the current system, employers make no contributions unless the employee contributes.

In her hypothetical example, an employer might contribute 3% of pay to all employees, and the employee might be able to contribute up to 6%. This would ensure a contribution for all employees who don’t currently contribute at all.

But it would also mean, presumably, a vast reduction in the current contribution limit (100% of compensation, up to $49,000 or $54,500 for those over age 50), and a consequent reduction in tax benefits for those able to make large contributions. Again, it’s hard to imagine corporate decision makers warming up to that idea.

At the heart of the debate over 401(k) equitability is a sharp disagreement over how the spoils of the annual federal tax expenditure to encourage retirement savings are divided, and how they should be divided.

During the September 15 Senate hearings, Jack Van der Hei of the Employee Benefit Research Institute, whose members include all the major 401(k) service providers, and Judy Miller, representing the American Society of Pension Professionals and Actuaries, whose members are mainly third-party plan administrators, testified that most of the federal subsidy accrues to the non-wealthy.  

Households with less than $100,000 in AGI pay about 26% of income taxes but receive about 62% of the defined contribution plan tax incentives, Miller said. Friedman said that two-thirds of the value of tax expenditures for retirement savings plans go to households in the top income quintile, or top 20% of earners.

Common sense suggests that, on a per capita basis, the benefits of the federal tax expenditures for retirement savings would go disproportionately to those with the highest compensations and the biggest tax bills. But common sense would also suggest that the majority of the tax expenditures would inevitably go to households earning under $100,000, simply because they represent 80% of all taxpayers, according to the Census Bureau.

Does someone who pays more in taxes deserve a bigger tax incentive to save? The 401(k) reformers would say no. They argue that those with high incomes need no incentive at all—that they would save even without incentives because they earn more than they “need.” (Need, of course, remains stubbornly indefinable.)    

So the debate drones on. As long as the law doesn’t require company owners and decision-makers to sponsor workplace retirement savings plans, reforms that hurt them in their wallets won’t get traction. If reformers push them too hard, some sponsors will stop sponsoring. To persuade people who have other options, carrots make the best motivators. The stick approach alone has limitations.

© 2011 RIJ Publishing LLC. All rights reserved.

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.