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Beams to help merge ING retirement units in advance of IPO

Posted on June 8, 2011 by Editor Test -

ING Insurance U.S. has appointed Maliz E. Beams as CEO of ING Retirement, overseeing ING’s employer-sponsored retirement plan business, ING Retirement Services, and its retail retirement business, ING Individual Retirement.

Reporting to Rob Leary, president and COO of ING U.S., Beams will be responsible for linking the two units into a single Retirement operation as ING Group prepares for an initial public offering (IPO) of its U.S.-based retirement, insurance and investment management businesses. She will be based in ING’s Windsor, Conn., and Braintree, Mass. offices.

Beams previously served as president and CEO of TIAA-CREF’s Individual and Institutional Services, where she founded the Wealth Management business and re-launched IRAs, Insurance Products and Private Asset Management. She has also held leadership roles at Zurich Scudder Investments, Fleet Financial and American Express.

Beams received a B.A. in English from Boston College and an M.B.A. in marketing and finance from Columbia University. She was named one of “The 25 Most Powerful Women in Finance” in 2008 and 2009 by U.S. Banker magazine, and has been listed on Who’s Who of American Women.

BNP Paribas and Tennis: Love Match

Posted on June 7, 2011 by Editor Test -

No financial services company loves tennis more than BNP Paribas, the 11^th largest company in the world. Based in France, the global bank that has been a sponsor of the French Open since 1973, when the French tennis federation asked the bank to finance the construction of center court boxes at Roland Garros, the Open’s home. Now the lead sponsor of the Open, BNP Paribas planned to spend about $32 million promoting tennis in 2010, most of which goes to direct sponsorships rather than media purchases.

Last March, the bank created a website dedicated entirely to tennis and the bank’s involvement in every level of international tennis, www.wearetennis.com. Besides showcasing BNP Paribas’ sponsorship activities, the site offers tennis news, schedules, videos, expert blogs in French or English, and links to Facebook and Twitter

In one of its news releases, the BNP Paribas describes itself as having a presence in 80 countries, with more than 160,000 employees in Europe and another 40,000 abroad. Its three core activities are retail banking, investment solutions and corporate and investment banking. In the U.S., the bank owns BancWest Corp., holding company for Bank of the West.

Sebastien Guyader, BNP’s executive in charge of branding and sponsorship, spoke with SportsDailyBusiness.com not long ago about the bank’s large bet on one sport, albeit one with an “elite demographic.” The bank likes tennis because it goes all year round, because it is played worldwide by universal rules, and because the bank’s signage stays on-camera so much, because any single game in a match can last for awhile.

Despite all that, ironically, most people don’t think of BNP Paribas when they think about tennis, except in the context of the French Open. A survey sited by SportsBusiness Daily showed that only one percent of tennis fans answered BNP Paribas to the question, “When you think about financial institutions involved in tennis, what companies come to mind?” Fourteen percent named Bank of America; Citi and JPMorgan Chase were named by seven percent each.

On the other hand, you can’t underestimate the value of giving top international clients a chance to mingle with Roger Federer and Rafael Nadal. Especially if those clients, like millions of active, affluent and educated people, love tennis.

At Your Service: Courting the Affluent Tennis Fan

Posted on June 7, 2011 by Kerry Pechter -

The estimated two billion people worldwide who tuned in to watch Rafael Nadal’s four-set victory over Roger Federer at the French Open finals on NBC last Sunday saw a gritty match between two of the greatest tennis players of all time.

Unless viewers were skipping commercials with TiVo, they also saw a slough of video spots from Fidelity, Prudential, ING, Raymond James and E*Trade. And they could hardly miss the green-and-black BNP Paribas banners spanning the ends of the court.

It’s little wonder that those firms advertise at this premier sports event, and not just because of its popularity. This year’s French Open finals drew its highest Nielsen ratings (a 2.6% share of all TV-equipped households and 7% of households watching TV) in 12 years.

Diamond bracelet of sports

Tennis is the diamond bracelet of sports, with an upscale fan base of about 60% men and 40% women. (Vogue magazine editor and courtside regular Anna “The Devil Wears Prada” Wintour was conspicuous in her trademark sunglasses one row behind Roger Federer’s wife on Sunday.)

Like golf audiences, tennis audiences tend to be wealthier and a bit older than average. According to Scarborough Research, 30% of adult tennis fans have household incomes $100,000 or more (compared to less than 10% of all Boomer households) and about one-third (34%) are age 55 or older (18% are 65 or older).

In its media kit, Gototennis.com says 31% of its audience earns over $100,000. Its visitors are five times likelier than average to shop online for mutual or money market funds in the past month, three times likelier to research stocks online in the past month, and 1.7 times likelier to “provide frequent financial advice.” Almost a third (29%) of its audience is over age 50, 47% have been to college and 22% have been to graduate school.

Tennis magazine says that, relative to the average affluent adult, its readers are twice as likely to execute 30+ securities transactions a year, 33% more likely to use a full-service broker, 44% more likely to use online trading, 34% more likely to use a private banker and 67% more likely to use a discount broker in the past year.

While the sport of tennis, like golf, has broad popularity, its demographic sweet spot is still among the country club set. Tennis magazine’s audience is 114% more likely than the average affluent person to have $2 million or more in liquid assts, 120% more likely to have at least $3 million in financial accounts and real estate, 39% more likely to have $1 million or more in retirement accounts and 57% more likely to have at least $200,000 in mutual funds.

“Qualitatively, [Ipsos] Mendelsohn shows that Tennis readers are active followers of financial news, believe in consulting financial experts and are, in turn, sought out by others for investment guidance and advice,” wrote Mason Wells, publisher of The Tennis Media Company.

Regular viewers of the Tennis Channel represent an especially rich vein of tennis fans. According to the Mendelsohn 2009 Affluent Survey, the average Tennis Channel watcher had a household income of $233,000 and a $549,000 home. In terms of income, they were second only to watchers of Bloomberg Television.

That describes at least part of the target market for the financial services firms that advertised during the French Open finals broadcast. Prudential Financial showed a spot from its reportedly $50 million “Bring Us Your Challenges” campaign, launched in May. Fidelity was there with the familiar spot where a mature African-American couple strides down Fidelity’s “Green Line” and wonders what to do with their money after retirement.

ING served up a segment of its “Number” campaign—the one where an embarrassed hedge-trimming suburbanite admits not knowing how much he needs to save for retirement. Raymond James showed its droll longevity risk ad, where an Englishwoman rediscovers love, fishing, motorcycling, and hang-gliding while apparently on her way to age 200. That campaign started last fall.

E*Trade Securities was there too, but that’s no surprise. Of the top 50 sports advertisers in 2010, E*Trade was ranked #44, with total ad spending last year of $98.7 million, of which $67.7 million was on sports. E*Trade ranked fifth overall in 2010, behind Nike, Anheuser-Busch, MillerCoors and Southwest Airlines, in the percentage of its ad budget dedicated to sports (68.5%).

Financial services companies are increasingly interested in sports advertising, with total spending in 2010 reaching $265 million, up 146% from 2009. Not counting Visa, Bank of America spends more on sports advertising ($89.9 million of its $208 million advertising budget) than any other financial services company.

Among the categories of sports advertisers in 2010, financial services ranked eighth, with three percent of all spending by the top 100 advertisers. That was up from 1.5% in 2009 and from one percent in 2008 and 2007. Insurance (think GEICO, State Farm and Allstate) is a separate category, with 6% of sports advertising spending in 2010 and a total of $528 million.

Fed governor details rationale for higher capital standards for “SIFIs”

Posted on June 5, 2011 by Editor Test -

In a speech on June 3, Federal Reserve Board member Daniel K. Tarullo described the ideal characteristics of enhanced capital requirements for large financial institutions and rebutted some of the financial services industries most common objections to those requirements.

Speaking at the Peter G. Peterson Institute for International Economics in Washington, Tarullo offered a report on the progress of the Dodd-Frank legislation toward its January 2012 deadline for reducing the risks of so-called “systemically important financial institutions” or SIFIs.

Tarullo listed five parameters for successful capital requirements:

An additional capital requirement should be calculated using a metric based upon the impact of a firm’s failure on the financial system as a whole. Size and interconnectedness of the firm with the rest of the financial system are the most important factors.
The metric should be transparent and replicable, reflecting a trade-off between simplicity and nuance.
The enhanced capital standards should be progressive in nature, “increasing in stringency” with the systemic footprint of the firm. While Dodd-Frank requires us to apply enhanced capital standards to all bank holding companies with more than $50 billion in assets, but the supplemental capital requirement for a $50 billion firm is likely to be very modest.
An enhanced requirement should be met with high-quality capital. Our presumption is that this means common equity, which is clearly the best buffer against loss.
U.S. requirements for enhanced capital standards should, to the extent possible, be congruent with international standards.

In other remarks, Tarullo said:

The regulatory structure for SIFIs should discourage systemically consequential growth or mergers unless the benefits to society are clearly significant. There is little evidence that the size, complexity, and reach of some of today’s SIFIs are necessary in order to realize achievable economies of scale and scope. Some firms may nonetheless believe there are such economies. For them, perhaps, the highest level of an additional SIFI capital charge may be worth absorbing. Others, though, may conclude in light of the progressive form of the capital requirement that changes in the size and structure of their activities would align better with their returns.

The history of financial regulation over the last thirty years suggests that, when certain activities are restricted, firms will look for new areas in which to take more risk in the search for return. Capital regulation is the supplest and most dynamic tool we have to keep pace with the shifting sources of risk taken by financial firms.

The cessation of proprietary trading and the limiting of private equity activities will directly reduce risk-weighted assets and thus capital requirements. Similarly, centrally cleared derivatives will carry lower capital charges.

Moral hazard is already undermining market discipline on firms that are perceived to be too-big-to-fail. Higher capital standards will help offset the existing funding advantage for SIFIs.

There is little if any research showing that firms need to have balance sheets with the size and composition some do in order to achieve genuine economies of scope and scale. The lower leverage that would result from higher capital requirements should lead to at least some reduction in the required return on equity.

A Hub Named RICC

Posted on June 1, 2011 by Editor Test -

If you’re a plan sponsor or an IRA custodian and you’d like to offer your participants or account holders several annuity options, your IT department traditionally faced the expensive and duplicative hassle of linking to each annuity manufacturer separately.

Enter DST Systems, the Kansas City, Missouri-based financial services technology firm (2010 revenues, $425 million). Last year, Larry Kiefer, head of business development for DST’s US recordkeeping business, convinced his senior executives to support the creation of a hub, leveraging existing DST technology, that would solve that problem—and, in effect, to place a corporate bet that Boomer demand for guaranteed income products will eventually erupt.

If we built it, they—meaning annuity manufacturers, plan sponsors, IRA custodians, and their participants and account holders—will come, Kiefer told them, in effect.

Now the hub, which DST has branded “RICC” (for Retirement Income Information Clearing and Calculation system (RICC), is near completion. Not long ago, Kiefer took a break from pitching the new platform to annuity manufacturers to talk with RIJ about it. with RIJ.

RIJ: Could you give us a quick working definition of RICC?

KIEFER: Many people have described it as middleware. It sits in the middle between the recordkeeping systems of either a defined contribution plan or an IRA provider, on the one hand, and the insurers who manufacture the guaranteed income products on the other. It’s also a way for a single annuity manufacturer to distribute its products to multiple users through a single platform.

RIJ: And what is the problem that RICC is designed to address?

KIEFER: The industry faces a chicken-or-egg situation. Without having seen a lot of demand from participants or IRA owners, many of the recordkeepers are reluctant to adapt their systems for retirement income products. At the same time, the manufacturers of those products are reluctant to provide the funds for system development without first seeing a higher adoption rate among the recordkeepers. By eliminating the need for new system development [by manufacturers and recordkeepers], we think we can generate a critical mass of adoption. Our product helps industry get past the existing barriers to entry.

RIJ: Can you offer a specific example of one of the technical barriers?

KIEFER: Let’s say that you’re a participant in a Boeing 401(k) plan that’s record-kept by Aon Hewitt, and that you’re using one of the available lifetime income products. You go into the Hewitt site and see the product listed in your account. But a message will tell you that in order to see the amount in your account, you will have to leave the Hewitt site and log into the manufacturer’s site, with a different user name and password. With our system, you could click on your account and you’d go to our site, with no need to sign on again. Your balances would pop up on the screen. It would be a seamless, secure experience for the consumer.

Another issue is that each of the income products has specific rules, and the recordkeeping system has to adapt to each of them. For instance, you might have to be at least 50 years old to purchase a particular product or benefit. The recordkeeping systems don’t want to have to adapt to a separate set of rules for each product or create a stream back to each insurer. Some recordkeepers have spent as much as seven figures for a single connection with a manufacturer. They don’t want to have to do that with six different manufacturers in order to offer six different options. With the hub, there would be a single connection—with us.

RIJ: Are you using the SPARK data standards for RICC?

KIEFER: The process is still evolving. We started with our own recordkeeping systems that have standard communication protocols and we are publishing them so that any recordkeeper can use them on areal time basis. We participated in the development of the SPARK standards, and we are leveraging those standards as well. The use of those standards is not as prevalent as it will be in the future, and it remains to be seen how those will evolve. We’ll see how prevalent and how deep the usage of standards becomes.

RIJ: Who do you see as the target market for RICC?

KIEFER: The product manufacturers. We want them to put their products on the platform. We talk to the recordkeepers too, but the manufacturers drive the process. The manufacturers call on the plan sponsors to adopt their products. The pressure on manufacturers to expand their distribution is stronger than the demand coming from the plan sponsors.

Years ago, most 401(k) plans had proprietary funds, and now everybody is on open-architecture. You’ll see the same type of wave happening in income products as in funds, as more plan sponsors demand income products and ask their recordkeepers to adapt to them. Our system will make it easier for recordkeepers to adapt. For the manufacturers, there’s a cost to being on the platform. We do not charge the recordkeeper. The challenge is to convince the recordkeeper that it’s worthwhile to build a connection to us using the SPARK standards.

RIJ: It’s my understanding that asset managers, other service providers, and even plan sponsors now see income products as a desirable way retain to assets under management long after employees leave the plan. Is that an accurate assessment?

KIEFER: “It is accurate to say that the asset managers are interested in retention. That is one reason why they are developing the [income] products. There’s also a recognition that participants need to construct a personal retirement plan going forward. Just accumulating a balance in DC plan isn’t enough. Just as participants learned about asset allocation and risk, now they’re learning that planning for longevity is also a part of it. You’re starting to see more and more discussion about building retirement income plans and how to ensure the longevity of the savings. When you’re talking about the mass affluent, it’s even more important.

RIJ: As I understand it, DST isn’t the only company working on this type of technology.

KIEFER: That’s right. SunGard and Blackrock have developed the Lifetime Income Window. SunGard says it is open to anyone who wants to use it. AllianceBernstein has a solution but theirs is more aimed at building a structure that allows multiple insurers to guarantee a single income product. We can also accommodate that on our platform.

RIJ: Where are you in terms of bringing RICC to market?

KIEFER: We’re testing right now, and we expect to be in production this summer. We are talking to a number of manufacturers about putting their products on the platform. We intend to support most of the guaranteed products. You can also have fixed guaranteed products and stand-alone living benefits. [For DST’s purposes], the underlying investment doesn’t matter. As for what products each plan sponsor offers, that’s a decision made by each plan sponsor. We’re not building a supermarket.

RIJ: How big a market do you see for income products in employer-sponsored plans and IRAs?

KIEFER: Our model for compensation is based on the number of participants, not the level of assets. But if you think that there’s in the neighborhood of $11 trillion in qualified plan and IRA assets, and that income products are targeted at the people in the age 55 and older bracket who control 40% to 45% of those assets, and that you might get an adoption rate of between 7% and 15%, that means $200 billion to $500 billion in guaranteed income assets, at today’s rates. Right now the balance between IRAs and in-plan assets is about 45/55. In 2015, it might be up to 65/35.

RIJ: Thank you, Larry.

Heritage Foundation Suggests Means-Testing for Social Security, Medicare

Posted on June 1, 2011 by Editor Test -

The Heritage Foundation has released a white paper, Saving the American Dream, that contains a proposal to reduce federal debt to 30% of Gross Domestic Product by 2035 and to convert both Social Security and Medicare to means-tested programs whose benefits are gradually phased out for individual retirees earning $55,000 to $110,000 and couples earning $110,000 to $165,000. According to the proposal:

Social Security benefits will evolve over time into a flat payment to those who work more than 35 years—a payment sufficient to keep them out of poverty throughout their retirement.
Workers born after 1985 will come under the new flat Social Security benefit system when they retire.
Retirees with high incomes from sources other than Social Security will receive a smaller check, and very affluent seniors will receive no check.
Income-adjusted benefits start in 2012; individual retirees with non-Social Security incomes above $55,000 start to see a slight reduction in benefit payments.
Individuals with more than $110,000 in non–Social Security income will receive no Social Security payments. Benefits for married couples who file taxes jointly would phase out slowly between $110,000 and $165,000. The income thresholds will be indexed for inflation.
The Heritage approach, when fully phased in, would income-adjust benefits transparently and not tax the benefits a senior receives. It also would start income-adjusting at a much higher income than today.
Under the Heritage plan, only about 9% of seniors would see their checks reduced and only just over 3.5% of seniors would receive no check.
The annual cost of living adjustment (ColA) for Social Security will be based on the Chained Consumer Price Index (C-CPI-U), a measure of inflation that is more accurate than the index used currently.
Over the next 10 years, the age for full benefits rises to 68 for workers born in or after 1959. Over the next 18 years, the early retirement age rises to 65 for workers born in or after 1964. After that, both early and normal retirement ages will be indexed to longevity, adding about one month every two years.
The plan includes an improved disability system to protect the small proportion of workers who will be physically unable to work until these ages.
Starting immediately, those who work past their full-benefit age will receive a special annual tax deduction of $10,000, regardless of income level.
Once the program is fully implemented, Social Security payments would see a $200 per month increase in spendable income.
Beginning in 2014, a new savings plan will be introduced over two years. Under this plan, 6% of each worker’s income is placed in a retirement savings plan that the worker owns and controls unless he or she explicitly declines to have such an account.

Means-testing Medicare

Five years after enactment, all new retirees receive a contribution (premium support) from the government, just as federal employees and retirees do today. They can use this contribution to choose Medicare’s premium-based FFS plan or one of the other health plans. After one year of operation, Medicare enrollees in the traditional Medicare FFS program are free to join the new Medicare premium-support program. They can then choose a premium-based FFS plan or an alternative.

During the first five years of the premium-support program, the government’s contribution is based on the weighted average premium of the regional bids of competing health plans. After the first five years, the government contribution is based on the lowest bid of competing plans in a region. The bidding system will be phased in and will include the bids of the competing managed care plans, other private plans, and the Medicare premium-based FFS plans offering an approved range and quality of services.

Under the Heritage plan, low-income enrollees receive the full Medicare defined contribution. The amount of the defined contribution starts to phase out for Medicare enrollees with annual non-Social Security incomes between $55,000 and $110,000 and couples with incomes between $110,000 and $165,000. Enrollees with incomes over $110,000 and couples with incomes over $165,000 receive no government contribution and pay full, unsubsidized premiums.

As with Social Security, married couples can decide whether they want to qualify for benefits as individuals or jointly as a couple. The phase-out income levels will be inflation-indexed. However, Medicare remains a valuable program for higher-income seniors because they retain access to a guaranteed-issue and community-rated insurance program.

Under the Heritage plan over 90% of seniors would receive the full defined contribution. Only about 3.5% have such high incomes that they would pay the entire premium without any contribution from the government.

SPARK accepting requests to change lifetime income product data standards

Posted on June 1, 2011 by Editor Test -

The SPARK Institute is accepting requests from the retirement plan community for possible changes to its lifetime income solutions data standards, said Larry Goldbrum, General Counsel.

“SPARK Institute members have, as a result of their implementation work, identified and recommended several improvements to the original version of the Data Layouts for Retirement Income Solutions, which was released in September of 2010,” Goldbrum said. The current version of the Data Layouts is posted on The SPARK Institute website at http://www.sparkinstitute.org/comments-and-materials.php.

“In order to accommodate these and other potentially important changes that may be identified in the early stages of vendor implementation, we are asking everyone in the retirement plan community that is building to, or already using, the Data Layouts to submit additional requests for changes they feel are critically necessary.” Goldbrum said suggested changes will be accepted through September 30, 2011, with the goal is of finalizing and releasing a new version by the end of October 2011. Comments should be submitted to [email protected].

“In an effort to limit the potential for disruption, we will only make changes for critical issues that cannot otherwise be addressed through the existing file structure,” Goldbrum stressed. Additionally, he said, issues that need to be addressed and changes that are needed will be handled according to the following hierarchy:

Providing an explanation to accomplish a result or resolve an issue within the existing standards and file structure,
Adding new codes,
Modifying data field formats, and
Adding new fields at the end of an existing record.

Goldbrum said that the resolution with respect to each proposal will be announced on The SPARK Institute website as soon as possible, even though the new version of the Data Layouts will not be released until later this year.

Structured product from AXA Equitable blends upside potential, downside protection

Posted on June 1, 2011 by Editor Test -

AXA Equitable Life has introduced Structured Capital Strategies ADV, a product designed for fee-based advisors who want equity and commodity index-linked exposure with some downside protection.

The product is being launched through Commonwealth Financial Network, the nation’s largest privately-held independent broker-dealer and Registered Investment Adviser.

Structured Capital Strategies ADV’s main feature is its Structured Investment Option that allows clients to participate in the performance of equity and commodity indices up to a cap and with a downside buffer.

The built-in buffer protects the initial negative 10%, 20% or 30% of loss in index value, depending on the investment option chosen. The downside buffer works in tandem with a Performance Cap Rate on the upside market potential.

For the June 15, 2011 S&P 500 Index one-year investment option, for example, a client would have downside protection for the first 10% of any loss in return for a minimum 10% cap on the investment upside.

“Structured Capital Strategies ADV represents a unique, tax-deferred option for investors who are seeking an acceptable risk-reward balance,” said Nick Lane, president of the Retirement Savings division at AXA Equitable. “This product gives fee-based advisors a new way to help shield their clients from some loss and ease them into investing for growth.”

Investment options in Structured Capital Strategies ADV include linked participation in the following equity and commodity indices, with 15 different segment types in durations of one, three and five years:

S&P 500® Price Return Index
Russell 2000® Price Return Index
MSCI EAFE Price Return Index
Gold Index – London Gold Market Fixing Ltd. PM Fix Price/USD. For IRA accounts only
Oil Index – NYMEX West Texas Intermediate Crude Oil Generic Front Month Futures. For IRA accounts only.

“For fee-based advisors, Structured Capital Strategies ADV offers a compelling diversification choice for clients who have an appetite for tax-deferred investing but are risk averse and want some protection against market loss. The product’s 1-, 3- and 5-year durations appeal to those clients who are looking for growth opportunities but don’t want or need a long-term, lifetime income product,” said Ethan Young, manager of Annuity Research at Commonwealth.

Segments in the product’s Structured Investment Option are made available for new investments on the 15th of the month or the next business day, at which time the Performance Cap Rate is also set. At the end of each 1-, 3- or 5-year segment period, investors have the flexibility to re-allocate the maturity value of the segment to a new segment or transfer their account value to other investment options, depending on their needs and objectives.

Public doesn’t trust Wall Street, Prudential survey shows

Posted on June 1, 2011 by Editor Test -

One week after launching its “Challenges” advertising campaign, Prudential has followed up with a thought-leadership/survey called: The Next Chapter: Meeting Investment and Retirement Challenges (2011 Study of American’s Current Financial Perspectives).

The survey revealed a significant level of financial gloom among its subjects, who represented a broad swatch of middle- and upper-income America. The respondents ranged from 35 to 70 years old and earned $50,000 or more ($35,000 or more if retired), with investments of at least $50,000 ($100,000 or more if retired). About 44% had incomes over $100,000 and 47% had investable assets over $250,000, indicating a higher-than-random representation of high net worth individuals.

Although a headline in the report said that “Americans are optimistic about overcoming their financial challenges,” there was little evidence of that. About 60% of those polled were “enthusiastic” about facing financial challenges, 70% “really want to focus on the road to recovery,” and almost 60% believe “it’s the American way to face challenges like these head-on.” Yet those responses did not seem to add up to anything close to optimism.

The survey, like many other surveys of this type, found that most people do not trust the financial services industry: “Nearly seven in 10 believe there are few financial services firms that are trustworthy” and “53% don’t believe that an advisor is helpful even in extreme market conditions.”

Even though more “than half (54%) do not feel well prepared to take on the task of rebuilding their portfolios, and three-quarters (73%) point to challenges that span from deciphering confusing product information to navigating an overwhelming amount of options to overcoming distrust of advisors and firms,” most won’t visit an advisor.

Among the somewhat grim findings:

69% believe few firms are trustworthy.
62% cannot even think of any firms in the financial services industry that they would trust.
12% believe that financial services firms are abiding by good fundamentals.
53% are not using an advisor at all—with 40% going it alone, and 13% using only the advice of family and friends.
57% feel that so many “talking heads” providing conflicting opinions makes it harder for them to make good financial decisions.
54% of consumers are suspicious of the word “guarantee” with respect to financial products and investments.
58% have lost faith in the markets.
44% will never put money in the stock market again.

New York Life launches GPA (It doesn’t mean grade point average)

Posted on May 31, 2011 by Editor Test -

New York Life Investments has introduced an investment option for “near-term” (up to five years) liabilities of qualified corporate pension plan liabilities. The product, announced yesterday, is called Guaranteed Interest Pension Account, or GPA, and is designed primarily for smaller DB plans.

“Contributions are invested in a broadly diversified fixed income portfolio within New York Life’s general account. The GPA features a declared interest crediting rate that resets every six months, allowing plan sponsors more visibility into and control over their pension plans,” the company said in a release.

GPA allows sponsors to structure a portion of their assets to mirror liability cash flows, in accordance with the funding model set forth by the Pension Protection Act of 2006 (PPA), which outlines three segments for liabilities based on duration and the corporate bond yield curve, according to New York Life. The GPA solves for the “near-term” (0-5 years) segment by providing sponsors an investment option that offers a guarantee of principal coupled with competitive yields.

“In the PPA, they prescribed the handling of liabilities by segments—zero to 5 years, 5 to 20 years and 20 years and above. We look at each segment and evaluate the best way to manage the exposures,” said Steven Dorval, CFA, managing director and head of retirement investments at New York Life Investments.

“In the past, there has been a disconnect between the asset allocation and the actuarial work. The asset managers tried to achieve the desired rate of return, without necessarily taking into account the liabilities. That made sense if you had a long time horizon and you assumed that volatility would be smoothed out by mean reversion.”

“After the financial crisis of 2001-2002, a lot of pension clients regarded it as a 100-year flood, an unusual situation where you had both assets losses and low interest rates leading to low funding status. There was a lot of surprise that you could have a perfect storm like that,” he said.

“But as their funding status improved in the years that followed, they were still reluctant to take risk off the table. The crisis of 2008 reminded them that perfect storms are now a common occurrence. Now they’re looking for solutions. An investment committee needs to sort through how much [potential] return they’re willing to give up for predictability.”

“Larger plans with sophisticated staffs and extensive expertise aren’t using this type of bucketing. They think in terms of ‘risk budgeting.’ The more sophisticated they are, the more granularly they evaluate the various risks. We think that at the smaller, say $250 million plan, [GPA] will be something that the members of the investment committee can get their heads around,” Dorval told RIJ.

GPA is a group annuity contract issued by AAA-rated New York Life Insurance Company, parent of New York Life Investments.

Unbundle advice and product sales, older investors say

Posted on May 31, 2011 by Editor Test -

Instead of paying transaction fees and getting advice as a “freebie”—as they do with most advisors—many older investors would simply rather pay for personalized advice. So says a new study by Hearts & Wallets, a Hingham, Mass.-based research firm.

“Addressing the Elephant in Financial Services: Insights into How Older Investors Really Want to Receive, and Pay for, Investment and Personal Financial Advice,” is the name of the study. It reveals a mismatch, noticed by Hearts & Wallets several years ago, between what Americans want in terms of financial and investment advice and what they’re getting.

“If someone offered you free advice, how much trust would you have in that advice? Today, the industry has a very confusing fee structure,” said Chris Brown, Hearts & Wallets principal. “Investors want to know what they are paying for, and fee clarity is a major trust driver as our prior research has shown.”

Hearts & Wallets found unmet consumer needs in two areas:

Personal finance advice. People value information about retirement and income planning for its own sake, not just as a prelude to a sale.

Investment advice. Investors question the motives of brokers who receive commissions from product manufacturers.

“Investors said they like the idea of separating investment and personal finance advice,” said Laura Varas, Hearts & Wallets principal. “They also want to have more choice in terms of a la carte service and flexible fees. This desire was most marked among the mass affluent who might not have enough assets to qualify for more personalized service, but would like the option to pay for more consistent, higher-touch support.”

Investors also favor fiduciary status for advisors, even if it meant higher fees.

The full report includes:

The array of personal finance needs of older investors and their words to describe these needs.
Concept test to determine ways in which older investors prefer to receive, and pay for, investment and personal finance advice.
Key attributes of “go-to” resources for financial and investment advice
The myriad sources and rank of information—media, friends/family and financial professionals—that investors use to build consensus and make buy/sell decisions.

Conducted in April 2011, the survey’s nine focus groups included pre-retirees (those within five years of retirement), late career investors (those ages 50 to 65 who are not yet retired and not considering retirement within the next five years) and retirees. Hearts & Wallets will use its annual quantitative study of 4,000 households this summer to find out how much investors are willing to pay for advice.

Taxes deferred aren’t taxes denied: ASPPA

Posted on May 31, 2011 by Editor Test -

The verbal battle over “tax expenditures” is heating up.

ASPPA (American Society of Pension Professionals & Actuaries) now claims that recent proposals to eliminate tax deferral on contributions to and build-up in 401(k) plan accounts are based on “faulty math.”

The real cost of tax deferral is actually 55% to 75% lower than claimed by Congressional budget hawks, ASPPA says in a new report, “Retirement Savings and Tax Expenditure Estimates.” If so, the proposed cuts won’t save as much as projected and may even jeopardize the future of 401(k)s and other tax-favored savings programs.

According to ASPPA, , the Congressional Joint Committee on Taxation (JCT) and the Treasury Department’s Office of Tax Analysis (OTA) both use current cash-flow analysis when estimating the cost of the tax deferral.

But the 10-year timeframe used in their cash-flow analysis doesn’t recognize the fact that 401(k) participants and others eventually pay the deferred taxes after they retire, albeit sometimes at a lower tax rate. Thus tax deferral differs from tax credits or deductions, such as those for medical expenses or mortgage interest, which are never repaid.

Using present-value analysis, which economists typically use for long-term analysis, economist Judy Xanthopoulos and tax attorney Mary M. Schmitt have calculated that present-value estimates of the five-year cost of retirement savings tax expenditure are 55% lower than those of the JCT and 75% lower than those of the OTA.

“The short-term window used in Washington budget scoring overstates the cost of retirement savings incentives – and therefore the savings that would result from slashing these incentives,” said Brian H. Graff, ASPPA’s executive director and CEO. He added that “If we reduce the incentives for workers to save through these plans, we will send millions of low- to moderate-income workers into retirement with little savings.”

The JCT and OTA numbers are commonly used in proposals for reducing the federal budget deficit. The National Commission on Fiscal Responsibility and Reform (the Simpson-Bowles commission) used them when it proposed a cap of $20,000 a year (or 20% of income, if less) on the amount of money people could contribute to tax-deferred retirement accounts. U.S. Senator Pete Domenici and former Director of the Office of Management and Budget Alice Rivlin made a similar proposal.

Who’s Afraid of the Big Bad Debt?

Posted on May 31, 2011 by Kerry Pechter -

Ronald Reagan, maestro of the homespun quip, famously said that if he found a pile of manure in the barn, “there must be a pony in there somewhere.” In the debate over the country’s supposedly looming debt crisis, Reagan’s earthy expression seems apt.

On the one hand, the country can’t ignore its large and growing manure piles: the budget deficit, trade deficit and national debt. Woe R Us. But every debt is also an asset, and every government outlay is money in someone’s pocket. So, in discussions about debt and entitlement spending, I wonder, where are the ‘ponies’? Where are the assets?

Turns out, there’s a herd of them. Obviously, when the government mails out Social Security checks or Medicare reimbursements or orders a fleet of stealth aircraft, the money doesn’t go to Mars. It cycles through the economy (until or unless the government collects it as a tax). More to the point, the Chinese probably don’t see their hoard of T-bonds as a shaky pyramid of worthless debt. They call it savings.

I’m not claiming that all is right with the financial world. Not at all. But when I read about our fiscal crisis I feel that I’m only getting half the story. It just doesn’t add up. So I’ve been looking for the other half of the equation. That’s when I discovered the writings of Warren Mosler.

At 61, Mosler has been a banker, bond trader, racecar builder (see photo below), and Senate candidate in Connecticut (he ran in 2010 as a “populist Tea Party independent”). He now lives in and blogs from St. Croix (Paul Krugman is a neighbor). Last year he wrote a little book called “The Seven Deadly Innocent Frauds.” In it, he claims that our most cherished concepts about money are wrong.

The federal government, unlike a household or a state like California or even a small country like Greece, never needs to balance its books, he believes. It can’t run out of money any more than, as he put it, a scoreboard can run out of points. The government can create inflation, which isn’t good, but its checks will never bounce. Deficits don’t ruin our grandchildren, he says, they create savings. To him, it’s no coincidence that our public debt plus our household debt (manure) about equals our savings (ponies): in the neighborhood of $16 trillion.

“We’re afraid of the financial aspects of the deficit spending, but we have to realize that that’s entirely inapplicable to the U.S. government,” Mosler told RIJ in a recent interview. (His book’s title intentionally echoes the title of “The Economics of Innocent Fraud—Truth for Our Time,” a 2004 book by the late John Kenneth Galbraith. It also channels the ideas of the late Keynesian economist Abba P. Lerner, developer of “functional finance.”)

“A state like California or Illinois can get into trouble and need a bailout the same way Greece or Ireland. Greece is like our states, not our federal government. It’s a false analogy that the US is like Greece. If we were still required to maintain a certain amount of gold and a convertible currency, then it would make sense to balance the budget. But we haven’t been on the gold standard since 1933.”

When people are out of work and demand is low, Mosler believes, the government should cut taxes or spend. When the economy recovers and private investment returns, the government should prevent inflation by raising taxes or cutting spending. The Fed’s job (and in this Mosler agrees with the statements of Fed chairman Ben Bernanke) is to keep Americans employed and prevent inflation. Its job isn’t to help balance the budget or ensure that the dollar buys a fixed amount of gold or euros or pounds or yuan.

“When someone buys a Treasury security, it’s like they’re opening up a bank account at the Fed,” Mosler said. “When China gets dollars by sending hair-driers to Wal-Mart, those dollars go into the Fed. China’s money can either go into a checking account at the Fed, in which case it’s cash, or it can go into a securities account, in which case it’s U.S. debt.

“Why should we care whether China’s money is in a savings account or checking account? As long as China wants to sell us things, the process is not unsustainable. But when people say we’re going bankrupt, they’re just making a mistake. It’s negatively affecting policy and threatening our freedom.”

By “negative policy,” Mosler means suggestions to cut the budget deficit suddenly and dramatically. Demand is still too low. He would prefer to see a FICA tax holiday to boost demand and help Americans pay down personal debt. He’d also like to see large-scale investment in infrastructure and education, plus an $8-an-hour federal job with free health benefits to help “transition the unemployed to private sector jobs.” He wouldn’t raise taxes or interest rates until the economy recovers.

Regarding the future of Social Security and the rising dependency ratio, Mosler thinks Baby Boomer aging poses a productivity problem, not a fiscal problem.

“If you only have one guy left working, how will you take care of all those retirees? It’s not physically possible without higher productivity, and for that we need better technology and education,” he said. “Instead, people decide to cut education so that we’ll have more taxes to divert to Social Security. That’s the ultimate irony here. The thing we want to cut first is the thing we need the most. All because people don’t understand the monetary system.”

As we enter the next election cycle, you’ll hear ad nauseum about our fiscal manure piles. It will all seem quite scary and apocalyptic—until you consider the ponies.

Reading the Minds of the Affluent

Posted on May 25, 2011 by Editor Test -

A new survey of 700 U.S. retirees and pre-retirees with at least $100,000 in investable assets by Cogent Research confirms what many annuity marketers already sense: that only a minority of either the Silent Generation (22%) or “first-wave” Boomers (35%) are open to “products specifically geared for producing retirement income.”

But the report, “In-Retirement Income: Addressing the News of a New Generation of Retirees,” found that most retirees and pre-retirees want what those products can deliver: a regular, inflation-proof, lifelong income in retirement regardless of market activity. And 41% of pre-retirees with at least $500,000 in investable assets said they were “investing in specific products designed to generate a consistent stream of income.”

Confusing? You bet. Yet the opportunity is huge. Cogent estimated that 3.1 million affluent U.S. households currently include at least one member who will retire within the next seven years.

“Providers have a huge challenge,” said Cogent principal John Meunier in an interview with RIJ. “They have to deal with the high bars set by investors, who want regular income, inflation-protection—they key in on that—and protection from outliving their resources. On the one hand, it’s a tall order. But it couldn’t be clearer what they want and need. It’s always been said that guaranteed products are sold and not bought. But I think that’s changing. Investors are looking for those solutions. It’s just a matter of how the options are presented.”

More than three-quarters of affluent retirees and pre-retirees feel confident that they can generate retirement income from products they already own than from new products designed specifically for retirement income. The same proportion said they have “investigated ways to achieve in-retirement income goals on their own.” Yet only 55% of pre-retirees expressed confidence in their ability to generate retirement income.

The study showed some interesting differences between the current retirees, most of whom belong to the so-called Silent Generation, and pre-Retirees, who are Boomers ages 56 to 65. While 44% of retirees expected to rely most on a pension for retirement income, only 27% of pre-retirees said so—an apparent sign of the shrinkage of defined benefit plans.

Retirees held more money in IRAs than 401(k) accounts (42% vs. 12%) while pre-retirees showed the reverse (35% in 401(k) accounts and 26% in IRAs). That may indicate that the Silent Generation had less access to 401(k)s, or it may simply indicate that they’ve already rolled over their DC assets to IRAs.

The biggest difference between these adjacent generations, the study showed, was in their relative insistence for complete liquidity. “Willingness to give up control of principal was almost twice as high among the first-wave Boomers as among the Retirees, by 31% to 17%,” Meunier said. “We don’t often see differences of that magnitude. Basically, a number of the younger people realize they don’t have pensions, they expect to live longer, and they’ve experienced market turmoil. A confluence of factors is making them face reality.”

The presence of an advisor, not surprisingly, makes a big difference in the products that affluent investors buy or don’t buy, the study showed. While half of the “advised” older investors owned a retirement income product, only 35% of “unadvised” older investors did. Thirty-one percent of advised clients owned a variable annuity, but only 13% of unadvised clients did so. Twenty-seven percent of advised clients owned a fixed annuity, but only 20% of unadvised clients did.

“We’ve seen a greater tendency among advisors to embrace guaranteed products as a separate asset class,” Meunier said. “You have your equity bucket, your fixed income bucket, and your guaranteed income bucket. Advisors used to think, ‘If the [variable annuity living benefit] guarantees ever kick in, I’ve failed as an advisor.’ I think that’s changing. More advisors see these products as meeting a functional need, instead of as emergency backups.”

Affluent older Americans are much more likely to look for help from mutual fund companies (34%) or brokerages (25%) than from insurance companies (14%). Meunier said that this finding probably indicates that, of the three, mutual fund providers have the most frequent direct contact with investors—not that investors trust insurance companies less.

The study showed that the least affluent of those surveyed, the retirees and pre-retirees with $100,000 to $500,000 in investable assets ($276,000 average), were the most constrained and probably the most in need of guaranteed income products. They reported an average need of $55,000 a year in retirement. Even assuming that Social Security and pensions would cover part of that, they would probably need to spend an unsustainable percentage of their invested assets each year to cover their needs.

The Bucket

Posted on May 25, 2011 by Editorial Staff -

Symetra names vice president of Capital Markets Pricing

Symetra Life Insurance Company has appointed Brent Martonik to the newly created role of vice president and director of Capital Markets Pricing in the company’s Retirement Division, reporting to Dan Guilbert, executive vice president of the division.

Martonik will develop investment and hedging strategies in support of new and existing annuity products. He also will have asset-liability management responsibility for the Bellevue, Washington-based insurer’s retirement product portfolio, which includes deferred and income annuities.

Martonik joins Symetra from Surema, Inc., a Seattle-based risk management consulting firm he co-founded in 2004. At Surema, he was responsible for business development, general management and execution. That included assessing the market exposure of clients’ product offerings, creating product pricing and hedge management solutions, and developing policies and procedures for derivative operations.

Before Surema, Martonik spent 18 years at Safeco Corporation. From 1999-2004, he was vice president and senior derivative portfolio manager, responsible for trading equity and interest rate derivatives. He previously served as assistant actuary at Safeco Life Insurance Company, directing asset-liability management and new product pricing.

Martonik earned a bachelor of science degree in mathematics from the University of Washington. He is a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries.

LPL names David Reich to lead retirement platform development

LPL Financial has appointed David Reich executive vice president of retirement platform development. He succeeds Bob Francis, who was executive vice president, retirement strategy, before leaving the company last January.

Reich will continue to expand the firm’s retirement platform, introducing new services and technology and furthering the integration of technology platforms used by LPL Financial advisors to support their retirement plan business.

Along with Bill Chetney, executive vice president of LPL Financial Retirement Partners, Reich will report to Derek Bruton, managing director and national sales manager, Independent Advisor Services.

Reich most recently served at Ameriprise Financial as vice president and general manager, retirement strategies and solutions. He was responsible for strategic development and marketing of all retirement products and platforms to financial advisors. Prior to that, he served in a number of senior leadership roles across Ameriprise and American Express, its former parent.

Lincoln Financial launches “InStep” participant-ed program

Lincoln Financial Group has introduced the Lincoln InStep participant education program, which includes content, products, services and multimedia that can help employees take key steps in the savings process.

Four steps in the program include:

Getting Started – Learn the basics of retirement planning and investing through information designed to help people saving for retirement.
Saving More – Identify new ways to boost retirement savings by helping people understand the small steps they can take to help them make the most of their retirement plan and achieve their retirement goals.
Investing Wisely – Optimize asset allocation to fit individual risk profiles and the market environment.
Stepping Into Retirement – Explore retirement strategies and income options.

The four steps are intended to help participants manage retirement planning and financial needs through such life phases as career moves, marriage, parenthood, and home ownership, among others. The program includes in-person online and/or print resources.

Prudential launches new ad campaign: “Bring Your Challenges”

Prudential’s latest U.S. advertising campaign, launched May 24, “invites individuals, financial professionals and institutions to bring their biggest financial challenges to Prudential and highlights the company’s 135-year history of meeting those challenges for Americans,” the company said in a release.

The campaign opens with ads The New York Times, The Wall Street Journal, Washington Post, USA Today, The Star-Ledger, Barron’s and the Financial Times, and will include television, outdoor advertising, digital, business, general interest and trade media.

In short videos featured on a website created for the campaign, Prudential executives and industry experts discuss common financial challenges, including achieving lifetime income security, managing risk in pension plans and investments, delivering cost effective benefits to employees and providing adequate insurance coverage.

Anxiety and distrust are common among Boomer participants: Financial Engines

Posted on May 25, 2011 by Editor Test -

A new report from Financial Engines, which manages money for and gives automated advice to millions of plan participants, asserts that many Americans are fearful about their financial future.

The report, “Understanding the Accidental Investor: Baby Boomers on Retirement,” which was based on 300 interviews and surveys that Financial Engines conducted between 2008 and 2011, says that:

More than half of participants interviewed expressed uncertainty about the future;
Nearly half had a fear of poverty in retirement;
Nearly half distrusted the motives or qualifications of financial services and insurance firms; and
More than a third of near-retirees and retirees did not feel confident or knowledgeable making important financial decisions.

These emotions prevented many participants from accessing professional advice, the paper said, or made them avoid thinking about retirement altogether. Participants who feared poverty also engaged in “magical thinking” – telling themselves that everything would work out in the end. Those who were distrustful of professionals or unconfident about finances frequently turned to family and friends for advice.

Financial Engines identified five common needs that, if met, could potentially help participants overcome these strong emotional barriers. Those needs include:

• Flexibility. Participants want flexibility and control over their retirement investments. They do not want to be locked into an investment vehicle—especially early in retirement when uncertainties are at their highest.

• Safety. Fearing significant losses right before or in retirement, many participants want low-risk investments or investments that could provide a reliable income over time, and potentially for life. Many desired both—plus flexibility.

• Help from an Advisor. Many participants said they want a trusted advisor, but don’t know whom to trust with their money.

• Sponsor Evaluation. Participants said that having their employer select and monitor independent retirement income providers made them more likely to accept professional retirement help.

• Fee Transparency. Many participants demanded clear and easily understood fees. They said that they would not act unless they fully understood the fees associated with a given product or service.

The “Understanding the Accidental Investor: Baby Boomers on Retirement” white paper can be downloaded at www.financialengines.com.

A quarter of Americans couldn’t find $2,000 in 30 days, study shows

Posted on May 25, 2011 by Editor Test -

About one fourth of Americans age 18 and older said they could “certainly not” and another fourth could “probably not” come up with $2,000 in cash within 30 days from any source, according to an analysis of 2009 survey data by a team of business and sociology professors.

The findings, an indication of the level of household savings in the U.S., were published by the National Bureau of Economic Research in a paper entitled, “Financially Fragile Households: Evidence and Implications,” by Anna Maria Lusardi of George Washington University, Peter Tufano of Harvard, and Daniel J. Schneider of Princeton.

Generally, low levels of ability to access $2,000 on short notice correlated with low income, low wealth levels, low education levels and losses in the financial crisis. But the researchers were also surprised to see so many high-income households without $2,000 readily at hand.

“It seems somewhat unbelievable that nearly a quarter of households making between $100,000 and $150,000 claim not to be able to raise $2,000 in a month, but this fact may be less shocking when one considers costs of living in urban areas, costs of housing and childcare, substantial debt service, and other factor,” the authors wrote.

“A material fraction of seemingly “middle class” Americans also judge themselves to be financially fragile, reflecting either a substantially weaker financial position than one would expect, or a very high level of anxiety or pessimism,” the paper also said.

To get $2,000 in an emergency, 52.4% of those surveyed (excluding those who were certain they couldn’t find the money at all) would draw from savings, 29.6% would turn to family members, 22.9% would work more, 20.9% would use credit cards and 18.8% would sell possessions, to list the most common resources.

Comparing developed Western nations, the researchers found that ability to “certainly” come up with the equivalent of $2,000 varied from 57.7% in the Netherlands, to 48.2% in Italy, 44.3% in Canada, 36.2% in France, 31% in Portugal, 30.7% in Germany, 24.9% in the U.S. and 24.1% in the United Kingdom.

Downtick in GLB elections: LIMRA

Posted on May 25, 2011 by Editor Test -

LIMRA has reported that the percentage of U.S. individual variable annuity (VA) buyers who purchased any guaranteed living benefit (GLB) feature fell slightly in the first quarter of 2011, to 86% from 87% in the first quarter of 2010, National Underwriter reported. It was the lowest GLB election rate since 3Q 2008.

GLB features include guaranteed living withdrawal benefits (GLWB), guaranteed minimum income benefits (GMIB), guaranteed minimum accumulation benefits (GMAB), guaranteed minimum withdrawal benefits (GMWB), and hybrid benefit guarantee features.

Insurers generated about $29 billion in VA sales during the latest quarter, and about $23 billion of those sales came with GLB elections, LIMRA analysts said.

For 8% of the sales, a GLB feature was available but not taken; for 13% of the sales, no GLB feature was available.

GMABs sold best in the career agent channel, while hybrid guarantees sold best in the bank channel.

VA assets backed by guarantees reached $558 billion at the end of the first quarter, up 7% since the end of 2010.

Auto-enrollees save less, Aon Hewitt study shows

Posted on May 25, 2011 by Editor Test -

Auto-enrollment increases overall participation in employer-sponsored retirement plans, but auto-enrolled workers don’t contribute as much, on average, as active enrollees, mainly because employer set default contribution rates conservatively.

That was one finding of an analysis by Aon Hewitt, the human resources and consulting firm, of the saving and investing habits of three million participants in 120 large employer-sponsored defined contribution retirement plans.

Participants who were subject to automatic enrollment contributed one percentage point less on average (6.8%, compared to 7.8%) than their actively enrolled counterparts. More than three quarters of plans (76%) set default contribution rates at only 4% or less.

In addition, 41% of participants who were automatically enrolled are not saving enough to receive the full match from their employers, compared to only 25% of participants who proactively enrolled.

The study showed record levels of participation, with 75.8% of eligible employees participated in their company’s defined contribution plan in 2010, up from 73.7% percent in 2009 and 67.2% in 2005.

Before-tax contributions to DC plans were unchanged from 2009, Aon Hewitt found. But, at 7.3% of pay, they still lag pre-recession levels (7.7% in 2007).

Automatic enrollment is believed to be the reason for the increase in participation levels. Three in five employers (60%) auto-enrolled employees into their DC plans in 2010, up from 24% in 2006. But 85% of those who use auto-enrollment only apply it to new hires, so the participation levels are rising gradually. Where employees were subject to auto-enrollment, 85.3% percent participated in their DC plan, 18 percentage points higher than in plans where employees were not.

Many employees are clearly not using the plan to build sufficient retirement savings. Cumulatively, workers are saving over 10% of pay (including almost 4% in employer contributions. But almost 30% of participants don’t contribute enough to receive the employer match, half of all account balances are under $25,000 and, over the past three years, median annualized returns have been just 1.7%. More than one in four participants had a loan outstanding against their accounts at the end of 2010.

Most employees were not actively involved in managing their accounts. Despite strong market returns in 2009, only 14.2% of employees made any sort of fund transfer in 2010, down from 16.2% in 2009.

Those figures pertain to participants; they do not include the non-participants or the 50% of U.S. workers with no access to a workplace plan.

The study did not mention the possible impact of investment fees on employee accumulation levels, or whether plans with lower fees had higher participation rates or higher account balances. Fees and plan fee transparency are the subjects of ongoing Department of Labor rule-making efforts. The study didn’t assess the potential impact of rising health care costs or slow compensation growth on participants’ abilities to contribute to their plans.

Aon Hewitt analysts suggested that, to boost participation and contribution rates, companies combine automatic enrollment with automatic contribution escalation and target-date portfolios, and that they periodically auto-enroll non-participating employees, not just new hires.

Always Protect Your Story

Posted on May 24, 2011 by Editor Test -

To sell a lot of variable annuities, an insurance company and its wholesalers need a compelling story that’s grounded in product innovation and supported by consistent marketing and/or advertising.

Prudential Financial, for instance, has built a juggernaut of a story around its Highest Daily step-up feature. Jackson National Life’s Perspective VA topped the VA charts by promising advisors unrestricted investing with a guarantee.

Jackson National Life’s only blunder this month was that it didn’t take better care of its story. Two weeks ago, when Tidjane Thiam, the CEO of JNL’s UK-based parent Prudential plc (no relation to Prudential Financial) told analysts that he envisioned unspecified risk reductions in the VA by end of year, he probably didn’t realize that his statement would cross into the broker-dealer media and create uncertainty. But it did. And it muddied the Jackson story.

Now the Jackson National wholesalers are scrambling to sooth their key distributors, as they should. And if they can reassure advisors that the “no investment restrictions” story remains intact, this month’s communications malfunction shouldn’t do much lasting harm.

Why not? Because many advisors thought the changes described by Thiam, the first African CEO of a FTSE 100 corporation, were already long overdue. “Jackson National was getting to the point where over 65% of its revenue was coming from variable annuity sales,” said one advisor who has sold a lot of variable annuities over the years.

“That’s too large a percentage of their overall book. Insurance companies make their money by taking lots of little risks, not a few big ones. What they’re doing is very smart.”

Jackson National’s product, he added, also has plenty of leeway to become more conservative. That’s because so few competitors—stocks, bonds, or other variable annuities—have a better story to tell.

“There used to be 100 girls at the dance,” the advisor said (without pausing or bothering to beg pardon for employing such a sexist metaphor). He meant that prior to the financial crisis, during the VA arms race, an advisor could choose from a relative cornucopia of eligible and attractive variable annuity contracts. Then the financial crisis produced the Great Shakeout.

“Now that there are only three girls left at the dance,”—meaning Prudential, Jackson National and MetLife—“and everybody wants to dance with them, they don’t have to be as pretty. They will be dialing back to something that’s still competitive and still really good,” he said.

“The word I got from Jackson National is that there won’t be any investment restriction-based changes. There may be changes to the richness of the minimum growth [the rollup options], and the withdrawal rates [the age-dependent payout percentages] might be modified. But they’ve been so far ahead of everybody else that they will still be very attractive even with the modifications. They’re too rich.”

“Right now they have a quarterly reset ratchet and seven percent accruals, at a time when others have a five percent accrual with annual resets. Even if they dial their offering down to a quarterly reset at five percent or an annual reset at six percent, they’ll still be very competitive. They should take advantage of their pricing power. When you’re an Apple iPod and everybody wants you, you can do that.

“In 2007, there were a lot of VA products that were ‘Swiss Army knives.’ They had few investment restrictions, lots of combinations of benefits that addressed multiple needs. Since then we’ve been seeing manufacturers try to find niches where they’re most comfortable. One will have the most competitive death benefit. Another will have the best deal for a joint and survivor. We’re seeing products that are more specific-use focused,” he said.

Jackson National had one of the last of the rich contracts. “They straddled the line really well. They had a great sport SUV, and now we’ll see whether they decide to be more sport or more SUV,” he noted. ” [The anticipated changes] will absolutely take away from their sales. But that’s a good thing. They don’t want the level of volume they’ve seen. If they continue to get strong demand, it will be a more profitable business, because their hedging costs will be lower. Or their flows will slow and it will be a safer business.

“But I don’t know how anyone could have been surprised at this. It’s making so much news now because the other companies gutted their products back in 2009. Now, even though Jackson is dialing back, it may still be the prettiest girl at the dance.”

Ultimately, he said, the choice of variable annuity depends on what the advisor and the client are trying to accomplish. For somebody who wants maximum equity exposure with a safety net, the Jackson National Perspective will still fill the bill. For somebody who’s looking more for guaranteed income than for performance, another product might be better. And that’s fine.

In variable annuity sales, as in any type of selling, the story is paramount. You can tinker with the numbers and survive. But you should never tamper with the story.

Diamond bracelet of sports

Means-testing Medicare

LPL names David Reich to lead retirement platform development

Lincoln Financial launches “InStep” participant-ed program

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