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Boomers May Regret Payroll Tax Holiday: Op-Ed

Posted on December 28, 2010 by Editor Test -

A former chief of staff of the House Select Committee on Aging and a policy analyst assert in an op-ed in the Palm Beach Post that the tax deal passed by Congress last week is a major threat to the solvency of Social Security.

Robert Weiner, the former chief of staff, and Jonathan Battaglia write, “Under the radar screen, the new tax deal is threatening the livelihood of America’s present and future seniors — to line the pockets of millionaires.

“If made permanent, a new Social Security ‘payroll tax holiday,’ reducing the ‘match’ employers pay from 6% to 4% of salary, will drop the solvency of the program 14 years, from 2037 to 2023. At the same time, Congress agreed to increase high-end loopholes in the estate tax, exempting 39,000 estates worth as much as $5 million.”

Weiner and Battaglia said the most dangerous part of the deal is that the payroll tax holiday could become permanent. “The new philosophy in Congress seems to be ‘once a cut, always a cut.’ When the payroll tax holiday expires in a year, Republicans will insist on keeping it, just as they did with the Bush tax cuts for the wealthy.”

They say that Congress can “dig themselves out” of the problem the same way President Obama and Congress extended Medicare reimbursements for physicians: “Congress should have adopted an amendment to the tax bill proposed by some far-sighted lawmakers that would have replaced changes in payroll taxes with a one-year credit to provide tax relief to businesses, while not threatening the solvency of the Social Security trust fund.

“Instead, Congress broke down the firewall of separate Social Security funding and gave it to general revenue to help business—and the heck with seniors.”

Weiner and Battaglia cited the courage of the late congressman Claude Pepper, who stood up to Carter Commerce Secretary Juanita Kreps’ suggestion to increase the retirement age to 68 for full Social Security benefits and got her to back off.

“That’s the courage we need from somewhere now. Congress should clean up the mess it just created for seniors, and for all the young and middle-aged who hope to grow old.”

SPARK Institute starts data project for non-registered plan investment options

Posted on December 28, 2010 by Editor Test -

Starting in 2012, the U.S. Department of Labor will require every sponsor of a 401(k) plan or similar plans to create a single chart listing all of the plan’s investment options so that participants can compare them easily.

The SPARK Institute, an association of the largest retirement plan service providers and investment managers, says it has started developing standards to help providers of non-registered plan investment options meet the new data requirements.

The new standards will help the providers share the comparison chart information electronically with one another and with existing investment information aggregators, the institute says. The institute notes that it already has developed information-sharing standards for 403(b) plans and lifetime income arrangements.

The chart must include options such as fixed annuities, collective investment funds or separately managed accounts that aren’t registered with the U.S. Securities and Exchange Commission and don’t ordinarily release the same kinds of public reports that registered mutual funds do, according to the SPARK Institute, which is based in Simsbury, Conn.

High popularity, low penetration augur well for ETF growth

Posted on December 28, 2010 by Editor Test -

More two-thirds of the assets invested in exchange-traded funds (ETFs), which has surpassed $1 trillion (€735bn) in the U.S. alone, is held products offered by just three companies, according to BlackRock’ global ETF research and implementation strategy team.

In its November ETF Landscape Industry review, BlackRock also said that its own ETF vehicle, iShares, claimed the biggest share of the market, with 486 out of 2,422 products and assets close to $550 billion, or almost 45% of the market.

State Street Global Advisors was second with $171bn in assets and a 14% market share, followed by Vanguard. In total, the 133 vehicles provided by these three companies accounted for 70% of the market, with 63% of assets held in the top 100 ETFs.

Over half of institutional investors surveyed by BlackRock expect their use of ETFs to increase over the next three years, with one in five saying their asset allocation to the product would grow by as much as 10% within that period.

The company also called for investors to agree to a clear definition of what constitutes an ETF, saying that some products on offer did not offer real-time net asset value indicators, with products that were not even funds claiming to be ETFs.

Despite their popularity, however, ETFs are still unknown to many people. Research from Mintel shows that more than six in 10 investors—including high income investors–say they don’t invest in ETFs simply because they “don’t know what they are.”

Even among ETF owners, only 54% feel they are “very knowledgeable” about ETF investing, Mintel said. Only 17% of existing investors in mutual funds and individual stocked reported feeling comfortable with the idea of investing in ETF products.

“ETFs have not penetrated well into some potential markets,” a Mintel spokesperson said. “One reason is that they are not commonly offered in qualified plans such as 401ks, but even those who invest in non-retirement accounts are still quite unfamiliar with the this newer type of investment.” Given their lack of market saturation, Mintel predicts that ETFs will experience double-digit growth over the next five years.

For capital gains tax, the “honor system” ends January 1

Posted on December 28, 2010 by Editor Test -

Starting January 1, 2011, the Internal Revenue Service will require brokerages to track the cost basis on equities bought after that date, and to send taxpayers and the government an annual form recording it when investors sell shares.

Brokerages already report the proceeds from sales of securities to the IRS. Next year, they’ll also have to provide information on the purchase price, known as the cost basis, of stocks.

In other words, investors will no longer be able to use the honor system when calculating their capital gains for tax purposes. Before this rule, the government didn’t have a way to verify if an investor was reporting the true gain on a sale unless there was an audit, said Greg Rosica, a tax partner at Ernst & Young who is based in Tampa, Florida.

“We expect our clients are going to get a 1099-B form in 2012 and they could have an outcome that they don’t expect,” Said Brian Keil, director of cost basis and reporting at Charles Schwab Corp.

Investors who buy shares of the same company on different dates or prices will see the biggest change, said Eric Smith, a spokesman for the IRS. They’ll need to identify which shares they’re selling before the sale settles, which typically means within three days for stocks.

The regulations take effect at later dates for other trades. Starting Jan. 1, 2012, brokers will have to record the cost basis for mutual funds and stocks held in dividend reinvestment plans, which require investors to reinvest at least 10 percent of dividends paid.

Cost-basis reporting also applies to the majority of ETFs in 2012, the IRS said.

The rules take effect for options and fixed income securities, such as bonds, acquired on or after Jan. 1, 2013, according to the IRS.

“Clients today often meet with their accountant, or when they are doing their taxes, and look backward,” said Keil of Schwab, the largest independent, publicly traded brokerage by client assets. “They select which lots they would have used with a lot of hindsight. That’s not going to be the case anymore.”

Brokerages including Schwab, Fidelity Investments and TD Ameritrade Holding Corp. will offer investors choices for reporting cost basis including using the last stock bought or highest cost, the firms said. Investors may tell the company to always sell shares minimizing gains, for example, or specify shares for a particular trade before it settles, according to the IRS.

For taxpayers who don’t choose, the brokerage must record the purchase price of the first shares bought, known as first- in-first-out or FIFO, according to the IRS. The firm may choose cost averaging as its default for mutual funds and stocks held in dividend reinvestment plans, the IRS said.

Brokerages will be required to transfer cost-basis information for stocks bought after Jan. 1, if an investor switches firms, said Gregg Murphy, senior vice president of brokerage products for Boston-based Fidelity. Firms incur a $100 penalty for sending an incorrect form to the taxpayer and a separate $100 penalty for sending an incorrect form to IRS, according to regulations.

Investors should review their tax situation before choosing a reporting method, said Sheryl Eighner, a director in the personal financial services group at PricewaterhouseCoopers LLP in Chicago. Taxpayers may want to identify certain shares if they need to offset gains with losses, for example, she said.

Depending on the amount of appreciation between the date a security was bought and sold, choosing the right reporting method could result in a smaller capital gains tax, David Sands, a tax partner at New York-based Buchbinder Tunick & Company, said.

Picking the wrong one could result in a bigger payment than necessary, he said. Gains on stocks, corporate bonds and mutual funds held at least a year generally are taxed at a maximum 15% federal rate. Short-term gains are taxed at an individual’s ordinary rate, currently as high as 35%.

Fiserv Introduces Cost-Basis Reporting Solutions

Fiserv, Inc., the provider of financial services technology solutions, today announced the launch of the first in a series of new tools to support the Cost Basis Reporting Regulation, a provision of the Emergency Economic Stabilization Act of 2008.

The law requires that, effective January 1, 2011, financial intermediaries provide to investors and the Internal Revenue Service (IRS) the adjusted cost basis for covered securities. This new regulation will provide investors the means to accurately report gains or losses on the sale of securities for their annual tax filings.

This cost basis solution from Fiserv allows for efficient daily import and calculation of data from books and records to provide adjusted cost basis information — information that can be used for reporting tax-aware strategies and for responding to tax harvest requests.

Fiserv has worked closely with its straight-through trading partners, as well as the custodians and third party vendors who provide books and records to identify changes they may or may not be making to support the regulation.

Many partners are making changes to accept “versus purchase” data in trading messages, which the allocation communication process from Fiserv already supports. In order to ensure accurate processing of specified lot relief, reconciliation is required to go down to the tax lot level.

In response to this requirement, Fiserv has introduced a full tax lot data reconciliation solution. This technology, available now, provides clients with reports and automated synchronization tools that identify and reduce differences across the entire APL platform between tax lot data, including cost basis information.

The reconciliation will enable clients to maintain tax lot consistency from one application to the next. Data synchronization reduces inconsistencies to enable accurate reconciliation and provides transparent client data that can then be reported to the IRS and the end investor.

Fiserv, a technology provider for the managed accounts industry, processes more than 3.4 million accounts on its APL platform and is the technology provider for more than 1 million UMA sleeves.

In 40 Years, U.S. Will Be Less Populous—and More Prosperous—Than Expected

Posted on December 28, 2010 by Martin Hutchinson -

The Census Bureau issued the first results of the 2010 Census this week, showing that the U.S. growth in population in 2000-2010 was only 9.7%, the lowest decennial growth since the 1930s and the second lowest on record. This has modest if beneficial effects on our understanding of where the United States is today. However it has much more important effects on what kind of United States we will see in 2050.

There is a “consensus” view of the United States in 2050, based partly on multi-culturalist wishful thinking and partly on extrapolation of the 13% population growth of the 1990s. In that case the United States would have become “majority minority”—a prediction that first appeared in Time magazine after the 1990 census and has been repeated ad infinitum since.

The new census result blows such predictions out of the water. We can [now] project forward from 2010’s actual number [and] get a U.S. population in 2050 of a mere 333 million. That intuitively seems far too low, but with immigration law enforcement likely to tighten at least in the short term, a 2050 population of below 400 million certainly now looks plausible, with the demographic split only moderately changed from today’s.

Ignoring the social effects of changing demographics, the economic effect of a lower population growth rate is very considerable, and mostly positive. First, with only 90 million new inhabitants in the next 40 years compared with the previous estimate of 130 million plus, only two-thirds of the projected expenditure on schools, roads, housing, government offices and other infrastructure will be needed, saving perhaps $500 billion per annum (including housing and schools) in scarce capital resources that can be devoted to more economically productive capital investment in the nation’s businesses.

Second, with 10% fewer people around in 2050, the endowment of land and capital will be 10% greater per capita. In general, that should ensure that real wage rates even for the unskilled cease the unhappy slippage of the past few decades and start to increase again as Joe Sixpak once again claims his fair share of the nation’s ever-increasing output. Even between 2000 and 2010, the 0.1% lower than expected annual growth of population results arithmetically in a 0.1% higher annual growth in real GDP per capita.

A slower rate of population growth in 2010-2050 implies a generally richer 2050, with higher per capita income growth and better opportunities at the bottom of the earnings pyramid, both unalloyed blessings. Slower population growth will also affect education. With overall population perhaps 10% lower than projected, and annual growth maybe a third lower than projected, the resources of the education system will be ample for the needs of the new generation.

This means that low performing schools and in particular low performing colleges can be closed, poor teachers weeded out and resources concentrated on providing the best possible start in life for the modest new cohort – and on providing top quality re-training and education for the ever-increasing number of older people whose career paths have been wiped out by technological change.

There is a growing body of evidence that the massive expansion in college education since 1950 has gone too far, with too many mediocre and useless educational experiences being provided to those ill suited to benefit from them. Return a cohort of 18-22 year olds from community college and sociology courses to the workforce, while expanding education and training opportunities for those in middle age, and economic efficiency and general welfare will be immeasurably increased.

Needless to say, the lower projected population growth does not offer unalloyed benefit. In particular it will make the financial position of the Social Security and Medicare programs more difficult. With fewer young workers funding the costs of retirement and old age care, the actuarial deficits in those programs will increase. Admittedly by 2050 the worst “hump,” the retirement and old age of the baby boomers, will be almost past, but the cash flow drain in the 2030-2050 period will be severe.

Two factors will alleviate this problem. First, with a wealthier population containing fewer poor people, the Medicaid program of medical care for the indigent will be correspondingly less troubled, while the subsidy necessary to Social Security and Medicare will be less pronounced. Second the reduced need for infrastructure spending will itself free up additional funding for these programs.

However the most urgent policy need for the programs, made more necessary by the new demographic reality, is to continue the gradual raising of the retirement age beyond its current goal of 67 in 2026. By continuing the current addition of one month of working life per annum, the retirement age (and eligibility age for Medicare, which should rise in parallel) will become 68 by 2038, 69 by 2050 and 70 by 2062. Medicare will then still be in horrendous actuarial deficit until we cut medical costs through tort law reform and other means, but Social Security’s problem should by this means be solved.

With the malign 1990s vision of rapid population growth, combined with the unpleasant reality of anemic economic performance as seen in the 2000s, the United States would by 2050 become a teeming melting-pot, with widespread poverty, high taxes to fund frantic infrastructure spending and the overcrowded poly-ethnic young unwillingly paying the welfare costs of the impoverished old. In the new version, with population growth finally under control, the United States of 2050 will be much richer, more harmonious and indeed happier – not a melting pot but a country club.

Martin Hutchinson is the author of “Great Conservatives” (Academica Press, 2005) and co-author with Kevin Dowd of “Alchemists of Loss” (Wiley, 2010). An unabbreviated version of this article appeared at prudentbear.com.

Of apples, oranges and unemployment rates

Posted on December 28, 2010 by Editor Test -

Health and wealth have always gone hand in hand. In a new study published by the National Bureau of Economic Research, Dhaval M. Dave of Bentley University and Inas Rashad Kelly of Queens College, City University of New York, use information from the Behavioral Risk Factor Surveillance System (1990-2007) to explore the relationship between the risk of unemployment and the consumption of various healthy and unhealthy foods.

“A higher risk of unemployment is associated with reduced consumption of fruits and vegetables and increased consumption of ‘unhealthy’ foods such as snacks and fast food,” they write. They suggest that reduced income and depression might lead to poor dietary habits.

“Among individuals predicted to be at highest risk of being unemployed, a one percentage point increase in the resident state’s unemployment rate is associated with a 2-8% reduction in the consumption of fruits and vegetables. The impact is somewhat higher among married individuals and older adults,” said an abstract of the study.

SEC seeks comments on credit rating standardization

Posted on December 28, 2010 by Editor Test -

The SEC has posted the request for comments on a Credit Rating Standardization Study today in the Federal Register, National Underwriter reported.

The SEC is conducting the study to implement Section 939(h) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires it to investigate the feasibility and desirability of standardizing credit ratings terminology, market-stress-related rating triggers and estimated default probabilities.

The SEC asks, for example, whether it is feasible and desirable to standardize credit ratings terminology, so that all credit rating agencies issue credit ratings using identical terms.

“Some credit rating agencies employ multiple credit rating scales designed to distinguish between different types of issues and/or issuers,” SEC officials note. “For example, a credit rating agency may employ different credit rating symbols for ratings of long term securities, short term securities, money market funds, claims paying abilities of insurance companies, and issues and/or issuers in different jurisdictions.”

The SEC asks whether commenters believe that some types of credit rating symbols used by credit rating agencies are more or less suitable to standardization, and whether it makes sense to use a single credit rating scale for all types of issues and issuances.

“Should a standardized credit rating terminology employ a separate terminology for certain asset classes (e.g., for structured finance ratings)?” officials ask. “Are there asset classes or types of ratings, such as short term or financial strength ratings, where a separate terminology should be considered?”

SEC officials also ask for comments on the organizations or combination of organizations that should be responsible for developing and administering the standardized credit rating terminology.

The SEC could do the job, but an independent board also could take responsibility for standardization, officials say.

Comments are due Feb. 7, 2011.

A ‘Turbit’ Drawdown Strategy

Posted on December 28, 2010 by Kerry Pechter -

Zeno’s dichotomy paradox, an age-old principle that most of us learn through Aesop’s fable of the tortoise and the hare, says that a series of partial efforts will never quite finish the job at hand.

This paradox applies nicely to the retirement drawdown problem—except that, in retirement, the hare wins. By consuming only a fixed percentage of his savings each year, a retired rabbit is much less likely to consume all of it than a retired turtle, who spends a fixed dollar amount every year.

That’s precisely what two CFPs at Vanguard demonstrate in their recent study,
“A more dynamic approach to spending for investors in retirement.” They then go a step farther and demonstrate that a hybrid strategy—a “turbit,” if you will—works better than drawing down either a fixed amount or a fixed percentage.

The two CFPs, Colleen M. Jaconetti and Francis M. Kinniry, Jr., don’t actually refer to Aesop’s fable in their paper. They simply compare three methods of drawing down a hypothetical $1 million portfolio (50% bonds, 35% domestic equities and 15% international equities) over a retirement of 35 years.

The first method involves spending $47,500 a year, adjusted annually for inflation, regardless of market conditions. The second method involves spending exactly 4.75% of the portfolio each year, regardless of the size of the portfolio. The third method, in their example, limits each year’s spending to a ceiling of 5% more or a floor of 2.5% less than the amount spent in the previous year.

“As in the percentage of portfolio strategy, the investor calculates each year’s spending by taking a stated percentage of the prior year-end portfolio balance. The investor also calculates a ‘ceiling’ and ‘floor’ by applying chosen percentages [5% and 2.5%] to the prior year’s spending amount,” the study says. “The investor then compares the three results. If the newly calculated spending amount exceeds the ceiling, the investor limits spending to the ceiling amount; if the calculated spending is below the floor, the investor increases spending to the floor amount.

Based on 10,000 simulations using historical returns for their hypothetical balanced portfolio, the Vanguard analysts determined that their hybrid or compromise strategy would result in a portfolio ruin rate (risk of exhausting savings within 35 years) that was lower than the fixed spending strategy (11% versus 29%) but with spending shortfalls (annual income less than the initial amount) occurring less often than with the fixed percentage strategy (48% of the time versus 53% of the time).

There are no hard-and-fast rules with this approach, Kinniry and Jaconetti point out. They chose 5% and 2.5% to calculate the floor and ceiling, but those numbers (as well as the spread between them) can vary, depending on the advisor’s and the investor’s preferences.

“The narrower the spread… the more similar this strategy is to the dollar amount grown by inflation strategy,” they write, and “the wider the difference between the ceiling and floor percentages, the more similar this strategy is to the percentage of portfolio strategy.”

Most significantly perhaps, the paper suggests that the hybrid strategy allows investors to spend more of their savings each year in retirement, depending on their age and their asset allocation. For instance, retirees with a 20-year horizon and a moderate portfolio could spend 6.75% in the first year of drawdown by obeying a 5% ceiling and 2.5% floor but only 5.75% if they decided to follow a fixed-amount drawdown method.

The Vanguard paper adds nuance to the conventional 4% retirement drawdown rule. Most retirees—that is, those who don’t use insured retirement solutions—will naturally settle on a hybrid withdrawal method, since neither the fixed-amount and fixed-percentage drawdown methods are likely to be flexible enough for life’s vicissitudes.

This paper’s value isn’t so much its recommendation of a hybrid strategy as its careful elucidation of the details of one. In a sense, their hybrid suggests a home-made structured product—one that offers a guaranteed income range to the investor but where excess returns or losses are absorbed by the investor’s own portfolio instead of by the issuer of the product.

The Bucket

Posted on December 22, 2010 by Editorial Staff -

AXA Equitable Study Shows People Will Work Longer

Results from AXA Equitable Life Insurance Company’s Retirement Reality Study show that today’s working world anticipates retiring much later than previous generations. The average age of retirees polled around the world is 57 years old. However, current workers anticipate retiring at 61.

In addition to working longer, people in most countries are expecting a lower standard of living in retirement. Globally, 43% of workers and 30% of retirees believe their retirement income will be insufficient. Working people know they need to prepare for retirement, with 46% saying they have started to prepare and an additional 37% intending to start later.

Americans are among the top nations surveyed to say that they have already started their retirement planning. Among U.S. Workers, 72% said they have started saving for retirement, compared with a global average of 46%. Not only has a large percentage of Americans started preparing for retirement, they are starting younger than people in other countries. U.S. workers are among the youngest to say that they have started to prepare for retirement; the average age in the U.S. is 31, compared with the worldwide age of 34.

Although Americans seem more prepared than their counterparts in other countries, the anticipated retirement age is still among the highest of any country. The average American anticipates retiring at 64, three years older than the survey average of 61, and six years older than their desired retirement age of 58.

Additional survey findings include:

Americans have the most self-reliant view of retirement savings, with 58% of those polled, a greater percentage than any other nation surveyed, preferring to fund their retirement savings on their own rather than depend on the government.

U.S. workers prefer meeting face-to-face with someone when purchasing an investment. In addition, 65% of workers and 65% of retirees have used insurance, financial or other professionals as sources of information to find out about financial products vs. 50% among workers and 44% among retirees across all countries.

Research firm GfK NOP managed the survey globally for the AXA Group. Local firms fielded the questions in each country from March 1st to May 25, 2010. This is the fifth global survey released by AXA Equitable and its parent, AXA Group, and is part of the company’s continued effort to enhance its understanding of the retirement issues. A total of 31,539 people between 25 and 75 years old were interviewed in 26 countries.

Lincoln Financial promotes Freitag as CFO

Lincoln Financial Group has promoted Randal J. Freitag to executive vice president and Chief Financial Officer, effective January 1, 2011. He will replaces Frederick J. Crawford, who became executive vice president and head of Corporate Development and Investments. Freitag and Crawford will both serve on the company’s senior management committee and report to Lincoln president and CEO, Dennis R. Glass.

As CFO, Freitag will lead Lincoln’s financial team, which includes corporate finance, risk management, treasury, corporate tax, corporate actuarial, audit and investor relations.

Freitag joined Lincoln Financial in 1995 and served in a variety of management positions before being named Chief Risk Officer in 2007. Prior to joining Lincoln Financial, Freitag held various actuarial roles. He earned a B.A. degree in mathematics from the University of Minnesota and is a fellow of the Society of Actuaries.

MFS Survey: What Does the “Fearful” Investor Look Like?

Based on the responses from its recent investor behavior survey, MFS Investment Management® (MFS®) was able to classify 12% of respondents as “fearful,” 18% “hopeful,” and 11% “opportunistic.” From that, MFS is able to report the following statistical measures of the attitudes and behaviors of those in need of the most help, the self-described “fearful” investors:

“We’re closing out a decade book-ended by the dot-com bubble burst and the worst recession since the Great Depression — perhaps reengaging with clients about investing basics would be a good place for advisors and their clients to start, to help to make the novice less nervous.”

89% were very concerned about another serious drop in the stock market
73% have lowered their expectations about what life will be like in retirement
71% were pessimistic in their outlook for the U.S. economy over the next five years
62% prefer low risk investments today even if means low returns
61% identify themselves as a saver more than an investor
54% agreed that they will never feel comfortable investing in the stock market again
49% are overwhelmed by all the different investment choices they have available to them
48% said their need for financial advice has increased since the downturn
39% decreased their contributions to 401(k) plans and Individual Retirement Accounts (IRAs)
37% of their portfolios are in cash

Education linked to retirement security: Transamerica

A study by the non-profit Transamerica Center for Retirement Studies addresses the differences in American workers’ retirement preparedness based on their level of education.

The 11^th Annual Transamerica Retirement Survey, conducted among nearly 3,600 American workers, found that the levels of educational attainment among American workers are strongly correlated to their retirement confidence, as well as their ability to save and plan for retirement. The study also makes recommendations for outreach initiatives and public policy, including promoting available tax incentives, improving financial and retirement literacy, and expanding retirement plan coverage, to help improve retirement security among all workers.

Level of educational attainment plays a significant role in Americans’ ability to participate in the workforce. However, once employed, workers with lower levels of education are still often at a disadvantage as it relates to their ability to save and plan for retirement.

Just 60% of workers who only have a high school diploma report being offered a 401(k) or similar plan by their employer, compared to 71% of workers with some college education, 78% of workers with a college degree and 83% percent with post graduate education. Of workers who do have access to a plan, those with only a high school education have a lower participation rate (63%) than those with some form of higher education (77% with some college, 84% with a college degree, and 87% with at least some post graduate education). Those with only a high school education also contribute a smaller percentage of their pay (5% median) compared to those with a college degree (8%percent median).

Workers with lower levels of educational attainment are also significantly less confident in their ability to fully retire with a comfortable lifestyle. Just 40% of high school graduates without any college education are confident in their ability to retire, compared to 53% of college graduates and 64% who have pursued a post graduate education. While most workers agree that they could work until age 65 and not save enough to meet their retirement needs, three-quarters of high school graduates with no college education agree with this sentiment compared to just over 60% of college graduates. Additionally, nearly half of high school graduates without any college education (48%) plan to work past age 70 or not retire at all.

Quarter of UK businesses unprepared for auto-enrolment, says Aon Hewitt

Nearly a quarter of UK businesses have not yet considered the implications of auto-enrolment on their schemes, according to new research from Aon Hewitt.

The consultancy’s UK Benefits and Trends Report 2010 found that 23% of over 480 employers surveyed had not yet considered changes needed to their pension schemes in order to comply with the government’s new pension legislation.

Surprisingly, it also revealed that only 5% intended to level down employer contribution as they shift to auto-enrolment.

Furthermore, the report found that 17% of respondents operate a stakeholder plan as their main pension scheme, with another 14% operating an active stakeholder plan.

Only 5% run a standalone occupational trust-based plan as their main plan, with a further 5% operating a standalone occupational trust-based plan as an additional active plan.

Occupational trust-based schemes are maintained by 4% of companies as part of a defined benefit (DB) plan, while 3% operate an occupational trust-based plan which is part of a DB scheme, with a defined contribution (DC) plan its main pension arrangement.

Just 1% operate a group self-invested personal pension (SIPP) as their main DC plan, with a further 2% offering a group SIPP as an active, but not primary, DC plan

The overwhelming majority of respondents (95%) do not plan to make imminent changes, pending the rollout of auto-enrolment from 2012, while the remaining 5% intend to decrease employer contributions to their DC plan.

Ernst & Young responds to New York AG’s Complaint

The accounting and consulting firm issued the following statement this week:

We intend to vigorously defend against the civil claims alleged by the New York Attorney General.

There is no factual or legal basis for a claim to be brought against an auditor in this context where the accounting for the underlying transaction is in accordance with the Generally Accepted Accounting Principles (GAAP). Lehman’s audited financial statements clearly portrayed Lehman as a highly leveraged entity operating in a risky and volatile industry.

Lehman’s bankruptcy occurred in the midst of a global financial crisis triggered by dramatic increases in mortgage defaults, associated losses in mortgage and real estate portfolios, and a severe tightening of liquidity. Lehman’s bankruptcy was preceded and followed by other bankruptcies, distressed mergers, restructurings, and government bailouts of all of the other major investment banks, as well as other major financial institutions. In short, Lehman’s bankruptcy was not caused by any accounting issues.

What we have here is a significant expansion of the Martin Act. Although the Martin Act is almost 90 years old, we believe this is the first time that an Attorney General is attempting to use this law to assert claims against an accounting firm, rather than the company that took the alleged actions.

Save your payroll tax cut—Principal Financial

In 2011, most American workers will get a two percent boost to their paychecks thanks to the new tax extension bill. It provides a Social Security “tax holiday” by decreasing the current payroll tax rate to 4.2% from 6.2% for one year.

That extra two percent could potentially make a significant difference in their retirement nest eggs over time, says the Principal Financial Group. For example, a 30-year-old earning $50,000 a year who defers an extra 2 percent into his or her 401(k) account over the next year would boost the weekly 401(k) contribution by a little more than $19. That amount could potentially grow to more than $16,600 by retirement at age 66.

“For Americans who can afford it, why not just put part or all of that two percent tax cut into your 401(k) or 403(b) account? It’s money you aren’t used to spending anyway,” said Greg Burrows, senior vice president, retirement and investor services at The Principal. “It may be just the amount to get closer to saving between 11% and 15% of pay. We believe most retirement plan participants should be saving in that range–including employer match—over the course of a career to have adequate income at retirement.”

Workers who are 50 years and older and already maxing out on their retirement plan contributions, could use the 2 percent as part of their catch-up contribution.

“When Americans on average are saving about half of what they need for a secure retirement, any additional amount is a good thing,” said Burrows.

Romania approves pension reform with changes to indexation, retirement age

Romania is set to increase its retirement age and reduce the level of pension indexation, after reform laws were approved by its president this week.

Under the new law, the retirement age for men will increase from 64 to 65, while women will be expected to work until 63, rather than 59, by 2030. There will also be a proportional increase in the mandatory contributory period.

Additionally, the indexation of public pensions will be much less generous than it is at present, with the current earnings-linked basis replaced by so-called Swiss indexation, which increases pensions by the price index plus wage growth.

The changes have been welcomed by Romanian Pension Funds’ Association (APAPR) as making the system more sustainable.

Mihai Bobocea, secretary general, APAPR, said: “Overall, the new pension law somewhat brings the public system a bit closer to where it should be from a sustainability point of view, and it will also help Romania to continue its agreements with international financial institutions.”

Bobocea said: “However, even after this review, the indexation model envisaged for public pensions in the future will definitely prove over-generous, and will have to be toned down. But for now I’m sure all stakeholders should be glad with this reasonable compromise: even though it seems painful from a social perspective, it’s sound, and a lot more sustainable from a budgetary and economic point of view.”

The changes have been introduced to help secure further IMF funding, but have experienced a stormy passage because of the associated cuts in benefits and legislation has taken over a year to be enacted. Despite this, its original draft is still largely intact.

Pimco allows equities investments in Total Return bond fund

Posted on December 22, 2010 by Editor Test -

Pimco’s US$ 250bn (€160bn) Total Return fund, the world’s largest bond fund, has expanded its investment remit to include up to 10% of its total assets in preferred stock, convertible securities and other equity-related securities.

The move follows concern that the long running bull market in bonds is in bubble territory and that inflation and economic growth will damage future returns, according to a report in IPE.com.

The Pimco Total Return bond fund, run by Bill Gross, experienced a US$2bn (€1.2bn) outflow in November, the first in nearly two years, having achieved an average return of 8% a year since its inception in 1987.

A number of bond fund managers have moved towards investing in a wider range of bond, including securities linked to equities, or with characteristics of both bonds and stocks.

Ros Altmann, director general of Saga, said that there was a real risk of the bond market bubble being ignored. “Pension funds have been encouraged to switch into bonds for ‘safety’ and ‘risk reduction’, but if this is a bond market bubble, this is not necessarily the right thing to do.

“Many pension funds will look back and realize that this was a huge bond market bubble – with the Bank of England forcing long-rates down by buying gilts and the US Fed forcing rates down in the US with its own quantitative easing,” she said.

“The best place for institutional money at the moment is in high yielding equities with strong balance sheets and overseas markets where growth is not so constrained.”

Moral Hazard and the Roots of the Financial Crisis

Posted on December 22, 2010 by Editor Test -

Four members of the Financial Crisis Inquiry Commission have delivered a 13-page document tracing the causes of the so-called Great Recession of 2008-2009, thus meeting the December 15, 2010 deadline established by law in May 2009. But the document represents only their views and not the views of the entire commission.

The root cause of the crisis, in their somewhat partisan opinion, was the U.S. government’s zeal in the late 1990s and 2000s to increase federally-insured mortgage lending to high-risk borrowers without adequate regard for—and without heeding repeated warnings about—the risks that policy would eventually introduce into the financial system.

“The government has always supported homeownership. But trying to get something for nothing—to subsidize homeownership without increasing the budget deficit—was a recipe for a crisis,” the report said. “The government, in effect, encouraged the [Government Sponsored Entities] to run two enormous monoline hedge funds that invested exclusively in mortgages and were implicitly backed by the U.S. taxpayer.”

The report goes on to name the reasons why this policy grew out of control, including such factors as low interest rates, a global savings glut and creative lending practices. But the problems in the mortgage arena wouldn’t have become so huge, they argue, if investors, banks and credit rating agencies had not been lulled into under-pricing risk and leveraging up their holdings by a belief that housing prices wouldn’t go down and that, even if they did, the federal government would bail everyone out.

A number of observers—including, apparently, the members of the FCIC who didn’t endorse this report—disagree to varying degrees with this interpretation. According to competing theories, Fannie Mae and Freddie Mac followed rather than led private lenders like Countrywide Financial into the riskiest depths of the subprime market, and that the private sector recklessly exploited government housing policy, interest rate policy and federal guarantees.

The difference is a subtle one. One economist who has been studying the causes of the crisis, Viral Acharya of the Stern School at NYU, believes that the correct answer lies in between. In a forthcoming book on the crisis, Guaranteed to Fail: Fannie, Freddie and the Debacle of Mortgage Finance (Princeton University Press, 2011) he and his NYU co-authors avoid assigning blame. Rather, they describe a disastrous “race to the bottom” in risk-taking that private banks and GSEs both participated in.

In their view, moral hazard created by explicit or implied government guarantees of the GSE debt—coupled with a neglect to properly reserve, hedge or even account for those liabilities—did more to bring about the crisis than did the Clinton and Bush administrations’ efforts to expand home ownership among riskier borrowers.

“Our view is indeed that their private-profits-with-socialized-risk [structure] was as big—if not a bigger problem—than their government mandate,” Acharya told RIJ. “In the end, both interacted to produce a terrible outcome, along with race to the bottom with private sector in risk-taking.”

He and his co-authors believe “government guarantees abound, not just to Fannie Mae and Freddie Mac but to much of the financial sector, and that it distorts the price of systemic risk. We think the primary distortion is the lack of government pricing of these guarantees to ‘correct’ the cost of capital faced by the financial sector,” he said.

The U.S. is not the only country whose government has created moral hazard in its financial system, Acharya added. “There are many crises around the world where such distortions were not present. In a way, we are going after that common theme—of mispriced government guarantees and systemic risk externalities—rather than just what went wrong in this particular crisis.”

In his weekly column in the New York Times, Joe Nocera took issue with the report’s conclusion that the GSEs led the private sector into sub-prime morass. “Fannie and Freddie… spent most of the housing bubble avoiding subprime loans, because those loans didn’t meet their underwriting standards,” he wrote on December 17.

“When Fannie and Freddie finally did get into the business, it was very late in the game. But the motivation wasn’t pressure from the government; it was pressure from the marketplace… By the mid-2000s, subprime underwriting and securitization had become so profitable… that Fannie and Freddie felt they had no choice but to dive in.”

Guaranteed to Fail, co-written by Acharya, Matthew Richardson, Stijn Van Nieuwerburgh and Lawrence J. White, comes down somewhere between those two interpretations of the crisis.

“The strong growth in private-label subprime mortgage originations and securitizations had important consequences for the GSEs. First, their market share of originations fell dramatically between 2003 and 2006. Second, the loss in market share made it harder for them to meet their ever-increasing Congress-mandated quotas.

“To preserve the profit growth rates of the pre-2003 period and to simultaneously meet their quotas, the GSEs embarked on an all-in policy, which saw them dramatically ramp up the risks of their portfolio. This policy started as far back as 2000-2001 with the motivation that a stronger GSE presence in the subprime market would create lower priced mortgages for some subprime borrowers.

“While there is little doubt that the housing goals played an important role in shifting Fannie Mae and Freddie Mac’s profile to riskier mortgage loans, it remains an interesting question whether Fannie Mae and Freddie Mac deliberately chose to increase the riskiness of the loans that they bought 2004 onward or whether they were forced to do so by the U.S. Congress, which wanted to promote home ownership.

“While the public/private nature of the GSEs leads to a moral hazard problem even in normal times, the question is whether moral hazard was exacerbated by the astronomical growth of the subprime market segment.”

RIJ’s Top Ten List for 2010

Posted on December 22, 2010 by Kerry Pechter -

An industry as large and as important as the retirement income industry shouldn’t be without its own annual Top Ten List. (Letterman, take note.) I would now like to introduce Retirement Income Journal’s own list of the decumulation world’s ten most remarkable stories, events, and companies of 2010. IMHO.

1. Someone told them to “get out more.”

The most remarkable guerilla marketing campaign of 2010 was embarked upon by AXA-Equitable last summer. A posse of corporate communications managers at AXA headquarters on the Avenue of the Americas grabbed a miniature video recorder, took the elevator down to street level and spent an afternoon interviewing Manhattan pedestrians about their retirement outlook. The footage, edited on a laptop, was published on the AXA website. The same team of gonzo PR folks later commandeered a car and motored to the New Jersey Shore—never call it the “coast”—to shoot a sequel on the boardwalk.

2. My favorite investment book of 2010: Wall Street: Men and Money.

It was 1955 and Martin Mayer was only a few years out of Harvard when his editor at Esquire sent him downtown to research an article on the culture of Wall Street. He approached his subject as an anthropologist might approach a tribe in New Guinea, and his observations became not just an article but a milestone of early New Journalism literature that still works as a both a primer on the financial markets and a window onto a more intimate, more male—as you can tell by the sexist title—and more sensorial Street than the intangible electronic marketplace we know today. You can find a mildly foxed vintage edition at abebooks.com.

3. The most lurid annuities story of 2010.

After a paraplegic former prostitute died from neglected bedsores in a low-rent Chicago nursing home, it was revealed that, only months before, a syndicate had filched her identity and bought a variable annuity with a premium-plus death benefit in her name. A group of con men with access to securities licenses, it turned out, schemed to bilk insurers by exploiting the terminally ill. This heinous practice was mistaken at first as a case of bad-apple advisors who couldn’t resist taking advantage of a weakness in certain contracts. But it was more likely a concerted effort by organized criminals to launder millions of dollars through insurance companies.

4. The best TARP turnaround.

In early 2009, some competitors in the annuity industry were writing off Lincoln Financial Group as financial crisis roadkill. Some predicted Lincoln would be acquired. They saw its acceptance of Troubled Assets Relief Program money as strictly stigmatic. But the website SeekingAlpha.com, for one, argued that Lincoln was basically strong, and it was right. Last June Lincoln announced it would buy back almost $1 billion in shares it sold to the government a year earlier. As of September 30, Lincoln Financial was the fifth biggest seller of variable annuities in the U.S. in 2010, with $6.9 billion in sales. And, go figure: Philadelphia Eagles quarterback Michael Vick, himself a Comeback Kid, now plays in Lincoln Financial Field.

5. Best financial metaphor of the year: “Planet Vulcan”.

At the Retirement Income Industry Association’s meeting at Morningstar/Ibbotson headquarters in Chicago last spring, Moshe Milevsky, the Toronto-based finance professor and writer, asked the gathered retirement mavens to imagine a Planet Vulcan where the inhabitants have only one investment option—risk-free inflation-protected bonds with a real return of 2% to 2.5%. Milevsky had written a paper, “Spending Retirement on Planet Vulcan,” suggesting that annuities, more so than stocks, can help a retirement portfolio last longer and yield a higher income.

6. 2010’s best conspiracy theory: Madoff the money launderer.

O.K., I admit it: there’s no solid evidence to support this theory. But if you’re prone to imagining global conspiracies, consider this possibility: Madoff was a mere middleman in a vast money-laundering scheme where the suppliers of endless tainted cash might have been (choose your favorite nemesis) terrorists, drug barons, arms merchants, or perhaps sovereign nations. Wouldn’t that explain everything, including Madoff’s odd Mona Lisa smile, barely visible under the brim of his baseball cap? Is that the ironic, wistful smile of a person who’s taking the fall?

7. Biggest wrong prediction of 2010: the popularity of annuity-LTC hybrids.

It’s too early, of course, to write the obituary of this product, which wasn’t even street-legal until January 1, 2010. But several people in the retirement business, including myself, thought there would be much more interest in long-term care annuity hybrids, which allow people to get a cheaper rate on long-term care insurance if they first put a chunk of money in a fixed deferred annuity and promise to use the annuity assets as first-dollar coverage of their nursing home bills. Maybe the moment for this product just hasn’t arrived yet. It seemed like a sure winner.

8. Most fascinating threat to mortality tables: telomerase.

This year, scientists were talking about an enzyme called telomerase that keeps your telomeres from eroding. Telomeres are the protective caps at the ends of your chromosomes. Each year, your telomeres get shorter. Eventually, they disappear, lead to cell death. In lab experiments, mice that were bio-engineered not to have telomerase aged rapidly. But when researchers reactivated the natural production of telomerase in old mice, the enzyme halted and even reversed the aging process. Are telomerase pills in the offing? And can I wash them down with a glass of vintage resveratrol?

9. Best use of taxpayers’ money in the cause of retirement income security.

The Obama administration’s Department of Labor and its Employee Benefit Security Administration department may have created nothing but new compliance problems for you this year, but they did have one great idea. They leveraged the Internet to solicit thousands of opinions, both amateur and professional, about the best way to add lifetime income options to employer-sponsored retirement plans. In the process, they created a database of ideas, a networking arena for people interested in retirement income, and a way to take the nation’s pulse on retirement security. I don’t know if it was unprecedented, and I don’t know where it will lead, but it was an exciting development.

10. The industry’s most grateful startup publication.

December 31 marks the end of the first full calendar year of Retirement Income Journal’s existence. It’s been a successful and satisfying first year. As editor and publisher, I’m grateful to all of the people (and the companies and institutions they represent) who read RIJ, subscribe to it, advertise in it—who make it possible. I wish you a joyous and healthy holiday season.

Fees vs. commissions: a rebuttal

Posted on December 21, 2010 by Curtis Cloke -

Mr. Daily’s assertion that, “Fees can be tax deductible, depending on the taxpayer’s situation”, is correct. But miscellaneous itemized deductions, including investment expenses, are generally limited to the amount of expenses over and above 2% of the client’s adjusted gross income (AGI).

My first point is this: When an advisor charges a one percent investment management fee for three years in lieu of a 3% commission on a $100,000 insurance product, since the fee is being charged an inch at a time ($1,000 yearly), the tax payer may be less likely to exceed the annual 2% of adjusted gross income (AGI) threshold required for the tax deduction, and therefore less able to deduct such a fee.

In addition, the original story centered solely on the fees and commissions of single premium immediate annuities and deferred income annuities. These annuities are different and distinct from all other annuities.

Mr. Daily wrote, “Separately-paid fees are more efficient than amortized commissions, because the insurer’s cost of capital is likely to be higher than the consumer’s opportunity cost of money.” As evidence, he cited the article, “Credit Card Approach to Pricing” (Product Development News, August 2000. I have no quarrel with the article, but its subject was a deferred annuity with a bonus, not an income annuity.

As an advisor, I prefer to be positioned to provide both methods of compensation—fees and commissions. It’s more important to understand their differences than to proclaim that one is better or worse than the other in all situations.

Curtis Cloke, a Burlington, Iowa, financial planner, is the creator of the THRIVE income distribution method.

An alert from SPARK Institute on participant fee disclosure

Posted on December 21, 2010 by Editor Test -

The SPARK Institute has issued a “Compliance Alert” regarding potential disclosure problems and fiduciary issues for retirement plan sponsors and certain providers of plan investment options, said Larry Goldbrum, General Counsel. The Institute also announced that it has begun an initiative to help address the disclosure issues.

“Under the Department of Labor’s (“DOL”) participant disclosure regulations, plan sponsors are required to provide participants with information about all of their plans’ investment options in a single chart or similar format to facilitate the comparison of each option offered under the plans,” Goldbrum said.

“However, many investment managers and providers of non-registered investments, such as bank collective funds, separately managed accounts and annuities, may be surprised that they will have to make significant new information available in order for plan sponsors to comply with the new regulations.”

“Some non-registered investment providers may not have the information readily available, and developing the information and cost-effective methods for providing it to plan sponsors and plan record keepers could be complex and time consuming.” Goldbrum added. The Compliance Alert is posted on The SPARK Institute website.

Goldbrum noted that plan sponsors face potentially significant fiduciary issues if an investment provider is unable or unwilling to provide the information that the plan needs in order to comply with the rule. “Plan sponsors should act now to ensure that their non-registered investment providers are preparing the information needed,” he stressed.

“Although the regulation states that plan sponsors can rely on the information provided to them by a third party, one has to question the prudence and soundness of a decision to continue offering a fund that is unwilling or unable to provide information that the DOL has stated should be provided to participants,” he said.

As a result, Goldbrum said plan sponsors may be put in the position of having to drop an investment option if the investment provider cannot supply the information that is required. The SPARK Institute has begun a new initiative to develop data standards for retirement plan record keepers and non-registered investment fund providers to enable them to electronically share information with each other and with existing investment information aggregators.

“We are leveraging the experience and expertise we have from developing information sharing standards for 403(b) plans and lifetime income solutions to identify that data that should be shared and establish the formats and protocol for sharing it,” Goldbrum said.

New Tax Relief Bill Summarized by FPA, CCH

Posted on December 21, 2010 by Editor Test -

The Financial Planning Associationhas issued a useful summary of the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010” by Congress, which President Obama signed earlier this month. CCH has also issued a Special Tax Briefing on the Act.

The legislation, which will cost the U.S. Treasury an estimated $857 billion in uncollected taxes, will provide guidance for taxpayers and planners with respect to tax rates, the Alternative Minimum Tax, estate and gift taxes, and certain expired tax provisions.

An individual earning $50,000 in 2011 will see a $1,890 tax savings in combined income tax and payroll tax rate reductions over what was scheduled under the EGTRRA sunset, according to CCH. The payroll tax holiday alone is estimated to inject $120 billion into the economy in 2011.

The Tax Relief bill will provide:

Two-year extension of all current tax rates through 2012

Rates remain 10, 25, 28, 33, and 35 percent
2-year extension of reduced 0 or 15 percent rate for capital gains & dividends
2-year continued repeal of Personal Exemption Phase-out (PEP) & itemized deduction limitation (Pease

Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010, 2011, 2012

Reunification of estate and gift taxes
35% top rate and $5 million exemption for estate, gift and GST
Alternatively, taxpayer may choose modified carryover basis for 2010
Unused exemption may be transferred to spouse
Exemption amount indexed for inflation in 2012

AMT Patch for 2010 and 2011

Increases the exemption amounts for 2010 to $47,450 ($72,450 married filing jointly) and for 2011 to $48,450 ($74,450 married filing jointly). It also allows the nonrefundable personal credits against the AMT.

Extension of “tax extenders” for 2010 and 2011

Tax-free distributions of up to $100,000 from individual retirement plans for charitable purposes
Above-the-line deduction for qualified tuition and related expenses
Expanded Coverdell Accounts and definition of education expenses
American Opportunity Tax Credit for tuition expenses of up to $2,500
Deduction of state and local general sales taxes
30-percent credit for energy-efficiency improvements to the home (IRC section 25C)
Exclusion of qualified small business capital gains (IRC§1202)

Temporary Employee Payroll Tax Cut

Provides a payroll tax holiday during 2011 of two percentage points. Employees will pay only 4.2 percent on wages and self-employed individuals will pay only 10.4 percent on self-employment income up to $106,800.

2010 tax relief act revenue cost of $857 billion includes:

Individual tax cuts: $186 billion
AMT Relief: $136 billion
Payroll tax deduction: $111 billion
Estate/gift tax relief: $68 billion
Capital gains/ dividend cuts: $53 billion
Bonus depreciation/179 expensing: $21 billion
Unemployment Insurance Extension, $56 billion.
Other: $226 billion

HR 4337 modernizes tax code treatment of investment firms

Posted on December 21, 2010 by Editor Test -

The Regulated Investment Company Modernization Act of 2010 this fall, which is now headed to President Obama’s desk for an expected signature, will

Reduce the burden arising from amended year-end tax information statements
Improve a mutual fund’s ability to meet its distribution requirements
Create remedies for inadvertent mutual fund qualification failures
Improve the tax treatment of investments in a fund-of-funds structure
Update the tax treatment of fund capital losses

according to a new white paper from Wolters Kluwer Law & Business, which produces information products under the CCH and Aspen names.

Specifically, the legislation:

§ Creates a special rule allowing unlimited carryovers of the net capital losses of regulated investment companies.

§ Exempts regulated investment companies from loss of tax-preferred status and additional taxes for failure to satisfy the gross income and assets tests if that failure is de minimis and is due to reasonable cause and not willful neglect.

§ Revises the definitions of “capital gain dividend” and “exempt-interest dividend” for purposes of the taxation of funds and their shareholders to require that dividends be reported to shareholders in written statements.

§ Allows a qualified fund of funds to pay exempt-interest dividends and allow its shareholders the foreign tax credit without regard to certain requirements that the fund of funds invest in state and local bonds or foreign securities.

§ Modifies rules for dividends paid by funds after the close of a taxable year (so- called spillover dividends).

§ Revises the method for allocating fund earnings and profits to require those earnings and profits to be allocated first to distributions made prior to December 31 of a calendar year.

§ Allows funds with shares that are redeemable on demand to treat distributions in redemption of stock as an exchange for income-tax purposes.

§ Excludes net capital losses of funds from earnings and profits.

§ Prohibits earnings and profits from being reduced by any amount that is not

allowable as a deduction in computing taxable income, except with respect to a

net capital loss.

§ Repeals preferential dividend rules for funds that are publicly offered

§ Allows funds to elect to treat a post-October capital loss and any late-year

ordinary loss as arising on the first day of the following taxable year.

§ Exempts from holding-period requirements regular dividends paid by a fund that

declares exempt-interest dividends on a daily basis in an amount equal to at least

90 percent of its net tax-exempt interest and distributes those dividends at least

monthly.

§ Extends the exemption from excise tax of failure to distribute taxable income of a

fund to other tax-exempt entities with an ownership interest in a fund.

§ Allows specified gains and losses of a fund derived after October 31 to be

deferred, for excise-tax purposes, until January 1 of the following calendar year

§ Creates a special rule for estimated excise-tax payments of funds.

§ Increases from 98 percent to 98.2 percent the amount of capital gain net income

funds must distribute.

Unmet Expectations

Posted on December 21, 2010 by Joseph A. Tomlinson, CFP -

With the first of 78 million baby boomers reaching the milestone age of 65 in 2011, the timing of the publication of a special section on Retirement Income Planning the Journal of Financial Planning this month was certainly appropriate. This piece of research has not arrived on planner’s desks (in print or via the Web) without controversy, however.

The always-forthright financial planning industry pundit, Bob Veres, reviewed it harshly. In fact, he called for “an honest debate about whether [the Financial Planning Association’s] research department is offering any value with these various reports and studies.” Ouch.

Was Veres unfair? Subscribers to Veres’ Inside Information can read his full review and draw their own conclusions.

But I too was disappointed in this four-part special section. I thought it was too superficial a treatment of what is an important topic for financial planners. In the following appraisal, I’ll try to assess the value of the articles in it, which include a write-up of a survey of financial advisors, a Q&A session with advisor Roy Diliberto, an article on creating a “hierarchy of funds” and an article that compares Social Security claiming strategies for couples.

Part I: The FPA Survey

The first section, a write-up of the results of a survey of 425 Financial Planning Association, was entitled, “Planners Find Success with Retirement Income Strategies.” The title surprised me. Anecdotal evidence tells me that relatively few planners use retirement income strategies; most of them apply the same old systematic withdrawal strategies.

And, given what I know about America’s inadequate savings rate, abandonment of defined benefit plans, and under-utilization of products with longevity guarantees, I don’t see a whole lot of success to celebrate.

Systematic withdrawal strategies without guarantees may work fine wealthier for Americans—to whom financial planners unquestionably cater to a wealthier class of people. But planners should consider the use of income guarantees for clients of more modest means.

The JFP survey shows that the decumulation strategies used most frequently by planners are “structured systematic withdrawal ” (50%) and the “time-based segmentation,” aka the “bucket method” (28%). The methods that do focus on guaranteed income, the “essential versus discretionary approach” and “Social Security and/or pension” approach, are used by only 14% and 4%, respectively.

The times are changing. But most planners are not.

The survey discussion ends by talking about withdrawal rates based on findings that average estimated safe withdrawal rates have increased from 4.4% in 2009 to 4.75% in 2010. Dialog with financial planning heavy hitters Michael Kitces and Jonathan Guyton is also included.

Kitces’ original research on the impact of market valuations on withdrawal rates uses historic data to show safe withdrawal rates as a function of the P/E 10 valuation measure, which was popularized by Robert Shiller.

Kitces’ “always historically safe” withdrawal rate ranges from 4.4% for the highest (19.9 to 28.7) P/E quintile to 5.7% for the lowest (5.4 to 12.0) quintile. The P/E 10 measure is now around 23 with the S&P 500 at 1240, indicating that 4.75% may be a bit aggressive.

Part II: “Using a Hierarchy of Funds to Reach Client Goals”

This article rather grandly declares that it’s time to move from modern portfolio theory (MPT) to what the authors call modern retirement theory (MRT). I can’t disagree with that. But they don’t build much on that. Their core argument simply asserts the desirability of splitting expenses into essential and discretionary, and funding the two types of expenses differently.

The authors propose funding essential expenses with conservative investments and annuities while funding discretionary expenses with riskier products. They recommend an additional bucket for emergencies expenses, funded with highly liquid investments, and a bequest bucket, if desired, filled with long-term volatile investments.

Personally, I believe that a method based on these general guidelines can be particularly useful in helping clients of average means achieve a higher level of financial security in retirement. The fact that it may be more suitable for middle-class clients than wealthy clients might explain why, as the JFP’s own survey shows, only 14% of planners use it.

Part III: “Life Planning Meets Retirement Planning”

In this brief interview with a JFP editor, advisor Roy Diliberto attempts to articulate the difference between financial planning and life planning. As many advisors can attest, not everyone who excels at textbook financial planning can be an effective life planner. Life planning requires some of the skills, if not the actual certifications, of a clinical psychologist.

The unspoken topic here is behavioral economics, and the application of behavioral economics theory to decumulation strategies is a new and potentially fruitful topic for discussion. In the past, researchers like Daniel Kahneman and Richard Thaler have explored the behavioral aspects of accumulation, but there’s been little discussion of the implications of behavioral economics for decumulation.

The interview with Diliberto, who is CEO of Philadelphia-based RTD Financial Advisors, Inc., raises hopes for such a discussion but ultimately disappoints because of the sheer familiarity of the responses. Not that they aren’t sensible. For instance, instead of asking clients, “When do you plan to retire?” he prefers to help clients imagine specific activities at specific life stages. That’s perfectly reasonable, but it’s not new or interesting.

Similarly, he rejects the assumption that most people will spend less in retirement—but few advisors still assume that anyway. When the interviewer asked, provocatively, “What happens when what clients say about their retirement goals doesn’t line up with the actions they take?” Diliberto responds with a reference to clients who feel financially insecure even when they have not reason to. His answers are interesting—but the interview broke no new ground.

Part IV: “5 Social Security Strategies for Couples”

In its discussion of the economic impact of various Social Security claiming strategies for couples, this article is quite useful. It helps raise awareness about the financial benefits of delaying claiming Social Security. It also makes clear that, because the benefit level transfers in full to the surviving spouse, Social Security might best be thought of as a “last-to-die” annuity.

However, an article by William Meyer and William Reichenstein in the March 2010 issue of the Journal of Financial Planning covers similar ground better. Why do I say that? Fahlund postulates a single instance of a couple where the husband dies at age 80 and the wife dies at 95. Meyer and Reichenstein build mortality tables into their analysis so that they can show probability-weighted results. Second, Fahlund evaluates strategies based on total lifetime payouts where Meyer and Reichenstein calculate the present values of lifetime payouts.

In sum, I had hoped to find fresh, practical ideas in JFP’s special section on Retirement Income Planning. Given the importance of the topic, I expected material with greater depth, seriousness and ambition. But my expectations went largely unmet.

You can reach Joe Tomlinson at [email protected].

Boomers’ Inheritance Estimated at $8.4 Trillion

Posted on December 15, 2010 by Editor Test -

Baby Boomers, whose financial portfolios have been the focus of much discussion about poor economic prospects, may be finding a ray of hope in the distinct possibility that they will receive an inheritance, according to “The MetLife Study of Inheritance and Wealth Transfer to Baby Boomers.”

“Policymakers should recognize that inheritances are not a silver bullet to achieve retirement security. They should be developing policies and programs to boost Americans’ savings and promote longer work lives.”

The study, authored by the Center for Retirement Research at Boston College for the MetLife Mature Market Institute, reports that Boomers will inherit $8.4 trillion at 2009 levels. The median per person figure is $64,000. $2.4 trillion has already been received.

The figures, drawn from national survey data, say the wealthiest Boomers will be given an average of $1.5 million, while those at the other end of the spectrum will be left $27,000, an amount that represents a larger percentage of the latter group’s overall wealth. Two-thirds of all Boomers stand to receive some inheritance over their lifetime.

Additionally, the study reports that the Boomer cohort has or will receive a substantial sum from their parents while the older generation is still alive, increasing the total transfer of assets from $8.4 trillion to $11.6 trillion.

Total household wealth for Americans of all ages amounted to $65.9 trillion in 2007 (adjusted to 2009 levels), making the Boomers’ inheritance a significant portion of total American wealth.

Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute, cautions, however, “Regardless of the anticipated amount, any prospective inheritance is uncertain. Parents or grandparents who expect to leave a bequest may revise their plans based on fluctuations in their asset values. Wealth may be consumed by medical and long-term care costs, or simply by virtue of long life. In short, Boomer households should not count on an anticipated inheritance and forego the need for increased financial planning and retirement saving.”

According to Alicia H. Munnell, a co-author of the study and director of the Center for Retirement Research at Boston College, “Policymakers should recognize that inheritances are not a silver bullet to achieve retirement security. They should be developing policies and programs to boost Americans’ savings and promote longer work lives.

“It is also recommended,” said Ms. Munnell, “that the subject of inheritance among the Boomers be used to generate family discussions about estate planning. While not everyone will be comfortable engaging on this topic, those who do so will likely find it helpful. A trusted family financial advisor may be useful in this regard.”

Other key findings of the study include:

Most Boomers will receive their inheritances in late middle age, upon the death of the surviving parent. To date, the overwhelming majority of inheritances are passed from parents to children (63% of inheritances and 74% of dollars); grandparents are the second most common source. Few Boomers now have living grandparents, but a majority had at least one living parent.
Although only 17% of Boomers had received an inheritance by 2007, two-thirds will eventually receive one. The incidence of receipt increases with income, but 50% or more of households at all income levels will eventually receive an inheritance.
Though high-wealth households receive much larger inheritances in dollar terms, these amounts represent a smaller share of their wealth—22% for those in the top tenth compared to 64% for those in the second-to-bottom tenth.
Considering only past inheritances, the median amount Boomers received by 2007—adjusted for inflation—is about the same as that received by the preceding 1927–1945 birth cohort at the same ages.

Data were analyzed from the Survey of Consumer Finances (SCF), a triennial survey that over samples wealthy households (latest data available 2007). For data on prospective inheritance receipts, the study relied on the 2006 Health and Retirement Study (HRS), a nationally representative panel of individuals born before 1954 and their spouses of any age

“The MetLife Study of Inheritance and Wealth Transfer to Baby Boomers” may be downloaded from www.MatureMarketInstitute.com.

Sun Life’s New VA Riders Have New Risk Controls

Posted on December 15, 2010 by Editor Test -

Sun Life Financial Inc. has launched two new variable living benefit riders, an Income Maximizer that provides an annual 8% simple interest roll-up of the guaranteed income base until withdrawals are taken and an Income Maximizer Plus that also offers a 2.5% increase in income payments every year after the contract owner turns on the guaranteed income.

The riders are available on Sun Life Financial Masters variable annuities, including the Masters Flex II (4-year surrender, 1.65% M&E), Masters Choice II (7-year surrender, 1.35% M&E), and Masters Extra II, a bonus contract with 1.70% M&E).

Through the third quarter of 2010, Sun Life, the U.S. unit of Toronto-based Sun Life Financial Services of Canada, was ranked 11^th in variable annuity sales in the U.S., with $2.52 billion in premiums so far this year, according to Morningstar. In mid 2009, Sun Life was the 15^th-ranked seller of VAs in the U.S.

These gains came after the migration of three former Lincoln Financial Group executives to Sun Life, whose U.S. headquarters is in Wellesley, Mass., in October 8. Former Lincoln CEO Jon Boscia came out of retirement to take over Sun Life’s U.S. operations. Wes Thompson, then the head of Lincoln’s retirement solutions, and Terry Mullen, who ran Lincoln Financial Distributors, went to Sun Life at the same time.

Steve Deschenes, senior vice president and general manager for annuities at Sun Life Financial (U.S.), told RIJ, “This is not re-starting the variable annuity arms race. It’s a prudent tradeoff between risk management” and attractive guarantees.

In describing the Maximizer Plus, Deschenes did not use the term “inflation-protection” to describe a feature that offers the same 2.5% uptick in payout each year, regardless of whether the Consumer Price Index goes up by more or less than that—and even if it goes down. “Think of it as a merit increase,” he said. “We’re saying, ‘It’s like a continuation of the 2.5% raise that you expected when you were working.’”

The increases don’t come free, however. A 65-year-old contract owner would get annual payouts starting at 4% of the income base if he or she opted for the Maximizer Plus, instead of the 5% payout on the Maximizer.

For example, the income from a $100,000 benefit base would be $4,000 the first year, and go up to at least $4,100 the second year, to $4,202.50 the second year, and so on. “It crosses over at about age 74,” Deschenes said. Also, Maximizer Plus costs 125 basis points a year, compared to 110 basis points (130 bps for joint life) for Maximizer. The Maximizer rider fee is capped at 1.75%, which gives Sun Life some flexibility to adapt to volatility while limiting the investors’ exposure to rising costs.

The Maximizer provides an 8% increase in the benefit base every year until the contract owner takes a withdrawal from the contract. This is up from the 7% roll-up previously offered on Sun Life variable annuities. If the owner takes no withdrawals for 10 years, the benefit base is automatically at least double the initial premium.

Like most variable annuities with living benefits, this product isn’t cheap. According to an example on Sun Life’s website, insurance and average investment management costs of 111 basis points could push the product’s expense ratio to 3.65%, or almost half of the 8% return that investors typically hope for from balanced portfolios and not far below the typical annual income payment in retirement.

Deschenes said Sun Life has instituted some new risk management techniques since the financial crisis. “Last February, we put four core retirement funds in the contracts that have internal volatility controls. Those funds are partly self-hedging because they change the asset allocation” in response to volatility. “We also gave ourselves the ability to change the price on the rider if future market conditions and volatility require it,” he told RIJ.

“Some of our PIMCO funds, for instance, also manage to a maximum 15% decline by buying out-of-the-money puts inside the fund. If the cost of the puts exceeds their budget, they’ll buy fewer puts and reduce the equity exposure of the fund,” Deschenes said, noting that MFS and Ibbotson worked with Sun Life on risk management strategies.

The Bucket

Posted on December 15, 2010 by Editorial Staff -

Guardian adds retirement investment options

The Guardian Insurance & Annuity Company, Inc. (GIAC), a unit of The Guardian Life Insurance Company of America (Guardian), is introducing an enhanced fund lineup for its group retirement product platform.

The new investment options available to The Guardian Choice group variable funding agreement and The Guardian Advantage group variable annuity retirement products will provide more investment choices for investors. The Guardian Advantage will also provide the opportunity for retirement plans to decrease overall fund costs to participants.

The Guardian Advantage will now offer 25 new funds in a variety of asset classes with some existing investment options now being offered in a lower expense share class. The Guardian Choice fund will add an additional 17 funds in which one existing investment option will offer a share class change consistent within its specific fund family.

New York Life adds installment refund feature to SPIA

New York Life Insurance and Annuity announced the launch of an Installment Refund feature to provide its lifetime income annuity policy owners another option to guarantee a return of premium.

“The Installment Refund option expands on our most utilized legacy feature, the Cash Refund option. Providing retirees the comfort of a paycheck every month with the added benefit that their beneficiaries will be provided for has remained a popular choice among retirees and we anticipate the Installment Refund feature will be a well-received addition to the features and benefits on our lifetime income annuity,” said Matt Grove, vice president of Retirement Income Security, New York Life.

The Installment Refund feature provides its lifetime income annuitants the ability to provide their beneficiaries with the return of premium, less all payments made, on a scheduled installment basis.

In addition to the new Installment Refund option, the other legacy options include the Cash Refund option, where the beneficiaries will receive a lump sum equaling the premium less all payments made and the percent of premium death benefit, which offers beneficiaries a death benefit totaling 25% or 50% of the original premium chosen at policy issue.

Consumers can access their investment in the policy beyond the scheduled income payments in the event additional funds are needed due to unexpected circumstances. Each policy includes two withdrawal features that provide access to cash after the policyholder is at least age 59½—a Payment Acceleration feature and Cash Withdrawal feature:
Payment Acceleration allows policy owners to receive their next scheduled monthly payment, along with the five subsequent payments — for a total of six months of income payments all at once. When this option is exercised, income payments will not be paid for the next five months.
Cash Withdrawal provides a one-time opportunity to receive the discounted value of future paymentsthrough one of two features:“Up to 100%” Cash Withdrawal which allows policy owners to withdraw up to 100% of the discounted value of remaining guaranteed payments at any time during the guaranteed period; and the 30% Cash Withdrawal feature allows policy owners to withdraw 30% of the discounted value of future expected payments, and may be exercised on certain policy anniversaries or at any time upon proof of a significant, non-medical financial loss.

John Kim adds responsibilities at New York Life

Executive vice president John Y. Kim will succeed Gary Wendlandt as chairman of New York Life Investments and as chief investment officer of New York Life Insurance Company on January 1, 2011, the mutual insurer announced.

Kim is currently president and CEO of New York Life Investments, which manages $275 billion. His new title will be chairman and CEO of Investments. He reports to New York Life chairman Ted Mathas and is a member of the executive management committee.

Kim, a graduate of the University of Michigan who holds an MBA from the University of Connecticut, joined New York Life in 2008. He had previously been president of Prudential Retirement and president of CIGNA Retirement and Investment Services. He also spent 17 years with Aetna Life & Casualty, where he was CEO and CIO of Aeltus Investment Management and CIO of Aetna Life Insurance and Annuity Company.

Investors with advisors save more: ING

A new ING Retirement Research Institute study shows that people who spend time with a financial professional report saving two to three times more for retirement than peers who do not use an advisor. Those with advisors “feel more knowledgeable about investments and more confident in their ability to enjoy retirement,” the company said in a release.

The findings were generated from data captured by ING’s free peer comparison web-tool, INGCompareMe.com, which went live in 1999. It allows anyone to benchmark himself or herself anonymously against other investors on financial behavior.

Since 2009, tens of thousands of people have used the tool.

The study analyzed data on more than 14,000 users who entered their profile information into INGCompareMe.com and answered a specific question about how much time they spent with a financial professional to discuss investments and their financial future (possible response choices ranged from no time to a lot of time).

Nearly one-third (31%) indicated they spent some time with a financial professional. Among the findings:

More savings. Those who spent a lot of time with an advisor said they saved, on average, more than three times as much for retirement as those who spent no time at all.

Greater knowledge. About 58% of those who spent a lot of time with a financial professional believed they knew more about investments than their peers.

More confidence. Six in ten of those who spent some time or a lot of time with an advisor considered themselves to be moderate investors. Those who spent very little or no time with an advisor were more conservative.

More optimism. More than 60% of those who spent a lot of time with a financial professional said they were highly confident about enjoying their retirement, compared to 34% who spent no time.

Pension funding fell $22 bn in November: Milliman

In November, the Milliman 100 Pension Funding Index, which consists of 100 of the nation’s largest defined benefit pension plans, showed that these plans experienced asset decreases of $8 billion and liability increases of $14 billion.

The result was a $22 billion decrease in pension funded status for the month. November’s decline in funded status follows two months of improvement and leaves the pension funding deficit at $335 billion.

“It seems likely that these 100 pensions will end 2010 with a decline in funded status compared to where they were at the end of 2009,” said John Ehrhardt, co-author of the Index. “Companies are now turning their attention to 2011 and what it will take to improve funded status in what looks likely to be a big year for pension expense.”

This month’s study continues to offer projections for 2011 and 2012, illustrating how asset performance and discount rates may drive funded status. In the most optimistic scenario, which assumes a 12.1% annual asset return and an ultimate discount rate of 6.45%, pensions would reach full funded status in the fall of 2012.

A pessimistic scenario (4.1% annual asset return, 3.95% ultimate discount rate) would dip funded status below 65% by the end of 2012.

Allianz Life Promotes Bob Densmore to SVP-National Sales Manager

Allianz Life Insurance Company of North America has named Bob Densmore as senior vice president-national sales manager. He will lead Allianz annuity sales strategy through the independent, bank, regional and wire broker/dealer distribution channels.

Densmore joined Allianz Life in 2008 as a district director for the Midwest District. He began his career as a financial advisor with Thrivent Financial. In 1996, he joined Jackson National as a brokerage manager responsible for wholesaling fixed and index annuities. As a regional vice president for Jackson, he raised more than $2 billion in variable annuity premium.

MassMutual Retirement to hold online seminar on 403(b) regs

As part of its continued commitment to provide advisors and plan sponsors the most up-to-date and relevant information, MassMutual Retirement Services is sponsoring an online seminar featuring a panel of 403(b) retirement plan experts, hosted and moderated by PLANSPONSOR Founder and Director Charles Ruffel.

“As 403(b) regulations tighten and financial markets fluctuate, nonprofit organizations are under greater scrutiny. The Department of Labor (DOL) has expanded the Form 5500 reporting and audit requirements that fall on nonprofit plan sponsors. This online seminar will help advisors and plan sponsors stay abreast of the ongoing changes in the nonprofit retirement market,” says Lisa Murphy, MassMutual ERISA Consultant.

The online seminar will feature David Levine, principal at Groom Law Group, Washington, D.C., in addition to Brenda Van, western managing director and nonprofit market leader and Lisa Murphy, ERISA Consultant, both of MassMutual Retirement Services. In this 60-minute webcast, the panelists will discuss Form 5500 reporting and audit requirements, fiduciary duties, final IRS regulations, and will conclude with a question and answer session.

“As a result of the many recent regulatory changes, it’s critical for nonprofit plan sponsors to understand the new fiduciary responsibilities and to have a due diligence process in place to reduce risk and limit or mitigate fiduciary liability,” says Murphy. “Plan sponsors have taken initial steps toward complying with the regulatory changes, but many are still concerned about their liabilities and how to mitigate risk. At MassMutual, we want to help prepare and educate advisors and plan sponsors so they can properly comply with the new regulations, maximize the benefits of their 403(b) plan, and help prepare participants for successful retirement years,” adds Murphy.

To register for the online seminar, go to the MassMutual website and click All Events under Intermediary Events.

Job security more dream than reality: EBRI

Full-time workers in 2010 had been in their jobs an average of just over five years, continuing a slow increase in employment longevity that began in 2004, the Employee Benefit Research Institute (EBRI) reported.

The average is somewhat misleading, however. Job tenure for men has been falling since 1983, while women’s tenure has risen in that period. The once-big gender gap in job tenure has almost closed.

EBRI also found that older workers appear to be staying in their jobs longer. But overall, the American work force over the past 30 years has had a high level of turnover—and that probably won’t change.

“For the great majority of American workers, so-called ‘career jobs’ never existed, and they certainly do not exist today,” said Craig Copeland, EBRI senior research associate, and author of the study. “A distinct minority of workers have ever spent their entire working career at just one employer.”

The findings are published in the December EBRI Notes, “Job Tenure Trends, 1983–2010,” and are based on the latest data from the U.S. Census Bureau’s Current Population Survey. The full report is online at EBRI’s website at www.ebri.org.

How to rebuild trust and engage Millennials

Trust, Millennials and choice: These three words signify the cultural trends that most heavily affect the financial services and investment industry today, according to Mintel Comperemedia.

Lack of trust continues to hinder financial institutions, as only 28% of Mintel respondents say they trust the financial services industry in general and only 43% trust their bank to “do what is best for their customers.” Consumers are wary of corporate motives. Brands will have to re-earn decades of lost trust.

“Banks and other financial services companies need to concentrate on rebuilding their images,” notes Susan Wolfe, VP of financial services at Mintel Comperemedia. “The key to these efforts will be increased transparency and a two-way dialogue between the company and customer…it’s about the relationship and a good place to start is with the unsuspecting Millennial generation.”

Millennials, those aged 22-35, grew up in a much different world from that of their predecessors. Investment firms typically ignore this younger group, but the recession is likely to change the way they see the financial world. It may make them permanently more frugal and conservative.

Though they tend to worry less than older generations, over half of Millenials are still concerned about having enough money to retire one day. Nearly four in 10 Americans in the Gen X, Baby Boomer and Swing Generation groups say they don’t think they will ever be able to retire.

The overwhelming number of choices that consumers have is also an issue for the investment world. “Too much choice can lead to anxiety and paralysis, which results in consumers doing nothing as they are afraid to make a bad decision and choose the wrong product. Financial companies need to push investment options in a way that instills trust and simplifies the message,” Wolfe said.

403(b) Survey Reveals Progress and Stability

Sponsors of 403(b) plans took important steps forward in managing their plans over the past three years—despite a grueling economy and sweeping new regulation, according to a new survey of 403(b) plan sponsors from the Profit Sharing/401k Council of America (PSCA).

The survey, sponsored by the Principal Financial Group, also revealed that the vast majority (73 %), of 403(b) sponsors held firm on making employer contributions to their plans and 40 % of those that suspended matches are restoring them.

“We saw real stability in the midst of volatility as 403(b) plans began restoring employer matches at the same rates as 401(k) plans,” says David Wray, PSCA president, about results from the just-released 403(b) Plan Response to Changing Conditions survey. “We also saw a significant increase in employee education as 403(b) sponsors helped employees focus on rebuilding. That may explain why these plans also report increased participation.”

Highlights from the survey include:

More than a third (38%) of respondents report that participation rates have increased.
More than half of respondents (50.8%) increased employee education and communication efforts over the last year.
Nearly a quarter (22.6%) added investment advice
Nearly 16% of 403(b) plans that suspended the match plan to reinstate it within the next six months.

“Clearly, these 403(b) plan sponsors have shown resilience over these recent tumultuous years,” says Aaron Friedman, national non-profit practice leader, The Principal. “The survey shows that 403(b) plans appear to have adapted remarkably well to challenging economic times and major regulatory change.”

The 403(b) Plan Response to Changing Conditions survey—part of an ongoing series of PSCA surveys on 403(b) plans—reports on the 2009-2010 plan year experience of 599 403(b) plan sponsors from across the country. Find full survey results at www.psca.org.

AXA Equitable Study Shows People Will Work Longer

Lincoln Financial promotes Freitag as CFO

MFS Survey: What Does the “Fearful” Investor Look Like?

Education linked to retirement security: Transamerica

Quarter of UK businesses unprepared for auto-enrolment, says Aon Hewitt

Ernst & Young responds to New York AG’s Complaint

Save your payroll tax cut—Principal Financial

Romania approves pension reform with changes to indexation, retirement age

Guardian adds retirement investment options

New York Life adds installment refund feature to SPIA

John Kim adds responsibilities at New York Life

Investors with advisors save more: ING

Pension funding fell $22 bn in November: Milliman

Allianz Life Promotes Bob Densmore to SVP-National Sales Manager

MassMutual Retirement to hold online seminar on 403(b) regs

Job security more dream than reality: EBRI

How to rebuild trust and engage Millennials

403(b) Survey Reveals Progress and Stability

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