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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. 

© 2010 RIJ Publishing LLC. All rights reserved.

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.

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’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.”

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.

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.

© 2010 RIJ Publishing LLC. All rights reserved.

The Financial Planning Association has 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

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.

© 2010 RIJ Publishing LLC. All rights reserved.

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.

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 payments through 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.

Investors in the United Kingdom will be able to spend part their tax-deferred retirement savings—known as “pension pots” in Britain—before they retire, under new pension rules.

Employees with defined contribution pension schemes will no longer have to buy annuities by age 75, and may take out up to a years’ worth of funds before retirement.

For those who can demonstrate that they have a secure pension income of at least £20,000 (about $31,500) a year, there will be no limit on the amount that they can withdraw early.

“The majority of people have quite small pension pots on retirement and this safety net will mean that in practice they are still likely to buy an annuity to make sure they have an income through retirement,” said the Association of British Insurers in a release.

The British Treasury estimates that 12,000 people a year will be eligible to use the flexible pension draw-down rules. Tax on pension funds left unspent at death has also been cut to 55% from 82%. The rules will go through Parliament as part of the 2011 budget, and are set to come into force from April 2011.

© 2010 RIJ Publishing LLC. All rights reserved.

The Phoenix Companies, Inc., has launched the Phoenix FamilyShield Annuity, a single premium immediate annuity designed to meet federal regulations that allow people to qualify for Medicaid long-term care benefits while protecting an income stream for their healthy spouses.

“For those who do not have long-term care insurance, Medicaid or other government programs may cover some of the cost of this care,” said Philip K. Polkinghorn, senior executive vice president, business development, at Phoenix. “These programs permit an individual to use marital funds to purchase a certain type of annuity so as to provide an income stream for a loved one.” 

The product can be customized with a choice of premium amounts and payment periods:

• It must be funded with a minimum single premium payment of $10,000 in non-qualified or qualified/IRA funds.
• It will immediately begin a monthly stream of income payments for a period certain between two and 30 years. If the owner/annuitant dies before the end of the period, the designated beneficiary will receive the remaining monthly payments.
• As required by Medicaid regulations, the contract has no cash value, is irrevocable, non-transferable and non-assignable.
• It is generally only appropriate for individuals and spouses who are applying for Medicaid or other government benefits.

Phoenix FamilyShield Annuity was developed in conjunction with The Ohlson Group, Inc., which will work with Saybrus Partners, Phoenix’s distribution company. Because Medicaid regulations vary by state and are subject to change, Phoenix does not guarantee eligibility for assistance. 

© 2010 RIJ Publishing LLC. All rights reserved.

After contributing $26.8 billion to long-term mutual funds in October, investors added just $2.7 billion in November, according to Morningstar, Inc. The decline reflected a loss of enthusiasm for fixed-income funds and the continued outflow from U.S. stock funds.

Money market funds were the direct beneficiaries of these trends, with inflows of $24.7 billion, their best month since January 2009. U.S. exchange-traded funds (ETFs) saw inflows of $10.3 billion in November, pushing year-to-date inflows to $95.6 billion and total industry assets to $951.5 billion.

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

• Inflows for taxable-bond funds reached just $6.1 billion in November versus $21.0 billion in October, the smallest monthly inflow for the asset class since May. After 22 consecutive months of net inflows, municipal-bond funds saw net outflows of $7.6 billion in November. This reversal comes after investors added nearly $105.6 billion to the asset class from January 2009 through October 2010 and marks the worst month for municipal-bond funds in terms of net outflows except for the $8.0 billion redeemed in October 2008 during the credit crisis.
• Rising rates and currency swings contributed to a tough month for emerging-markets bond and world-bond funds, some of the more aggressive areas of the bond market. Nevertheless, money continued to flow to emerging-markets bond funds. These offerings have collected more than $13.7 billion in 2010, and total assets have nearly doubled over the last 12 months to $36.8 billion.
• Large-growth funds had the biggest outflows of any Morningstar category this year, losing $43.5 billion.
• Investors pulled $1.0 billion from Vanguard funds in November, the firm’s first month of long-term fund outflows since October 2008. Equity-oriented families including American, Fidelity, and Columbia also continued to suffer outflows. Despite redemptions of $1.9 billion from PIMCO Total Return, the fund’s first month of net outflows in two years, PIMCO still took in $1.1 billion during November.

Additional highlights from Morningstar’s report on ETF flows:

• U.S. stock ETFs, with inflows of $7.9 billion, topped all ETF asset classes in November, followed by international-stock ETFs with weaker, yet positive flows of $2.3 billion as a result of renewed sovereign credit fears in Europe and a stronger U.S. dollar.
• Vanguard collected $6.3 billion of the $10.3 billion assets added industry-wide in November. The firm’s ETF assets rose more than 62% over the last 12 months, allowing it to capture nearly 15% of the market share.
• After recording inflows during every month this year, taxable-bond ETFs saw outflows of $660 million in November.
• Silver ETFs continued to see healthy inflows. Investors looking to increase their commodities allocations may see silver, which has seen price appreciation of 65% year to date, as a good alternative to gold, which has gained 26% over the same period.

The complete flow report is available from Morningstar.  

 © 2010 RIJ Publishing LLC. All rights reserved.

Despite entering 2011 with a stronger balance sheet, reasonable earnings momentum and slightly rising direct premiums, the U.S. life and annuity insurance industry will be challenged by broad regulatory changes and an uncertain economic environment, according to Ernst & Young’s Global Insurance Center 2011 US Outlook for the life insurance industry.

Insurers will need to create new products and services and leverage distribution channels for top line growth, while reducing costs and unprofitable risks for bottom line earnings, according to Doug French, Principal, Financial Services and Insurance and Actuarial Advisory Services Leader at Ernst & Young LLP (US).

“We remain in a challenging environment where it’s difficult to attract new customers and retain existing ones,” French said. “Companies that clearly understand these issues and react quickly and prudently in their strategic core businesses will gain a competitive advantage.”

Ernst & Young identified four issues for US life and annuity insurance companies:   

1. Responding to the changing regulatory environment: New legislation and regulations, such as the Dodd-Frank Wall Street Reform, Solvency II and ongoing accounting changes driven by the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB), will raise the potential of altering the growth trajectory of the life and annuity insurance industry in the US. They might also compel insurers to exit particular lines of business. 

2. Establishing capital and risk management solutions post-crisis: As the industry returns to pre-crisis levels of new business and seeks further growth, capital will require careful management to efficiently fund new business needs. A key challenge will be identifying the most cost-effective capital solutions to support strategic growth initiatives. The redundant regulatory reserve requirements will also continue to be an issue for insurers. Similarly, insurers selling annuity products will need to seek solutions that manage the risk and reserves required to support the guaranteed benefits embedded in these products.

3. Improving customer relations and increasing operational efficiencies: Insurers seeking to reach new customers and maintain existing relationships will need to strengthen distributor networks and improve their administration and customer service systems. Insurers must also control costs to achieve adequate profit levels and protect the balance sheet. To do so, companies are expected to increase the ease of doing business through investments in technology and lower their resource costs through shared services, offshore captives and outsourcing.

4. Reinventing products and distribution to generate growth: Although the life and annuity insurance industry will enter 2011 with strengthened capital, questions remain about how best to deploy this capital to achieve long-term growth.

Baby Boomers have become acutely aware of their looming retirement challenges and the risk of market losses, and are beginning to clamor for meaningful guarantees. Meanwhile, Generation Y has reached an age where they should be forming households, yet the weak employment environment has, in part, compelled them to remain single or childless in record numbers. If the economy remains stagnant, it could suppress both their desire for savings and life insurance products and their ability to pay for them.

The complete Life Insurance Industry 2011 Outlook report can be found at www.ey.com/insurance.

© 2010 RIJ Publishing LLC. All rights reserved.