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On an imaginary wealth spectrum, with the low end of the scale starting at HTM (hand-to-mouth) and the high end topping out at WFBW (well-fixed but worried), my friend Mark might fall into the 78th percentile.

A former engineer, Mark is now 62. He manages his own investments (bonds and dividend-paying stocks) and considers that to be his full-time occupation. I offer his story as just one example of the absurdist financial situations that some highly educated and successful Boomers now find themselves in.

From one perspective, Mark has won life’s lottery. He attended one of the nation’s best universities. He worked at a large and prestigious telecom company. He has two stellar children enrolled in elite private colleges, a supportive and capable spouse, a white clapboard Dutch Colonial and a modest defined benefit pension.

But Mark is stressed. He married late, so his kids entered expensive schools soon after his employer shrugged him off. With no group medical plan or COBRA, he pays $22,000 a year for health insurance. To offset the premiums, he plans to claim Social Security now, rather than wait for higher payments.

If you’re an advisor, what would you tell Mark? I’d bet that any financial advice based on averages, probabilities or formulas will be next to useless for Boomers like him. None of them is average. They are more likely to have been bitten by a Black Swan than to have been rescued by the AFLAC duck.

Mark and his family will undoubtedly survive—on the strength of their own wits and the help of some inherited wealth. But he’s one former Republican who hopes that the Obama health care plan includes a public option.

* * *

Like millions of other people, I’ve been a monkey-in-the-middle over the past three years or so, watching the market go back and forth over my head. But, by following the simple instincts I acquired during my years at Vanguard, I seem to have prevented the past year from becoming the apocalyptic calamity so often alluded to in the media.

In the middle of 2006, when I left Vanguard, I stopped putting new money into my Vanguard 401(k), which had a middle-of-the-road equity/bond allocation of 65:35. In my subsequent employer’s 401(k), I allocated all of my new contributions to a PIMCO intermediate bond fund. Stocks were just too expensive.

From there, I watched my Vanguard portfolio rise slowly, peak in October 2007 and go sideways until September 2008, when the Burmese tiger pit opened under our feet. I did nothing until year-end, when I rebalanced the Vanguard portfolio toward equities. Then I went back to doing nothing until recently, when I reduced my investment in two stock funds that had gained 30% since March.

Thanks to my initial inertia, a tiny bit of market timing, and (mostly) to the “quantitative easing” that fostered the mid-year rally, my portfolio balance looks acceptable to me. It hasn’t returned to its peak and, yes, I’ve forever lost the benefit of a couple of prime accumulation years. But, hey, it’s higher than my net investment. Speaking as an ordinary Boomer investor, the situation—the 401(k) situation, at least—doesn’t feel so dire.

Actually, I must confess an investment secret. I measure the incline of the rise in the Dow and when it reaches a certain pitch, I sell. My trigger-angle and the time scale of the chart are proprietary information. But I can say that by the time the Dow goes perpendicular, I’m long gone.

© 2009 RIJ Publishing. All rights reserved.

Hispanic Americans have less access to employer-sponsored retirement plans, lower levels of personal savings and inadequate financial literacy than the U.S. average, according to according to a paper, “Hispanics and Retirement: Challenges and Opportunties” prepared by the Hispanic Institute think-tank and the Americans for Secure Retirement (ASR) coalition.

Because of that, Hispanic Americans need to consider multiple retirement vehicles, such as life annuities, to supplement Social Security and to bridge the gap in access to employer plans, the paper said. The study found that:

• Only 41% of Hispanic workers say they have saved for retirement.
• Only 25.6% of Hispanics are covered by employer-sponsored retirement plans, compared to 42.5% of whites and 40% of African-Americans.
• Of Hispanics receiving Social Security benefits, almost 80% rely on these benefits for at least 50% of their retirement earnings.
• Among people 65 and older receiving Social Security, Hispanics receive about $2,124 less in earnings than non-Hispanics, on average.
• Between 1979 and 1999, the number of middle-class Hispanics households increased nearly 80%. About one-third of Hispanic households nationwide earn $40,000 to $140,000 a year.
• The U.S. Hispanic population is about 48 million. It is expected to increase to 132 million by 2050, accounting for nearly 30% percent of the U.S. population.

© 2009 RIJ Publishing. All rights reserved.

The life settlements market was hit hard by the economic crisis and other factors in 2008, according to Conning Research and Consulting.

“The economic crisis was the major impediment to growth in the United States life settlements market in 2008, as the credit markets froze in the second half and life settlements buyers had difficulty financing new premiums,” said Scott Hawkins, analyst at Conning.

“In addition, the major life expectancy underwriters revised their methodologies, calling into question the accuracy and valuation of existing portfolios. While there were fewer active buyers in the market, our $11.7 billion estimate of 2008 settled policies did increase our estimate of cumulative in-force life settlements face values.”

The Conning study, “Life Settlements: A Buyers’ Market for Now” presents Conning’s estimates of current market size and growth rate, as well as a long-term forecast and analysis of market conditions.

“The life settlements market must shake off profitability concerns and general market concerns about life insurer solvency before it will return to growth,” said Stephan Christiansen, director of research at Conning. “The buyers’ market of late 2008 and 2009 should help buyers re-establish profitability in their portfolios. More policyholders want to sell, and more agents now understand life settlements-the near term challenge is all about buyers’ and investors’ capacity.”

© 2009 RIJ Publishing. All rights reserved.

One-third of employers globally offer at least one automatic feature in their defined-contribution plans, according to a Mercer survey of 1,500 employers representing $440 billion in defined-contribution pension plan assets, Pensions & Investments reported.

One third said they offered auto-enrollment in DC plans, one third offered automatic escalation, and about 20% offered automatic rebalancing. Among employers offering a default investment option, 67% use lifecycle funds, the June 2009 survey found.

Also, 90% of employers considering adding or changing a default option are looking at lifecycle funds. Seventy-two percent of employers surveyed have 15 or fewer investment options in their defined-contribution pension plans.

Only one-third of employers plan to change their fund lineups over the next two years. Of those, most plan to increase their options or introduce a lifecycle fund. Also, while 74% of employers have a targeted employee participation rate of 80% to 100% percent, only half of them have achieved that goal.

© 2009 RIJ Publishing. All rights reserved.

Pension funding requirements that mandated by the Pension Protection Act of 2006 could threaten job creation and investment by diverting cash into pension plans rather than into operations, a Fortune 500 CEO told Congress earlier this month.

Bill Nuti, chairman and CEO of NCR, appeared before the House Ways and Means Committee to argue for relief from the pension obligations instituted by the PPA, which responded to airline and steel company pension defaults by tightening defined benefit funding rules and requiring companies to meet 100% of their obligations by 2015.

Experts from Mercer and Watson Wyatt Worldwide told legislators that defined-benefit pension plans have lost substantial value over the past year and many face significantly higher contributions in 2010. NCR’s pension fell from 110% funded to 75% funded during 2008.

Rep. Earl Pomeroy (D-ND) has drafted legislation that would give companies more time to fund their pension plans. The House Education and Labor Committee approved a similar bill. House Minority Leader John Boehner (R-OH) has introduced another.

All three measures would allow companies to make interest-only payments for two years on their 2008 losses and then give them seven years to amortize pension shortfalls. The Pomeroy and Boehner bills also implement 24-month smoothing of assets within 20% of their fair market value. The House labor panel bill limits smoothing to 10%.

“While giving companies additional breathing room to meet their pension obligations may make sense on the surface, we must also recognize that too much latitude could erode the likelihood of workers receiving the full benefits they were promised and could further expose taxpayers to the costs of bailing out the PBGC,” said Rep. Dave Camp (R-MI) and the ranking member of the Ways and Means Committee.

© 2009 RIJ Publishing. All rights reserved.

For most small and medium sized firms in the United Kingdom, pensions are seen as a compliance point and not part of a rewards package. But a majority of large U.K. firms still think of pensions as a way to attract and retain staff, despite the shift towards portable defined contribution (DC) plans.

These were among the findings of “The Business Case for Pensions,” a survey sponsored by Blackrock, the asset management firm, and the Chartered Institute of Personnel and Development. The report also noted that upcoming regulatory changes in 2012 might restrict innovation in employer-sponsored retirement plans rather than stimulate it.

Only 55% of working Britons participate in a company pension “scheme” or plan, the survey showed.  To encourage greater participation, Steve Rumbles, head of UK DC pensions at BlackRock, suggested allowing plan participants to borrow from their workplace defined contribution plans, as Americans can.

“You might think in 2008 most people took advantage of the loan system in the US. But only 1.2% of members actually used it. It gives you piece of mind, even if it is not used,” he said.

The report warned that the introduction of auto-enrollment in 2012, and the minimum contribution requirement of 8% of qualifying earnings could lead to a “follow the herd mentality,” particularly among smaller employers who will look upon the 8% as a maximum rather than a minimum.

“We deal with predominately larger companies and in talking to those with both DB and DC schemes, there is little indication of them leveling down [to the 8% minimum],” Rumbles said. “But that’s because of their recognition of pensions as a retention tool. The herd mentality is likely to be at the smaller end, who will think 8% will be it, and will stay at that level forever unless the government changes it.”

© 2009 RIJ Publishing. All rights reserved.

More Americans are abandoning the old formula for retirement and focusing on protecting principal and generating “income for life,” according to a new white paper from Allianz Life and LIMRA entitled “How the New Economy is Changing the Way Americans Save.”

By 2020 almost one-third of Americans will be nearing or in retirement, but most don’t have financial plans, the white paper says. The old formula for retirement was one-third Social Security, one-third corporate pension, and one-third investments, such as 401(k) plans. Today many pensions have disappeared, the future of social security is unclear, and stock market investments aren’t considered as reliable as once thought.

“The ‘new normal’ for retirement balances liquidity, volatility and rate of return,” said Allianz Life President and CEO Gary C. Bhojwani. “Today, Americans are looking more closely at guarantees and principal protection as important components of a solid retirement plan.”

The paper outlines how dramatic changes to the economic landscape is changing behavior, and gives an overview of fixed annuities, the only financial instruments that offer both lifetime income and principal protection. Survey data from MSF Financial Management, Allianz American Legacies Study and Gallup illustrates the points regarding retirement options, concerns and income options. The paper also explains how age plays a role in financial decision-making, also known as planning from a life-stage context.

“For many years, people followed the advice that a mix of stocks and bonds reduces risk, provides upside potential, and helps achieve financial objectives,” said Bob Kerzner, CEO of LIMRA. “The latest downturn shows that asset allocation alone is not enough. Consumers must consider a variety of financial options.”

© 2009 RIJ Publishing. All rights reserved.

J.P. Morgan’s Broker Dealer Services business will begin using a new managed account program from FundQuest Incorporated, FundQuest announced. The program, Advisor Gateway, uses FundQuest’s reporting, portfolio modeling, fund selection, and rebalancing technology. Other services include due diligence, training, back-office services and wholesaling support.

The managed account offerings on Advisor Gateway include unified managed accounts, mutual fund portfolios, income portfolios, and separately managed accounts. The new program also offers Advisor Choice, an advisor/client constructed portfolio using FundQuest asset allocation and performance reporting tools.

“Financial advisors who use J.P. Morgan Clearing Corporation’s clearing and custodial capabilities will now have access to FundQuest’s web-based proposal generation, portfolio diagnostics, performance reporting, and open architecture investment research capabilities,” said FundQuest chairman and CEO James L. Fox.

Boston-based FundQuest, a provider of outsourced managed account solutions, has 180 advisory firms as clients and $40 billion in assets under management in its combined US and European operations.

© 2009 RIJ Publishing. All rights reserved.

The U.S. division of Sun Life Financial Inc. said its first-half 2009 variable annuity (VA) sales rose 35%, versus the first half of 2008, while VA industry’s overall sales fell 25.4% for that period, according to Morningstar/VARDS.

Sun Life was the fifteenth largest seller of variable annuities in the U.S. in the first half of 2009, with $1.4 billion in sales and a 2.3% share of the VA market, according to LIMRA International. Sun Life’s parent company has a Standard & Poor strength rating of AA2, a Moody’s rating of Aa3, and a Fitch rating of A+3, as of June 30, 2009.

The firm’s year-over-year gains occurred in all three major financial distribution channels. The company’s assets rose 10.7%, more than double the industry’s 5.1% gain. The Wellesley, Mass.-based insurer also almost doubled its market share in VA sales since the end of 2008, and 91% of its new VA sales for the first half of the year included at least one optional living benefit.

Sun Life VA sales increased against the industry average in all three financial distribution channels. Its wirehouse sales roles 82.6%, to $596.7 million in the first half of 2009 versus the first half of 2008, independent channel sales rose 46.6%, to $536.3 million, and bank sales rose 6.3%, to $226.2 million. The industry’s overall sales fell 28%, 23.2%, and 43.4% in those channels, respectively.

© 2009 RIJ Publishing. All rights reserved.

American International Group, the recipient of a $100 billion-plus U.S. government bailout last year, has agreed to sell its Taiwan life insurance unit, Nan Shan, to a Hong Kong investor group for $2.15 billion, the New York Times reported.

The sale is AIG’s largest divestiture so far since September 2008, when it nearly failed because of losses on credit default insurance it wrote on mortgage-backed securities.  Nan Shan, one of Taiwan’s largest life insurance, has assets of over $46 billion and 7.9 million in-force policies held by about four million policyholders.

Nan Shan’s buyer is Primus Financial Holdings, which was co-founded in early 2009 by Robert Morse, a former senior Citigroup banker, China Strategic Holdings, an investment firm.

AIG previously raised $500 million from the sale of its Pacific Century Group asset management business to a Hong Kong investment firm, $1.9 billion from the sale of its energy and infrastructure investment assets, and $1.9 billion from the sale of 21st Century Insurance Group, an auto insurer. 

Founded in Shanghai in 1919, AIG also hopes to raise cash through initial public offerings for two life insurance units—American International Assurance, or AIA, and American Life Insurance Co., known as Alico—in Asia and New York, respectively.

Like AIG, ING is also using divestitures to raise cash after a huge government bailout.

ING Groep, the Dutch parent of the U.S. insurer, has agreed to sell its Swiss private banking unit to Zurich-based wealth manager Julius Baer for 520 million Swiss francs, or $505 million, as part of a planned disposal of assets after receiving a 10 billion euro government bailout a year ago.

The all-cash transaction is expected to close in early 2010. ING sold its Australian joint venture to ANZ, and may sell units in Asia and possibly North America.

ING has said it wants to sell assets to raise between 6 billion euros and 8 billion euros as it attempts to repay the Dutch state for the emergency funds that propped up its Tier One capital during the financial crisis. The sale of ING’s 51% stake in its Australian joint venture brought in 1.1 billion euros. The Dutch bank and insurer has clients in more than 40 countries, and employs about 110,000 people worldwide.

© 2009 RIJ Publishing. All rights reserved.

The Guardian Life Insurance Company of America is expanding its Retirement Solutions national sales force to offer a suite of specialized retirement products to small and mid-sized businesses across the nation.

So far, 13 new Regional Vice Presidents (RVPs) have been hired alongside an internal sales support team of seven. The RVPs are responsible for sales and support of Guardian’s group retirement products across all distribution channels. The sales team will report to Dale Magner, vice president, Retirement Product Sales.

“We are expanding our sales team to accommodate the enormous demand for retirement products that meet the unserved needs of thousands of small and medium-sized businesses,” said Margaret W. Skinner, executive vice president of Guardian’s Individual Products Distribution organization.

“Our retirement products, The Guardian Choice and The Guardian Advantage, are both designed to offer the features normally available only to large plan sponsors to this growing market segment,” she added.

The Retirement Solutions sales team has an average of 13 years direct group retirement sales experience. In their roles, the RVPs will assist financial advisors with prospecting leads, sales and ongoing client support. The sales team will also work with Guardian’s Retirement Center of Excellence, a knowledge center that provides pre-sales support with customized plan illustrations, product recommendations and regulatory compliance assistance to financial professionals.

Guardian Retirement Solutions also includes 370 professionals who provide product design and client service to financial advisors and their clients. Guardian is now a strategic partner for LPL Financial’s new Retirement Plus Program, which provides retirement products and support for retirement plan-focused independent financial advisors.

© 2009 RIJ Publishing. All rights reserved.

Accountants are divided in their opinions of the impact of President Obama’s proposal to overhaul the financial regulatory system and increase protections for consumers and individual investors, according to a survey of 350 financial professionals by Ajilon Finance in conjunction with the Institute of Management Accountants.

The survey revealed that almost half (48%) of respondents believe that President Obama’s plan will have a “very positive” or “somewhat positive” effect. But 40% of accountants say the plan will have a “barely positive” or “negative” effect.

Among those opposed, 29% believes the plan will be too difficult to implement and enforce, 11% say the country will find itself in a similar mess in a few years, 5% called the plan “too little, too late” and three percent said the plan doesn’t go far enough to prevent excessive risk-taking and protect the public.

© 2009 RIJ Publishing. All rights reserved.

A new report prepared by CFO Research Services and Prudential shows that “although there has been some improvement in capital markets since the beginning of the year, many employees’ near-term plans to retire are in jeopardy.”

Senior finance executives at large companies are concerned that if older employees can’t afford to exit the workforce and thereby make room for younger workers, “workforce productivity and overall employee morale can suffer and companies can find it difficult to retain rising stars when paths to promotion are effectively closed.”

The results of the survey, “Managing Retirement Benefits Amid Capital Market Disruption,” was based on responses last spring by 140 senior finance executives (primarily chief financial officers, controllers, and directors of finance) at companies with $500 million or more in annual revenues. Almost half of the companies had $1 billion to $5 billion in revenues.

Among the findings:

• Almost two-thirds of respondents (63%) say they are more concerned now than they were a year ago that employees who become financially unable to retire might “retire on the job” and be unproductive. About the same percentage said that they are now more concerned about a shortage of growth opportunities for younger staff.      

• More than two-thirds of respondents answered “yes” to the question, “Would it be beneficial to make your company’s DC plan more closely resemble a DB plan by enabling the plan to provide guaranteed income during retirement and by further automating the plan?”

• Seventeen percent of respondents rate employees’ investment allocation decisions as poor, and 17% say employees make poor decisions about their contribution amounts. 

• More than one-fourth of respondents (27%) rate employees’ retirement planning as poor. Many employees don’t recognize the need to adjust or revisit their asset allocations, contribution amounts, and risk appetite as they approach retirement.

• Forty-two percent of respondents say they are very likely to limit high-risk investments for their DC plans.  

• Companies are very likely to add investment products that defend against market declines (44%) to their DC plans, as well as more conservative target-date funds (38%).   

• Forty-two percent of respondents said their companies are very likely to increase automatic enrollment and contribution-escalation efforts. Respondents are less likely to say they will increase funding for DC plan education in the next two years. 

© 2009 RIJ Publishing. All rights reserved.

Nobody likes to retire after a losing year. Just ask Brett Favre.

Older employees appear to postponing retirement until an economic recovery begins and employers are delaying major changes to their retirement plans until business-as-usual returns, according to Aon Consulting, the human resources consulting arm of Aon Corp. 

Aon surveyed 1,313 employers nationwide for its 2009 Benefits & Talent Survey. More than 90% said they are not changing their retirement programs quite yet and 87% said employees are delaying retirement due to economic conditions.

A third of employers polled said fewer than 70% of their employees are enrolled in their defined contribution (DC) plans, with two-thirds saying they believed workers are not participating because they don’t believe they can afford to.

Meanwhile, 38% of these employers believe employees have little knowledge of the funds they needed to invest in for retirement and 52% said employees have an accumulation target. Just 8% believe their employees have a strong understanding of how much money they’ll need in retirement.

Workers wanting to learn more about retirement savings have turned to their employers for additional information. In fact, 64% of responding employers said there was an increase in investment-related questions in 2008 vs. 2007, but only about a third of these organizations increased their communications around the importance of saving for retirement last year, while 62% said their communication remained unchanged from the previous year.

“The ‘wait-and-see’ attitude is not surprising,” said Amol Mhatre, senior vice president responsible for retirement innovation with Aon Consulting. “We may continue to see dramatic economic swings, as interdependencies grow in the global economy, and retirement programs and savings can’t stop with every downturn.”

In addition to not changing their retirement communications strategy, 92% of organizations are not changing their pension/defined benefit (DB) programs in the near future, citing the high cost of company-required contributions (71%), volatility (47%) and administrative costs (35%) as the main reasons. Employers also are not changing the risk profile of their pension plans, as two-thirds of these organizations have not made changes to their pension investments during the past two years and do not intend to do so in the next two years.

Regarding defined benefit plans, the survey showed that only 45% of employers offer a DB plan to their employees. Forty-one percent of employers have frozen their pension plans to new entrants, 25% have frozen their plans entirely and do not have a strategy regarding plan termination, and 20% have frozen their plans and intend to terminate the plan once funding allows.

As for defined contribution plans, 56% of respondents said they offer matching contributions on DC plans. Of those, approximately half provide a match greater than three percent. In addition, 41% of employers have an automatic enrollment plan, with 53% implementing a default contribution from employees of 3%.

© 2009 RIJ Publishing. All rights reserved.