Hersey pension plan announcement brings out punsters

By Jerry Kalish on Posted in Defined Benefit Pension Plans

Headline writers last week took advantage of Hershey’s announcement that it would be closing its defined benefit pension plan to new hires.

Here are a few examples:

CANDY: Hershey blows pension plan a goodbye kiss: St. Louis Post Dispatch

Hersey to phase out DB plan, sweeten 401(k) plan: Business Insurance

Pension Cuts Not So Sweet: Hamilton Spectator

Hershey Kisses Off Pensions: TheDay (subscription)

Most of us, I am sure, looked beyond the puns to see yet another example of the continued erosion of  defined benefit plans with increased reliance by employees on defined contribution plans to fund their retirement.

Investment simulation comes to Pensionland

By Jerry Kalish on Posted in 401(k) Plans, Pension Protection Act of 2006

As we know, the recently issued proposed 401(k) default investment regulations by the Department of Labor (DoL) allows 401(k) plan sponsors to select default investments funds that strive to achieve long-term capital appreciation as opposed to mere preservation of capital.

But what was the DoL’s basis for permitting the use of investments other than the historically selected money market and stability of principal funds?

The DoL used  a simulation model to estimate the impact of the proposed 401(k) default investment regulations on retirement savings in the U.S. The model, called PENSIM, was developed by the firm Policy Simulation Group that specializes in the use of computer simulation models to estimate the implications of private sector and public sector policies in the areas of portfolio management, health insurance and pensions.

For you policy wonks – and actuaries – in the crowd, here is a link to the 231 page PDF Overview of PENSIM.

Hat tip to Prudence Mann’s Fiduciary Investor blog.

The picture shown above is a screenshot of a title screen from The Investment Simulation Spreadsheet developed and copyrighted by Tom O’Haver, University of Maryland. It is believed that the use of a limited number of web-resolution screenshots qualifies as fair use under United States copyright law, as such display does not significantly impede the right of the copyright holder to sell the copyrighted material, is not being used to turn a profit in this context, and presents ideas that cannot be exhibited otherwise.

ERISA and the law of physics

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

One of the tenets of the law of physics is that for every action there is a reaction.

So too in Pensionland. The increasing amount of dollars in retirement plans raises the stakes for fiduciaries who have now been discovered by class action plaintiff lawyers. Steven Rosenberg in his Boston ERISA Law Blog points us to a story about Travelers’ new insurance policy that will provide investment advisors and other fiduciaries with expanded coverage for the risks associated with providing investment services.

The policy will cover claims for things such as breaches of fiduciary duties owed to pension plan participants. Important coverage for advisors who will be offering investment advice to participants after the January 1, 2007 effective date under the Pension Protection Act.

Here is the link to Steve Rosenberg’s post which provides a link to the full story in the Insurance Journal.

How much will investment advisory services appeal to 401(k) participants?

By Jerry Kalish on Posted in 401(k) Plans, Pension Protection Act of 2006

A lot if Vanguard’s experience with providing on-line financial plans for individual investors is a guide. According to Investment News, Vanguard is now providing 4,000 new plans a month – up from 15,000 for all of last year.

Here is the link to the Investment News article.

The Qualified Plan Industry at a Glance: Trends, Direction, and the Road Ahead

By Jerry Kalish on Posted in 401(k) Plans

That’s the title of a special report just published by Judy Diamond Associates, Inc. and written by Keith Clark of DWC Consultants which discusses the basics of the qualified plan industry and the strategies firms use to provide services to plan sponsors and participants.

Among the trends that the report highlights are two types of qualified retirement plans.

One of which is the Cash Balance Plan which says the report is

desirable for employers without a current defined benefit plan wanting to contribute additional amounts (in excess of the annual defined contribution limits) on behalf of one or more highly compensated employees.

The other of which is the one-person defined benefit plan (solo DB) of which says the report

DB Boomer plans are hot because they allow business owners to put away far more each year as compared to a defined contribution plans. Solo 401(k)’s, 412(i)’s and the like are here to stay.

More about both types at a later date.

Here is the link to the report (PDF).

Judy Diamond Associates, Inc., a pioneer publisher of health, welfare, pension and executive compensation data for the financial services and corporate markets which includes the website  freeerisa.com on which Form 5500s that can be accessed. 

Department of Labor Releases 5-Year Strategic Plan

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

The Department of Labor just released its Five Year Strategic Plan for Fiscal Years 2006-2011. One of the DoL’s four strategic goals is to strengthen economic protections for workers which includes enhancing pension and health benefit security.

Here are the DoL’s national projects for that goal in 2006:

  • The Employee Contributions Project is aimed at ensuring the timely deposit of participant contributions to 401(k) plans and health care plans.
  • The Employee Stock-Ownership Plans (ESOP) project focuses on the unique violations arising from ESOPs, the most serious of which generally involve the incorrect valuation of employer securities.
  • The Health Fraud/Multiple Employer Welfare Arrangements (MEWAs) project, through which EBSA investigates abusive and fraudulent MEWAs created by unscrupulous promoters who sell the promise of inexpensive health insurance, but default on their obligations.
  • The Rapid ERISA Action Team (REACT) project responds in an expedited manner to protect the rights and benefits of plan participants when the plan sponsor faces severe financial hardship or bankruptcy, which may put the assets of the employee benefit plan in jeopardy.
  • The Consultant/Advisor Project (CAP) focuses on the receipt of improper, undisclosed compensation by pension consultants and other investment advisers.

Here is the link to the full DoL Strategic Plan (94 pages, PDF).

Hat tip to Workplace Prof Blog.

Are newly filed 401(k) class action law suits the wave of the future?

By Jerry Kalish on Posted in 401(k) Plans

It was bound to happen – class action law suits against 401(k) fiduciaries.

The October 2006 Client Advisory Bulletin published by the law firm of KattenMuchinRosenman LLP nicely summarizes several class action suites recently filed against the fiduciaries of several large employer 401(k) plans.

All of the law suits, report Katten, involve participant direction of investments and the expenses paid by the participants directly or indirectly.

What’s the lesson for today? Katten says:

Therefore, for every plan, fresh attention should be paid to the plan’s governance structure, specifically, who the fiduciaries responsible for selection and monitoring of plan investments are. Next, the procedures to identify and benchmark plan expenses and returns, as set out in the plans investment policy statement or elsewhere, should be reviewed, and expanded or updated as appropriate. The plan should also provide for oversight to ensure that these structures and policies are being carried out.

Here are two more:

  1. Small employers have the same issues.
  2. The expense issue can be further exacerbated in 2007 if careful attention is not paid to the selection of investment advisory services for plan participants.

Here is the link to the Client Advisory Bulletin on the Katten website.

How the retirement plan industry views participant investment advice

By Jerry Kalish on Posted in 401(k) Plans, Pension Protection Act of 2006

Investment News reports that investment advisors are not altogether happy about the Pension Protection Act (PPA) provision that provides fiduciary relief for providing investment advice to 401(k) participants.

The reason? The PPA’s fee restrictions on face-to-face advice. Their lobbyists, says Investment News, are trying to convince Congress that the restrictions in the Act were a mistake and should be fixed in a follow up technical corrections  bill before Congress adjourns for the year – and before the January 1, 2007 effective date.

But critics of the move see the price cap as a deliberate component of a legislative compromise – one that should remain in effect.

To be continued.

Here is the  link to the Investment  News article.

Managed acounts and 401(k) participant portfolios

By Jerry Kalish on Posted in 401(k) Plans, Pension Protection Act of 2006

That’s the subject of a recent study by Vanguard Retirement Research, the results of which were that nearly two-thirds of participants adopting a managed account advisory service saw a sharp increase in their equity exposure. Expected returns rose by 82 basis points (after fund expenses but before any managed account fee), while Sharpe ratios improved by 22%.

The January 1, 2007 effective data is fast approaching for the Pension Protection Act provision that provides fiduciary relief to plan sponsors who make investment advice available to 401(k) plan participants. Whether plan sponsors should, however, is a blog post for another day.

In the meantime, here is the link to Vanguard’s study (PDF).

Hat tip to Barry Barnitz’ Financial page.

One more acronym for the Benefits Lexicon

By Jerry Kalish on Posted in 401(k) Plans, Pension Protection Act of 2006

One thing we can say for sure about new ERISA legislation. It does create more acronyms. Like for instance QDIA which is Pensionland shorthand for Qualified Default Investment Account.

So attorney B. Janelle Grenier will be adding one more to her 160 plus and counting Benefits Acronym Lexicon.

More to follow.

LexBlog