Ahead of the Curve covers developments that may impact the behavior and portfolio positioning of institutional investors. Take a closer look at events in the ever-changing regulatory, legislative and investment markets to determine how they may impact you.
The majority of plan sponsors around the globe say their defined contribution (DC) plans are designed as vehicles for accumulating retirement savings rather than for providing adequate retirement income.
The “Mercer 2009 Global DC Survey” found 55% of DC plan sponsors act as a “facilitator” to building retirement savings, compared with 27% of plan sponsors that have a “paternalistic” objective of securing sufficient retirement income.
The June online survey, which received 1,500 responses from plan sponsors in 33 countries, also found 72% of respondents offer 15 or fewer investment options. The most popular options were balanced funds, 61% lifecycle funds, including target date, target risk and lifestyling, 57%; and fixed interest gilt/bond funds, 51%.
Automatic features — such as enrollment, contribution escalation and rebalancing — were used by about one-third of the respondents. For more information, including an executive summary of survey findings, visit mercer.com/globalDCsurvey.
The recent financial crisis and ensuing credit crunch has U.K. plan sponsors focused more on matching investment performance to liabilities rather than on increasing longevity risk, according to a new survey.
“The Pensions Pulse Survey” from Lucida, a London-based insurer, found 43% of respondents cited matching performance to liabilities as their top concern, compared with 28% for increasing longevity risk.
In addition, 68% of the respondents to the 2009 survey stated they needed additional funding to manage their plans more effectively, versus 42% for the innaugural survey the previous year.
A copy of the survey can be obtained at lucidaplc.com/knowledge-centre.
A drop in funded status among U.S. defined benefit (DB) plans could result in significant increases in employer contributions unless companies receive relief from regulatory requirements, according to an analysis from Watson Wyatt.
The funded status of U.S. DB plans is projected to fall to 93.8% in 2009, compared with 96.4% in 2008. Recent regulatory and legislative measures provided some funding relief to DB sponsors for 2009, but required contributions for 2010 and 2011 remain large.
The Watson Wyatt analysis notes that without the guidance from the Internal Revenue Service issued in September, funded status for DB plans would have fallen to about 78% in 2010. As a result, employer contributions would spike to about $121 billion in 2010 and $145 billion in 2011. Other measures could push contributions even higher.
Although the recent IRS guidance eases funding requirements through 2010, the contribution levels for 2011 would remain at about $147 billion. Three legislative funding relief proposals would ease contribution requirements through 2011. Watson Wyatt notes this relief would free up financial resources for other corporate purposes, including jobs and investment in plant and equipment.
More information, including a summary of the legislative relief proposals, is available at watsonwyatt.com.
IRS Circular 230 Notice: To the extent that this communication or any attachment concerns tax matters, it is not intended to be used, and cannot be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed by law. For more information about this notice, see IRS Circular 230 Notice.
U.K. solutions providers increasingly are recommending target return strategies as the default option for defined contribution plans. The strategies include absolute return targets as well as inflation or interest rate relative targets.
The “2009 PensionDCisions DC Default Provider Survey” also found the majority of respondents, 69%, use default solutions with dynamic or tactical assets allocations or active management, compared with 31% employing fixed asset allocations.
For more survey results, go to pensionDCisions.com.
The average number of investment options in U.S. profit-sharing and 401(k) plans has plateaued at 18, according to a survey from the Profit Sharing/401(k) Council of America (PSCA).
The “52nd Annual Survey of Profit Sharing and 401(k) Plans,” released in September, covers 908 plans with more than $600 billion in assets and 7.4 million participants.
The survey also found the average sponsor contribution was 4.1% of payroll, the same as in 2007. About 1% of respondents indicated they had suspended their employer match of participant contributions.
Other findings from the PSCA survey include:
For more information, visit psca.org.