Some Plan Sponsors Still Hazy on PPA, Fiduciary Issues

A new AllianceBernstein study suggests that small-plan sponsors could use some help understanding the Pension Protection Act (PPA) and their fiduciary roles.

Some 29% of polled defined contribution plan sponsors at plans with less than $1 million in assets up to $10 million in assets reported being familiar or very familiar with how the PPA could help their participants.

An AllianceBernstein news release about its study of 1,000 plan sponsors, “Inside the Minds of Plan Sponsors,” said officials at large retirement savings programs did better on the PPA issue; 61% of plan sponsors with more than $250 million in assets said they know their way around the key pension reform law. 

The AllianceBernstein research also found that fiduciary understanding is still a significant challenge for many of the sponsors polled. Some 45% of micro-plan (less than $1 million in assets) or small-plan sponsors (between $1 million and $10 million in assets) do not see themselves as fiduciaries.

“It’s not surprising to see a significant disparity between plan sponsors from larger plans and those from smaller plans in terms of their understanding of fiduciary issues, as responsible executives at large companies usually have more focused roles and additional resources,” said Richard A. Davies, head of Product Strategy for AllianceBernstein Defined Contribution Investments (ABDC), in the news release. “This research demonstrates that there is a real opportunity for financial advisers and consultants to help the smaller plan sponsors who have limited time and resources to spend on their plans.”

QDIA Use

Meanwhile, according to the research, 38% of micro- and small-plan sponsors are using a qualified default investment option (QDIA), such as a target-date or risk-based fund. In contrast, 56% of mega plans are currently doing so.

AllianceBernstein researchers commented: “While there is certainly room for more mega plans to adopt default options that are QDIA-compliant, these findings highlight the implications for smaller plans whose sponsors may not grasp the benefits—to them or their participants—of implementing a QDIA.”Getting Participants through Retirement

The AllianceBernstein study also found that plan sponsors across all plan sizes want to help employees—not just to retirement, but through retirement. Helping employees make better investment decisions (86%) and generate a retirement income stream (85%) are the two most important issues for plan sponsors, regardless of plan size. Plan sponsors’ single biggest worry is that participants will not accumulate enough to retire (46%).

The study also found that plan sponsors of all sizes are looking to their service providers for more help with fiduciary-related services. As compared to the last time this survey was done in 2005, plan sponsors now want more help with ongoing monitoring and reviews of investment options (89% in 2009 versus 46% in 2005), plan design or compliance updates (79% vs. 30%), and reviewing fiduciary responsibilities (78% vs. 24%).

The large majority of plan sponsors (72% micro/small and 83% mega) feel that reviewing fiduciary responsibilities is an important service to receive from their provider. Some 55% are comfortable or very comfortable that all relevant individuals at their organization are aware of their fiduciary status.

Recovery Looks V-Shaped—at Least for Now

While economic recovery will be muted, global equities will likely go up 10% during the next 12 months, said Robert Buckland, managing director and chief global equity strategist at Citi.

Speaking at a press event hosted by Dow Jones Indexes today in New York City, Buckland said in 2010 he expects to see about 5% returns in U.S. markets, about 11% or 12% in European markets, and as high as 15% to 20% in emerging markets.

Buckland said he gets asked whether emerging markets are “just the next crazy bubble,” and he answers “potentially, but not yet.” He said emerging markets aren’t near the “mega-bubbles” produced by Japan in the 1980s and technology stocks in the 1990s.

Kevin Logan, independent global economist, predicts a GDP growth of about 3% to 3.5%. By the middle of this year, estimates for global GDP growth in 2010 are likely to be double what they were in the middle of 2009, according to Logan.

However, it looks like a hard road ahead. Although the GDP is expanding, it’s “not enough to bring down unemployment in any significant way,” Logan said.

Buckland noted that after a recession, the theory is that the GDP should grow faster, similar to how fast a ball bounces up after dropping on the floor. “We don’t really have that ball bouncing up much this year,” he said.

Yet the stock market is seeing some bounce, because companies have squeezed costs to create better profits. “Companies have been pretty brutal on costs,” Buckland said. The operational leverage could mean companies see profits grow as much as 65%, he added.

So, while contradictory, a muted GDP will see a V-shaped recovery in the markets, at least for the next year or two, according to Buckland.

“We are in the period towards the end of most global recessions when share prices rise even though profits are still falling. This twilight zone ends as the earnings recovery begins and this moment looks imminent,” said Buckland, in a statement. “In the market conditions, an aggressive pro-cyclical strategy tends to work best as global equities typically surge higher in the twilight zone and grind higher in the earnings recovery.”

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