The Bank of New York Mellon is accepting new
investors into the Mellon Stable Value Fund, a bank-sponsored collective
investment fund for defined contribution benefit trusts.
The fund stopped accepting new investors in January 2012 due
to an industry-wide shortage of investment contracts, which the fund uses to
help insulate investors from market volatility. Shortly thereafter, the fund
began accepting new investors with $1 million or less in plan assets, and in
December 2013 the fund allowed new investors with $10 million or less, although
some larger investments were accepted on a case-by-case basis.
Associates of the San Francisco-based stable value division
of Standish Mellon Asset Management Company LLC, a fixed income manager for BNY
Mellon, manage the fund in their capacity as dual officers of The Bank of New
York Mellon.
“We are pleased to see the amount of new stable value
investment capacity that has been added to our industry over the past two
years,” says Eric Baumhoff, chief investment officer of Standish’s stable
value division. “The Bank of New York Mellon will continue to manage the
Mellon Stable Value Fund in a prudent manner for plan participants, matching
new investment demand with new product investment capacity.”
The fund’s goals are to preserve capital and earn current
income. It invests primarily in book value wrap contracts that incorporate a
broad selection of short- and medium-term fixed-income instruments, including
U.S. government and agency bonds, corporate bonds, mortgages and asset-backed
securities. The fund also may hold insurance company issued Guaranteed
Investment Contracts (GICs) or similar instruments as well as cash equivalents.
During the 2008 credit crisis, many financial institutions
were forced to increase their capital reserves to reflect deteriorating balance
sheets; some financial institutions that issued wrap contracts (principal and
accumulated interest guarantees)—a large number of them banks—exited the
business. This made it difficult for stable value managers to secure the wrap
capacity they needed, according to a white paper from Prudential Retirement
(see “Stable Value
Deserves Reconsideration”). In turn, a number of stable value managers
exited the business too, forcing some plan sponsors to either remove stable
value from their plans or find new providers.
Since
then, after evaluating the risks, wrap prices have increased to be more
consistent with stable value providers’ risk levels, and now more providers are
back in the stable value business. One may think higher expenses would be a bad
thing, but the white paper notes higher wrap fees are helping to attract new
providers, extend wrap capacity, and ensure stable value’s book-value
redemption guarantees remain available for current and future generations of
retirement plan participants.
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During a press call to kick off National Retirement Planning
Week, Danielle Holland, senior vice president with the Insured Retirement
Institute (IRI) said its recent study showed the percentage of Baby Boomers
with no to low confidence increased from 23% in 2011 to 31% in 2014. In
addition, those who said they are satisfied economically decreased from 77% in
2013 to 65% in 2014. One-quarter of Baby Boomers polled reported they postponed
plans to retire within the last 12 months.
Holland noted that those working with an adviser are more
confident. She said it is perhaps because, 94% of those working with, or who
have worked with, an adviser have some retirement savings compared to 68%
without an adviser, and 74% of those with an adviser have determined a savings
goal, compared to 40% without an adviser.
The Employee Benefit Research Institute’s (EBRI) Retirement
Confidence Survey (RCS) found Americans’ confidence in their ability to afford
a comfortable retirement has recovered somewhat from the record lows of the
past five years, but that result is among workers of all ages. And, Nevin
Adams, director of the American Savings Education Council (ASEC) and
co-director of the Employee Benefit Research Institute (EBRI) Center for
Research on Retirement Income, shared in the press call that results from the
RCS show retirement confidence is higher for those with an employer-sponsored
retirement plan, and workers with an employer plan have more in savings than
those without (see “Retirement
Plan Offering Strongly Linked to Confidence”).
According
to Rich Linton, president of Individual Markets at ING U.S. Retirement
Solutions, there are many risks Americans do not think about when planning for
retirement. He noted ING U.S. research found more than half (57%) of retirees
face unexpected challenges, most often with managing savings and unexpected
health issues. In addition, less than half of pre-retirees (42%) and retirees
(44%) have a plan to manage their income in retirement.
Linton pointed out the five primary retirement financial
risks are longevity, health care, market performance, inflation and withdrawal
rate. Individuals have little or no control over the first four, so an income
plan is the essential framework for preparing for retirement, Linton contended.
In planning, individuals have to account for likely health care issues, and it
is important to continue earning money on assets during retirement, he said. In
addition, one key to making appropriate withdrawals is understanding the effect
of taxes. Linton suggested everyone older than 50 should complete a retirement
income analysis, and separate savings into needs, wants and wishes for
retirement, while accounting for household shocks.
Linton said individuals can be more retirement ready through
seeking holistic advice and guidance to minimize retirement risks, having an
organized process and framework for retirement income planning, and having a
strategy for turning savings into a steady stream of income that lasts a
lifetime. They should use tools and resources to assess retirement risks and
get holistic financial view. ING recently launched a web-based tool to help
individuals have get a holistic financial view (see “ING U.S.
Launches Online Budgeting Tool”).
Brent A. Neiser , CFP, senior director at Strategic Programs
and Alliances National Endowment for Financial Education (NEFE), pointed out a
tool from NEFE, myretirementpaycheck.org, addresses eight planning areas, and
attempts to make retirement planning more understandable. He said people
observe others preparing for and living in retirement, and they follow the
example of others in their family who may have made uninformed decisions, so
getting people more educated about retirement planning could also help those
who are watching.
According to Scott Romine, EVP and national sales manager at
Jackson National Life Distributors LLC, Jackson National Life Insurance Company
and the Center for Financial Insight surveyed investors in April 2013 and found
fewer than 18% of men and fewer than 11% of women said they have all the
financial education they need to make appropriate investing decisions. An
additional 39.6% of responding men and 33.7% of responding women reported that,
while they have a basic understanding of knowledge about financial products,
terms and methods, they would still benefit from more resources and advice to
assist in making appropriate investing decisions.
In
terms of what would make the most positive difference on their current
financial outlook, “having an adviser whom I trust and who really gets me” was
the top choice for both men (42.3%) and women (43.9%). In addition, more than
one-third of both men and women chose “having assistance in filtering through
the massive volume of educational resources available to get to the information
that impacts me” as the top factor in making a positive difference in their
financial outlook.
Presenters also shared educational needs for particular
demographics. Kevin Molloy, senior executive director and head of
Employer-Sponsored Business at AXA US, noted that traditionally teachers have
had great retirement savings resources and tools, however there is gap between
future need and future benefits. Pensions generally replace 60% to 75% of
average salary, and in 15 states, 40% of teachers are not enrolled in Social
Security. Katie Libbe, vice president of Consumer Insights at Allianz Life,
shared that its “2013 Women, Money and Power Study” showed women think they
need more money to be served by a financial adviser. In addition, they find
financial planning materials dull and boring (see “What Women
Want… in Financial Education”). They want a more fun and engaging education
experience, and like to hear case studies or stories about women like them.
Additional findings from the IRI study include:
As
Baby Boomers age, they continue to gain clarity about when they plan to
stop working and retire. In 2011, 35% did not know when they would retire.
Today only 17% are uncertain.
The
percentage of not-yet-retired Boomers who are planning to retire at age 70
or later has increased each year, rising from 17% in 2011 to 28% in 2014.
Boomers
are slightly more likely to have savings for retirement than in prior
years. In 2014, 80% of Boomers reported having retirement savings. Among
those with savings, about half have $250,000 or more saved.
In
2014, 55% of Boomers said they calculated a retirement savings goal,
compared to 50% in 2013. Of those who have determined a savings goal, 76%
said this calculation factors in estimated costs for health care expenses.
In
prior years, around two-thirds of Boomers believed leaving an inheritance
to loved ones was important, but only 46% of Boomers shared this view in
2014.
If tax
incentives for retirement savings—such as tax deferral—were reduced or
eliminated, nearly 40% of Boomers say they would be less likely to save
for retirement. Overall, 75% of Boomers say tax deferral is an important
trait of a retirement investment.
The
percentage of Boomers working with a financial adviser who are highly
confident in having sufficient savings to live comfortably throughout
their retirement years is more than double those who are planning for
retirement on their own.
Marital
status has an effect on retirement confidence and retirement savings.
While 86% of married Boomers had savings for retirement, only 70% of
unmarried Boomers had savings for retirement.
The study report, “Boomer Expectations for Retirement 2014,”
can be found at http://www.irionline.org.