This decrease was driven by a larger increase in the aggregate
liability value due to the decline in corporate bond yields versus the increase
in the asset value.
“We estimate that overall, the asset value increased by 0.8%
due to positive returns for most asset classes, while the liability value
increased by 1.8% during the month,” says Jeff Leonard, head of the Actuarial
Services Group of Wilshire Consulting, based in Santa Monica, California. “The
effective yields used to discount pension liabilities decreased by over 10
basis points during the month.”
Leonard adds that year-to-date, the funded ratio for the
sample plan used by Wilshire has decreased by 3.9% from 89.9% to 86%. This
decrease was driven by the larger increase in liability value of 7.6% versus
the 2.9% increase in asset value.
Wilshire
Consulting is a subsidiary of Wilshire Associates, a global investment
consulting and services firm.
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Small Businesses Increasing Retirement Savings Efforts
The smallest of employers are gaining enough
confidence in the economic growth of their businesses to increase efforts to
help employees save for retirement.
Fidelity Investments latest Small Business Retirement
Savings Analysis reveals increases in average balances and contributions in
small businesses’ retirement benefits plans for the third consecutive year.
According to the analysis, average balances in Simplified Employee Pension
Plans (SEP-IRAs) increased by 92% to $84,410 from 2008 to 2013. Average
balances in Savings Incentive Match Plans for Employees (SIMPLE-IRAs) increased
100.8% to $36,235.
In addition to contributing to their own retirement, small
business owners are contributing more to employees’ accounts, Brian Hogan,
director of small business retirement products at Fidelity in Smithfield, Rhode
Island, tells PLANADVISER. From 2008 to 2013, the employer contributions for
employees to SEP-IRAs increased 17%, and SIMPLE-IRAs saw an increase of 13.3%
in employer contributions to employees’ accounts, he says.
Hogan explains that SEP-IRAs are funded only by employer
contributions, they do not allow for employee deferrals, and they have higher
statutory contribution limits than other defined contribution plans. These tend
to be offered by very small, mostly family-owned companies. SIMPLE-IRAs,
however, are structured more like 401(k)s, where employees are allowed to
contribute to their own accounts.
Offering
these plans provides tax benefits for small businesses, Hogan notes. Mainly,
they get to deduct any contribution made on behalf of employees from taxable
income. In addition, if a small business starts a new plan, it can get a tax
credit for start-up costs up to $500. SIMPLE-IRAs also allow employees to save
income pre-tax, reducing their current taxable income.
For small businesses deciding to offer a retirement plan to
employees, which type of plan to offer depends on the number of employees, how
much administrative responsibility employers want, and what contribution limits
they would like for themselves and employees, according to Hogan. Also, small
business owners should determine whether employees want to make their own
contributions to their accounts.
He notes that if a small business owner offers a SEP-IRA,
the contribution made to employees’ accounts must be the same, in percentage or
formula, as what the owner contributes to his or her own account. “If they
don’t want to do that, or if they have a higher number of employees or
employees want to contribute to the plan themselves, a SIMPLE-IRA is the best
choice,” Hogan says.
He adds that with a SIMPLE-IRA, plan sponsors do not have
the same fiduciary responsibility as they would with a 401(k) plan. They do not
have to select an investment lineup for the plan; they choose a provider, and
participants set up their own accounts and decide on investments. Hogan notes
that if a business has more than 100 employees, it may not offer a SIMPLE-IRA,
and will have to choose another plan type.
“It
was encouraging to see the results [of our analysis],” says Hogan. “We’ve seen,
as the economy turns around, small business owners are becoming more confident
in their businesses and in making contributions to [their own and employees’]
retirement.”