Compliance July 15, 2008

Federal Judge Approves Plan Distribution, Termination

A court ordered that a Dublin, Ohio-based 401(k) plan be distributed to ex-employees.
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A federal judge in Ohio issued an order allowing the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) to distribute more than $600,000 in 401(k) assets to ex-employees of American Systems Consulting, Inc., according to a news release.

An EBSA lawsuit against the company and its owners, Cliff and Loree Gallatin, charged that American Systems improperly diverted plan funds to bolster the company’s general accounts. The Gallatins have already paid $100,860, the government release said.

The court order designates Larry Lefoldt as independent fiduciary to oversee distributing the rest of the plan assets and then its termination.

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The suit resulted from an investigation conducted by EBSA’s Cincinnati regional office.

Data & Research July 15, 2008

Equity Allocation Didn’t Matter in Target-Date Q208 Performance

An Ibbotson analysis of target-maturity funds in the second quarter suggested that equity allocation did not have a clear impact on performance.
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The study of 204 target-maturity funds suggested the stock-bond split, which is usually the primary driver of return differences across the risk spectrum, did not have a clear impact on performance as aggregate stock market and aggregate bond market performance were similar in the second quarter of 2008.

The average target-maturity fund lost 0.9% in the second quarter—significantly better than the first quarter’s loss of 6.8%, according to the Ibbotson report. Target-maturity funds outperformed the S&P 500 Index, which declined 2.7% during the second quarter.

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Among underlying asset classes, growth stocks outperformed value stocks and, on a relative basis, small-cap stocks outperformed large-cap stocks. Commodity futures were again the top-performing asset class of the quarter (16.1% in Q2 following last quarter’s 9.6% return).

The four fund families with positive returns all contained exposure to commodities with the standout fund family containing the largest commodity exposures. Conversely, fund families without commodities and a tilt toward value stocks relative to growth stocks were hurt during the quarter. The other commonality among last quarter’s worst performers was a sizable allocation to real estate, Ibbotson said.

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