The Markets August 7, 2013

Institutional Investors Have Mixed 2Q

Institutional investors posted mixed returns in Q213, according to the Wilshire Trust Universe Comparison Service (Wilshire TUCS).
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“The second quarter performance for median plan return types was mixed with a high return of 0.38% for Taft-Hartley defined benefit plans and a low return of -0.75% for large corporate plans,” said Robert J. Waid, managing director, Wilshire Associates. “The median quarterly return for all plans was down for the first time since the second quarter of 2012 coming in at -0.06%.”

Public funds gained 0.24% for the quarter, while endowments and foundations posted a 0.03% return. With most of the asset classes being down for the quarter, most of the performance differences primarily can be attributed to different exposures to the U.S. equity market, noted Waid.

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He added, “Though the Wilshire 5000 closed the quarter with its first losing month since October 2012, it still set 13 more all-time-highs, resulting in a quarterly return of 2.77%, while the median U.S. equity plan return was 2.42%. The Barclays U.S. Aggregate followed up its first quarterly decline since 2006 with a -2.32% return. The median U.S. fixed income plan nearly mirrored that with a performance of -2.28%.”

With international equity falling, all measured plan types again underperformed the simple 60/40 (U.S. equity/U.S. bond) default asset allocation for the quarter, noted Waid.

Wilshire TUCS is a cooperative effort between Wilshire Analytics, the investment technology unit of Wilshire Associates Incorporated (Wilshire), and custodial organizations. Wilshire Associates is an independent global investment consulting and services firm.

Compliance August 7, 2013

PSCA Disagrees with Lifetime Income Approach

In a letter to the U.S. Department of Labor (DOL), the Plan Sponsor Council of America (PSCA) expressed some disagreement with the DOL's proposal for including lifetime income illustrations on participant statements.
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While Edward Ferrigno, PSCA’s vice president, Washington Affairs, said the PSCA is “pleased that the DOL recognizes the importance of educating participants about this important issue,” the PSCA disagrees with the approach outlined in the DOL proposal.

The Council does not support a mandate for lifetime income illustrations, but rather directing participants to retirement income calculators instead. It is worried that the safe harbor in the intended regulation will result in a major reduction in the availability of other retirement income calculators, which will be to the detriment of participants.

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In addition, the letter said:

  • The DOL should elaborate on its authority to mandate such income illustrations;
  • The DOL proposal should be product neutral, not singling out annuities but also offer other products, be they insured or non-insured ones;
  • The DOL should specify that Field Assistance Bulletin 2006-03 applies to this intended illustrations rule. The bulletin in question provides that disclosures required under ERISA Section 105 may be provided by delivering a notice that the disclosure is available at a secure website and that a free written disclosure will be provided upon request; and
  • While projections are critical to any lifetime income illustrations, such estimates need to consider future behavior.

“There are other ways for the DOL to encourage retirement savings,” said Ferrigno. “The PSCA recommends that the DOL maintain the practice of including retirement calculators on [their] website and make changes to highlight their existence on the site.” The letter also recommended that the DOL issue guidance that clarifies that such calculators take “future contributions and investment returns into account, and provide estimates that are expressed in current dollars,” as well as a disclaimer that such figures are estimates and not definitive.

“Any illustration should describe the assumptions on which it is based and should state that the illustration is merely an estimate,” added Ferrigno.

The letter can be downloaded from here.

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