Data & Research May 29, 2012

Open MEPs Provide Fiduciary and Cost Benefits

Multiple Employer Plans (MEPs) bring expert fiduciary governance and economies of scale to retirement plans of all types and sizes.
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In the past few years, intensifying mid-2011, the pension community’s attention has been drawn to a plan type that has grown rapidly in popularity: open MEPs―those open to any participating employer, Pentegra Retirement Services notes in a white paper. (See “Strength in Numbers.”)

The paper explores a feared compliance risk―the concern that the Department of Labor (DOL) would not consider open MEPs to be single plans under the Employee Retirement Income Security Act (ERISA).    

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According to Pentegra, open MEPs are among the safest and most beneficial retirement plan structures when properly governed. Proper governance includes ensuring that the plan meets ERISA provisions, in particular the Annual Report (i.e., Form 5500) and audit requirements. The additional reporting and audit requirements do not impair a MEP’s status as a multiple employer plan under the Internal Revenue Code, nor its ability to provide fiduciary outsourcing and cost benefits.  

MEPs and other fiduciary outsourcing solutions are poised for sustained growth as part of the intensifying movement toward relieving employers of fiduciary burdens while controlling costs, Pentegra says. Whether an MEP is a single or multiple employer plan for ERISA purposes will have little impact on this trend, the paper concludes.  

The white paper can be viewed here.

 

The Markets May 29, 2012

Institutional Investor Allocations to Real Assets to Rise

The institutional investor mindset toward real assets is shifting significantly, according to research.
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A research paper from J.P. Morgan Asset Management forecasts that institutional investor allocations to real assets will rise, from their current average of roughly 5% to 10%, to more than 25% of portfolios in the next decade. J.P. Morgan predicts real assets will move from an alternative to a mainstream asset class.  

Low bond yields, along with outsized equity market volatility and modest equity returns, have brought us to a new asset allocation tipping point, the paper said. Global real assets—real estate, infrastructure, transport and natural resource assets that can provide higher income than bonds and superior risk-adjusted returns to equities—will increase in size and importance in investor portfolios.  

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Joe Azelby, chief executive of Global Real Assets at J.P. Morgan Asset Management, and co-author of the paper, is calling the shift “the realization,” as institutional investors are undergoing a structural shift realizing they will not be able to achieve the returns they need from fixed income and becoming increasingly disillusioned with equities, given the volatility and stunted returns of stocks over the last decade. Azelby thinks investors will be lured by the solid yields, stable total returns, inflation sensitivity and attractive diversification of real assets, causing them to fundamentally rethink portfolio construction.    

The paper contends that investors who recognize and act on this realization in their portfolio allocations are likely to have better investment outcomes than those who do not.  

The research paper will be distributed to J.P. Morgan institutional clients. More information is here.  

 

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