The Markets March 19, 2008

Stocks Down in Feb. but Equity Inflows Continued

The equities markets may be on a long-term fritz, but that hasn’t stopped fund investors from taking stock positions in their portfolios, according to new Strategic Insight data.
Reported by

According to a Strategic Insight news release, U.S. mutual fund investors added an estimated $17 billion of cash inflows to stock mutual funds in February, despite the 3% decline in the S&P 500 during that month. The data showed about half of the February stock fund net inflows were to international / global equity funds, with the balance added to US-centered funds.

Meanwhile, bond funds’ February inflows totaled $12 billion and money market funds added nearly $95 billion, with further gains in March.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The inflows to stock mutual funds in February marked a reversal from net redemptions out of equity funds experienced in January, a month during which the average stock fund investor lost over 6%. With more than two-thirds of equity fund assets designated for retirement savings and their very long time horizons, most mutual fund investors have taken stock market volatility in stride; and some investors continue to benefit from “buying on market dips” and dollar-cost-averaging, the research firm said.

Asset allocation, the dominant investment theme in recent years, continues to drive fund choices even during the alarming 2008 financial market volatility, according to the analysis.

As a result, there was continued demand this year for funds-of-funds (including target-date lifecycle funds), mutual fund “wraps,” international/global funds, and bond funds, all of which are areas that experienced large gains in 2007, Strategic Insight said.

Compliance March 19, 2008

SPARK Institute Wants Extension for New 403(b) Regs

The SPARK Institute has filed a 13-page comment letter with the Internal Revenue Service (IRS) about the new 403(b) retirement savings plan regulations, asking for an extension of the effective date for compliance and guidance on the treatment of contracts and information sharing agreements (ISAs).
Reported by

“While we commend the IRS and Treasury for providing additional guidance on the extremely complex issues related to vendor contracts and contract exchanges under the regulations issued last year, a significant number of affected employers are still unaware or unsure of their obligations under the new rules and what they must do to comply,’ said Larry H. Goldbrum, General Counsel, in a statement. “In addition, 403(b) plan vendors are struggling to understand the new rules and the obligations of employers,’ he noted.

According to Marilyn Collister, National Director of Regulatory Policy with Great-West Retirement Services, and Chairwoman of a SPARK Institute vendor task force to address the 403(b) issues, the three most important issues, addressed in the comment letter, included:

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

  1. clarification regarding the treatment of certain contracts issued before January 1, 2009;
  2. clarification regarding the Information Sharing Agreements (ISAs) requirement related to those contracts; and
  3. obtaining an extension of the effective date for compliance by employers and vendors beyond the current January 1, 2009 deadline.

The SPARK Institute’s 403(b) Task Force is currently working with the industry and plan sponsors to develop standardized language for information sharing agreements and best practices for sharing the information among affected employers and providers, documents Goldbrum said will be completed and publicly available before the end of March.

Contracts

“Both employers and vendors are concerned about the treatment of vendor contracts issued before the [2009] effective date of the regulations given the nearly impossible task of identifying every such contract and the near certainty that there will be contracts and accounts which, if found, could not be brought within the plan for various reasons,’ Collister said.

Although the Revenue Procedure states that the final regulations do not apply to contracts that received no contributions after December 31, 2004, some parameters of the relief for these so-called “grandfathered’ contracts remain unclear, according to Collister.

Information Sharing Agreements

According to the statement, The SPARK Institute is concerned about employers’ ability to identify and enter into ISAs with the appropriate vendors by January 1, 2009.

“The amount of time, cost and effort that will be involved in the information sharing process among multiple vendors and employers will be very significant, potentially disruptive to the retirement plan industry and could hurt plan participants,’ Goldbrum said. “We have asked the IRS to extend the deadline for the execution of ISAs between vendors and employers for a minimum of 12 months following the receipt of additional guidance from the IRS clarifying issues around the contracts and contract exchanges.’

«