Data and Research March 28, 2016

Retirement Plan Review Focus Differs with Adviser Use

Unfortunately, on the bottom of the list of priorities during plan reviews for both sponsors that work with an adviser (27%) and those that do not (25%) is whether employees are saving enough.
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The 2016 MassMutual Retirement Plan Review Study finds differences in plan review focus between retirement plan sponsors with an adviser as opposed to sponsors without an adviser.

During plan reviews, sponsors that work with an adviser typically prioritize satisfaction with their plan provider (79%), while sponsors without an adviser prioritize fees (73%). Other major considerations of plan reviews for sponsors that work with an adviser include performance of investments (76%), fees associated with the plan (71%), effectiveness of education and advice (50%), participation rate (45%) and time and effort to administer the plan (43%). For plan sponsors without an adviser, the order of other considerations is as follows: satisfaction with plan provider (71%), performance of investments (59%), participation rate (34%), effectiveness of education and advice (31%) and time and effort to administer the plan (28%).                                   

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Unfortunately, on the bottom of the list of priorities during plan reviews for both those that work with an adviser (27%) and those that do not (25%) is whether employees are saving enough. Tom Foster Jr., spokesperson and practice management leader for MassMutual Retirement Services, says, “Participation in the plan is certainly important too. But if every employee participates but each saves only 1% of his or her salary, it’s totally ineffective as no one will ever be prepared to retire.”

MassMutual points out that employees who work past the traditional retirement age band of 65 to 67 may cost employers significantly more for health care, disability and workers compensation insurance as well as salaries.

Many plan sponsors say they want to review their retirement plans more often than they currently do. Nearly three in five (57%) plan sponsors want advisers to help them review their retirement plans semiannually or more often, something that only 44% of sponsors report currently takes place.  However, sponsors who rely on advisers typically review their retirement plans more often than sponsors who do not use an adviser.

The study polled 565 employers that sponsor retirement plans, including 449 that worked with an adviser and 116 that did not, with retirement plan recordkeeping assets ranging from less than $1 million to as much as $75 million.

Investing March 28, 2016

N.J. Unions Call on Pension Plan to Get Out of Alternatives

A plan presented to the State Investment Council suggests the public fund should re-allocate hedge fund money into a 60/40 mix of publicly traded U.S. stocks and bonds.
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The New Jersey State AFL-CIO and its affiliated public employee unions presented a plan to the State Investment Council to responsibly scale back the percentage of alternative investments in the state pension fund portfolio.

The concerns of public employee unions over asset management fees have intensified as the percentage of alternative investments in the state pension system has grown, according to a statement on the state AFL-CIO website. In fiscal year 2015 (FY15), 36% of New Jersey’s pension fund portfolio was invested in alternatives such as hedge funds and private equity, significantly higher than the national average of 25% invested in alternatives. These alternative investments cost New Jersey $701 million in fees and bonuses in FY15, the unions contend. The year before, the tab was $600 million.

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“The performance of the alternative investments does not justify their outrageous cost,” says New Jersey State AFL-CIO President Charles Wowkanech.

The plan developed by independent pension system analyst Jeff Hooke of Focus Investment Bank charts a path forward for the unions to work with the investment policy committee on FY17 allocations that diminish pension investments in hedge funds and private equity. The new asset allocation models should re-allocate the hedge fund money into a 60/40 mix of publicly traded U.S. stocks and bonds. Similarly, models should be developed that let private equity commitments “run off” over time with the freed up cash invested in public equities, mostly managed in-house.

“The idea is to mirror risk/return attributes with lower fees, thus boosting projected returns,” says Hooke, a consultant to the New Jersey State AFL-CIO and the New Jersey Public Pension Coalition.

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