Administration July 2, 2014

DB Plan Liabilities Declined in June

July 2, 2014 (PLANSPONSOR.com) – The funded status of corporate defined benefit (DB) plans in the United States increased to 92% during June, with liabilities decreasing 0.2% during the month.
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A recent analysis by the BNY Mellon Investment Strategy and Solutions Group (ISSG) shows that the funded status of the typical U.S. corporate pension plan increased 1.4 percentage points in June, driven by rising asset values.

The BNY Mellon Institutional Scorecard for June notes assets at the typical corporate plan rose 1.4%. Year to date, the funded status of corporate plans is down 3.2 percentage points, according to the scorecard.

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“Corporate plans also benefited from a slight rise in interest rates, which reduced liabilities,” says Andrew D. Wozniak, head of fiduciary solutions, ISSG, based in New York. “June ended a string of three consecutive months of falling rates, which had been driving liabilities higher.”

Public DB plans, endowments and foundations also benefited from strong asset returns and exceeded their return targets, according to the ISSG analysis. For endowments and foundations, the real return in June was 1%, exceeding the target for spending plus inflation. This outperformance was driven largely by their exposure to private equity, which accounts for approximately 15% of the typical portfolio for endowments and foundations, according to ISSG. Year over year, foundations and endowments are ahead of their target by 8.2%.

“Equities have continued rallying since April as economic data appears to indicate strengthening global growth,” says Wozniak. “If the funded status continues to rise, we expect more plans to implement strategies that better insulate them from future market volatility.”

The decrease in liabilities for corporate plans in June was due to a four-basis-point increase in the Aa corporate discount rate, which reached 4.32%. Plan liabilities are calculated using the yields of long-term investment grade bonds. Higher yields on these bonds result in lower liabilities.

Public DB plans in June exceeded their target by 1% as assets led by small cap equities and private equity rose. Year over year, public plans are exceeding their targets by 9%, ISSG says.

The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.

Benefits July 2, 2014

More Employees Value Stock Purchase Plans

July 2, 2014 (PLANSPONSOR.com) – Employee stock purchase plans (ESPPs) are increasing in importance when it comes to employee retention and recruiting, says a new study from Fidelity Investments.
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When asked about the importance of company stock plans as part of their compensation and benefits package, 86% of respondents under the age of 40 say they would want their new employer to offer a company stock plan if they changed jobs. In addition, 40% of all respondents consider a company stock plan as a must-have when making a decision to change employers, and over one-third of respondents (37%) say that giving up their ESPP would make it harder for them to leave their current job.

A rebounding job market has intensified the competition for talented workers, says the study, and employee retention has emerged as one of the top corporate human resource challenges for 2014. More employers are using ESPPs to attract and retain employees at all levels, from senior executives to recent college graduates.

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Nearly one-third (29%) of employees consider an ESPP as one of their most valued benefits. In fact, 10% of respondents ranked an ESPP as a more valued benefit than others such as health care, 401(k), dental plan, and child care.

“The availability of a company stock plan can tip the scale in a company’s favor when employees are evaluating job opportunities, especially in industries that demand highly skilled or specialized workers,” says Kevin Barry, executive vice president of stock plan services at Fidelity Investments, based in Boston. “Employers who recognize this fact will be well positioned to attract and retain the best employees for their business needs.”

The study also finds that ESPPs can strengthen employee loyalty, as well as increase productivity and engagement. More than half of employees (57%) say equity compensation plans contribute to their feeling loyal to their employer, and 54% indicate their company stock plan “provides an incentive to work harder and be rewarded for the company’s performance.”

In addition, the study found employees participating in ESPPs are highly engaged in their companies’ performance, with 89% of respondents knowing the current price of their company stock, and 85% knowing the overall value of their stock plan assets and their vesting schedule.

Company stock plans, such as ESPPs, are increasingly used as supplemental savings vehicles that can be easily accessed and used for nonretirement expenses, without any fees or Internal Revenue Service penalties, according to the study. Company stock has been playing a growing role in meeting workers’ ongoing financial needs, with 34% of respondents saying they liquidated when their company stock hit a certain price, while 60% have sold company stock to generate funds.

“Today’s workers increasingly understand that a company stock plan is a great savings option to complement their traditional workplace savings plan,” says Barry.

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