Investing July 9, 2014

DC Transfer Activity Low in June

July 9, 2014 (PLANSPONSOR.com) - Trading activity in defined contribution plans in June continued to be light—marking the second lowest monthly level since Aon Hewitt began tracking participant transfers in 1997.
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Across Aon Hewitt’s 401(k) Index, total transfer activity was $319 million (0.20%) with one day in June with above normal. However, when trading occurred, plan participants slightly favored fixed income funds over equities.

In June, 57% of trading days saw fixed income receive more inflows, down from 62% of days in May. Overall, net transfer activity moved away from diversified equities (equity assets excluding company stock) by $13 million (0.01%). For the quarter ending June 30, 62% of trading days favored fixed-income funds.

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Bond funds received the most inflows in June with $108 million (34%), followed by premixed funds at $68 million (21%), and international funds with $60 million (19%). Most equity-based asset classes had net outflows during the month. Company stock funds led the net outflow activity with $158 million (50%) transferring out, followed by small U.S. equity funds with $98 million (31%) and specialty/sector funds at $25 million (8%).

June was another positive month for the global equity markets. The emerging equity markets, as measured by the MSCI Emerging Markets Index, led the way with a return of 2.7%. This is the fifth consecutive month that this index has posted a positive gain. Both U.S. equities and non-U.S. equities also posted positive results for the month, as the S&P 500 Index gained 2.1% and the MSCI All Country World ex-U.S. Index gained 1.7%. The fixed income market, as measured by the Barclays U.S. Aggregate Index, returned 0.1% during the month.

After incorporating trading and market activity, participants’ overall allocation to equities at the end of June stood at 65.5%, a marginal increase from 65.4% at the end of May. Future contributions to equities remained unchanged at 66.6%.

Benefits July 9, 2014

More Health Care Organizations Bundling DB Plan Services

July 9, 2014 (PLANSPONSOR.com) - Thirty-seven percent of health care organization plan sponsors offer a defined benefit (DB) plan.
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Health care organizations that sponsor 403(b) plans are somewhat more likely to offer a DB plan (41%, although down from 48% in 2012) than those that sponsor 401(k) plans (32%, consistent with prior years), according to the “Retirement Plan Trends in Today’s Healthcare Market – 2014” report released by Transamerica Retirement Solutions in partnership with the American Hospital Association.

The survey finds health care organizations that sponsor DB plans appear to be shifting away from unbundled service arrangements. Forty-one percent (down slightly from 44% in 2012) utilize an unbundled service arrangement for their DB plans—meaning they use distinct, unaffiliated providers for each service that is not performed internally. Semi-bundled arrangements—whereby some services are purchased as a package from a single company but separate companies are retained for the remaining services (or they are performed internally)—are used by 35% of health care organizations (down from 40% in 2012). Although only 24% utilize a fully bundled approach for their DB plans—whereby all services are purchased as a package from a single provider—this has increased considerably from 16% in 2012.

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Total retirement outsourcing—defined as the outsourcing of all administrative functions associated with an organization’s defined contribution and/or defined benefit plans—has been implemented by 23% of health care organizations. An additional 16% are considering implementing such an arrangement. Only 10% have considered but decided against total retirement outsourcing. Typical outsourced functions include recordkeeping, reporting and compliance, employee communications and education, and customer service (web-based and/or via call centers).

More providers of defined contribution plans for health care organizations are involved in the administration of organizations’ DB plans in 2014 (42%) than had been in 2012 (35%). Plan providers are most likely to be involved with benefit calculations (30%), participant statements (28%), benefit payments (28%), and participant education and communication (19%). Investment-related functions such as investment management and asset liability modeling received less plan provider involvement, cited by only 15% and 9% of survey respondents, respectively.

A traditional DB plan is the most common type offered by health care organizations (88%), and this has increased considerably from 79% in 2012. Only 25% offer a cash balance or other hybrid plan (down from 29% in 2012).

Only 25% of health care organization DB plans are active. Thirty-five percent are frozen to all employees, and an additional 35% are frozen to new employees.

Nearly three in 10 health care organizations (29%) indicated they anticipate making a change to their DB plans. The most common expected change cited was “hiring a consultant to develop a strategy for the plan” (13%, up from 8% in 2012), followed by “freezing the plan” (11%, up from 7% in 2012), and “terminating the plan” (4%, consistent with 2012). Nine percent of plan sponsors expect to enhance their defined contribution plans in order to compensate for freezing/terminating their defined benefit plans (up from 1% in 2012).

DB plan funding levels are up. Nearly half (47%) of health care organizations that sponsor a DB plan reported a 91% to 100% funding level for their plans (markedly increased from 23% in 2012), and an additional 11% indicated a funding level in excess of 100% (up from 9% in 2012).

Health care organizations were asked to identify their specific concerns as they related to their DB plans. Fewer concerns were cited overall in 2014 compared to 2012, possibly resulting from the overall improvement in funding levels. When cited, the concerns indicated most often were “plan’s impact on company financial statements” (43%), “organization’s long-term commitment to the plan” (25%), “financial strength of the plan” (19%), and “employee appreciation of the plan” (15%, although declined in citation frequency from 23% in 2012).

To request a copy of the survey report, send an email request to marketinsights@transamerica.com.

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