Investing February 6, 2018

Institutional Investors See Best One-Year Return Since 2014

The Wilshire Trust Universe Comparison Service (Wilshire TUCS) saw a median one-year gain for all plan types of 14.72%.

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Institutional assets tracked by the Wilshire Trust Universe Comparison Service (Wilshire TUCS) saw a median return of 3.59% for all plan types in the fourth quarter and a median one-year gain of 14.72%.

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This compares to a 60/40 portfolio, which trailed the median plan return, at 14.52%.

“This quarter marked the ninth consecutive positive quarter, the longest string of positive quarterly returns for all plan types since June 1998, which marked a string of 14 positive quarters in a row,” says Robert J. Waid, managing director, Wilshire Associates. “Fourth quarter returns boosted the one-year return to 14.72% for the year ending December 31, 2017, compared to 7.24% for the year ending December 31, 2016. This was the best one-year return since the year ending June 30, 2014, ended with 15.51% and fourth consecutive quarter to post an annual return above 10%.”

Wilshire TUCS returns were supported by continued strong performance across all major asset classes. The Wilshire 5000 Total Market Index returned 6.39% for the fourth quarter and 20.99% for the year ending December 31, 2017, while the MSCI AC World ex U.S. for international equities rose 5% in the fourth quarter and 27.19% for the year. The Wilshire Bond Index also gained 0.89% in the fourth quarter and 4.82% for the year.

This resulted in a positive range of median plan-type returns in the fourth quarter, as the low median return was 2.76% for Taft Hartley Health and Welfare funds and the high median return was 3.74% for Public funds with assets greater than $1 billion. For one-year returns, the low median return was 12.30% for Taft Hartley Health and Welfare funds and the high median return was 15.96% for Public funds with assets greater than $5 billion.

Corporate funds had a fourth quarter return of 3.51% and a one-year return of 14.61%. Public funds had a fourth quarter return of 3.73% and a one-year return of 15.17%. For foundations and endowments, returns were 3.57% and 14.72%, respectively, and for Taft Hartley defined benefit (DB) plans they were 3.7% and 15.06%, respectively.
Ask the Experts February 6, 2018

Tax Reform Effect on 457(f) Plans

“I work at a private tax-exempt hospital that sponsors a 403(b) plan, a 457(b) plan, and a 457(f) plan.

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“I understand that the recently passed tax reform legislation did not contain many retirement plan provisions that would affect us, but heard that our 457(f) plan could be indirectly affected by the new law, Is this true?“

 

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Stacey Bradford, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

 

You are correct that, though there were only a few retirement-related provisions in the American Tax Cuts and Jobs Act (the formal name of the tax reform legislation), there is a compensation provision of the new law that could have an indirect effect on 457(f) plans.

 

Specifically, a new 21% percent excise tax will apply to the top-five highest-paid employees (or former employees) of a tax-exempt or governmental entity each year on any compensation that exceeds $1 million per employee. For health care organizations such as your hospital, however, it should be noted that amounts paid directly to certain medical professionals for the performance of services are excluded.

 

While this provision does not directly affect retirement plans, there may be an indirect impact due to the type of compensation that counts for determining the excise tax. For example, 457(f) deferred compensation that is vested (no longer subject to a substantial risk of forfeiture) counts toward the $1 million threshold, but other types of plan contributions, such as qualified plans, 457(b) plans, and 415(m) plans for public employers, would not count as compensation.

 

Thus, if an employee or former employee subject to the excise tax vests in a 457(f) amount or receives a distribution from the 457(f) that, by itself or in combination with other compensation received in a tax year, will exceed $1 million, the employer would be responsible for an excise tax on the amount in excess of $1 million. If this is indeed the case for your institution, you should consult with an attorney well-versed in 457(f) plans to discuss how to address this issue.

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

 

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