Participants June 12, 2015

Trading Was Brisk in DC Accounts in May

More defined contribution plan participants made trades last month, according to Aon Hewitt.
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Defined contribution (DC) participant transfers in May averaged 0.031% of total balances daily, according to the Aon Hewitt 401(k) Index.

There were eight days of above-normal trading activity—the highest monthly total in two years, making it the first month with transfers above 0.03% since October 2013. This brings the total of above-normal trading days to 23 for the year to date.

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Fixed-income trades elbowed equities, with 61% of trading days favoring fixed income. The most popular asset classes for inflows were international ($153 million), money market ($89 million), and GIC/stable value funds ($82 million). The most common classes for outflows were large U.S. equity ($107 million), company stock ($86 million), and small U.S. equity funds ($48 million).

Target-date funds continued to receive the majority of new contributions, with $240 million going into individuals’ accounts, while large U.S. equity funds received $116 million.

For the month, participant allocations to equities ticked up slightly, from 66.4% to 66.7%, after combining contributions, trades and market activity. Future contributions to equities decreased slightly, from 67.2% in April to 67% at the end of May, Aon Hewitt says.

Capital market returns had a mixed month. U.S. large-cap equities, represented by the S&P 500 Index, and U.S. small-cap equities, represented by the Russell 2000 Index, delivered positive returns, but international equities, represented by the MSCI ACWI ex-US Index, and U.S. fixed income, represented by the Barclays Aggregate Index, both slipped.

In the previous month, relatively few defined contribution participants enacted trades, continuing a tepid trend after 2015’s more volatile start.

Compliance June 12, 2015

Business Leaders Warn of Fiduciary Rule Fallout

The U.S. Chamber of Commerce issued a report warning the fiduciary rulemaking effort could harm small business employees.
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The Department of Labor’s (DOL) proposed fiduciary rule could discourage small business owners from offering simplified employee pension plans (SEP) and SIMPLE-type individual retirement accounts (IRAs), a new report from the U.S. Chamber of Commerce contends.

The report, “Locked Out of Retirement: The Threat to Small Business Retirement Savings,” was written by Brad Campbell, counsel at Drinker Biddle & Reath LLP and former assistant secretary for employee benefits security at the DOL. Campbell notes that 99% of U.S. employers are small businesses, and that through SEP and SIMPLE-type IRA plans they have helped generate $472 billion in retirement savings for more than 9 million U.S. households.

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Under the proposed fiduciary rule language, the DOL permits advisers to large plans with 100 or more participants or $100 million or more in assets to not be a fiduciary, while an adviser to a small plan must be a fiduciary, Campbell notes.

“Because an adviser to a small plan is not carved out of the rule, the adviser who is trying to market retirement savings vehicles to a small plan is considered to be providing investment advice and must determine how to comply with the rule,” Campbell writes. “The adviser must either now provide advice for a level fee, or, if the adviser has variable compensation, he or she must comply with the many conditions of an applicable prohibited transaction exemption.”

Furthermore, even providing a small business with marketing material containing sample investment lineups for SEP IRAs or SIMPLE IRAs “could constitute investment advice, as could providing an individual account holder with certain educational materials that reference the specific investment funds that are available to him or her,” Campbell says. “Consequently, small businesses may find it even harder to offer retirement plans than they do today. Advisers will have to review how they do business, and likely will decrease services, increase costs, or both.”

In addition, the new fiduciary rule would make it cumbersome for advisers to recommend SEP and SIMPLE IRA investments that use proprietary investment products—and the rule could discourage advisers from helping participants set appropriate asset allocations, Campbell says. “Some advisers may choose to exit the SEP and SIMPLE IRA marketplace in light of the costs and risks of compliance with the new rule,” he says.

A full copy of the report can be downloaded from the Chamber of Commerce here. 

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