The Markets May 8, 2017

Short Term Boost Should Not Change Lower Return Expectations

Data from Northern Trust shows retirement plan investors have done well in the last year and in the last quarter, in particular, but long-term return assumptions remain muted and investors must take heed.  
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Institutional plan sponsors netted investment gains of 4.2% at the median in the first quarter of 2017, according to Northern Trust Universe data released today.

According to Northern Trust, the data belies the sixth consecutive three-month period of gains for institutional asset owners, with equities providing the bulk of positive performance in the quarter.

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The positive returns have clearly been a boon to investors in the sample analyzed by Northern Trust, which includes 300-plus large U.S. institutional investors with a combined asset value of approximately $897 billion.

Amy Garrigues, head of investment risk and analytical services at Northern Trust, says the strong median return for this year’s first quarter compares to an average median quarterly return of about 2.8% since the end of the financial crisis in second quarter of 2009.

“Over 20 years, from 1996 through 2016, the average median quarterly return for asset owners was 1.8 percent,” she says. “Institutional asset owners continue to experience quarterly returns that are above long-term averages, supported by rising equity prices.”

Since the end of the financial crisis, in March 2009, the median total equity program in the Northern Trust Universe has had an average annual return of 14.3%. In the first quarter of this year, the median total equity program was up 6.7%, while the median international equity program gained more than 8%. Fixed income, private equity and real estate programs had gains of less than 2% each in the first quarter, Northern Trust reports.

According to Northern Trust, corporate Employee Retirement Income Security Act (ERISA) plans were up 4.1% during the first quarter of 2017. Public funds benefited from “a relatively large allocation to equities, compared to the other plan types,” gaining 4.3% during the quarter and earning the top returns measured for any institution type.

Northern Trust data shows allocations to fixed income were about 22% for public funds and 44.5% for corporate ERISA plans.

“While Corporate ERISA plans had the largest allocation to fixed income, they also had the largest allocation to high yield, emerging market debt and longer duration investment grade bonds, all of which returned noticeably more than traditional core bonds,” Northern Trust reports.

While these data points show Q1 went well for retirement plans and other investors, Northern Trust researchers and other experts have warned that return assumptions in the next decade should be brought lower, into the mid- or even low-single digits. For more research and information, visit www.northerntrust.com. 

Compliance May 8, 2017

Wagner Gets Approval of 403(b) Plan Document

Wagner Law Group says its volume submitter 403(b) plan has flexible design options to meet the needs of most 403(b) plan sponsors.
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The Wagner Law Group, an Employee Retirement Income Securities Act (ERISA) and employee benefits law firm, has received Internal Revenue Service (IRS) approval of its volume submitter 403(b) plan.

The IRS’s new pre-approved 403(b) plan program represents the first opportunity for tax-exempt 403(b) plan sponsors, such as charitable and educational organizations, public schools, churches and church-related organizations, to bring certainty of compliance to their 403(b) arrangements.

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A volume submitter plan is a pre-approved plan that has an IRS advisory letter on which adopters of the plan can rely with respect to the form of the plan, including various options that have been subject to IRS review. Since the IRS has never issued determination letters for 403(b) plans (as it has for tax-qualified retirement plans), The Wagner Law Group’s new pre-approved volume submitter 403(b) plan represents an excellent opportunity for sponsors of 403(b) plans to have their plan language approved in advance.

The Wagner Law Group’s volume submitter 403(b) plan has flexible design options to meet the needs of most 403(b) plan sponsors, including the following available features:

  • Pre- and post-tax elective deferrals, and employee contributions;
  • Automatic enrollment including QACAs and EACAs;
  • Various eligibility and service-counting options;
  • Employer matching and discretionary contributions, with several allocation options;
  • Safe harbor matching provisions;
  • Hardship withdrawal and loan provisions; and
  • Various vesting alternatives.
By adopting a volume submitter plan before April 2020, the IRS deadline for bringing 403(b) plans into compliance with relevant IRS regulations that became effective in 2009, a plan sponsor may retroactively correct defects in its plan document back to January 1, 2010 (or, if later, the adoption date of the 403(b) plan). Eligible employers that failed to adopt a written 403(b) plan document by the end of 2009 now have a chance to easily redress that failure, by adopting The Wagner Law Group’s pre-approved 403(b) plan and submitting it to the IRS under the 403(b) Voluntary Correction Program (VCP), to receive a clean bill of health from the IRS.

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