Compliance December 22, 2006

Chubb to Discontinue Contingent Commissions to Agents and Brokers

Chubb Corporation announced on Thursday it will discontinue paying contingent commissions on all insurance lines in the United States beginning in 2007 as part of a settlement agreement with the Attorneys General of New York, Connecticut and Illinois that resolves all issues arising out of investigations of property-casualty insurance market illegal bid-rigging practices.
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Contingent commissions will be replaced with a supplemental compensation program that will reward Chubb’s agents and brokers for superior performance in a manner consistent with evolving marketplace standards and reforms urged by the Attorneys General.

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The company also said in a separate statement, as part of voluntary actions over the past two years, it has fully disclosed on its Web site all forms of producer compensation utilized in its business.

According to the release, the investigations did not conclude that the firm participated in a pattern or practice of illegal bid-rigging in the excess casualty insurance market. However, Chubb acknowledged it appears to have unknowingly benefited from the bid-rigging activities of others in the excess casualty market, which may have provided the firm with an advantage in retaining certain renewal business.

Due to that fact, Chubb agreed to contribute $15 million to a settlement fund established for the benefit of affected customers and to pay $2 million to help defray the costs of the investigation by the Attorneys General.

Other voluntary actions Chubb revealed in its separate statement include that the Board adopted a Legal Compliance and Ethics Charter and created a Chief Ethics Officer reporting directly to the Audit Committee, and the firm voluntarily ceased a number of practices which might appear to provide an incentive for the “steering” found objectionable by the Attorneys General, including loans to producers, funding of producer compensation, and using an entity co-owned with its producers (Mountain View Indemnity) to reinsure certain risks.

Data & Research December 21, 2006

Study Finds 401(a) Growth

A new survey has found a notable hike in the number of larger corporate employers offering 401(a) money purchase plans.
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A Diversified Investment Advisors news release about its Report on Retirement Plans – 2006 said more than a third (36%) of large corporate employers now offer a 401(a) plan – up markedly from the 12% who did so two years ago.

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“In most cases, these companies are offering a 401(a) defined contribution plan such as a money purchase plan funded with matching contributions to a 401(k) plan not only to help contain the risk inherent in defined benefit plans, but because they remain committed to help fund their employees’ retirement benefits,” said Patrick Kendall, vice president and national practice leader of defined benefit and 401(k) markets at Diversified, in the news release.

The study also found that even before passage of the Pension Protection Act, 44% of large companies had implemented auto enrollment. Another 11% of respondents said they implemented the feature at the time the survey was completed.

In addition, corporate sponsors said they have already installed or are currently implementing automated features such as deferral increases (15%), rebalancing (24%), and managed account options (32%).

In defined contribution plans in the coming year, besides adding investment options (46%) and enhancing participant education (45%), offering investment advice (31%) was a priority. Nineteen percent of defined contribution plan sponsors indicated they plan to change providers in the upcoming year.

Also, even though 401(k) plans have been in existence for over 20 years, employee participation in them continues to increase, with 57% of 401(k) plan sponsors reporting participation rates of at least 70%, according to the announcement. This is up from 53% a year ago.

Meanwhile, on the defined benefit side, 23% of plan sponsors surveyed said they intend to terminate their DB plan; 28% intend to freeze their plan and another 26% reported they plan to reduce DB plan benefits over the course of the next year, the press release said.

In a related area, while 36% of respondents said they have never considered total retirement outsourcing (TRO), 34% said they are either currently considering it, already using it, or are in the process of implementing it. Slightly more (39%) said they are considering or have implemented total benefits outsourcing (TBO), citing the lower cost of administration as the single greatest advantage. This represents a 6% increase over last year’s TBO findings.

The survey was conducted by Diversified Investment Advisors, Inc. and administered by LIMRA International and FGI Research, Inc. among US companies with at least 1,000 employees. The survey featured responses from 233 individuals responsible for the administration of benefits at their firm. Of those companies surveyed, all offer a defined contribution plan and 156 offered a defined benefit plan. The survey contains data based on the 2005 plan year.

More information about diversified is at http://www.divinvest.com.

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