Compliance December 5, 2011

House Republicans Send Thank You Letter to Solis

As 30 of their Democratic colleagues did last month, 55 House Republicans sent a letter to Secretary of Labor Hilda Solis, thanking her for retracting the proposed changes to the definition of fiduciary.
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Led by Rep. Judy Biggert (R-IL), the House Republicans thanked Solis for withdrawing the proposal to change the definition of fiduciary under the Employee Retirement Income Security Act (ERISA). The letter says if the proposal was enacted, it would have “significantly reduced the retirement options available to millions of Americans.”

One point the letter makes is that Individual Retirement Accounts (IRAs) are “significantly different from employer-sponsored plans” and should therefore not be treated in the same way.

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The letter includes the following criteria for a possible re-proposed definition as well:

  • It is carefully and effectively targeted to address well-defined and documented problems in the retirement planning advice business
  • It clearly recognizes that IRA accounts are significantly different from employer-sponsored plan because the IRA investor has nearly a limitless choice among service providers and investment products
  • It ensures that plan participants and plan sponsors continue to be able to receive the critical information needed to expand retirement savings and coverage
  • It preserves investor access to and choice among suitable financial products and services delivered by qualified financial professionals
  • It avoids costly new regulatory requirements that exceed their proven benefits for investors
  • It does not compound the investor confusion that the Securities and Exchange Commission’s recent study under the Dodd-Frank Act identified as the primary problem for retail investors. Effective regulation must add to public certainty, not diminish it.

For details on the Democrat’s letter, see “House Dems Give Early Thanks to DoL”.

 

Data & Research December 2, 2011

Report Examines Growth of Investment Options in DC Plans

Record-setting levels of defined contribution assets will continue to grow, yet mutual funds will not be the sole beneficiary.

 

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Celent, a financial research and consulting firm, examines the current retirement landscape in the U.S. in its report, “Developments in the Defined Contribution Market: New Funds and New Investment Vehicles in the U.S. Market.”

By the end of 2010, private defined contribution (DC) plans represented $4.5 trillion dollars in assets and a record high 25.8% of U.S. retirement assets (excluding Social Security). Celent says the marketplace can be categorized in several ways: by plan type (401ks, Keoghs etc.), by fund type (hybrid, target risk, target date) and by investment vehicle (separate accounts, mutual funds, collective investment trusts). The report highlights major changes for each of these categorizations.

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Historically, mutual funds have been the investment vehicle of choice in the DC market, with over 50% of assets held in mutual funds. However, over the past decade, new investment vehicles have continued to gain exposure in the DC market. These vehicles include: separate accounts, collective investment trusts, variable annuities and company stock. The report outlines the evolution and growth of these investment vehicles.

According to the report, the DC market is expected to continue to evolve and grow. Drivers of growth include: use of auto-enrollment, auto-escalation, concern among the mass affluent population that Social Security benefits will be cut and stronger adoption rates among younger generations.  

Other trends expected in the DC market include:

•  The top 10 record keepers will continue to win large plan sponsors and maintain their strong market share of the record keeping business.
•  Collective investment trusts (CITs) have grown from $400 billion in 2006 to $900 billion in 2010 in the DC market. By 2015, CITs are expected to grow to approximately $2 trillion within the DC market.
•  More conservative glide paths among target-date funds (TDFs) will cause lower payouts for plan participants.
•  More plan sponsors who are not currently using custom-designs will consider switching from off-the-shelf to custom-designed funds in the next couple of years.

“The defined contribution market is undergoing several developments. One of the most interesting is the growth of collective investment trusts,” said Alexander Camargo, Celent analyst and author of the report. “Even though these vehicles have been around for a long time, it’s as though plan sponsors are discovering some of their regulatory and cost benefits for the first time. 

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