Products February 6, 2017

MassMutual Custom Yield Curve Solution Offers More Transparency

Custom yield curves help DB plan sponsors determine an appropriate discount rate to measure liabilities for their pension and other post-retirement benefit obligations, the firm says.
Reported by

Massachusetts Mutual Life Insurance Co. (MassMutual) is introducing new customized defined benefit (DB) plan yield curves to help plan sponsors measure their pension obligations in a more informed and transparent way.

The custom yield curves help plan sponsors determine an appropriate discount rate to measure liabilities for their pension and other post-retirement benefit obligations. MassMutual’s curve, which meets the pension and post-retirement benefit obligation requirements set by the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC), offers plan sponsors and their auditors an alternative solution with greater transparency than similarly available benchmarks in the market, according to Sumit Kundu, consulting actuary at MassMutual who leads this initiative.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“That’s an important consideration in an environment where historically low interest rates and rising costs associated with pension plans are making it more difficult and more expensive for employers to keep sponsoring their DB plans,” Kundu says.

In introducing the yield curve, MassMutual is issuing a white paper that outlines its methodology and makes comparisons to other yield curves available on the market, which will be available on request from the plan sponsors and their auditors.

The introduction of the yield curve represents an enhancement of MassMutual’s support of DB plans, according to Kundu. Despite the erosion of defined benefit plans in the market, there are still approximately $8.2 trillion total in private and public DB pension assets in the United States as of September 30, 2016, according to the Investment Company Institute.

The need for a holistic set of solutions in the complex pension marketplace contributed to MassMutual’s decision in 2016 to create the Institutional Solutions unit, which provides plan sponsors and advisers with an array of actuarial and other plan services, including investment products tailored for DB plans (open and frozen), liability driven investing (LDI), actuarial funding and accounting strategies, plan administration, plan design consulting, pension buyouts and lump sum windows.

In Practice February 6, 2017

Navigating Through a Low-Fee World

“About 45% of households believe the financial advice they receive is free, or they are unsure whether they pay for financial advice, but there are several forces driving consumers’ attentiveness to fees,” according to a new study by Cerulli Associates.
Reported by

With fees becoming a major source of scrutiny across the financial services industry, many advisers are exploring alternative business models to stay competitive. Global research firm Cerulli Associates recommends constructing client portfolios with a focus on reducing overall costs through the right securities to survive a low-fee world.

“During the past several years, the magnitude of fees has become a challenge that directly affects the way in which financial advisers construct client portfolios,” says Tom O’Shea, associate director at Cerulli. “New regulations cast a spotlight on high-priced investment vehicles. Advisers building portfolios should explore ways to reduce fees by using institutionally priced mutual funds, low-cost model-delivered managed accounts, and ETFs [exchange-traded funds].”

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The firm also points out that consumers are becoming increasingly focused on how much they pay in fees. With the expanding wealth of information available to them, consumers can be expected to demand even more transparency in the future.  

“Consumers have long been unaware of the level of fees and the type of fees they pay,” O’Shea explains. “About 45% of households believe the financial advice they receive is free, or they are unsure whether they pay for financial advice, but there are several forces driving consumers’ attentiveness to fees. Both the media and the emergence of digital advisers have shed light on the high cost of investing.”

Moreover, excessive fees have been the cornerstone of several recent Employee Retirement Income Security Act (ERISA) litigation cases, which experts expect defined contribution (DC) plans to see more of in the coming years.

Cerulli recommends analyzing alternative pricing models. It notes, “The use of low-cost investment vehicles such as I-Share mutual funds, ETFs and model-delivered managed accounts can only generate so much savings, particularly because managed account sponsors have placed downward pressure on managers for years. At some point, advisers need to scrutinize their own fees.”

These insights are from the February issue of The Cerulli Edge – U.S.Edition, which explores low-cost investments, goals-based planning and managed accounts as qualified default investment alternative (QDIA) vehicles. 

«