ADVISOR DASH – Prototype




Economic Indicators

Major US Stock Index Returns for December

Equity REITS Beat S&P 500 in December

FTSE4Good Social Benchmark Tracks Major Indexes in December

Benefits Satisfaction Fuels Job Satisfaction: Survey

Surveyed Workers Coming Up Short on Retirement Savings

Peer Pressure Pumps up Participation

Fidelity Ups IRA Account Minimums

NYSE-based ETF Coming

SchoolHouse Capital Teams with Harrisdirect on 529 Distribution

Small Caps Socked in 2002

Money Market Funds Suffer Net Outflow in 2002

Morningstar Knights Top Fund Managers

Fidelity Retaking Management of Passive Funds

What’s an ETF?

Should Plans Offer Investment Advice?

Default Fund Guidelines

IRS Gives More Time on DB Annuity, 457 Program Guidelines

PWBA Offers Insights on Annuity Selection

Fee Shift Concerns Draw Fire from Court





THE ECONOMIC WEEK AHEAD: Things will kick off today with a reading from the Institute of Supply Management on the state of the services sector in December, followed by Tuesday’s reading on factory orders for November. Wednesday will bring a reading on consumer credit for November, followed by wholesale inventories for the same month on Thursday and the weekly jobless claims numbers. We’ll wrap up the week on Friday with unemployment data for December..

Investors found little but coal in their stockings in December, generally a strong month for US stock indexes. Worst hit was the NASDAQ which lost 9.69% (its worst December ever), but the Dow lost 6.23% and the S&P 500 was 6.03% lower (the worst December since 1931 for those two). The Russell 2000 fell 5.72% and the Wilshire 5000 closed the month 5.69% lower...

There was some good news in the quarter-to-date results – largely due to strong performances in October and November. The NASDAQ was 13.94% higher than its September 30 close, while the Dow was 9.87% higher, the S&P 500 was up 7.92%, the Wilshire 5000 rose 7.33% and the Russell 2000 was up 5.75%...

The Dow shed 16.76% in 2002, the worst performance since 1977 for the blue chip benchmark. Both the Dow and the S&P 500 (down 23.37% in 2002) suffered their first three-year declines since 1939-41, while the NASDAQ’s 31.53% loss for the year marked the first 3-year consecutive losing streak since the exchange's inception in 1971. The Russell 2000 shed 21.58%, and the Wilshire 5000 was 22.08% lower (the first time the index, which debuted in December 1970, has fallen for three straight years). MORE.

For the third year in a row, bonds rose and stocks fell – the first time that has happened since 1941, according to Reuters. Bonds have returned about 10%/year in the last three years, nearly double their historical average – and returned 10.26% in 2002, including interest and price changes, according to Lehman Brothers Inc.'s US Aggregate Bond Index. US Treasuries gained nearly 12% - and inflation-protected Treasuries gained 17%. MORE..

Equity REITs lost just 2.8% in 2002, once again outperforming the S&P 500 (which shed more than 23%), according to SNL Financial. MORE..

For those with an inclination toward so-called "social" investing, the FTSE4Good Global index ended December down 6.0%, bringing 2002 overall returns down 22.3% and the FTSE4Good US Index depressed 24.3%. Good performance from Asian/African FTSE4Good stocks allowed the Index to outperform its benchmark during December, although December overall ended lower. The best performing global sector in December was tobacco; the worst, information technology hardware. MORE.

SAVINGS ACCOUNTS – Trends and Insights into Participant Behaviors

Employees who are satisfied with their benefits program are approximately three times more likely to be satisfied with their jobs and feel loyalty toward their employer than are their peers. However, according to the latest release of MetLife’s Employee Benefits Trend Study, while 73% of employers surveyed said employers are loyal to their employees, only 41% of employees surveyed agree. Younger employees (age 21-30) are more likely to believe that their employers are loyal than are employees overall. MORE.

SIDE LINES: Note that while a strong majority of employers surveyed say they are loyal to workers, less than half the workers surveyed agreed. However, those workers may have different employers.

Seventy-nine percent of employees surveyed expressed concern about outliving their retirement savings, while 76% are worried about the need to work through retirement, according to the latest release of the MetLife Employee Benefits Trend Study. Two-thirds are either behind or have not started saving yet for their retirement. MORE.

SIDE LINES: One more indication that, at least when asked about the subject, workers are thinking about retirement – and know they are behind. The key is to keep the subject on their radar screen.

A recent study finds that participants who got an incentive for attending a plan information session were more likely to attend – as were their close associates, even though the associate received no incentive. And participation rates for those close associates, as well for their friends who received the incentive – were noticeably higher than for other participants. MORE..

SIDE LINES: Perhaps the most powerful proof statement of the value you bring to an employer is the level of participation in the retirement plan. This article highlights some ideas for how to leverage the involvement of co-workers to increase – and enhance overall participation rates.

PRODUCT SUITE – New Offerings in the Market

Fidelity has raised the minimum investment in IRAs at the firm – including Roth and rollover IRAs – to $2,500, matching the current minimum for Fidelity retail funds held in non-retirement accounts. However, the increase won’t impact small-business or self-employed retirement savings plans. MORE.

EXCHANGE ETF. The New York Stock Exchange will reintroduce its flagship NYSE Composite Index using a new methodology, and recalculated to a base value of 5,000. The changes, which will be reflected on January 9, will also be the basis for an exchange-traded fund (ETF) in the near future, according to the NYSE. MORE..

‘DIRECT CONNECT. Schoolhouse Capital, LLC, has signed an agreement with Harrisdirect to distribute The Education Plan, a 529 college savings program that allows families to save for future qualified higher education expenses on a tax-advantaged basis. MORE.

MUTUAL "ATTRACTIONS" – Tracking Mutual Fund Movements

The Managers Funds LLC has launched Managers Total Return Bond Fund, a new fund that will be sub-advised by Cambridge, Massachusetts-based Merganser Capital Management LP..

Fidelity Investments will retake responsibility for several of its mutual funds from Deutsche Bank AG’s passive asset management business. The $25.6 billion acquisition by Fidelity will significantly lower the amount of assets Northern Trust is acquiring from DeAM’s passive asset management business in a deal announced last September. MORE.

The US Treasury has recommended that mutual funds be required to report suspicious transactions (as banks and financial services firms do now) as part of new measures against money laundering put in place following the September 11 attacks. The Treasury also recommended that unregistered investment companies (such as hedge funds and real estate investment trusts, or REITs) establish customer identification and verification programs...

The average small-cap fund was hit by slumping equity markets in 2002, recording a loss of 16.96%, according to Lipper. Small-cap value stocks were down "just" 9.80% on average through December 26 – compared with small-cap growth stocks, which were down an average of 28.90% year-to-date. MORE..

Merrill Lynch Investment Managers (MLIM) has announced its Mercury mutual funds will be consolidated and rebranded under the banner of Merrill Lynch Funds. MORE.\

DOGS "GONE." The board of SunAmerica Equity Funds has approved the name change of the SunAmerica "Dogs of Wall Street" Fund to the Focused Dividend Strategy Portfolio, according to an SEC filing. The fund invests in large-capitalization, out-of-favor companies...

US money market mutual funds suffered their first annual net cash outflows since 1983, according to Reuters, citing data from iMoneyNet Inc. The report said the funds lost more than $9 billion of assets in 2002, ending seven straight years of inflows topping $100 billion a year...

‘STAR SHINES. Investment research firm Morningstar Inc has unveiled its Fund Managers of the Year for 2002 in three categories: domestic stock, international stock, and fixed income. MORE..

Strong has introduced the Strong Minnesota Tax-Free Fund, its first Minnesota-specific offering. Strong Portfolio Managers Duane McAllister and Chad Rach will co-manage the Fund – McAllister having joined Strong last year from the Aid Association for Lutherans where he managed a municipal bond fund. Rach co-manages the Strong Wisconsin Tax- Free Fund.

Assets in exchange-traded funds (ETF) edged up in November to $109.71 billion from October’s $100.73 billion on gains in equity indices. International equity ETF assets also increased, up $599 million to $5.25 billion, as four additional ETFs were added in November, bringing the total number of international equity indices to 39. MORE..

SIDE LINES: An exchange-traded fund looks like a mutual fund, but trades like a single stock. Like a mutual fund, an ETF is a basket of stocks, most typically reflecting a particular index (like the S&P 500 or Dow Jones Industrial), or - more recently - specific market or geographic sectors. ETFs are not mutual funds, though they are registered funds with the Securities and Exchange Commission under the 1940 Investment Company Act, nor are they "new," having been with us in some form or other for nearly 10 years. MORE.

PLAN DESIGNS – Ideas to Help Your Clients

ADVICE CONSENTS. While there is no specific requirement in ERISA that plans offer investment advice to participants who have the right to direct the investment of their accounts, under the general prudence standard of ERISA, it may be imprudent for a plan not to offer investment advice to the participants. Find out WHY.

SIDE LINES: Chances are, your involvement signals the willingness of an employer to embrace the concept of offering investment advice to participants – but the information in the above article can be useful in supporting that decision. You can find out more about the debate on investment advice HERE

DEFAULT LINES. Many plan sponsors select a money market account or stable-value fund as the default investment option (or default account) for non-participant-directed funds. In some instances, this choice is specified in an investment provider’s prototype plan document. However, fiduciaries can take little comfort from that. MORE.

SIDE LINES: Traditional wisdom said that in the absence of participant instructions, the best thing to do was to invest the money where it wouldn’t lose value. However, ERISA dictates prudence, not return – and this article highlights the reasons for a more thoughtful approach.

RULE BOOK – Rules and Regulations that affect Your Business

If your clients have been struggling to comply with the new minimum distribution rules for defined benefit plans, the IRS offered an early Christmas present last week, releasing two relief measures for defined benefit plans, postponing the date when those plans must be amended to comply with minimum distribution rules, and in a further reassuring note, indicating that forthcoming regulations will provide two transition rules for the plans. MORE.

The Internal Revenue Service also gave itself – and governmental (457) plans – a bit more time in determining how to apply nondiscrimination requirements to those plans. In Notice 2003-6 the IRS said it plans to issue regulations on the application of nondiscrimination requirements to certain governmental pension plans, and to provide in the regulations that those plans are deemed to satisfy applicable sections of the tax code until the first day of the first plan year beginning on or after they are issued. MORE.

SIDE LINES: The foregoing announcements from the IRS largely offer plans the latitude to continue to do things they way they have been for a bit longer. Note, however, that defined contribution programs were not given an extension on the minimum distribution rules.

Your defined contribution plan sponsor clients who are making choices about offering annuities as a distribution option should be aware of some new federal guidance from the Department of Labor’s Pension and Welfare Benefits Administration (PWBA) in Advisory Opinion 2002-14A. Costs can be considered – but lower costs alone will not be sufficient. MORE.

FLAT "TARRED?" National Commerce Financial Corp. (NCFC) and two of its subsidiaries have been accused of overcharging 2,300 participants in Corky’s Bar-B-Que’s employee benefits plans over the past four years, according to a release by The Commercial Appeal. The suit said the defendants proposed a flat fee structure with the understanding that overall fees would be reduced. However, after trustee signed the new agreement in 1998, they claimed it contained many hidden charges that put total plan fees above the level before the new agreement. MORE.

SIDE LINES: The foregoing case offers a sense of what seems likely to be an issue of growing importance in future years – a heightened scrutiny of not only the amount, but the type of fees paid by retirement plans. You can gain additional insights HERE

TID "BITS" – Items to Add Flavor to Your Presentations

TRIVIAL PURSUITS: On average men spend 51 minutes a day grooming themselves.

QUOTE NOTES: "Some people think football is a matter of life and death. I don't like that attitude. I can assure them it is much more serious than that." -- Bill Shankly

WONDER WHYS: Whatever happened to preparations A through G?

WAR STORIES: I was working for a consulting firm in the NYC metro area when we got a call from a plan sponsor for a benefit calculation. We did our standard "submit request and two weeks later you'll have your calculation"...only to learn later that the insistent plan participant....was in the client's office with a shotgun.


Just as a builder begins with a blueprint, plan design is an integral part of building a successful plan. The type of plan has a dramatic impact on the benefits received, and perceived by employees and by the employer as well.

To do so you need to know the age and type of employees your client employs, the financial and resource boundaries of your client, and the options available to you.

Why It Matters

Making changes to an existing plan can be an expensive and time-consuming proposition - the larger the changes, the harder it is. Once granted, some benefits cannot simply be "taken away" or modified at a whim.

The plan document that creates the plan, and outlines its conditions is a contract - and should be viewed accordingly. Contracts, of course, can be modified. But frequently the consent of both parties is required - and almost always the services of an attorney.

But – presenting the best option requires knowing what the options are. MORE