Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. ASSET OWNERS
November 14, 2011 12:00 AM

Congressional gridlock keeps DC industry off the legislative agenda

Robert Steyer
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    David Toerge
    Missing: James M. Delaplane said retirement issues are not a priority in the capital.

    Political and legislative gridlock in Washington means bad news for the economy but not-so-bad news for the defined contribution industry, keynote speakers told attendees at Pensions & Investments' West Coast Defined Contribution Conference in San Francisco held Oct. 30-Nov. 1.

    “What better way to give us all a fright than to talk about Washington,” said James M. Delaplane Jr., the Washington-based principal in government relations for Vanguard Group, who took the gridlock-is-good approach in his day-after-Halloween address.

    “Almost all of the focus in Washington will be on big-picture issues like the deficit and debt,” Mr. Delaplane said. Thanks to “significant partisan paralysis,” he predicted there would be “relatively little” legislative activity affecting the retirement industry until after the 2012 presidential election.

    Mr. Delaplane said the so-called supercommittee probably will not have much impact on the retirement industry. This is the committee of 12 U.S. senators and representatives trying to find ways to reduce the federal deficit. It is supposed to recommend cutting future deficits by at least $1.2 trillion over the next 10 years, and it faces a Nov. 23 deadline.

    Although Mr. Delaplane doubted the committee would go after tax incentives aiding the DC industry, he said it might recommend imposing higher premiums paid by defined benefit plans to the Pension Benefit Guaranty Corp.

    The supercommittee “won't make hard choices,” said Neel Kashkari, managing director and head of new investment initiatives at Pacific Investment Management Co. LLC, Newport Beach, Calif., who said congressional inaction — or weak action — will hurt the economy in the long run.

    He bemoaned the lack of cooperation among political parties in Congress, calling the recent debt-ceiling crisis an “embarrassment for our country.”

    One recent example of both parties coming together, he said, was when Democrats and Republicans “agreed to legislation that stabilized the economy.” The Troubled Asset Relief Program was signed into law by President George W. Bush in October 2008. Mr. Kashkari supervised TARP as assistant secretary of the treasury for financial stability.

    “The economy had a debt-induced heart attack” in 2008, said Mr. Kashkari, likening the economy to an obese patient who keeps putting on weight. In this analogy, extra debt equals extra weight. “We stabilized the patient,” said Mr. Kashkari, referring to TARP, “but the patient is still on the gurney and is still obese.”

    A major source of the financial obesity is entitlement spending — for Medicare and Social Security — that is expected to continue to grow at unsustainable rates, Mr. Kashkari said. He favors means testing for entitlements as one treatment for financial obesity, adding that both Democrats and Republicans find the concept objectionable for different reasons. Other possibilities are raising the retirement age or raising revenue by increasing taxes.

    Mr. Kashkari said he doesn't expect Congress to take much forceful action until after the 2012 presidential election — and even then he isn't sure how decisive Congress will be. Despite his concerns about Congress, Mr. Kashkari said he is “not bearish” on the U.S. “Every country has as many challenges — or more challenges,” he said.

    Still debated

    One retirement challenge still being hotly debated is the use of lifetime income options embedded in defined contribution plans. The topic popped up at several sessions as consultants and some executives of large DC plans expressed concerns.

    “We're not satisfied totally with what's in the marketplace,” said L. Wayne Adams, director of investment policy for AT&T Management Services LP, Dallas. “We continue to look at it.” AT&T has approximately $31.billion in defined contribution assets.

    Mr. Adams said he is concerned about the cost of a lifetime income option embedded in a 401(k) plan, an opinion shared by Gretchen Tai, chief investment officer of Hewlett-Packard Co., Palo Alto, Calif. Her company, which has about $14 billion in DC assets, reviewed lifetime income options a few years ago but found them “not economically beneficial,” she said.

    Consultant Jacob O'Shaughnessy from the Portland, Ore.-based investment advisory firm Arnerich Massena Inc., noted that companies froze their defined benefit plans partly to reduce long-term liabilities. Adding a lifetime income option such as an annuity embedded within a 401(k) will increase long-term liabilities, he said.

    Pamela Hess, director of retirement research at Aon Hewitt, Lincolnshire, Ill., said she continues to hear from sponsors that they are afraid of liabilities and that they want more guidance from the Department of Labor.

    But Chip Castille, whose company has a lifetime income option product, said the cost of waiting is greater than the cost of acting. As for sponsors' worrying about such products, “we heard the same concerns when target-date funds came out,” said Mr. Castille, managing director and head of BlackRock Inc.'s U.S. and Canadian defined contribution business.

    Although lifetime income options haven't made big inroads in large DC plans, some large plans are taking other — sometimes dramatic — steps to innovate.

    Consultant Philip Edwards cited an example of a client with a $3 billion asset plan that didn't appear to need much improvement because it already had a 90% participation rate. Still, the client, which he declined to name, initiated a significant investment lineup change this year, said Mr. Edwards, a principal with Curcio Webb LLC, Pennington, N.J.

    Originally, the plan had 41 investment options with three options accounting for more than half of the plan assets and with target-risk funds representing less than 10% of assets. The plan trimmed its lineup to a customized target-date fund, seven core options, a company-stock option and a self-directed brokerage window.

    Executives of plans that have initiated investment lineup reorganizations in recent years identified brokerage windows as a way to allow some investors a wider variety of choices while at the same time simplifying the choices for the vast majority of participants.

    Several speakers warned that despite the current slow-growth, low-interest rate environment, plan executives must beware of inflation and must use multiple investment weapons to cope with it.

    Treasury inflation-protected securities alone “won't save you from inflation,” said Rick Wurster, vice president and asset allocation portfolio manager for Wellington Management Co. LLP, Boston. He said commodities and inflation-sensitive equities, such as precious metals and mining stocks, should be part of the equation.

    Despite the concerns about inflation, or congressional inaction or participant inertia, there should be cause for optimism, said Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, Washington. Offering several slides of data on savings rates and behavior, Mr. Salisbury told the audience: “Employment-based programs make the difference.”

    Related Articles
    More plans offering self-directed brokerage accounts as an option
    The fee's the thing at P&I's defined contribution conference
    United Technologies' DC plans to add lifetime income option
    PIMCO exec's son captures market's ups and downs
    CalSTRS CEO wins Lillywhite Award
    MIA in stimulus debate
    ICI survey: Hands off DC tax advantages
    Ariel execs bundle $1.5 million for Obama campaign
    Putnam's Reynolds aims to put retirement security on election agenda
    Recommended for You
    FTX_Screen_i.jpg
    FTX bankruptcy ensnares Kraft, Och and other family offices
    ONLINE_180419851_AR_0_SWJHUISTXOVN.jpg
    Northern Trust plan universe returns -4.2% in Q3
    holmgren_david_2013_wide-main_i.jpg
    More questions than answers in Hartford OCIO move
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    Are Factors a Thing of the Past?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing